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