08
Mar

Wrap – Week Ended 03/07/08

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Every weekend I post a weekly wrap with a few of the important goings on in the energy markets. The rest of the week subscribers have access to five week day posts plus a natural gas storage wrap on Thursday nights (this week's topic was a look at U.S. natural gas supply dynamics). In addition, news items often spawn additional, company specific posts (last week saw posts on EOG and SWN). Subscribers also receive my trades in emails (ZBLASTS) as they happen. And lastly, but definitely not least in importance, there's the best part about the site, the community, whose members bring a wealth of knowledge from a wide range of fields to bear on the investment process. I'm constantly learning new things from the community. Hey, if Saudi Aramco is a reader, shouldn't you be? So why get only a needle worth of knowledge when the haystack costs so little? There are even ways to earn a free ride. Click here to see our new, improved and guaranteed to be painless How To Subscribe page or click the link of the same name at left. 

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1) Oil and the 12 month oil strip chalked up more record highs.

  • OPEC Held Production Quotas Steady. Despite their better judgment, the Cartel maintained production at 29.67 mm bopd in the face of declining near term demand. Two weeks ago everyone thought they would be curtailing production...if they had we'd be at $115, not $105. OPEC reiterated their position that "its the speculators stupid" and not a question of inadequate supply that has driven oil to its current all time record levels. Click here to read my notes from the conference.
  • Venezuela Invented A Flap with Columbia. Hugo Chavez, like a kid who doesn't get the difference between good attention and bad attention, took issue with Columbia this week after the killing of a rebel leader in Ecuador. It turns out the rebel group FARC has been a long time supporter of Hugo and he in turn of them. FARC is a hostage taking, drug smuggling, communist enabling bunch of thugs labeled terrorists by the U.S. and E.U. ... so it should be no surprise they are Hugo's kind of guys. Columbia took out the second in command at FARC, this time within their own borders, on Friday.
  • Nigeria Watch: Rumblings that more attacks are on the way and Nigeria levels 14 charges against MEND leader Henry Okah, some of which (treason) carry the death penalty.

2) Natural Gas Rig Count Jumped by 38 Rigs This Week. Many recent converts to natural gas bullishness have cited the flattening of the natural gas directed rig count over the last year. In fact, despite a large jump in the past week, gas directed rigs are still 9 rigs short of year ago levels (see the first and second graphs below). The bulls say that if this continues, flush production from the resource plays (primarily shales) that have driven this growth will fall off allowing storage to do the same or at least refill at a slow rate. Here's where they are either wrong or in some case deliberately omitting a simple fact. Large and small cap E&P's participating in these plays are finding increased efficiencies and better initial production from going horizontal. The number of rigs drilling horizontal in the Lower 48 has never been higher (see the third and fourth graphs below). Moreover, an increasing number of wells are being drilled with dual or multiple laterals and in general lateral lengths are increasing. While this has been found to be efficient from both an economic and a resource recovery potential perspective it does take longer to accomplish, hence the flattening of the gas directed rig count.    

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By the way, natural gas shorts crept up to another record for the week but were outpaced by the late comers, jumping onto the natural gas bandwagon. I feel we're closer to a top than many of the new entrants realize as supply is currently running well ahead of demand on a seasonally adjusted basis. See the Thursday night post here for an updated natural gas supply discussion.

3) Dry Bulk Rates Continue To Recover...

dry-bulk-rates-030708.jpgclick to expand chart.

... But The Stocks Continue To Languish. Despite rising rates and recent higher priced charter signings, the dry bulk group under-performed even the broad markets last week. Something has gotta give here. More on that in Monday's post.

 

Stocks Written Up On ZEB This Week Watch:

(BZP) - Click here to see the first in a series of reviews/reports on this Houston based Peru-centric E&P

HEMI - Check back on Sunday.

EVEP - ditto.

February Performance:

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