20
Apr

Wrap – Week Ended 04/18/08

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Another Week Of Outperformance. With no sub-prime slime in the energy groups, energy has been the place to be this year. While the E&P names have clearly outperformed YTD, oil service posted a second nice week of gains as comfortability with an improving North American natural gas (and oil) picture increases - comments from (SLB)'s conference call on Friday didn't hurt and we held through the, as expected, weak numbers to see the stock and our other names trade significantly higher on the day. If (SLB) put the improving picture on everyone's screen on Friday, we think (HAL) will increase the resolution of this picture with their 1Q08 call on Monday morning.

Click here to see our April performance. We continue to rotate about a bit in energy, continuously taking profits in some big E&P and service winners and rolling longer in many but not all cases. We are pulling in our horns slightly as the energy sector charts go vertical and a more cautious stance forces itself to the forefront. In other areas, like the refiners which have fallen while we watched, things are just starting to wake up to an improving fundamental picture so while the CNBC late night crew tells you how bad cracks spreads have been, we look to where they are going. 

Commodities Continue To Knife Higher.

  • Crude oil, gasoline and heating oil reached closing record highs on Friday. Gasoline has been playing catch-up to crude for almost 2 weeks now and the chart has gone ballistic after being somewhat suppressed by the "gasoline inventories at 15 year highs" headlines. No longer is that true as a domestic siesta on the part of the independent and, to a lessor extent, the integrated refineries, has yielded the lowest refinery utilization rate since Katrina. 
  • Natural Gas Shoots For The Moon:
  • Gas in storage is in the middle of the five year range but low to last year's bloated levels. After 4 consecutive "in-line with expectations" storage reports, gas was jammed into storage at a greater than expected rate this past week... and natural gas traders could have cared less, driving the May contract to a record close at $10.647.
  • Supply and Demand, What's That? Basic math has been thrown out the window (see recent Supply and Demand thoughts) from with buyers focused on the upcoming hurricane season forecast from Colorado State (who by the way sorely over-estimated the last two seasons but expects a very busy season in 2008).
  • But Not Everyone Is Buying The Weather. CFTC data show the speculative short position in NYMEX natural gas futures is not only at an all time high but is yet another chart that has gone ballistic.
  • Coal, The Other Black Gold. Coal continues to post higher and higher prices, much to the chagrin of the Wall Street analyst community who have downgraded the coal producers over the last couple of months, saying coal prices were done going higher for the year back in late February when it looked like prices might be rolling over. Um...wrong. If I were to kick myself over a missed trade, something I very rarely do, this would be it for 2008. Not because it happened and I missed it but because I wrote about the divergence in coal valuations, coal stock prices, and coal commodity prices three weeks ago, got busy on another sector, and failed to pull the trigger. Names here have shot up 40 to 60% in those three weeks and I'm not going to chase the group or fish its weaker performers at this juncture. But I will be watching more closely for a pullback as the fundamental drivers here remain in place and strong. 
The weekend wrap post is a free publication of Zman's Energy Brain. It's a 10,000 foot view of what we do on the subscriber posts every trading day of the week. The depth of the energy and investment community professionals who bring their knowledge and trading savvy to bear in the comments section each day continues to astound me. This is translating into better trades and better results. Really, check out the April performance link, where the average position, including my ill-begotten foray into a natural gas short, resulted in nearly a double. These positions are my trades and notification of entries and exits is given to subscribers on the site as well as in an email as they occur. You can also check out subscribing via that link, which still costs far less than filling up your tank each month.   

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