23
Apr

Wednesday – Oil Inventory Preview +

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In Today's Post:

  1. Holdings Watch: added more (CHK) and (NBR) calls, entered (DVN) calls, exited some (HAL) calls
  2. Commodity Watch
  3. Stocks We Care About Today Watch
  4. Odds & Ends

Holdings Watch:

CALLS:

  • (CHK) - Added CHK July $60 calls (CHKGL) for $1.90.
  • (DVN) - Entered June $125 calls (DVNFE) for 5.60.
  • (NBR) - Added June $40 calls (NBRFH) for $1.15 after company reported better than expected results and a strong forecast. I added once it was evident the luke warm reception was in fact due to the pull of gravity from falling industry stalwart (SLB) and not due to something I had missed in the PR.  
  • (HAL) - Exited the May $47.50 calls (HALEW) for 1.94, up 85%. 

Commodities Watch:

  • Crude Oil rallied $1.89 to close the expiring May contract at 119.37. The out months are in a state of backwardation and the June contract closed yesterday at $118.07. This morning crude is trading off $0.50 to $0.80 before inventory numbers are released.

  • Strip Pricing:
    • 12 month: $115.04
    • 24 month: $112.56

crude-strip-042208.jpg

  • Street Consensus Expectations:
    • 2008E: $88.29. In 1Q08 the actual WTI price averaged $97.80, roughly $10 per barrel above Street consensus). So unless crude immediately falls to $85 for the rest of the year, analyst estimates and E&P stock CFPS estimates (on average) will continue to rise.
    • 2009E: $84.27.

EIA Oil Inventory Expectations (from the Bloomberg Survey)

exp-041808.jpg

ZComment: Crude imports are key to the direction of oil prices today. If they fail to bounce  back after two weak weeks than I think can see a surprise withdrawal and $120 oil is in the cards. Analysts are expecting a slightly stronger showing on refinery utilization but production of summer grade gasoline needs to start ramping with this week's number of gasoline is going to start leading crude around by the nose and not the other way around. 

  • Natural Gas: eased $0.13 to $10.60 yesterday in what has become an increasingly rare divergence from the directionality of oil prices. Though I'm still short a little May UNG this dip is just noise and no cause for enthusiasm. This morning gas is trade off about a dime (and back to mirroring the crude move).

Stocks We Care About Today Watch:

BHI Comment From Yesterday's Call: Rig count expectations: 2008 seeing 4% US growth and they say that’s conservative (was expected up 1% last quarter), Canada seen down 1 to 2% which is much better than previously expected (was expected down 8 to 10%).

Canadian Driller (PDS) Reports A Miss; Some Reasons For Optimism

  • Reported C$ 1Q08 EPS of $0.84 vs expectations of $0.94.
  • Why the miss? Lower demand and pricing in Canada
  • Non Canada ops saw 33% sequential growth in drilling days with 14 rigs in the U.S. and one in Latin America.
  • Operating margins fell to 36% from 43% YoY.
  • Canadian drilling activity was flat in March on a YoY basis. First time in 19 months.
  • Outlook: 2Q challenging, 2H08 potentially better in Canada, stronger in U.S. and the company plans to continue to increase its leverage to the U.S. drilling and well services markets. 
  • Conference call was at 7 Est and I will listen to the replay 

Seadrill Takes A Piece Of Pride (PDE). Seadrill took a 10% stake in (PDE) yesterday and says it wants to work with Pride and that this is not a hostile move. I expect to see further consolidation (and rumors of consolidation) in the service names, including, yes, still inexpensive (NBR).

(XTO) Raises Production Guidance and Capital Budget; Reports A Record Quarter.

  • Unit volume growth guidance goes from 20 to 23% for 2008,
  • Capital budget expectations go from 2.6 to $3.0 B to fund increased land grab,
  • 1Q08 CFPS of $2.10  vs expectations of $2.01,
  • Production was up 32% and 3% sequentially,
  • Looks like they are locking a small amount of production at current prices...I don't want to tell people how to do their jobs but I'd be locking in more gas and oil at these rarefied levels at least for Summer / Fall 2008. Just seems prudent and this from a guy who trades options.
  • Conference call at 4 pm Est, and it will be interesting to see how the market treats such nice numbers after the run the E&P group has had, especially as a I evaluate holding my E&P May calls positions into first quarter earnings in other names.

Odds & Ends

Analyst Watch: (SII) upped to overweight at JPM, (NBL) cut to hold at BMO, FBR raised price targets for several service companies including (NBR), (PH), and (SII).

117 Responses to “Wednesday – Oil Inventory Preview +”

  1. 1
    Sambone Says:

    3:08 am EST

    Nymex Crude Drifts Sideways, Stockdraws Possible

    Dow Jones Newswires

    SINGAPORE — Crude oil futures held steady Wednesday in Asia ahead of a weekly U.S. government oil data report that’s expected to show further tightening in the country’s refined product stockpiles.

    With sentiment already being underpinned by supply disruptions in Nigeria, Africa’s largest producer, and with the dollar staying weak Wednesday against the euro and the yen, traders are bracing for a potential run-up in prices.

    “Monday, it was sabotage in Nigeria. Yesterday, it was a weak U.S. dollar. And today, if prices advance again, our money will be on historically low refinery utilization as the main, motivating factor,” said Peter Beutel, president at trading advisory firm Cameron Hanover.

    “The bears have nowhere to hide from that lineup.”

    On the New York Mercantile Exchange, light sweet crude futures for delivery in June, the new front month, traded at $117.99 a barrel at 0650 GMT, down 8 cents in the Globex electronic session.

    Prices were rangebound, drifting within a narrow 35-cent band.

    Nymex heating oil for May rose 36 points to 332.05 cents a gallon, while May reformulated gasoline blendstock stood at 301.60 cents a gallon, 4 points lower.

    Nymex crude overnight spiked to an all-time high of $119.90 a barrel and settled at a sixth record in seven sessions on a combination of strong fundamentals and a weak dollar.

    Nigeria has been forced to shut in more output after militant attacks Monday on the Soku-Buguma and Buguma-Alakiri oil pipelines operated by Royal Dutch Shell PLC (RDSB.LN), which followed a hit on a feeder pipeline linked to the key Bonny export terminal.

    While Nigerian Oil Minister Odein Ajumogobia downplayed the troubles Tuesday, the developments are widely fingered as a leading factor for record-high oil prices.

    “The loss of Nigerian crude is a big psychological blow because of its high quality and its potential to yield a lot of gasoline,” Phil Flynn, an analyst at Alaron Trading Corp., said in an overnight note to clients.

    “Gasoline supply has not been the issue, but with refiners reducing runs and maxing distillate, we may get caught with tight gasoline supply later in the summer.”

    The federal Energy Information Administration is expected to show U.S. gasoline inventories falling for a sixth straight week in its Weekly Petroleum Status Report, due at 1430 GMT.

    Stocks of the motor fuel probably fell by 2.1 million barrels in the week to April 18, according to the average prediction from 15 analysts polled by Dow Jones Newswires.

    Commercially held crude stocks, which have slipped below the five-year average level, are seen building by 1.1 million barrels, while stockpiles of distillate, which include heating oil and diesel, likely declined by 300,000 barrels.

    “We will be viewing any draw at all in…distillate stocks as a bullish development,” said Jim Ritterbusch at trading advisory firm Ritterbusch and Associates.

    Significantly, much attention will be on crude run rates, after last week’s EIA report showed refinery utilization tumbling to 81.4% of capacity — the lowest since March 2006.

    Analysts are calling for a 0.7-percentage-point rebound on average, the survey showed.

    Earlier Wednesday, Asia’s second-largest oil consumer Japan posted similar trends in weekly industry statistics.

    Most of Japan’s products stocks fell last week, while crude run rates were down a sizable 1.3 percentage points on average to just 83.3% of capacity, according to the Petroleum Association of Japan.

    At 0650 GMT, oil prices on London’s ICE Futures exchange ticked cautiously higher.

    Brent crude for June rose 2 cents to $115.97 a barrel, while May gasoil changed hands at $1,070.50 a metric ton, up $2 from Tuesday’s settlement.

    —By Yee Kai Pin, Dow Jones Newswires

  2. 2
    PackMan Says:

    SU cut this am by Ray James

  3. 3
    zman Says:

    Thanks Pack.

    FYI we have NFX after the close, likely to see a big @NFX update this afternoon.

    DO reports before the open tomorrow and at this point I plan to hang onto my half position (all house money).

    Oil down a buck (profit taking before the numbers and could easily be reversed or end down another 3 to 4 if the numbers are bearish)

    NG down 1.5%

  4. 4
    Bob Says:

    Z- I see NBL downgrade, but not NE, which reports AMC today

    OXY reports tomorrow BMO. $1.94 expected vs $0.98 last year. Stock has been making new 52 week highs. Do you think there could be a miss? Looks like a short possibility after run up into earnings?

  5. 5
    zman Says:

    You are correct, will change. Thanks

  6. 6
    zman Says:

    Tempted to sell some of my May NBR on the Cramer rally, can always buy it back again.

  7. 7
    zman Says:

    XTO being sorely used used for good results, down 2.5%+ so far. May be confirming my suspicion that the E&Ps will sell off no matter the news given the run they have had. A little early to judge as the volume is light and we have a weak commodity picture this morning but it makes me want to take May options off the table to give me more firepower for a possible post earnings dip. At least in names like CHK On the HK, I’m thinking news could be a booster.

  8. 8
    uop Says:

    zman:

    good morning:

    what is your view now on May PQ and May HAL calls,

  9. 9
    zman Says:

    The May HAL’s are $45s where I already sold have my position. They will likely go out the door within the next week as I’ve been adding longer dated calls there. The May $47.50s left the building yesterday.

    May PQ $20’s I’m holding for earnings, May 22.50s as well but those are pretty risky and if we get a spike pre numbers I’ll be tempted to run for cover on them and add a longer dated NTM strike.

  10. 10
    Sambone Says:

    9:42 am EST

    Nymex Crude Drops As Stockpile Gain Seen

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK — Oil futures retreated Wednesday ahead of weekly data expected to show a mild gain in U.S. crude stockpiles.

    Light, sweet crude for June delivery was recently down 99 cents, or 0.8%, at $117.08 a barrel on the New York Mercantile Exchange. The June futures contract acquired front-month status after the May Nymex contract expired Tuesday at a record settlement price of $119.37 a barrel.

    Brent crude on the ICE futures exchange was trading 91 cents lower at $115.04 a barrel.

    Energy Information Administration data scheduled for release at 10:30 a.m. EDT are expected to show that U.S. crude stockpiles rose by 1.1 million barrels in the week ended April 18, according to a Dow Jones Newswires poll of analysts. It would be the first increase in crude inventory in three weeks.

    Crude’s run to new all-time highs — Tuesday’s record was the sixth in the last seven sessions — has been fueled in part by perceptions of tightening U.S. oil stocks. Analysts expect the new data to show gasoline inventories fell by 2.1 million barrels, and expect stocks of distillates, which include diesel and heating oil, declined by 300,000 barrels.

    “I think you would see a big reaction you if there was another surprise draw on crude,” said Brad Samples, an analyst at Summit Energy in Louisville, Ky. “This run-up we have had…has been driven by a market focusing more sharply on long-term supply constraints. If we see another drawdown in crude stocks, it would exacerbate sentiments to that effect.”

    While analysts expect crude stockpiles will start to rebuild, weather-related port closures in Mexico last week may have hampered a rebound in imports, which over the previous four weeks averaged about 9.2 million barrels a day, about 1 million less than the amount imported at the same time a year ago. The market will also be watching the rate of refinery use, which analysts expect will rise 0.7 percentage point to 82.1% of capacity.

    Crude rocketed to a new record Tuesday on new supply disruptions in Nigeria and the threat of them in the North Sea as workers at a 200,000 barrel-a-day U.K. refinery planned a strike due to start Sunday.

    Refinery owner Ineos PLC said Wednesday it has already closed one of its crude stills at the Grangemouth refinery and plans to shut more as labor talks continue. BP PLC (BP) is preparing for a possible shutdown of the Forties North Sea crude oil pipeline system if the strike proceeds, a spokeswoman for the company said.

    Adding pressure to crude, the dollar gained against the euro, which was recently trading at about $1.59 from more than $1.60 Tuesday. The dollar’s weakness has helped support dollar-denominated crude’s steady rise in the last several months, creating an incentive for exporters to adjust prices and drawing investment funds.

    Front-month May reformulated gasoline blendstock, or RBOB, was down 1.85 cents, or 0.6% to $2.9979 a gallon. May heating oil was down 2.48 cents, or 0.8%, to $3.2921 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  11. 11
    kaman Says:

    Bob- OXY miss? They’re pretty relaiable earnings-wise, aren’t they? As long as some South American banana republic isn’t stealing their wells…

  12. 12
    zman Says:

    2 minutes to numbers. If there is an oil draw I’d look to add to names like NBR, HAL and DO. SU for a trade.

  13. 13
    zman Says:

    Refiners trading like there is a bigger gasoline draw in the offing pre numbers.

  14. 14
    zman Says:

    oil increased 2.4 as oil imports rebounded to 10 mm bopd

    gasoline fell 3.2 (bigger than expected)

    distillate fell 1.4

  15. 15
    uop Says:

    zman:

    see that big dip on SU.

  16. 16
    zman Says:

    big jump in refinery utilization back to 85.6%. Gasoline demand increased.

    Crude trying to bounce with gasoline in here.

  17. 17
    zman Says:

    Uop – yes, tempting. APA also tempting.

    Sane or anyone with API I’d love to see those numbers. Sane, do you still get them?

    Crude bouncing now with gasoline.

  18. 18
    zman Says:

    Inputs to refineries dropped markedly which will likely reverse and climb heavily next week with the utilization number increase.

    I don’t see an immediate need to run from energy on this nor do I see a quick buck to be made in a trade unless they can rally crude on the products draws. Refiners rallied hard on the gasoline demand and draw but the rise in utilization could have been put off a few more weeks to the betterment of crack spreads.

  19. 19
    sane Says:

    Re 16 Gasoline demand droped week over week. I am waiting on API.

  20. 20
    sane Says:

    My API source has been unreliable as of late.

  21. 21
    zman Says:

    Sane – On gasoline I meant YoY – gasoline supplied was up 0.9%

  22. 22
    zman Says:

    Oil all over the place. Stocks seem to be taking direction from the greenish market.

  23. 23
    uop Says:

    zman:

    my trading platform does not show may options for SU.

  24. 24
    zman Says:

    Uop – That’s odd because both of mine show May options available for SU.

  25. 25
    zman Says:

    Gasoline soaring now at new all time high. Crude feeling the pull.

  26. 26
    zman Says:

    Chinese oils zomming. PTR, SNP CEO. More talk of mainland listing more of them.

  27. 27
    VTZ Says:

    Do you have a plan for the NBR may 35s? Are you goign to roll them over soon?

  28. 28
    uop Says:

    After rebooting, the may options for SU appeared.
    Having lots of internet problems this am.

    Did nyou go in with APA or SU ?

  29. 29
    zman Says:

    V – yes.

    Uop – No trades today as of yet. See #18.

  30. 30
    zman Says:

    Crude just went green. NG up a dime.

  31. 31
    zman Says:

    refiners very happy with these numbers. I’m sticking with just one toe (in TSO) although a quick trade in VLO and an earnings trade in FTO are tempting.

  32. 32
    zman Says:

    I’m going to punt the May $35 NBR best I can today. They’ve done their job and the Junes are in position for further gains.

  33. 33
    zman Says:

    also looking to add a little longer date, higher strike DO for a trade on tomorrow’s earnings.

  34. 34
    zman Says:

    ZTRADE: DO JUNE $150 Calls entering for $3.70. Risky with earnings tomorrow but the outlook should be solid and I’m giving my self a little time. Stock is off $3 on a red energy day.

  35. 35
    scoop006 Says:

    sold mine this AM $3.80 bought 4/10/08 average $1.80. This is what I call a ZTRADE

  36. 36
    zman Says:

    Scoop – likely will punt my May’s hopefully on an afternoon rally.

  37. 37
    ellwodo Says:

    CHK – have you noticed the large volume of May 65s (with the stock below $53) and the even larger vol of June 60s? It looks as if someone still believes i the rumors.

  38. 38
    scoop006 Says:

    what afternoon rally?

  39. 39
    zman Says:

    Bob Pisani on CNBC saying the energy stocks moderating a bit today is certainly good news. For who, the shorts?

  40. 40
    zman Says:

    ya gotta wonder if CNBC people have any idea what they are talking about. The oil girl of the day just said crude almost got to even after the numbers. Wrong, we went well into green. She called it a very mixed bag of an inventory report. I’d take out the very and then add that gasoline is up as demand continues to be relatively strong despite the high prices we are all paying. Finally, I’d add that oil demand is about to increase if utilization stays at this new 85% level and that crude is only off $0.30 now despite a dollar bounce of pretty good size (0.6%). But that’s just me and I’m not there.

    If NFX worsens I am going to take some shorter dated calls for the report.

  41. 41
    zman Says:

    Any chartists around today? Would love to get an opinion on WGO as a put candidate.

  42. 42
    zman Says:

    oil green again, moving with gasoline.

  43. 43
    uop Says:

    zman;

    my charts tell me;
    LOW VOLUME STOCK, STAY AWAY,

    put: DOES NOT LOOK ATTRACTIVE.

    IMHO

  44. 44
    zman Says:

    thanks

  45. 45
    uop Says:

    zman:

    what is happening with NG/UNG is beyond comprehension.

  46. 46
    zman Says:

    CNBC just said natural gas has been a laggard (I guess you could say that if you go back long enough) but I think she said lated. She said it is now catching up due to warm weather. It’s like they have a justification wheel they spin.

    Equities continue to suffer profit taking on both the oily and gassy E&P side and in service.

  47. 47
    VTZ Says:

    http://www.bloomberg.com/apps/news?pid=20602099&sid=aXxTyqJWnJLU&refer=energy

    Consensus 30 should change the tone of their nonsense soon (?).

    Just a heads up for people who want to be short nymex gas, but not using UNG puts. You could always buy HND on the TSX. It’s an ETF that goes up 2% for every 1 % drop in nymex gas. Likewise there is HNU for bull side up 2% for every 1% increase if you are still bullish, haha.

  48. 48
    zman Says:

    Lehman and Merrill saying bottom fish BJS after yesterday’s plunge. Basically saying right place, right time.

    Thanks VTZ – did not know about the Canadian double short.

  49. 49
    tater Says:

    Seems a bit quiet on the board, so I’ll throw this at you if you have a sec. FTO – Nice buy back, nice refinery refurb, increased ability to take lower grade input, more lower grade input apparently coming online?, hurricane not a hindrance to biz model, stock and sector has already been crushed, Downside risk appears to be that past recessions have resulted in huge decrease in oil and gasoline demand (not a small issue, though not playing out just yet). Chart voodoo points to support around 25ish. That’s my amateur analysis. What’s the pro think?

  50. 50
    VTZ Says:

    It exists for crude oil as well in the HOU for bull and HOD for bear forms.

  51. 51
    zman Says:

    Tater – I could not say it better myself. They reported the best 4Q of any independent and if the analysts haven’t flubbed the throughput volumes they should not miss. In general, when the sector turns it starts with VLO/TSO then SUN, HOC, FTO, WNR, ALJ play catch up. Pro? What Pro? I won’t touch HOC, WNR or ALJ – but FTO reports on May 7 and I will very likely be in before then. Very nice summary of main bullets by the way.

    Scoop – Re DO, if not I hold it for earnings as well as the longer.

    VTZ – thanks for those as well.

  52. 52
    zman Says:

    Tater – FTO. You have to wonder about the confidence that allowed them to bump the dividend last night as well.

  53. 53
    zman Says:

    This has been the first “red day” in quite some time. To me it started yesterday and the day ended pretty half and half. With a little over an hour to go in NYMEX day oil is off a dime and toying with going green yet again. The selling controlled, not panic stricken. This was overdue. If it continues for a couple of more days OR I see more companies reacting poorly to strong results and/or great news then I think we’re short term topping. For now, I think the group is resting.

  54. 54
    Sambone Says:

    11:02 am EST

    Nymex Crude Still Weaker After Inventory Report

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures jumped around but remained lower Wednesday after government data showed U.S. stockpiles of gasoline and distillates last week fell more than expected.

    Light, sweet crude for June delivery was recently down $1.03, or 0.9%, at $117.04 a barrel on the New York Mercantile Exchange, about 10 cents below its level before the Energy Information Administration’s weekly inventory report. The June futures contract acquired front-month status after the May Nymex contract expired Tuesday at a record settlement price of $119.37 a barrel.

    Brent crude on the ICE futures exchange was trading 78 cents lower at $115.17 a barrel.

    The EIA reported U.S. crude stockpiles rose 2.4 million barrels last week, more than double the 1.1 million-barrel gain expected by analysts. It was the first in crude inventory gain in three weeks.

    The agency also estimated gasoline stocks declined by 3.2 million barrels, exceeding an expected 2.1 million-barrel decline. The 1.4 million-barrel decline in distillates stocks was more than four times the expected level.

    “I’d say overall, the report is bullish,” said Tom Bentz, a broker and analyst at BNP Paribas Commodity Futures in New York. “The gasoline and distillates drew a lot more than expected.”

    The fact that the crude didn’t respond to the report may mean the “market may be tired” after recent highs, Bentz added. “It could be trying to correct.”

    Crude rocketed to a new record Tuesday on new supply disruptions in Nigeria and the threat of them in the North Sea as workers at a 200,000 barrel-a-day U.K. refinery planned a strike due to start Sunday.

    Refinery owner Ineos PLC said Wednesday it has already closed one of its crude stills at the Grangemouth refinery and plans to shut more as labor talks continue. BP PLC (BP) is preparing for a possible shutdown of the Forties North Sea crude oil pipeline system if the strike proceeds, a spokeswoman for the company said.

    Adding pressure to crude, the dollar gained against the euro, which was recently trading at about $1.59 from more than $1.60 Tuesday. The dollar’s weakness has helped support dollar-denominated crude’s steady rise in the last several months, creating an incentive for exporters to adjust prices and drawing investment funds.

    Front-month May reformulated gasoline blendstock, or RBOB, was down 78 points, or 0.3% to $3.0086 a gallon. May heating oil was down 2.64 cents, or 0.8%, to $3.2905 a gallon.

  55. 55
    Sambone Says:

    Uncle Phil

    http://www.321energy.com/reports/flynn/current.html

  56. 56
    tater Says:

    I guess I’m ready to take a small FTO bite, I just really hate going into a stock that’s been so hated, especially in the face of that 7% buyback. Where would it be trading without that? SII – mentioned that they are the big player in Brazil. Not as familiar with them as maybe some others. I can look up the other stuff, any thoughts as to how the company is managed?

  57. 57
    zman Says:

    Tater – sorry, I have not met or have much else to add re SII management.

  58. 58
    tater Says:

    Thanks for the help. Nice SLB play by the way.

  59. 59
    zman Says:

    Speaking of SLB, a little more fall and I’m again.

    NG up 21 to 10.82.

    Crude green, again.

  60. 60
    zman Says:

    Off topic on a slow day. Any one have AND like a tankless water heater?

  61. 61
    sane Says:

    I have one and its not too bad, but I just for the master bathroom.

  62. 62
    zman Says:

    Sane – thinking whole house. What is “not too bad” about it?

  63. 63
    zman Says:

    Wow SD bucking the group.

    HK sneaking back up from a little beating this am. This looks like nervous hands punting profits pre earnings to me and reacting to a shift to the new month in oil which saw weaker prices. Looks like I’ll be holding my May DO into numbers.

  64. 64
    scoop006 Says:

    They work but you need municipal water; they do not hold up with well water.

    NFX?

  65. 65
    zman Says:

    Scoop – I think I’ll wait to the numbers come out to add or subtract, unless it gets crushed this afternoon and then I’ll add near term calls.

  66. 66
    sane Says:

    It is great because my daughter has a tendancy to use all of the hot water in the morning, so puting this in I get infinate hot water, and we can now fill my wifes swimming pool sized tub in sone sitting.
    My only issue is that sometimes the water doesn’t seem to get hot hot, espicaly in the winter d/t the ground water being colder.

  67. 67
    scoop006 Says:

    Drudge reporting Sam’s Club rationing rice

  68. 68
    zman Says:

    Thanks Sane, plumber was just telling me they often fail shortly after warranty (1yr) is done and that the non-modular design of the inside requires replacement of 90% of the guts for anything broken with that costing about 90% of the original purchase price.

  69. 69
    zman Says:

    panic in the aisles of Wal-Mart? Sounds like a Drudge original.

    Going to hold the NBR I was thinking of selling earlier. In a better market (maybe tomorrow) that should have a little more in it.

  70. 70
    Sambone Says:

    Off subject – This just blows my mind. It’s gonna get a lot worst.

    http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?ei=5040&en=182ad394c2fff0e0&ex=1209528000&partner=MOREOVERNEWS&adxnnlx=1208899178-e2zgDCYK3dN8kDYJT5Nt6w&pagewanted=print

  71. 71
    tater Says:

    Z. Can I call you Z? Did you ever have a stock that you could just absolutely pick how it was going to move, you were just all over it? What’s your best stock?

  72. 72
    reefguy Says:

    z- Is NG leading crude?

  73. 73
    zman Says:

    Tater – Z works for me. Sorry no, I’m streaky. I will say that if I did it would be an E&P stock as they used to pay me to track those. They also used to pay track natural gas ….hmmmm.

    Best stock, right now. I think they’ve had good runs. So it depends on your time frame. I think HK may pop up higher than the recent high near term on news and perhaps revised high guidance. Long term, as in ownership, I don’t see you going wrong with a CHK, SD, CLR, APC or NFX or in the little guys HK or the even smaller PQ. But I can’t tell ya what they’re going to do tomorrow.

    In the service names HAL and NBR are well run and relatively cheap.

    Refiners: you could not pay me to buy and hold one but if I wanted long term exposure I’d buy and sit on COP.

    Sam – that is bad. This is worse:

    http://www.komotv.com/news/local/17831534.html

    Reef – that’s funny. Hey somebody tell the equities that both oil and gas are solidly green now heading into the close. Profit taking time should be over, lol.

  74. 74
    reefguy Says:

    z- do not forget my favorite XCO

  75. 75
    zman Says:

    Tater – one thing I do is follow management around … Hackett from Seagul to Ocean to Devon (briefly) to APC where he has found a home for good unless he runs XOM someday.

    XCO is good, especially long term.

    SWN is a takeout by someone some day.

    TLM will go away … some day.

  76. 76
    ellwodo Says:

    XCO – any idea why it is getting hit so hard (down over 5%)?

  77. 77
    zman Says:

    XCO – profit taking with the group and it failed a technical level earlier and is now in support, may drop to $22 in my opinion. The stock was $16 a month ago so the bigger weak day is a first for many new to the name. Nervous new hands, sitting on fat profits and wonder where the Marcellus shale is.

  78. 78
    tater Says:

    Thanks, you seem like the kind of guy that’s good with the “gun to the head” scenario. Your comment the other day after the Hackett interview by Cramer, I had just got done saying to my wife that somebody should put a guy like that up for President. But that would make too much sense. (Decided to just sell some FTO 25 puts, if I get it, great, if not I get to keep a couple of bucks). Have a good day and thanks again.

  79. 79
    zman Says:

    Have a good one Tater – Hackett would do a great job although he’s used to having people get done what he tells them to so it would probably kill him. I’d say Aubrey but we will really do need to reign in the country’s capex, lol.

  80. 80
    ellwodo Says:

    Thanks.

  81. 81
    zman Says:

    Expecting the group to green into the close a bit. Gotta step out for 20 minutes.

  82. 82
    elijahwc Says:

    Just in case anyone wonders why WNR is leading the hit parade to the downside

    =DJ Western Refining Caught Between Credit, Industry Woes
    By Jessica Resnick-Ault
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Record-high crude-oil prices and the credit crunch
    have caught independent refiner Western Refining Inc. (WNR) in the cross
    hairs.
    While many refiners are struggling with low margins, Western’s problems are
    exacerbated by its debt load, which it took on to buy a refining rival last
    year, and operational disruptions.
    The tipping point for Western, of El Paso, Texas, may come at the end of the
    second quarter, the next time a key $800-million revolving line of credit
    comes under review. While Western retains a good credit rating, any
    restriction on its ability to access this line would force it to turn to
    alternate venues in an already-tight lending market.
    Last week, Western, a small independent refiner, registered with the U.S.
    Securities and Exchange Commission to sell an undisclosed amount of mixed
    securities, including shares, from time to time in order to raise cash.
    The day after the filing, Western’s shares slid to an all-time low of
    $11.27, down 83% from its all-time high from July 2007. Western shares have
    continued to drop and traded at $10.01, a new record low for the company, on
    Wednesday.
    This week, Moody’s Investors Service began to review Western’s credit
    ratings for a possible downgrade.
    “Today’s rating actions reflect very weak first-quarter 2008 refining
    margins, continued second-quarter softness, continuing elevated leverage after
    Western’s acquisition of Giant Industries last year, and expanded working
    capital funding needs, due to the surge in light sweet crude oil prices,”
    Moody’s wrote.
    Western declined to comment on analyst reports, citing its “quiet period”
    prior to its disclosure of first-quarter earnings May 7.
    Granted, some creditors recently have given Western their vote of
    confidence. Bank of America Corp. (BAC) raised Western’s revolving credit line
    from $500 million to $800 million in February. This gave Western the ability
    to buy crude oil for its refineries, as futures soared above $100 a barrel on
    the New York Mercantile Exchange.
    On Wednesday, crude-oil futures closed above $118 and benchmark gasoline
    futures ended at about $3.05 a gallon on the New York Mercantile Exchange. In
    recent weeks, gasoline has also surged but still lags crude’s gains.
    Bank of America also served as the advisor to Western last year in the $1
    billion acquisition of Giant Industries Inc., extending a loan to the refiner
    for that purchase, as well.

    Energy Sector Vulnerability

    Since then, the credit crunch that began in August with worries about
    securities backed by mortgage loans has spurred banks in general to exercise
    more discipline in their lending standards. Investor concern about Western’s
    revolving line of credit comes as other companies have seen lines pulled.
    Talbots Inc. (TLB) earlier this month said two banks, one of whom was Bank of
    America, canceled letters of credit.
    The energy sector, buoyed by high commodity prices, has so far stayed
    largely insulated against fallout from the credit crisis, but worries about
    Western serve as a reminder that some parts of the oil industry, namely
    refining, are hurt more than helped by skyrocketing crude prices.
    The most vulnerable now are “independent” refiners. In times of rising oil
    prices, large integrated energy companies, such as Exxon Mobil Corp. (XOM),
    can offset weak refining results with bumper profits from business units that
    produce oil. Independent refiners don’t engage in oil production, and must
    hedge their costs.
    While oil-product prices are elevated, they haven’t kept pace with the surge
    in refiners’ crude costs. This squeezes the profits of refiners, who aren’t
    able to fully pass on those costs to their customers. The situation, however,
    could quickly change if product prices begin to rise faster than crude oil.
    Western operates about 220,000 barrels a day of crude processing capacity,
    and ran its refineries at 92% of that capacity in the fourth quarter. However,
    most of the shortfall was attributed to the Four Corners refinery complex.
    These two plants, located in the Southwest, ran at about 75% of their capacity
    during the quarter. While Western had a reputation for running its original El
    Paso refinery well, Giant had a history of fires and operational difficulties.
    Western has said it planned to be closer to full rates in the first quarter.
    Its plants are set up to refine expensive high-quality crude oil, so Western
    can’t take advantage of the discounts on inferior crude-oil blends.
    Refiners often rely on revolving lines of credit to conduct crude purchases,
    and a refiner of Western’s size spends about $20 million a day, said Chi Chow,
    a Denver-based analyst with Tristone Capital Co.
    Chow doesn’t hold shares in Western, and Tristone doesn’t have an investment
    banking relationship with the company.

    An Eye On Covenants

    Since BofA boosted Western’s line of credit, though, some refiners have
    become more pessimistic about the profit bump that the summer driving season
    is supposed to bring. Forecasts for U.S. gasoline demand have been revised
    downward, and the outlook for independent refiners remains dreary.
    In order to continue borrowing from this line of credit under the same
    terms, Western must conform to two debt ratios, which also apply to a
    $1.4-billion term loan.
    The first requires that Western must maintain total cash flow from the
    previous four quarters that’s at least 2.5 times interest charges. Last year’s
    interest charges were $54 million, so Western’s cash flow of $523 million
    surpassed that standard, according to Ann Kohler, an analyst with New
    York-based investment bank Caris & Co.
    The second covenant mandates that Western’s debt load must not exceed four
    times its total cash flow from the previous four quarters. Western’s debt load
    at the end of last year was $1.583 billion, so the company met the standard.
    As the industry moves into a time of depressed profits, the weaker quarters
    of 2008 will replace the relatively strong first half of 2007 in the
    calculation.
    The company’s net income and cash flow have both declined during the past
    three quarters. Western swung from a profit of $155 million in the second
    quarter of 2007 to a loss of $26 million in the fourth quarter. Chow of
    Tristone estimates that the company will have a loss of $10 million in the
    first quarter of 2008 and will only have earnings of $91 million in the second
    quarter.
    With these projected earnings, Western may not have enough cash to remain in
    accordance with its debt agreements, Chow said.
    If a company “trips a covenant,” it must restructure its debt, which can
    prove costly. In the worst cases, banks and investors don’t want to
    renegotiate the debt and the company technically defaults.
    The larger term loan is secured with Western’s fixed assets, including the
    refineries acquired from Giant. The revolving credit line is secured by
    inventory and receivables, and then by Western’s fixed assets.
    Moody’s has a B1 rating on Western’s term loan. Standard and Poor’s rates
    the company BB-, which is six notches above default. S&P last weighed in on
    Western Refining a month ago.
    “In past years, lenders typically demonstrated some leniency toward granting
    waivers for companies in danger of breaking covenants,” Chow said. “We are not
    optimistic that these practices are still in place today. Western could have
    difficulty refining its outstanding debt or renegotiating terms.”

    -By Jessica Resnick-Ault, Dow Jones Newswires; 201-938-4435;
    jessica.resnick-ault@dowjones.com
    (Cynthia Koons in New York contributed to this article.)

    TALK BACK: We invite readers to send us comments on this or other financial
    news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should
    include their full names, work or home addresses and telephone numbers for
    verification purposes. We reserve the right to edit and publish your comments
    along with your name; we reserve the right not to publish reader comments.

    (END) Dow Jones Newswires
    04-23-08 1457ET

  83. 83
    cattleman Says:

    Sam – ref your SKF and those interested in DUG. Article entitled “What Your Bear Fund Won’t Tell You”. Says counterparty to fund short plays aren’t to be taken for granted. http://www.businessweek.com/magazine/content/08_17/b4081115284301.htm?chan=investing_investing+index+page_stocks+%2Bamp%3B+markets

  84. 84
    uop Says:

    Zman:

    not much activity by you today ?

  85. 85
    Sambone Says:

    3:09 pm EST

    Crude Higher As Product Inventories Decline

    BY BRIAN BASKIN
    Of DOW JONES NEWSWIRES

    HOUSTON — Crude oil futures closed slightly higher Wednesday, as the market fretted over declining U.S. product inventories and production problems overseas.

    Light, sweet crude for June delivery settled 23 cents, or 0.2%, higher at $118.30 a barrel on the New York Mercantile Exchange. June Brent crude traded at $116.42 a barrel, up 47 cents.

    The release of weekly U.S. oil inventory data for the week of April 18 at least temporarily slowed oil’s meteoric rise from $100 to nearly $120 a barrel in the month of April. Crude stocks grew by more than double what analysts expected, though the gains were entirely in the isolated West Coast region.

    The inventory gains, which prompted a brief drop in oil prices, weren’t enough to shake off concerns about supplies worldwide. About 170,000 barrels a day of Nigerian production remains shut-in following a pipeline attack earlier this week. BP Plc (BP) is also considering shutting down its 700,000 barrel-a-day Forties pipeline system if a strike continues at a U.K. refinery. Both the North Sea and Nigeria produce oil that is low in sulfur and other impurities, which makes it ideal for gasoline production.

    “The selloff here was an opportunity…some really high-grade crude for gasoline usage is out in Nigeria,” said Mike Zarembski, senior commodity analyst at brokerage optionsXpress Inc. in Chicago. “The buyers came out of the woodwork again.”

    Although gasoline inventories remain above the five-year average, supplies have fallen rapidly in the last few weeks, raising concerns about stocks heading into peak summer demand. For the week ending April 18, gasoline inventories dropped 3.2 million barrels, compared with a mean analyst expectation of a 2.1 million barrel draw.

    May reformulated gasoline blendstock, or RBOB, futures hit an intraday record for the eighth-straight session, settling at $3.0507 a gallon, up 3.43 cents, or 1.1%, the biggest percentage gain in the energy complex Wednesday.

    May heating oil also settled at a record of $3.3250 a gallon, up 81 points, or 0.2%. The need for heating oil is lessening as warmer temperatures arrive in the primary U.S. Northeast market, but strong demand globally has kept prices high later in the year than normal.

    “Products have been really leading this market the past several weeks,” Zarembski said.

    The outlook for products is unpredictable, however, given the seasonally unusual situation of strong refiner margins for distillates, but weak profits from gasoline production, wrote analysts at JBC Energy in Vienna.

    “U.S. refiners are increasingly finding themselves in a sticky situation amid feeble gasoline cracks,” the analysts wrote. “Either they cut runs for economic reasons, foregoing healthy (distillate) profits…or they boost production to meet middle distillate demand, which in turn contributes to the ample supplies of gasoline.”

    —By Brian Baskin, Dow Jones Newswires

  86. 86
    Sambone Says:

    Cattle – Good article, thanks for the update!

  87. 87
    uop Says:

    zman:

    you think COP is the best to get? do they have best efficiency in refining ?
    or they are just cheap ?

  88. 88
    Sambone Says:

    Cattle – Since I understand that your in the beef business, is it true that many folks are selling off their herds because of feed costs?

  89. 89
    zman Says:

    Been unusually active of late. This profit taking could go on longer and I am not in a shorting kind of thought pattern now …also I am fairly long so just waiting.

    HK just went green, PQ flat. EOG up (don’t own but its a good benchmark). CLR up now. NBR near HOD and HAL coming back. No panic in this group.

  90. 90
    zman Says:

    COP – mainly cheap with best leverage to these high natural gas prices among the majors.

  91. 91
    zman Says:

    Last warning on stocks we traffic in a lot reporting earnings tonight/tomorrow, NFX and DO after the close. NFX is usually later around 7 or 8, DO I can’t remember, could be a morning reporter.

  92. 92
    cattleman Says:

    Sam – Not yet around here. We’ll see how successful we are at passing through the higher input costs. I’m planting leguemes this spring to grow my own nitrogen. What’s your take on the story as relates to profunds?

  93. 93
    zman Says:

    Also re 84: Some of the best dollars I make are the ones I don’t lose. I said earlier that I wasn’t taking SU, that got crushed. and refiners: wasn’t happy with the jump in utilization despite the fact that gasoline was drawn down bigger than expected, it just didn’t thrill me so I didn’t add even as TSO rebounded 4%, now its down. Anyway, just thinking out loud that you don’t have to make money everyday or trade every day. It’s a marathon, not a sprint.

  94. 94
    ram Says:

    DO really under selling all day and prior to close. Nervous Nellys?

  95. 95
    VTZ Says:

    Just saw that Nexen found gas in British Columbia which was where someone was just saying was going to pick up.

    http://ca.reuters.com/article/businessNews/idCAN2317733320080423

  96. 96
    zman Says:

    What XTO did wrong: They beat the top line numbers, they increased guidance…so what did the Street not like?

    How about flat sequential volumes in the Barnett and rising LOE/Mcfe (above guidance)

    Flat volumes in your major basins should not be a problem for NFX, CHK, HK. NFX
    guided pretty high on costs so I’d be surprised to see them top it. CHK might be the one with a cost issue.

    DO – I guess so.

  97. 97
    zman Says:

    VTZ: $10 NG and suddenly there’s gas everywhere.

  98. 98
    VTZ Says:

    To say it’s comparable to the Barnett is significant though.

    “Nexen indicates that that the shales are approximately … 50 percent thicker than the prolific Barnett shale play,” Andrew Potter, an analyst at UBS Securities wrote in a note to clients.

  99. 99
    zman Says:

    True…just thinking we have had several of those comparisons over the last 2 months and I was thinking about that in light of what the current shale plays have done to production levels and where gas is priced right now. Pricing has effective skipped the shoulder season.

  100. 100
    reefguy Says:

    #99 z-that is what I was saying yesterday. No shoulder season…headed into the looking glass…

  101. 101
    zman Says:

    FTI and DVN sign 5 year deal for subsea systems.

  102. 102
    zman Says:

    Reef- it looks like traders are agreeing with you. NG will make a good short at $12.

  103. 103
    reefguy Says:

    z- do not short it for Calender 09 at that price

  104. 104
    VTZ Says:

    How can you honestly say gas is going to be worth more than 12 next year?

    There will be an even bigger glut of North American supply by then and, if anything, reduced industrial demand even if utilities are burning it.

  105. 105
    reefguy Says:

    VTZ- Now I did say that it was worth that price. Look at the facts. Without a worldwide slowdown, oil is unlikely to stop at $120. I like a 12/1 gas to oil price ratio. At 144 oil thats 12 gas.

  106. 106
    zman Says:

    V – I agree completely and think the price is nutty here. You can’t have every Barnett player putting up record numbers on one hand and then saying (like Mark Papa of EOG does each quarter) that he disagrees with the EIA gas numbers. I think the numbers are off by a bit over time, sure, but directionally they are right and showing a surge of 4.1 Bcfgpd YoY as of January. There’s no similar increase in demand to offset that. LNG is not that big a delta and where does the bear argument regarding a recession depressing oil consumption disappear regarding gas on the industrial side, which is still the biggest consuming segment. High prices = demand destruction. Not a lot b/c of efficiency improvements over the last decade but surely no growth. Maybe a little on fertilizer but chemicals and other industrial should hack into any gain there.

    On LNG, a lot of last year’s gains came early in the year so soon we will start to see the YoY deficit start to shrink. If we get a hot summer I’d say brief run to $12 plus. If we get a spinner in the Gomex they’ll take out $15 in a flash as the talking heads on CNBC talk 6-1 BTU parity like a kid that just learned the alphabet but can’t spell or read yet.

    Agree with Reef that it is linked with oil but there has to be some demand destruction when you get gas hanging out up here for extended periods of time. Then again, as much as the metals have run, steel will probably be fine. Bet the paper companies are hating this though. Food makers too. This makes for some seriously pricey baked goods.

  107. 107
    VTZ Says:

    Well, gas price can continue to rise and force supply up until we have nowhere to put it, then.

    Then we can shut in all our wells and pay production cost per btu. Then we’ll see how much oil to gas ratio means.

  108. 108
    zman Says:

    VTZ, too right. Then Reef’s comment about converting all that Regas capacity to liquefaction will look pretty visionary.

  109. 109
    VTZ Says:

    I could honestly see LNG (the company) doing that until the US government has something to say about it.

  110. 110
    zman Says:

    If (LNG) has another day or two like today I will be looking at puts.

  111. 111
    VTZ Says:

    Looking at price action on LNG (the company) is one of the funnier parts of my day.

  112. 112
    md Says:

    any way to play HO vs. Gasoline as one does crack spread with UGA.

    Any indication on NG numbers for tomorrow. HDD was a bit high but so was last weeks and that had little effect on builds. As todays propane and >15PPM is any indication the heating season is over.
    You make a great case for ample domestic supply and Canada’s inventory will stabilise and climb as Alberta sweetens the royalties. Keep in mind that new power generation is increasingly NG.

  113. 113
    zman Says:

    V – Me too.

    DEEP got delist notice

    md – not off the top of my head, will look.

    Bloomberg says 30 Bcf injection which goes up against an unched number last year. Next week HDDs fall through the floor and we should see a high double digits injection. I think the “little effect on builds” is evidence of the production, plus we have Indie hub offline during this time, when that 1 Bcfgpd comes back, watch out for accelerating injections. Re Electricity, true enough and I need to do a little more work there and should have mentioned it in my rant in #106. I can’t see it bridging the 4+ Bcfgpd supply increase however.

  114. 114
    zman Says:

    NFX beats top end of production guidance, taking up full year 2008 numbers.

  115. 115
    Jay Reynolds Says:

    Need to put some money to work in my IRA (sold my USO – already in the business and “on the ground” investment in the oilfield pays better, albeit w/ tax consequences).

    Already have 1,200 CHK, 1,000 HAL and 2,000 NBR. Thinking of HK… any thoughts much appreciated.

    Will update you on local events, probably next week after I have a chance to hang around the eating joints. Busy in the field right now.

  116. 116
    Jason Says:

    Hi Z – Re 106 – Interesting data I found last year on electricity demand/gas demand relationship:

    “The data is compelling,” said Kent Bayazitoglu, director of analytics with Gelber & Associates in Houston. “After a certain amount of gigawatt-hours, power generation is pure natural gas.”
    Bayazitoglu estimated that 99% of power generation above 85,000 gigawatt-hours comes from gas-fired generators.
    8/5/06 98,583 GW 12B Withdrawal
    7/22/06 96,314 GW 7B Withdrawal

  117. 117
    check over here Says:

    check over here

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