01
Apr

Tuesday Morning – Helloooo 2Q08!

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April Fool Watch: Executives from five of the Majors will testify before the congressional Select Committee on Energy Independence and Global Warming (don't they know its called Climate Change now?). The committee plans to grill them over high gasoline prices and record profits (two things they, as price takers have almost no control over). The committee wants to bring about energy independence by punishing "Big Oil" ... hmmmm, I wish the meeting were an April Fool's day joke but at least it falls on the appropriate day of the year. Why not punish Detroit for making inefficient cars, cars that have seen little improvement in gas mileage since at least 1985. Don't believe me? Check out the EPA fuel economy website for a 4WD Chevy Suburban; 1985 MPG 20 Highway, 2008 MPG: 19 Highway. The U.S. auto industry is going backwards meanwhile "Big Oil" has gone from drilling in less than 1,000' of water to depths approaching 10,000' in an effort to feed that Burban's giant gas tank. So who's the slacker in the supply vs consumption equation here?  Not the energy companies.

By the way, the House passed a wind and solar billand I'd expect the Solars to continue to strengthen into summer, especially with oil likely to remain at elevated levels for the foreseeable future. I'd also expect some of the "green ETF's", which have been languishing, to start to perform better (just taking a look at the contents of PBW, PUW, PZD, GEX, and QCLN).

At Last That Ugly Punk, 1Q08, Is Put To Bed. Here are some headlines from the press regarding the first quarter:

  • The quarterly performance was the worst since the July-September period of 2002,
  • 13th worst 1Q in 112 year history of the Dow Jones Industrial Average, and my personal favorite
  • Stock's first quarter a real downer.

Certain sectors got slammed during 1Q08

  • Banks down 10%,
  • Big pharma down 13%,
  • Housing, ok, not really slammed, down 1% (but important because this started it all),
  • The XOI (Amex Oil Index) down 14%. Whoa, backup. The S&P and Dow were down less. So were those banks and that safety healthcare sector. But oil was up on the period. Oh yea, over 90% of the companies making up the index contain refining subs. Refiners, the sector we continue to avoid like the plague (read on).
  • Even oil service fell on hard times, falling 6% as measured by the OIH (we've been fairly light on exposure here too but I'm starting to warm to it).

So what worked? Gassy stocks. The XNG (Amex Natural Gas Index) was up 5% during the quarter and many of the stalwarts we've been in and out of routinely for months did much better than that pipeline laden index (CHK, APC, HK, SWN, EOG, NFX etc).  

Here's a look at the quarter just for reference:

wrap-1q08.jpg

Meanwhile, E&P and especially gassy E&P has outperformed of late it has not become expensive. More on this in tomorrow's post ...

Commodity Watch:

  • Crude Oil tumbled $4.04 to $101.58 as the dollar put on a modest rally and Nigerian unions took the threat of a strike off the table (again). This morning crude is trading off to test $100.
  • Early Read on Wednesday's Crude Inventory Report (from the Bloomberg survey):
  • Crude: up 2.25 million barrels. I've been expecting a build, potentially bigger than this one, since I last week's numbers came out and the import levels were unseasonably low due to rough seas in the Gulf of Mexico. 
  • 1Q WTI Average: $97.34.
  • 1Q Street Estimate: $88.60. This will be a big quarter for marking to market (the process by which E&P and Majors analysts adjust their models to reflect actual prices received during a period).
  • Strip Prices:
    • 12 Month: $102.15.
    • 24 Month: $100.13.
  • Street Estimates for Oil Prices:
    • 2008: $83.80 (we'd have to average about $79 per barrel for the rest of the year to get there).
    • 2009: $79.69.
  • Better Off Red Watch. From Apache ~ Chinese crude imports in February rose 18 percent to 3.61 million barrels per day (MMBpd). Much of the increase came from Venezuelan imports that were originally slated for ExxonMobil.
  • Goldman Sacks Oil Watch: Goldman issued a report yesterday saying near term oil prices will "fall to the low $90's" due to weak U.S. markets. Oil sold off as soon as Goldman's report became widely disseminated.
  • Natural Gas rallied $0.30 to close at $10.10 yesterday. NG was up 33% for the first quarter while inventories are in line with the five year average (but off sharply from last year's bloated levels) and production is running a whopping 8% (4.1 Bcfgpd) higher YoY. Some call the EIA's production numbers into question but my experience is that over time they are fairly accurate and are likely, if anything, to be revised, especially the offshore volumes of the Federal waters. This morning natural gas is trading off $0.10 to $0.15.
  • Imports: down 2.1 Bcfgpd relative to year ago levels law week.
    • LNG remained moored at 0.6 Bcfgpd last week, now down 2.2 Bcfgpd from year ago levels.
    • Canadian imports came in at 8.3 Bcfgpd, pretty much flat with last year's levels.

Holdings Watch: 

CALLS:

  • HK - May $20 Calls (HKED) added for $1.45.
  • NBR - April $35 Calls (NBRDG) added for $0.65.
  • NBR - April $35 Calls (NBR DG) ... I doubled down later in the day for $0.50.

PUTS: No trades.

Refining Watch: Crack Kills. At least poor crack spreads have slaughtered the refining sector. Though crack spreads are showing some seasonal signs of life the storage overhang in gasoline prevents me from getting too exited here. The stocks still look exceedingly cheap but estimates continue to fall on a daily basis and group analysts appear rightfully gunshy.

crack-spread-032808.jpg

 

Odds & Ends

Analyst Watch: FBR reigning in price targets on market perform rated (MUR), (OXY), (MRO); they also upgraded (HES) to outperform which runs contrary to many recent analyst moves here where sentiment has darkened over the firm's E&P segment. 

 

72 Responses to “Tuesday Morning – Helloooo 2Q08!”

  1. 1
    Sambone Says:

    7:54 am EST

    Crude Mixed After Falls Spark Uncertainty

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil prices fluctuated in London trade Tuesday, swayed by slight strengthening in the U.S. dollar and news of a Nigerian pipeline fire.

    But market participants were reportedly cautious after Monday’s steep selloff, and uncertainty over whether crude prices will continue to descend left many hesitant Tuesday.

    “I think people will be very cautious. The general expectation is after a fall like (Monday’s), you would expect it to fall further — but in recent weeks we’ve seen massive moves to the downside followed by equally large moves to the upside,” said Tony Machacek, energy broker at Bache Commodities in London.

    At 1115 GMT, the front-month May Brent contract on London’s ICE futures exchange was up 23 cents at $100.53 a barrel.

    The front-month May light, sweet, crude contract on the New York Mercantile Exchange was trading 40 cents lower at $101.18 a barrel.

    The ICE’s gasoil contract for April delivery was down $34.50 at $934.50 a metric ton, while Nymex gasoline for May delivery was down 111 points at 261.60 cents a gallon.

    Crude prices rose higher on news from Royal Dutch Shell PLC Tuesday that a fire is burning on a section of its Trans-Niger pipeline in Nigeria, but production capacity and exports are unaffected.

    Oil traders remained skeptical over whether output would be unaffected however.

    “(Price reaction) depends on if (the fire) is really not affecting output or exports…we’ll see,” a trader of West African crude said.

    Following Monday’s steep falls, some suggested that declining oil demand linked to a slowdown in the U.S. economy could be adding to downwards pressure on crude prices.

    “Prices over the coming months should also fall as more attention is made of the deteriorating demand conditions,” said analysts at ANZ in Melbourne, Australia.

    “Partly this will be seasonal, but only brave investors will be tempted not to take profit when oil is near record levels and the U.S. consumer — the world’s largest oil user — is on the verge of falling into recession,” they added, and suggested a test below $100 a barrel this week “cannot be ruled out”.

    Meanwhile some analysts said that traders will be eyeing the U.S. microeconomic data out this week less for implications for crude oil demand but more for reaction in the U.S. dollar, any further weakness in which could provide more support for crude prices. The decline in the dollar has been cited as a significant contributor to record crude prices.

    Data from the U.S.’s Institute for Supply Management manufacturing survey is due at 1400 GMT Tuesday, while attention is also centered on Federal Reserve Chairman Ben Bernanke’s testimony to the Joint Economic Committee scheduled for Wednesday and non-farms payroll and unemployment data due Friday.

    “$100 a barrel sticks out as the main support line which has held so far with the support of a weaker dollar,” said Olivier Jakob of Swiss consultancy Petromatrix. “Failing a dollar support we would not give a strong credit rating for oil to manage to hold the $100 a barrel line on its own. The Dollar-To-Oil trade can only go as far as the breaking point of demand destruction.”

    An update on the U.S. appetite for crude oil and products is due Wednesday with the publication of weekly Department of Energy inventory data.

    According to the average of a preliminary poll of analysts’ forecasts conducted by Dow Jones, crude oil stocks built by 2.1 million barrels last week, while gasoline and distillate inventories are both expected to have fallen, down 2.2 million and 1.5 million barrels respectively.

    —By Nick Heath; Dow Jones Newswires

  2. 2
    reefguy Says:

    z- Haynesville Shale. At the Mitchell Tribute dinner last night I had three independent confirmations that this is really Bossier Shale. The operators have filed in La for regulatory as the Haynesville Shale. When wells are drilled to the objective in Texas(like maybe next week) they will be called Bossier.

  3. 3
    kaman Says:

    Z- Your rant on the energy co.s vs Big Auto hit a little close to home. In fact, engine fuel efficiency has increased rather significantly since the mid-80’s…the trouble is we’ve squandered those gains by wanting bigger and heavier autos (SUV’s is more like it), and with higher performance. Nobody to blame for that than the guy in the mirror. Cheers all, K

  4. 4
    zman Says:

    Reef – hear ya Haynesville is actually Bossier. Check out the comments last night from JR on rate there…Monster.

    K – How much would you say actually MPG is up…if the engine is better that’s fine but if we aren’t translating that to MPG improvements what’s the point? I was just saying that the energy companies have made a quantum leap forward in find oil in places once thought impossible. When I look at the mileage on cars today versus 20 years ago I don’t see the same kind of leap at all. Also, ya know ethanol gives you reduced MPG vs gasoline or gasoline with MTBE in it. Once again, your tax dollars at work.

  5. 5
    Sambone Says:

    9:32 am EST

    Nymex Crude Falls Below $100 On Stronger Dollar

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    HOUSTON — Crude oil futures traded below $100 a barrel for the first time in a week Tuesday, as the dollar strengthened against the euro.

    Light, sweet crude for May delivery traded $1.47 lower, or 1.5%, at $100.11 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 75 cents lower at $99.55.

    Futures gradually dropped early Tuesday morning, tracking the movement of the dollar. Those gains accelerated at about 8:45 a.m. EDT, prompting oil prices to move below $100 a barrel for the first time since March 25. Investors have used commodities as a hedge against the weakening dollar, which is seen causing inflation.

    “Perhaps there is a reassessment among the largest financial players as to what direction the overall commodities markets are heading,” said Nauman Barakat, senior vice president at Macquarie Futures USA in New York. “(They think) the upper end has been tested, it’s not going to be broken, perhaps the way to go is now to sell.”

    The euro recently traded at $1.5621, off from an intraday high of $1.5897 on Monday. Barakat noted that the dollar has tried and failed to top $1.59 several times, mirroring oil’s own inability to surpass the all-time highs set in March.

    A pipeline fire in Nigeria prompted a small rally overnight, but was set aside as the dollar continued to strengthen and Royal Dutch Shell PLC (RDSB.LN) said the incident was not affecting exports.

    The U.S. Department of Energy is expected to release oil and product inventory data on Wednesday, with a Dow Jones Newswires survey of analysts finding an average prediction of a 2.1 million barrel build in crude stocks for the week ending March 28. The crude builds, a product of low refinery utilization, has resurrected fears that the slowing U.S. economy could diminish oil demand. Analysts also predict a 2.2 million barrel draw in gasoline inventories and a 1.5 million barrel draw in distillate stocks, which include diesel and heating oil.

    The U.S. Institute for Supply Management is scheduled to release the results from its manufacturing survey at 10 a.m. EDT, seen by watchers of both the dollar and oil as a pivotal data point for the health of the economy.

    “Weak demand in the U.S. is one of the primary reasons that the fundamentals may be on the verge of taking center stage as the primary driver of prices,” wrote Addison Armstrong, an analyst with TFS Energy Futures in Stamford, Conn.

    Front-month May reformulated gasoline blendstock, or RBOB, recently traded down 1.68 cents, or 0.6%, at $2.6103 a gallon. May heating oil traded 3.21 cents lower at $2.8740 a gallon, down 1.1%.

    —By Brian Baskin, Dow Jones Newswires

  6. 6
    kaman Says:

    We’re in violent agreement. No argument on the progressive bent of the E&P’s.

    Let me see if this link will post:
    http://www.epa.gov/oms/cert/mpg/fetrends/420s07001.htm

    Draw your attention to highlight #3.

    My point was the American consumer is the culprit…and I’m guilty as charged.

    The trends are turning, but we’ve dug a deep hole. DOE projections are that the fuel economy benefits of hybrids, lighter weight materials, and perhaps even hydrogen fuel cells will only slow the rate of growth in our foreign oil consumption up thru 2025. After that, we start making headway to wean ourselves off. personally, I think ethanol is a short-term bandaid that’ll get us moving towards a better endgame.

  7. 7
    zman Says:

    K – ok, I see a slight, slight improvement in the last 3 years but Dingle from Michigan should be telling them the way to improve fleet fuel efficiency is by not producing certain parts of the fleet. Also, on imports below a certain MPG bar, tax the living daylights out of them a la “protectionism in the name of polar bears”

  8. 8
    Sambone Says:

    So UBS announces another massive writedown and sacks the boss. Lehman tries to raise another 3 billion. Hence, UBS stock soars and gold plunges.

    I’m completely lost.

  9. 9
    scoop006 Says:

    SAM, I’m right behind you. Buying Citi(C)puts

  10. 10
    Dman Says:

    Sam, isn’t it just the flipside of “selling the news”?

  11. 11
    sane Says:

    Re 7

    I believe it is a multi facetted issue. The consumer is to blame for buying these gas guzzlers. The automakers are to blame for not striving to provide more efficient cars. The government is to blame for not promoting by taxation or incentive.

    I have seen many-o Americans touting about oil independence while rambling down the street in their F-250 super duty that gets 9mpg. The auto makers, especially American ones, whine and cry bout having to increase fuel efficiency rather than set an example an be a leader. Corporate America would rather pass the buck to the consumer in fuel charges, rather than be more efficient. And the government continues to bicker and squabble, run their mouth, and line their pocket books rather than do anything about it.

    I have seen many-o Americans touting about oil independence while rambiling down

  12. 12
    zman Says:

    Sam – yes, people are back to the sell energy because it has done so well, buy beaten up financials because you could not possible understand their balance sheets mantra.

    Oil has crept back over $100, NG still below $10.

    energy sectors still uniformly red but not falling much now. Solars having a green day.

    IOC has to figure out what to do with its revolved by May 3, just like last year this time they are making huge promises and running short of cash.

  13. 13
    kaman Says:

    Dead on, Sane.

  14. 14
    zman Says:

    Chart opinions NG … too early to call that a double top?

    http://charts3.barchart.com/chart.asp?sym=NGK8&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

  15. 15
    zman Says:

    OPEC considering adjusting production levels at April 20th Rome meeting.

    http://www.rigzone.com/news/article.asp?a_id=59257

    They didn’t cut production at the last meeting although certainly thought there was too much oil on the market for current demand levels. I think we will see more talk of a cut at the meeting in the next few days, especially if oil makes a stab into the mid $90s.

  16. 16
    scoop006 Says:

    Z Drillers negative today except ATN which Cramer featured last night

  17. 17
    Dman Says:

    Z, setting the chart in 14 next to your HDD chart from yesterday, the only surprise is that the second spike up managed to almost equal the 1st. I probably need to pay more attention, but I can’t actually recall what prompted the 2nd spike. It’s not like the draws were huge… was it just following crude?

  18. 18
    zman Says:

    Scoop – yeah, he needs to do a better job of differentiating “driller” from “e&p”. ATN is a producer, an operator, an owner of assets. When a guy says land driller, that’s generally thought of as a rig company. Oh well, still like the idea although I’m getting pantsed there today along with everything else energy for the moment.

  19. 19
    Denise Says:

    Good morning
    My voodoo man says game on for up too 10% rally in April (he has been early and right)
    Sam-Cramer and others are saying Lehman was very good in placing there paper with buyers that will hold the paper-ie look the common is green.
    I am buying some financials-GS,Amg

    It also seems that these new margin rules are causing some commodities selloff/rotation
    Has anyone read Breise’s recent book?

    I thought the Baron’s piece response by Steve Briese countering Jim Rodgers view that we are in the 4th inning of the commodity bull run
    “Maybe, but can’t the game be called for a year or two, on account of rain?”
    was food for thought

  20. 20
    zman Says:

    Dman – the draws were in line with consensus. Crude and other commodities are part of it. Also, that upping of the margin requirement at the NYMEX for nat gas trades had the opposite impact I was thinking of but now that makes some sense. Shorts outweighed longs more than 2 to 1 at the time it was implemented last week so it would be reasonable to see margin requirement induced short covering exceeding long margin selling. So a quick squeeze.

  21. 21
    Dave J Says:

    CHK has announced what they are doing with the Pier 1 Building.

    “The Downtown building will be renamed to reflect the new owner’s name, but the moniker has yet to be picked, according to Julie H. Wilson, vice president of corporate development for the Oklahoma City-based Chesapeake. “However, we will maintain a sensitivity to our tenants and friends at Pier 1 and make sure they continue to have the recognition they deserve as well,” she adds. Chesapeake’s Barnett Shale district headquarters will occupy floors 14 through 20 and Pier 1 will hold onto 250,000 sf in a seven-year sale-leaseback agreement.

    Wilson tells GlobeSt.com that 300 to 400 employees will move into the offices in late summer. She says a new finish-out is planned for the penthouse floor, with some retooling on the other floors as well. Chesapeake currently has 115 workers in DR Horton Tower at 301 Commerce St. and others in field offices in Cleburne, Joshua, East Tarrant County and Dallas/Fort Worth International Airport. She says the four field offices will remain, but some employees will be shifted to the CBD building as will some landsmen and rights-of-way agents. “We don’t have the plans firmed up yet,” she says.”

    http://www.globest.com/news/1126_1126/dallas/169523-1.html

  22. 22
    zman Says:

    Morning Denise – I think the first broad market sell off day of the 2Q will be a very interesting, “what the? wait a minute, we can’t be going lower again” …then we’ll see if commodities are dead.

    Agreed re the margins (see #20).

  23. 23
    Denise Says:

    Z-so wouldn’t it be time to buy puts when ung is being squeezed up?

  24. 24
    zman Says:

    Thanks DJ

    Denise – already there but was early. Waiting for it to test yesterday’s high to add more or I’ll just hold what I have, the April $45s.

  25. 25
    Denise Says:

    re :Chk a very bad sign-could be the new/old curse of the “sports stadium name top”

  26. 26
    zman Says:

    Denise – this time its different. Lol. News was out yesterday and the stock could have cared less…don’t see hubris becoming endemic to CHK here…just need more space for shale ops and Aubrey has always had an eye for real estate and architecture as the Appalachia hq shows. In the case of Fort Worth, the buy was at the behest of local officials who wanted CHK to show its commitment to the region noticeably beyond noisy drilling rigs.

  27. 27
    Denise Says:

    Must read for the day!
    http://bigpicture.typepad.com/comments/2008/04/internet-hoax-g.html

  28. 28
    Denise Says:

    Z-I just couldn’t resist taking that shot-knew it would get a response from you
    although I have heard that “this time it’s different somewhere before”-

  29. 29
    zman Says:

    Denise – nope, sorry, that phrase is a site original.

    You doing anything in the Ags these days. I’ve been tempted by the MOO. Not sure how yesterday’s crop report (less corn planted, more wheat and beans) affects the components for sure but would think that it would be good for the seed co’s and maybe bad for the nitrogen cos (fertilizers).

  30. 30
    uop Says:

    Z:

    is NG going to need more time into May to drop?

    Oilprice, weatherforecast, ???

  31. 31
    Denise Says:

    My wiz T/A lady says buyer beware-this was really her quote today “Iowa corn does not grow to the sky” (referring to all the charts in the space)

  32. 32
    Sambone Says:

    D – I’ll let this “Bear market rally” ride a bit on the financials and then go long again on SKF. This toxic paper party aint over yet. Anybody wanna buy some ARS’s?

  33. 33
    zman Says:

    uop – maybe but weather is warming, should see last pull this week.

  34. 34
    Denise Says:

    Z- on UNG-I would imagine a good sign to buy puts when it goes off the shares restricted list-will watch for change

  35. 35
    Denise Says:

    Anyone notice the oil tankers charts lately?

  36. 36
    zman Says:

    Denise – re Tankers …they and their rates have looked like death so I’ve been happy to be away. I check on them once a week when I do the wrap. See they are up today, don’t know why that would be except that they have been down.

  37. 37
    zman Says:

    Oil green

  38. 38
    zman Says:

    NBR – don’t call it a combe back but we’re tripping up through $34.

    CHK on the positive along with half of the bigger E&Ps

    Oil up $0.30 to 102

    NG still below $10

  39. 39
    zman Says:

    Dman’s OII breaking out.

  40. 40
    Denise Says:

    Mr K raining on the parade-
    moves market ratings to 4-3

  41. 41
    Dman Says:

    Z – since you mention it, I think Cramer often says “drillers” for everything from APA to RIG & NBR. Also suspect pride now prevents him from getting behind NBR. Same thing happened with CHK (but it didn’t burn him as much as it just didn’t move).

  42. 42
    zman Says:

    Dman – true, true.

    1Q EPS release dates already rolling out. Look for the earnings calendar next Monday.

  43. 43
    zman Says:

    “What me worry” sentiment in full swing in the broad market.

    HK down $0.30 and I have a boatload but if I did not I’d add here. That’s as close to … as you’ll see me write. It is down because it was down early and the little guys are often slow to catch back up to the group. If the rate discussions last night for the Haynesville/ Bossier are uniform across the play (that’s a big if as it could have sweet and sour spots like the Fayetteville) then the HK will likely get dragged higher as more proof of the numbers comes out … plus they have those 2 and maybe a third horizontal conventional shallower zone wells with news soon.

  44. 44
    Sambone Says:

    Good article on “Commodities”. Worth a read.

    http://online.barrons.com/article/SB120674485506173053.html?mod=9_0002_b_this_weeks_magazine_home_top

  45. 45
    Sambone Says:

    Weak US Oil Demand Leads Wary Mkt Into April

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — The year-on-year drop in U.S. oil demand in January of 445,000 barrels a day exceeds the expected 2008 demand increase in China, the engine of global oil-demand growth.

    While analysts aren’t painting dire predictions for global oil demand growth based on figures for the first month of the year, they’re closely watching the situation in the U.S., the world’s largest oil consumer.

    Oil prices surged above $100 a barrel for the first time in January, when demand fell 2.2% from a year ago, to 20.114 million barrels a day — the lowest level for any month since April 2005.

    Since that decline, which many pin on high prices, crude oil futures have climbed higher, averaging in the last two months 8% above the January average.

    Heating oil futures prices, a proxy for diesel fuel, were up by an average of 10.5% in February and March compared with January. Gasoline futures prices were 7.8% above the January average in February and March.

    Retail gasoline prices nationwide now stand at a record $3.29 a gallon, 21.5% above a year ago and retail diesel prices are near record levels above $4 a gallon.

    Demand for gasoline, the most widely used petroleum product, slumped 0.9% in January to 8.814 million barrels a day — a three-year low, according to revised data from the federal Energy Information Administration. That followed a similar-size decline in December.

    Drivers’ thirst for gasoline in January proved to be 2.2% lower than indicated by preliminary EIA data, and total demand was off 574,000 barrels a day from the earlier estimate, which is based on weekly reports.

    EIA analyst Neil Gamson said while gasoline demand usually proves resilient to price moves, it’s vulnerable “especially during periods of slow, stagnant, or declining economic growth.”

    Still U.S. oil demand in January lagged forecasts calling for significant growth, as well as year-to-year levels.

    Since the January data were first reported early Friday, crude oil prices fell $6 a barrel, or 4.1%, in a nervous market fixated on U.S. demand signals and economic signals.

    March heating oil futures fell from a record high of $3.1483 a gallon Thursday by nearly 10c, or 3.1%, prior to expiration Monday. April gasoline futures expired 10c lower on the day Monday, with inventories of the fuel near 15-year highs, a further worry heaped atop weak demand.

    EIA’s projection called for January U.S. demand to be near flat with year-ago levels, but it came in 2.2% lower and 2.8% below earlier indications.

    Demand for distillate fuel (heating oil/diesel) lagged a year ago by 1.4%, while residual fuel use was down 10.8% from a year ago in January. Consumption of both products can be heavily influenced by weather-related demand. But EIA data show heating oil degree days, a measure of heating fuel consumption, rose 3.2% in the Northeast U.S., the world’s largest heating oil market.

    “The more closely we look at the data, the more bearish it becomes,” said Tim Evans, an analyst with Citigroup in New York. “U.S. petroleum demand is falling short of forecast levels on a pretty consistent basis, and the year-on-year drop is fully consistent with a wider U.S. economic recession.”

    U.S. January oil demand figures came in nearly 4% below the level estimated by the Paris-based International Energy Agency, the watchdog for the major industrialized countries in the Organization for Economic Cooperation and Development.

    IEA, which extrapolates the data to try to determine what final revised figures will ultimately be, projected demand would be about 825,000 barrels a day higher than reported, at near 21 million barrels a day.

    The size of the demand drop in the U.S. in January exceeds the level of oil demand growth which IEA projects for China, the world’s second-largest oil consumer. IEA in its March 11 report projected oil demand in China will rise by 421,000 barrels a day in 2008 to near 8 million barrels a day.

    Eduardo Lopez, an IEA demand analyst, said it’s far too early to view U.S. demand as potentially erasing expected gains in Chinese oil demand, an occurrence that would weigh heavily on expected global growth of around 1.8 million barrels a day this year, to 87.5 million barrels a day.

    Instead, he sees U.S. transportation fuel as relatively strong in the current economy.

    “Despite dire predictions of oil demand destruction in the U.S. because of the ongoing economic woes, the data would suggest that U.S. transportation demand — allegedly very sensitive to economic conditions — is holding its ground.

    “In other words, the figures seem to confirm the somewhat contrarian hypothesis that U.S. demand is largely inelastic,” he said noting “stagnant” to “barely contracted” demand in recent months, such as the 0.9% drop in January.

    Demand declines in the U.S. shouldn’t be taken too lightly, he said, given the size of the U.S. appetite for oil. “But at this point, it looks that it would take a really huge recession to curb it dramatically,” he said.

    Lopez is reviewing demand figures for the next widely watched IEA monthly oil report, due April 11.

    Serious concern over U.S. oil demand leads the market into April, where historical trading patterns point to higher prices beyond the records set in March.

    Front-month crude oil futures prices in April have gained from their March average in six of the past 10 years and in 17 of 24 years. Average crude prices in April have twice been the highest of the year, but not since 1995.

    Gasoline futures prices have gained in April in four of the past five years, with the peak driving season ahead. In four years, April showed the highest average prices, the last time in 1996.

    Heating oil futures have gained in seven of the past 10 years. They’ve never posted a monthly high average for any year in April, but did post a yearly low, in April 2000.

    —By David Bird, Dow Jones Newswires

  46. 46
    Dman Says:

    NOV, CLB gettin’ jiggy. OII trying its best.

    Ram, hope you got some NOV the other day.

    Z – On the topic of OII, after our last chat about it I listened to the earnings conference call & looked into the valuation vs growth rate. As I understood it (make of that what you will) the overall growth rate management were prediciting was 15% revenue growth, which was a bit less than I’d thought. This was due, as you said, to the opposing trends of deepwater ROV versus declining hurricane-related work. At 20 X EPS it seems to me not hugely expensive but hardly cheap. So I partly hedged my OII with some overhead short calls. Given the “somwehere in the middle” valuation, I expect it can easily get caught up in various sentiment shifts, crosscurrents etc. Also, unlike NOV & CLB, it’s obviously hard to see OII benefiting from the onshore gas trend . But I still like them (!) as a nice, volatile stock (I mean that in a good way, lol) with a great long term uptrend. I still get the sense that there is too much skepticism out there of the long-term deepwater trend, so management may have some upside surprises in store.

  47. 47
    ram Says:

    Yes, thank you.

  48. 48
    zman Says:

    Dman – I could not have and have not stated the third paragraph in #46 as well as you just did.

  49. 49
    zman Says:

    Sam – thanks for that post…will check out his website.

  50. 50
    Dman Says:

    Z – I must be learnin’ somethin’ then.

    CHK trying to do the right thing.

    Just saw a correction on DJs:
    “Chesapeake Energy Nos In Millions, Not Billions”

    Yeah, it helps not to be out by a factor of 1000 🙂

  51. 51
    zman Says:

    …and they were talking about billions of barrels of oil…thought they’d solved the energy crisis single-handedly…damn.

  52. 52
    zman Says:

    MEND declines peace conference with Nigerian government. Demanding release of leader Henry Okah before any meeting.

    2 fires on Nigerian pipelines still burning, cause unknown but but Bloomberg saying they are in the same area sabotaged last year.

    Sounds like the delta is heating up on schedule.

  53. 53
    ram Says:

    It seems the person handling the options for HK is extremely stubborn!

  54. 54
    zman Says:

    Email from Nicky on Nat gas technicals:

    To be honest the preferred Elliott wave count for ng is bullish right now and if it is correct we should see it top above the previous high at 10365 before its done and potentially a bit higher.

    I am having a hard job finding a fundamental reason to justify the run up but then when did fundamentals ever matter!

    If the bullish count is correct then it should turn up in fairly short order.

    Ram – hear ya, no cheap sellers

  55. 55
    zman Says:

    CHK – good sized blocks moving us into new territory post deal announcment.

  56. 56
    zman Says:

    oil down $0.60, nat gas getting crushed now, down $0.32 at $9.79. Gas was up purely on technicals, getting knocked back now. Still think that looks double toppy. We also have a chart gap to fill between 9.30 and 9.37.

  57. 57
    zman Says:

    nat gas closing down 41 cents close to LOD at $9.69.

  58. 58
    zman Says:

    Cramer doing nat gas related plays all week. Scoop, any indications from his site? Love to see him tap the HK.

  59. 59
    scoop006 Says:

    #58 negative

  60. 60
    uop Says:

    Z:
    how afr is NG and UNG going to drop ?

  61. 61
    zman Says:

    Don’t know. I think traders are looking ahead past this week’s draw to next week and saying, “ok, we’re trading in line with the 5 year average so storage is not really low unless you are looking at 2007 levels.”

    They also must be saying “so net net, supply is 7 to 14 Bcf per week higher than it was last year and much higher than the five year average for supply.

    Finally they should be saying, “with slack demand and the extra supply we know exists, we’re going to see a rapid rebuild in stocks until cooling demand sets in.”

    Technically, (and I rarely talk technicals unless it’s the commodities) the failure to break the previous high at 10.37 is anti-bullish in most commodities trader’s books. They’re saying it about oil now, about how the Basra 2 step didn’t get us back to new highs and they will say the same thing after today’s action in gas.

    I think the first support is the bottom of the pre gap day on 3/20 at 9.30 but better support is $9 and ultimately gas may take its Spring break in the mid $8s.

  62. 62
    Denise Says:

    Hmmmm… maybe Cramer is subscribing to my voodoo guru-he just posted that the last hour could be one for the record books
    Also my ace T/A lady points out awhile ago-many nonbelievers of the rally because the put/call ise is still high

  63. 63
    zman Says:

    Enjoying how well the group has endured the “doom and gloom talk on commodities” –

    No trades today, just doing a little watching and reading but overall very pleased.

    stepping out for 25 min.

  64. 64
    Sambone Says:

    3:09 pm EST

    Crude Down On Fear Dollar Could Strengthen Further

    By BRIAN BASKIN
    Of DOW JONES NEWSWIRES

    HOUSTON — Crude oil futures ended lower as the dollar strengthened against the euro, raising concerns of a prolonged correction across commodities.

    Light, sweet crude for May delivery settled 60 cents, or 0.6%, lower at $100.98 a barrel on the New York Mercantile Exchange. April Brent crude on the ICE futures exchange closed at $100.06, down 24 cents.

    May futures initially weakened on the strengthening dollar, but balked at spending too much time below $100, a low hit in only three trading sessions since March 5. Futures then spent much of the day up slightly, before ending the lower over last-minute anxiety about where the dollar is headed. A better-than-expected report on the U.S. manufacturing sector could indicate further strengthening is in store for the dollar, observers said.

    “(Oil) is trying to hold that $100 bottom line,” said Mark Waggoner, president of Excel Futures in Huntington Beach, Calif. “If the dollar continues to surge higher, that is going to put pressure on all commodities.”

    The euro recently traded at $1.5594, not far from the day’s bottom of $1.5563, which was the lowest rate seen since March 25. Other commodities fell on the exchange rate, with Comex gold for April delivery falling 3.6% and silver declining by 2.4%.

    Waggoner sees oil prices falling as low as $82.50 if the dollar continues to strengthen, while futures could easily hold above $100 as long as the dollar holds steady. The fact that oil spent only a brief time below $100 a barrel indicates that traders aren’t yet ready for a prolonged correction,said Tom Bentz, with BNP Paribas.

    “The market held technical support in front of previous lows,” he said, which in turn lured investors back into oil after prices fell to the intraday low of $99.55 a barrel.

    Reformulated gasoline blendstock, or RBOB, futures defied the rest of the energy complex by ending the day higher. The gains came in anticipation of government data expected Wednesday morning showing a large draw on product inventories for the week ending March 28. A Dow Jones Newswires survey of 14 analysts found an average forecast of a 2 million barrel gasoline stock draw, along with a 2.3 million barrel build in oil inventories.

    Gasoline’s performance provides further evidence that oil’s rally isn’t quite done, said Jim Ritterbusch, president of trading advisory firm Ritterbusch & Assoc. in Galena, Ill.

    “While we don’t look for the detachment from the dollar to be sustained, we do feel that each segment of the complex possesses at least one bullish element capable of spurring some temporary upside leadership,” he said.

    Front-month May RBOB settled 1.21 cents, or 0.5%, higher at $2.6392 a gallon. May heating oil settled at $2.8797 a gallon, down 2.64 cents, or 1%.

    —By Brian Baskin, Dow Jones Newswires

  65. 65
    cattleman Says:

    Z- Ref #29. Though wheat has come down, and pending weather into harvest, there likely is going to be a lot of money coming into the pockets of grain producers. Buying new equippment is a way to avoid a big tax liability. Nothing runs like a Deere.

  66. 66
    zman Says:

    everything right where I left it except NG off $0.52 now, down another 8 cents in after market trading. Another day like today and the UNG will be sitting pretty.

  67. 67
    zman Says:

    Cattle – hear ya, every time I think about my taxes I end up buying another monitor or pc or other office toy.

    By the way, was wonder if a normal open top freezer would hold a butchered quarter or half carcass.

  68. 68
    cattleman Says:

    Standard size chest freezer easily holds 1/2 beef. A small family can easily consume it in 6 months.

  69. 69
    scoop006 Says:

    CRAMER says buy NBR

  70. 70
    zman Says:

    I guess my emails to him helped.

  71. 71
    texana Says:

    z, would u ask ja tomorrow if he knows how far the chk well he was speaking of ,may be from hk’s elm field. i wonder if there would be any way to find out if hk’s leasehold includes deep rights. the assumption is that they do since they have drilled at least 1 deep well. the older the base lease the better the chances that it holds all the deeper zones. the older leases generally have a lot lower royalty burden. hk’s upside potential would be a lot less if they did not hold the rights to develop these deeper plays. maybe one of the subs knows. thx t

  72. 72
    zman Says:

    Tex – I think they have 50,000 acres with deep rights now. On a map the one CHK Hz well I saw was well west of Elm Grove, don’t know where the others are. JR, if you are around maybe you can help with that.

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