13
May

Tuesday Morning – Refiner Comments + PBR Beats

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In Today's Post:

  1. Holdings Watch - added more PBR, sold some May PQ
  2. Commodity Watch
  3. Crack Spread Update - getting ready to go long VLO and FTO
  4. Stocks We Care About Today - PBR, DNE
  5. Odds & Ends

Holdings Watch:

  • PBR - Entered the June $67.50 calls for $3.30. Will be exiting the May $65 calls very soon.
  • PQ - Sold the May $22.50 Calls for $0.50, up 43%.

Commodity Watch:

  • Crude Oil closed off $1.73 to $124.23 yesterday as no new bullish news appeared to help boost crust to a 7th straight day of record prices. This morning crude is trading +/- $0.50 as weighs a reduced global demand forecast from IEA. 
  • IEA Trims '08 Global Crude Demand Again. Global consumption will rise by 1.03 million barrels per day this year, 230,000 bopd less than the previous forecast. This cut was widely anticipated. According to the IEA, "This report sees further downward adjustments to demand, and they may not be the last ... Despite an aggressive cut last month in our US demand forecast, further downward revisions are needed this month." (which is generally the case when you start out too high in the first place, telling OPEC they need to produce more and completely miss the mark on the economy). The report did go on to say that demand growth from emerging countries remains strong at 3.7% or 1.4 million bopd in 2008, led by China and the Middle East.
  • Hugo Is Freedom Fighter Watch: Interpol has evidence linking Venezuelan President Hugo Chavez with FARC rebels in Colombia trying to other throw that country's government, something the Colombians have said was the case for quite some time. Recall a couple of months back when Hugo was enraged by a Colombian strike on rebel forces in Ecuador? Well, there you go, they where his muchachos. This evidence may result in the U.S., and maybe the U.N. if they decide to work in 2008, levying sanctions against Venezuela which would almost certainly lead to him cutting off the 1.6 mm bopd of crude he sends to the U.S.this way. One man's freedom fighter is what I call a terrorist.
  • China Shuts In Production/Product Pipelines. China has order (PTR) to shut in some oil and gas wells and gasoline and diesel pipelines while it inspects them for damage following yesterday's earthquake. The Sichuan basin is not yet a big hydro-carbon producing region and it will not have a negative impact on global supply. It is possible that refineries in the region will have to shut down soon do to limited on site storage capacity which could lead to stories that China is buying and trucking fuel to the region but again, I think the impact would be muted although the hype may not be.
  • Natural Gas fell $0.24 to $11.30 yesterday as crude eased. This morning it's trading pretty flat but will likely key off the move in crude.
  • Weather Watch. Heating Degree Days for the current week as forecast by the CPC came in at 45, same as the prior week, but much cooler than the 29 HDD's recorded in the year ago week.
  • Imports Still Sluggish, Down 2.5 Bcfgpd From Year Ago Levels
    • LNG Stuck at 0.7 Bcfgpd. Somebody thump the gage, LNG send out volumes have remained mired at this level almost all year during which time NG prices in the U.S. have come up about $3 per MMBtu. This is a whopping 2.3 Bcfgpd off year ago levels.
    • Canadian piped imports at 7.8 Bcfgpd, off 0.2 from last year's levels. This is the second week imports have drifted below year ago levels and while I don't think its the beginning of the long awaited slide in Canadian volumes it: 1) could be and 2) will certainly be pointed to by natural gas bulls trying to justify prices above the $11 mark. 

Crack Spread Update: Cracks weathering high crude thanks largely to diesel pricing.

crack-spread-050908.jpg

Refining Multiple Update 

refining-multiple-051208.jpg

Refiner Notes: Time to add another couple of toes. Probably FTO and VLO September calls.

1) Once again, the refiners look too cheap to resist but I'll be gong back in small, with longer dated calls as they looked cheap months ago.

2) Crack spreads are weak for second quarter going into driving season but products appear to be holding their own relative to the most recent rally in crude. As FTO said on their 1Q conference call, gasoline is seen by many now as a byproduct. You have to produce it to produce the amount of diesel you want which is where the margins are at present 

3) WTI / Heavy Oil Spread Picture:

heavy-vs-wti-050208.jpg

The increasing spread of WTI over Maya is a welcome trend for the likes of Valero who can use heavier and more sour grades of crude in their system relative to most of their peers. The shrinking differential of Canadian heavy to WTI is a function of increased demand for the heavy charge...nobody wants to run light sweet through their refineries at these prices if they can help it and if they do, which is the case for many who simply can't process the heavier oil or much of it as a percentage of their total throughput, the result of late has been negative cash margins. 

4)  So what do I do? I dip another toe, a longer toe (longer dated calls) in VLO and FTO. I take my time building position, no sense swinging my bat and breaking. I re-read the transcript of the FTO call last night and although the stock has barely moved that was excellent quarter and 2Q will be quite a bit better both from an operational standpoint and from a margins standpoint. The chart is even starting to show signs of a bottom. The VLO is the group stalwart and should start to get another wave of bottom fishing recommendations from the beleaguered  set of analysts who follow the group so I'll be taking the big kid on the block and the best run of the little guys. Since I don't plan on being right instantaneously I'm going to give myself a little time, say to September for this play to really start to work.

 

Stocks We Care About Today Watch:

PBR Reports Above Consensus 1Q08 Results:

The 1Q08 Numbers: 

  • Reported net income of R$6.925 billion (reais) vs expectations of R$5.6 billion,
  • EBITDA of R$13.876 billion vs R$12.6 billion expected which is a blow out in any language,
  • Production of 2.345 million BOE per day was up 2% YoY with natural gas leading the way up 11% YoY and 10% sequentially,
    • mix was 82% oil, 90% domestic,
    • natural gas production fell 3Q to 4Q so the bump back up with a number project start ups will be welcome news here.
    • total production was 2.339 million BOEpd in March.
  • LOE increased 8% YoY to $7.78 / BOE which is not bad given the inflation rates at many of their peers, expect this to come down as volumes ramps over the next two years. 

Production Guidance: Not so much official guidance as what the CFO said at their press conference Monday night, that Brazilian oil production will reach 1.95 million bopd by year end, that up 7% from the 1Q average domestic oil production. He went on to say that five of their recently announced platforms were now pumping a combined 185,000 bopd, on their way to a total of 590,000 bopd this year.

Other Items:

Financial market transactions of $5 billion expected in the remainder of the year. 

There was little operational data in the press release but the call will shed a little more light on the sub-salt (they call it pre-salt) delineation and long term test plans. 

Conference Call: 12 EST with slides available 30 minutes prior to the call.

Dune (DNE) Announces 1Q Results, Mulls Barnett Sale. The quarterly results were hampered by some one-time and not so one time non-recurring issues (higher than normal workovers which happens from time to time) but that's not the story here and I could care less about their 1Q numbers. I think the monetization of their small Barnett position is a good idea as they apparently get little credit for it and it keeps them focused on their high potential Gulf Coast exploitation and exploration opportunities. EBITDA generation potential here is generally understood by about 1% of the investment community but as they execute on the plan I expect a broader audience to take notice although this may take another year. I am pleased to see that the plan has not changed from its Gulf Coast focus (no shale land grabs). The company has a conference call at 10 CST, dial in is (888) 830-6260, pass code: 884474. 

 

Odds & Ends

Analyst Watch: (LNG) price target cut from $13 to $9 at Lehman, FST price target upped at Lehman, (FCL) price target upped at FBR.

Coal To Diesel Plant Planned. Two private firms plan to build the first of 8 commercial scale coal-to-diesel plants in Kentucky with first production of 70 mm gpy slated for 2011. The plants will utilize the Fisher-Tropsch process which has been around for decades and if they are smart they'll use industry leader Sasol (SSL) to implement.   

140 Responses to “Tuesday Morning – Refiner Comments + PBR Beats”

  1. 1
    reefguy Says:

    ioc-Converts $70MM merrill debt to $95 MM 8% subordinated convertible. 15 days above $32.50, must convert. It will be above this price after cc on Thursday morning.

  2. 2
    Dman Says:

    Hi Z,

    I’m not really conversant with all the units you oil & gas guys use, so I don’t know how much “70 mm gpy” translates into say, millions of barrels of oil equivalent. Can you do a quick guide to the various abbreviations/units?

    Is this the 1st new coal-to-oil investement recently? I’d expect it to pick up pretty quickly as oil stays high. Anything investable?

  3. 3
    sane Says:

    1.666 Million barrels

  4. 4
    zman Says:

    gpy = gallons per year, usually the metric you use when you’re small and want to look big, the convert would be a little under 1.7 mm barrels per year.

    There is a dictionary up top on the left with many of these terms but

    It’s the first commissioned coal to diesel plant in the U.S. I believe, and there will be increasing need for diesel for here and for export. I think the play is the guy who builds them and not necessarily the guy who runs them. Sasol is the public play and the coal companies, in this case ACI would be the likely supplier but it could be any of the eastern coals.

    Reef- I guess I’m going to have to play a little IOC then.

  5. 5
    Sambone Says:

    7:55 am EST

    Crude Weaker As IEA Trims Demand Outlook

    By Angela Henshall
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures traded lower in London Tuesday after the International Energy Agency slashed its forecast for growth in world oil demand for the second consecutive month.

    “On the face of it (the data are) quite bearish,” said a trader based in London “I would imagine we could see a bit more selling creeping in again.”

    In its monthly oil report the IEA cut its prediction for world oil demand growth, a leading indicator closely tracked by the crude oil market, by 230,000 barrels a day to 1 million barrels a day. That translates to 1.2% growth in 2008 compared with 1.5% growth forecast in last month’s report.

    At 1137 GMT, the front-month June Brent contract on London’s ICE futures exchange was down 39 cents at $122.62 a barrel.

    The front-month June light, sweet, crude contract on the New York Mercantile Exchange was trading 28 cents lower at $123.95 a barrel.

    The ICE’s gasoil contract for June delivery was up $1.50 at $1,179 a metric ton, while Nymex gasoline for June delivery was down 6 points at 316.36 cents a gallon.

    Crude oil futures have been locked in an uptrend for several weeks and most traders said they expected to see crude resume in the same vein once the IEA’s bearish news had been fully absorbed by the market.

    The crude oil bulls won’t be discouraged by the IEA’s report, according to the London-based trader.

    “I still don’t see us collapsing,” the trader said. “I think the bulls are too much in control.”

    Prices were lifted to fresh highs for the sixth session in a row Monday by bullish technical charts and investment flows. The trader said while bearish news filters out “in bits and pieces,” sending the market drifting slowly lower, “when a bit of bullish news comes out, we fly.”

    However, in addition to negative news from the IEA, a number of other bearish signals are surfacing, said Mike Wittner global head of oil market research at Societe Generale, highlighting possibility of a correction lower in coming weeks.

    Flattening of the crude oil futures curve into contango, where front-month contracts are less expensive than those further out, said Wittner, is the result of a well supplied sweet crude market.

    “The ICE Brent curve is in contango and Nymex crude has flirted with it,” said Wittner. “The shape of the curve and the margins are key signals and have added some nervousness.”

    Wittner said downward pressure on margins for Asian refiners was also a key bearish signal for the market.

    “I think its a war of attrition,” said Global Insight analyst Simon Wardell, who expects to see the market eventually adjust to the broader fundamental picture and remove some support from crude.

    “It’s curious that we have this situation of ample products and crude supplies, and yet still record prices for crude oil futures, mainly I think due to the weaker US dollar and a large speculative interest,” he said.

    While recent events in Nigeria knocked out a significant proportion of global sweet crude supply, news Iran has chartered a large number of vessels for floating storage is significant evidence of sour oversupply according to the analysts.

    Organization of Petroleum Exporting Countries Secretary-general Abdall Salem El-Badri reiterated last week the group feels there is no shortage of oil in the market, and said some OPEC nations are unable to find additional buyers for extra crude.

    —By Angela Henshall, Dow Jones Newswires

  6. 6
    zman Says:

    Thanks Sane – am I right, is that the first coal to diesel plant you recall hearing about in the states. I think that is a really good idea although the water consumption of these dudes is pretty high (this one is 10,000 gallons of fresh water per hour) and I don’t know what that water looks like on the back end but I can guess its got more mercury in it than it started with.

  7. 7
    zman Says:

    PBR drifting out more statements not in the press release, reiterating its thoughts for Tupi. 30,000 bopd long term test beginning March 2009, real production begins 2010 and ulitimately the field could produce 1 mm bopd. It did say it has contracted three new rigs 2 for Tupi and 1 for Carioca.

  8. 8
    uop Says:

    zman:
    GM,

    what is WTI, i looked in your dictionary, could not find it.

  9. 9
    zman Says:

    morning Uop

    WTI = west texas intermediate.

    http://en.wikipedia.org/wiki/West_Texas_Intermediate

  10. 10
    kyleandy Says:

    reef – what u expect out of IOC conf call. i have may 30 options against my stock, and am considering buying em back, but they have a pretty good premium left. other option is to buy a little more IOC. at least it’s a good problem to have!!

  11. 11
    Garyinhou Says:

    Hey Z.. funny side note, I have a double with a few clr puts thanks to Taters reminder Friday.

  12. 12
    antrimshale74 Says:

    WNR getting totally hammered.

  13. 13
    zman Says:

    ZTRADE: Bought PBR $70 May calls for average 0.63, is pretty risky as it’s a near term call.

  14. 14
    zman Says:

    Nice Gary – will ride, I’m long in enough in terms of expiration to ride out some near term data there…I think.

    WNR had earnings and I did not review but I think those guys are poorly run and there you have it.

  15. 15
    zman Says:

    Those PBR’s I paid 0.63 for are now offered at 0.45 to 0.50 depending on the tick.

  16. 16
    Dman Says:

    Z – I hadn’t noticed the dictionary. XLent!

  17. 17
    ram Says:

    WILDZ Trade so early ZAMN.

  18. 18
    zman Says:

    Morning Ram – yea, yea, I know…but I think it rallies into the call at 11 EST. This one is likely to be a day trade. I’m entitled to 1 or 2 of those every now and again.

  19. 19
    ram Says:

    Oil service guys still getting no respect.

  20. 20
    kyleandy Says:

    DNE # is 888 830 6260 access 884474 (u had wrong #) call at 11:00 eastern

  21. 21
    ellwodo Says:

    XCO is looking pretty cheap.

  22. 22
    zman Says:

    Ram – I know, NBR is thinking about getting some respect though. I’ll need to lose my HAL Mays soon.

    thanks Ky, will fix.

    Elwo – I know, I’m going to wait for the group to settle down a bit before adding more.

  23. 23
    kiaora Says:

    What about CLR ?

  24. 24
    zman Says:

    CLR – no news, just profit taking on yesterday’s dip in oil. I’m holding for the upcoming tests but if the group breaks down I will punt and re-add lower. Right now we have bigger cap leadership in the green in E&P led by APA but it is weak and not spreading to the other names. Watching closely now with an eye towards profit protection and not as much towards new risk taking.

  25. 25
    tater Says:

    If anybody wants to see this kind of stuff:

    CLR
    Problem with my doji candlestick call last Friday was that I was too agressive, should wait until end of day to confirm. As it turned out, the pattern formed and here we are:

    Fib retracements of move of May 2 low of 39.13 to high on May 9 of 55.64 point to:
    .38 % = 49.37 (completed this morning)
    .50 % = 47.39
    .62 % = 45.35

    Fib retracements of move of March 24 low of 24.44 to high on May 9 of 55.64 point to:
    .38 % = 44.78

    Stock gapped from May 2 44.26 to May 5 46.50.

    To cut to the quick, from the numbers above as well as other technical indicators like Stoch, hate to be the putz but it would appear that this stock comes back to take a look at $45ish, which at that time would correspond to a meeting with its 20 EMA (20 day exponential moving average price).

    As always, this is purely voodoo, and not a recommendation.

  26. 26
    zman Says:

    Thanks Tater, that witchcraft is always welcome.

  27. 27
    Dman Says:

    Z – Rig down 5 days running. Now almost 10% off its high. You asked me to remind you next time it is down big. I know it isn’t down $14 in one day. But still, thought I’d pipe up.

  28. 28
    zman Says:

    Tater – would you be so kind as to do the same for USO and DUG?

  29. 29
    zman Says:

    Thanks Dman – I’m watching that as well. The quarter was not what people wanted to see as the exceedence to estimates was caused by cost deferrals that will just show up in Q’s 2 and 3. I do think they are coming into range but I’m nervous about taking on them given the relative importance of EIA inventories tomorrow, hence my question for Tater in 28. I know it has not worked but DO has less exposure to the jackup market, which is seeing weakness, RIG and they have that variable rate dividend which makes them more attractive to a broader audience of fund managers. Just food for thought. All of these guys (the deepwater focused players) will do very over the next 1 to 2 years due to increasing dw and ultra dw rig demand means higher dayrates but that story is well known and people are looking for cracks in it. Ultimately, I think they go higher but you may have to cross a valley to get there.

  30. 30
    Dman Says:

    Rig at 8.75 X 09.
    DO at 10.4 x 09

  31. 31
    Dman Says:

    Couldn’t really see what the broad market was so excited about yesterday. Guess they’ve changed their minds.

  32. 32
    tater Says:

    Couple more things, CLR short interest increased by 50% probably due to Cramer’s musings, so a few of the crankier hedge fund boys have the stock’s attention.

    Have to run out for a bit, I’d be happy to give those two a look this afternoon, but just a bit of a head’s up, those two have enough $ behind them that no matter what technicals say, some guy with a $billion will ALWAYS push them into that gray area where you are left scratching your head.

  33. 33
    zman Says:

    yes, I know, maybe cheap for a reason, eh?

    They don’t like oil not falling away from $125.

    Natural gas on fire again. Rumors around that the China quake will result in less gas production and more LNG required. That’s a bit of a stretch.

    Thank’s T

    HK cresting $26 again, just can’t keep a good Haynesville player down.

    I had the time wrong on the PBR call so I will be listening to the DNE call after all. PBR at 12 EST.

  34. 34
    tater Says:

    Sorry, “hedge fund boys” is sexist, and as I am trying to be more aware of my mouth, I apologize for that.

  35. 35
    Dman Says:

    Impressionistic take on USO: it reminds me of the cartoons when Bugs Bunny has just run off a cliff & is running in midair but hasn’t started falling yet.

  36. 36
    zman Says:

    DNE call moved to 10:15

    888 422-7128
    pass code: 884474

  37. 37
    Dman Says:

    #33 Since there is hardly any LNG arriving in the US, and I don’t think there was any expectation of a change in that situation due to asian/european pricing, it is certainly a stretch as an excuse for NG being up more than 2%. OTOH, USO up 107% from a year ago, UNG up only 4.5%

  38. 38
    zman Says:

    holy smokes, heating oil up a dime to an all time high which is driving crude higher and natural gas higher separately. This along with the China rumors on NG make little sense since the tie on HO is fuel for trucks and power generation over seas and not anything to do with space heating. But who am I to argue with the moves in the gassy names today.

    Dman – guess it could always go to zero but I think about 0.5 Bcfgpd represents firm contracts to the U.S. from nearby places like Trin & Tobag

  39. 39
    zman Says:

    Go CLR

    getting on the new improved DNE call now

  40. 40
    zman Says:

    oil up 2.60 to 126.93, new high, heating oil up 13 cents to new high

    nat gas up 33 cents or 3%. wow.

    Gassy stocks once again approaching all time highs.

  41. 41
    Sambone Says:

    Wow Oil is up over 2 because of Iran

  42. 42
    uop Says:

    zman:
    I thought you had real control over UNG considering what you know about NG pricing during bthe year, supply/demand/weather,

    now its running away again the wrong direction:
    there seem to be NEW factors/variables which need to be considered: what are these ?

    Still have trouble understanding this as there is no shortage of NG.

    Please enlighten me.

  43. 43
    Sambone Says:

    Oil futures pulled higher by surging Heating oil and fear of Iran cutback, Dow reporting

  44. 44
    zman Says:

    PBR approaching HOD with the call in 20 minutes. Some of that is oil, some is the release of the presentation in the last 10 minutes which honestly does not have a lot of new info from them which is pretty typical. Again, I will be quick to take profits on the 65s and losses on the May 70s, possibly during the call unless they come up with more details on the big sub-salt plays.

  45. 45
    zman Says:

    42 – its up with heating oil and crude, what more can be said?

  46. 46
    apbd Says:

    Z: COP short timers? We still hanging on?
    apbd

  47. 47
    zman Says:

    XCO just not playing, Reef, you around? You hearing anything there?

    About to hop on the PBR call

    DNE answering questions well, more later on them but Watt is a pro.

    You’ll see some May calls go out the door in a couple of issues soon, thinking HAL and PQ as I need to go ahead and get rid of the rest of my May positions.

  48. 48
    zman Says:

    A – I’m holding that one a little longer yes but I may punt any of the Mays at any time, more concerned with loss control than profit generation right now.

  49. 49
    Dman Says:

    All I see on the news is:

    “Iran president to offer proposals in nuclear row”

    Is that what you are seeing Z? Maybe traders expected Iran to accept the Western proposal instead of come up with their own. Not likely.

    BTW I think the last $10 in oil has been mainly about the drumbeat towards an attack on Iran.

  50. 50
    zman Says:

    DNE – lots of interest in this call. I would call it unusually high. Odd for an over looked single digit midget. Interest coming from both sell and buyside guys.

  51. 51
    uop Says:

    zman:

    now there is a shortfall on Diesel and heating oil.

  52. 52
    zman Says:

    Oil – could be doing the speculative blowout Nicky and I have been looking for. Its a key reversal day where you get this big spike up and then a big drop, red, red and sharply lower close. You can bet all my Mays are on the bubble for sale as this kind of action can snuff them.

  53. 53
    reefguy Says:

    z- in and out xco? acting funky

  54. 54
    Dman Says:

    Oil comes off a little, broad market recovers a little. Like clockwork.

  55. 55
    zman Says:

    Reef- I was wondering that myself, I don’t see any thing. You?

    Nicky sent me a note saying Senate voted to suspend SPR fill. That is pretty useless but a gesture to the voters I guess.

  56. 56
    john11 Says:

    Anybody have link to PBR cc? TIA

  57. 57
    benbobby Says:

    Zman,why the price disconnect between Hess and Valero,Sunoco and the others?

  58. 58
    zman Says:

    PBR call:

    http://www2.petrobras.com.br/portal/frame_ri.asp?pagina=/ri/ing/index.asp&lang=en&area=ri

  59. 59
    zman Says:

    Ben – I’m on a call, can you be more specific with the question, do you mean today or over time and price of stock or valuation? The easiest answer would be that HES is an integrated oil co and VLO and SUN are only refiners.

  60. 60
    Sambone Says:

    Just read this and thought all should see it.

    http://www.wachoviasec.com/wachoviasec/WSICommentary/wklycomm05-12-08.pdf

  61. 61
    Sambone Says:

    Senate/SPR – Bush will veto it.

  62. 62
    zman Says:

    Sam – which is what congress wants him to do….enemy of the little guy and all that.

  63. 63
    Sambone Says:

    11:34 am EST

    Oil Futures Jump On Talk Of Iran Output Cut

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    [Dow Jones] Nymex crude is trading higher, on Iranian news service reports that the country is considering a cut to output. The momentum was already to move upward, with heating oil futures up 3% on tight European inventories. June crude trades at $126.22, up $1.99 and off just 18c from the record high set Monday. (brian.baskin@dowjones.com)

    HOUSTON — Crude oil futures traded flat Tuesday as surging heating oil futures countered signs of weakening oil demand.

    Light, sweet crude for June delivery traded 3 cents higher at $124.26 a barrel on the New York Mercantile Exchange. June Brent crude on the ICE futures exchange traded 42 cents lower at $122.49 a barrel.

    A slew of data suggesting reduced oil demand has been released over the last two days, including a report Tuesday by the International Energy Agency revising its 2008 forecast for demand growth to 1.2%, from 1.5%. On Monday, China reported the first year-on-year drop in oil imports in 18 months. Oil futures settled $1.73 lower Monday, after six days of gains.

    Heating oil is pulling crude futures in the other direction, however, with low refining activity in the U.S. and strong demand for distillates in Europe and Asia pushing futures higher. June heating oil traded 6.08 cents, or 1.7%, higher at $3.6206 a gallon. Front-month June reformulated gasoline blendstock, or RBOB, recently traded up 57 points, or 0.2%, at $3.1699 a gallon.

    “What happens in the heating oil market will be extremely important to the crude oil since the crude market appears to be losing a couple of major price props,” wrote Jim Ritterbusch, president of Ritterbusch & Assoc. in Galena, Ill.

    Traders are also eyeing the small premium for June futures over the July contract, which briefly flipped into a discount on Friday. A discounted front month indicates ample supplies, which would add downward pressure to oil prices. In U.S. Energy Information Administration data expected Wednesday, analysts forecast an average 1.7 million barrel increase in oil inventories for the week ended May 9, which would mark the fourth straight week that stocks have risen.

    “The downward push we saw yesterday should be viewed…a temporary setback resulting from overbought conditions that could conceivably run through Wednesday’s EIA numbers,” wrote Ed Meir with MF Global. “In our view, energy markets still lack a major bearish headline to change the current mind-set.”

    —By Brian Baskin, Dow Jones Newswires

  64. 64
    reefguy Says:

    ioc cc call Thursday morning.. before friday expiration. How about a high risk option play?

  65. 65
    ram Says:

    Suggestion: One WILDZ Trade per week!

  66. 66
    Dman Says:

    Sam, thanks for #63. An actual oil issue rather than a war issue. Who woulda’ thunk?

  67. 67
    Sambone Says:

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    HOUSTON (Dow Jones)–Crude oil futures set a new record high Tuesday on
    surging heating oil futures and concerns that Iran is mulling a production cut.
    Light, sweet crude for June delivery recently traded $1.30, or 1.1%, higher at
    $125.53 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange traded 82 cents higher at $123.74 a barrel.
    Futures jumped to a new intraday record of $126.98 a barrel after U.S. news
    services reported a story issued by the Fars News Agency that Iran would cut
    output next month. Iranian Oil Minister Gholam Hossein Nozari denied the
    report, but said a “debate…did take place,” the news agency said.
    “It’s Iran’s way of jawboning the market higher,” said Nauman Barakat, senior
    vice president at Macquarie Futures USA in New York.
    Still, some market participants were confused by the timing of the move on
    Nymex, given that markets worldwide saw the Fars report hours before U.S.
    trading began. Futures quickly shed about half the day’s gains after setting
    the latest record.
    “I just think this is a bull market, and it doesn’t take much for us to push
    (higher),” said one London-based broker, who dismissed the Iran output cut as a
    “repeated story from this morning.”
    Oil prices were already primed to move higher by skyrocketing heating oil
    futures, which at one point were up 4%. Traders are concerned about European
    distillate supplies, following a fire over the weekend at a Scottish refinery,
    and data showing European distillate inventories off from a year earlier.
    The U.S. Energy Information Administration is scheduled to release distillate
    stock data Wednesday morning. Analysts forecast an average 800,000 barrel
    increase in inventories for the week ending May 9.
    “It’s been more about Europe, which is pulling supplies from everywhere else,
    but in this environment, our U.S. stock levels will be watched very closely,”
    said Tom Bentz, a broker and analyst at BNP Paribas.
    June heating oil traded 10.68 cents, or 3%, higher at $3.6666 a gallon. June
    reformulated gasoline blendstock, or RBOB, recently traded up 2.92 cents, or
    0.9%, at $3.1934 a gallon.

    -By Brian Baskin, Dow Jones Newswires; 713-547-9202; brian.baskin@dowjones.com
    (Lananh Nguyen in London contributed to this article)

    (END) Dow Jones Newswires
    12 21 PM EDT 05-13-08

  68. 68
    zman Says:

    Reef – is there any other kind? I think the June $40s will likely get the best push on a % basis from their current buck. You could get a matching put down around 15 for $0.30 and that range is probably good for success and failure.

    Ram – that would be too often.

  69. 69
    ram Says:

    PBR call good or bad?

  70. 70
    zman Says:

    just going into Q&A now, so far not much new

  71. 71
    benbobby Says:

    Zman,last summer HES was in the 50’s and VLO was in the high 70’s..HES has doubled whereas VLO has almost been cut in half….I didn’t realize that exploration was a significant segment of the HES business. Maybe VLO should revise their business plan…tks

  72. 72
    zman Says:

    they are not ready to say anything new re Tupi, they have not been asked about Carioca or other prospects yet so the stock is flat lining, that, and oil ran out of steam.

  73. 73
    Dman Says:

    CLB up 5% on decent volume. Don’t see any news but could be a catch-up with other service high-flyers.

  74. 74
    Dman Says:

    Oil does seem frothy here. Jumping up on hours-old mumblings from Iran.

  75. 75
    zman Says:

    Dman – DO vs RIG hmmmmm

    PBR call going well, sounds like another exploratory test in Block BM-S-8 will be at TD in the next few days. That’s not investable data but worth noting. Analysts trying to get at future upside now, doesn’t sound like we are going to get anything new so its up to the analysts to get on the squawk boxes post call and say nice things. 50/50 chance I’d say that they say to chase it up here. I’ll be selling my $65s and will watch the $70s for a bit.

  76. 76
    uop Says:

    zman:

    I missed the steady climb of SU,

    does this march in line with petroleum- oil as you say ??

  77. 77
    zman Says:

    Uop – Absolutely. They could not make more money if they built their own presses. I would also note that the heavy oil discount graph in today’s post applies to their production so they are, of late, selling their oil for less of a discount to WTI than they usually do.

  78. 78
    Sambone Says:

    Just the beginning I’m afraid.

    http://www.firstcoastnews.com/news/usworld/news-article.aspx?storyid=108698

  79. 79
    zman Says:

    Sam – it should not have been the “furthest thing” from his mind consider what that rig is worth. Afraid you are right.

  80. 80
    zman Says:

    PBR call ended by saying basically the sub salt is a huge area but they have to drill to delineate so no numbers now, it just has lots of potential.

  81. 81
    zman Says:

    PBR – there was no singular “woo-hoo” moment on that conference call and I don’t think analysts are going to run out and say buy it til head explodes so it will likely trend with oil on the day. Continuing to watch going to punt my $65s now.

  82. 82
    zman Says:

    ZTRADE: Out PBR May calls for $2.70, up 80% since mid April entry. My $70s from this am can be sold for about half what I bought them for and I’m waiting and watching and debating it now. Nothing on the call screamed wow, buy it now for the near term to me and I’ll probably take a hit on those soon.

  83. 83
    zman Says:

    Should have added, still holding my $67.50 Junes from yesterday as well.

  84. 84
    zman Says:

    Wow, would you look at the HK, CHK, GDP moves?

  85. 85
    VTZ Says:

    NFX testing HOD as well

  86. 86
    ram Says:

    NFX is trying to push to $65.

  87. 87
    zman Says:

    VTZ – I know and I have some $65 Mays which have been resurrected with this rally. The Junes are doing pretty well but the Mays need to go out the door soon and as I don’t trust oil up here you can bet they go away before 9:30 CST tomorrow.

  88. 88
    zman Says:

    HK – looks like something is up or at least people think it is, volume ticking up with this rally.

  89. 89
    zman Says:

    HAL getting that respect Ram was looking for, I’m going to take my Mays off the table up here.

  90. 90
    ram Says:

    Good man!

  91. 91
    zman Says:

    ZTRADE: May HAL $45 calls (HALEI) sold for $3.20, up 106%, had sold the first half at $3.05 on 4/18. Still holding my July calls.

  92. 92
    ellwodo Says:

    XCO – Looks as if even it is trying to come out to play

  93. 93
    kiaora Says:

    Anybody thinking about shorting something….I’m getting the cold sweats up here.

  94. 94
    zman Says:

    XCO – bought time!

    CHK trading at all time high, current CFPS 08 and 09 at 5.8x and 5.1x respectively, still well cheap to the group despite the rally.

    K – my thought on short is to raise cash but I am thinking hard about some DUG into the morning.

    CLR – I’m going to take half off the table soon.

  95. 95
    Sambone Says:

    Headline should read: “How to piss off your friends”

    US May Block Saudi Arms Deal To Spur OPEC

    Dow Jones Newswires

    WASHINGTON — U.S. Democratic senators will introduce legislation later Tuesday that could prevent a $1.2 billion arms deal to Saudi Arabia in an effort to spur OPEC to produce more crude oil, the lawmakers said.

    The senators said the move is being made to give President George W. Bush leverage in his negotiations with Middle East leaders as he heads to the region Tuesday, though many analysts said it will likely only exacerbate deteriorating relations with the kingdom of Saudi Arabia.

    Although the arms deal was announced in January, Sen. Charles Schumer, D-N.Y., said a vote of disapproval by a simple majority in the Senate and House would force the deal to a halt.

    White House aides said the president will press Saudi Arabia — the world’s largest oil producer — to increase production, but previous pleas by Bush and Vice President Cheney have fallen on deaf ears.

    “Just asking them isn’t enough, that’s why we’re introducing this legislation,” Schumer said.

    —By Ian Talley, Dow Jones Newswires

  96. 96
    ellwodo Says:

    XCO – I’m the optimist that bought the May 22.5s this morning. I’m starting to feel a little less dumb, but it obviously has my full attention. If anyone hears anything about it please share.

  97. 97
    zman Says:

    Sam – No doubt. Somebody should scream at these idiots that more oil is not the friggin problem. We need more refining capacity and more efficient cars.

    Elwo – absolutely will, hear nada so far.

    CHK taking out $58.

  98. 98
    zman Says:

    ZTRADE: CLR – Half out of June $50 Calls for $5.20, up 197% from entry on 4/21. Nothing in particular about the stock but oil up here is sketchy and I’m raising a little cash.

  99. 99
    zman Says:

    Sam – It’s like Congress wants oil to go higher. Saudi has a huge military already, very high tech with lots of spare parts. Cut them off of new deals and they will be fine for quite some time. What if they decide to teach the U.S. a lesson?

  100. 100
    zman Says:

    RBC took price target on HK from 23 to 29

  101. 101
    Sambone Says:

    #99 – Z this whole thing makes me wonder who is driving this ship called America? Oil was $61 a year ago. All SA has to do is slow production and they will get their jets and Oil will go to $200.00. Different subject – this spike we saw today around 11 am on old news tells me that somebody is messing with prices in the energy patch.

  102. 102
    zman Says:

    Sam – no one with a long range plan that’s for sure. George Washington’s parting address to the nation warned against a two party system but we just didn’t listen:

    “…the common and continual mischiefs of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it. It serves always to distract the public councils and enfeeble the public administration. It agitates the community with ill-founded jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot and insurrection. It opens the door to foreign influence and corruption, which finds a facilitated access to the government itself through the channels of party passions. Thus the policy and the will of one country are subjected to the policy and will of another. There is an opinion that parties in free countries are useful checks upon the administration of the government and serve to keep alive the spirit of liberty. This within certain limits is probably true; and in governments of a monarchical cast, patriotism may look with indulgence, if not with favor, upon the spirit of party. But in those of the popular character, in governments purely elective, it is a spirit not to be encouraged. From their natural tendency, it is certain there will always be enough of that spirit for every salutary purpose. And there being constant danger of excess, the effort ought to be by force of public opinion, to mitigate and assuage it. A fire not to be quenched, it demands a uniform vigilance to prevent its bursting into a flame, lest, instead of warming, it should consume.”

    Re prices, no doubt about it, 7 days before June contract NYMEX expiration, all kinds of crazy things can happen.

  103. 103
    uop Says:

    zman;;the HK is soaring: any news ??

    I see that now even the strike 30 has premium, with jun30 at 0.65$.

    there is something going on.

  104. 104
    zman Says:

    UOP – see #100

  105. 105
    ram Says:

    PQ has been hovering around $22.50 for a couple of days. Is it too soon for the MM to pin?

  106. 106
    zman Says:

    Ram – yeah, I don’t think that’s it, if it had managed to stay positive through the first pull back in oil it would likely have made a little run but these down stock are not what the hot money wants to be in as they suddenly remember energy today. Tells you a little bit about the character of this move as they take anything that’s up, up more, but a little, cheap name like PQ, which has strong production growth and low LOE for the group gets the cold shoulder since its not a household name and not already rising.

  107. 107
    zman Says:

    PQ thinking about joining the party, amazingly sluggish as per above. I’m looking at some June calls.

  108. 108
    sane Says:

    Re 97,

    Congress does not want to reduce consumption because that would mean they would take a hit on fuel tax revenues since the tax is a flat rate per gallon.

  109. 109
    zman Says:

    Sane , right when you get to it 2 things rule all of their decisions: votes and dollars. No wonder we don’t have a plan.

  110. 110
    zman Says:

    CHK and HK trading like sisters

  111. 111
    Sambone Says:

    109 – We had a plan. You may not have liked the guy, but he had a plan.

    http://www.pbs.org/wgbh/amex/carter/filmmore/ps_crisis.html

  112. 112
    sane Says:

    btw

    Great George Washington quote.

  113. 113
    VTZ Says:

    Shell Energy Scenarios:

    http://www-static.shell.com/static/aboutshell/downloads/our_strategy/shell_global_scenarios/shell_energy_scenarios_2050.pdf

    It’s a long but interesting read.

    Anybody think we are in a “Scramble” type scenario?

  114. 114
    zman Says:

    Sam and VTZ – thanks, will read

  115. 115
    zman Says:

    VTZ – U.S. is in scramble, Brazil is in blueprints

  116. 116
    VTZ Says:

    Haha I know. US is 100% scramble and will continue down that path until something drastic changes (which is still predicted within the scramble scenario) like maybe 250-300$ crude.

    Some other places in the EU are in a Blueprints scenario as well.

  117. 117
    zman Says:

    DO and RIG have not reversed positions on the day. Very weird action in that group right now.

    People are throwing money at OII, FTI, CAM – subsea plays.

    Cop acting like …

  118. 118
    zman Says:

    Enterprise Product Partners, operator of the Independence Hub confirmed today that the deepwater 1 Bcfgpd platform would be back on stream mid May as previously promised.

  119. 119
    zman Says:

    MD – why do you think there is value in (LNG)? Just curious as I was about to look into that paired trade with CQP. I think they both stink.

  120. 120
    Sambone Says:

    Overall market – News report out that Moody’s may downgrade MBI and ABK. If that happens lookout. But B52 Ben won’t let them.

  121. 121
    zman Says:

    PBR trade had a late day sell off after a mid day rally. Odd action and I assume profit taking. I’ll give it another day but this morning’s trade is close to toast now which is why I don’t do a lot of the High Risk category trades.

  122. 122
    guru1 Says:

    Zman:

    Regarding your comment about coal to liquids plants, I remember that Fluor was awarded the Engg to design the SASOL facility in 1974 and the project took more than 7 years to complete (I used to work at FLR at that time).

    Any thoughts on FLR as a play on high oil prices (it was a similar story in the mid seventies).
    Thanks.

  123. 123
    tater Says:

    Note to self, don’t leave a bearish analysis on a stock board and leave for 3 hours. Wow, what a battle for CLR.

    DUG
    Really wasn’t aware that thing has only traded actively since the beginning of Feb ‘08. No volume to analyze, so I will beg off, as I really believe that volume holds the key to the importance of any move. That said, if it looks and smells like a turd, probably isn’t a Snickers bar. Trend is overwhelmingly down and any hope of a positive move would be a countertrend play back to its 10 EMA, which it tested yet again today (and was rejected). There’s no support below, so how far can it fall? Anything would just be a guess.

    USO
    Here’s my neck again (actually don’t have anything to venture as I already got it chopped off). Only thing to note on the 3 year chart of weekly numbers is that the strong trend is actually accelerating at a predictable rate. It’s not shooting north in an uncontrolled spurt, it has a measured look to it.
    The daily chart shows nothing that hasn’t already been beat to hell on TV. The moves from the low of Feb 7 to high of March 13, shows a standard Fib retracement back to the March 20 low around 80. Stock then churned for a bit and took off to high of April 28 and did yet another Fib retracement (.38 multiple of the move) back to 90ish on May 1st. Since then the stock has taken off at an accelerated angle from the previous two moves with notably more volume. Move volume should equal a confirmation that those behind the move mean what they say. Problem is that momentum such as this last move shows weak players hitching on for the ride. Needs to consolidate soon in a sideways type of action, or we get everybody heading to the exit at the same time. Again, nothing new to add here.

    Only thing that I might be able to emphasize is that there really isn’t as much correlation on a daily basis between DUG and USO as you might think, so I am not sure that this (DUG) is really the vehicle that people would want to be piling into should oil decide to rest (or crash).
    Doesn’t seem to really provide much of a hedge.

  124. 124
    zman Says:

    FLR – yep, they reported I think yesterday, saw some price targets rising there and the CEO on CNBC talking about booming business this am. It’s on my list of things to look at.

  125. 125
    zman Says:

    Tater – thanks and I hear you on the last sentence. SU would be maybe a better choice but that’s like roulette.

  126. 126
    uop Says:

    zman

    watch this now, they run up energy stuff this week again, so premiums for options are still high, but there is expiration on Saturday, so that looks just fine for collection of the premium because they will not want to end up itm, THEREFORE EXPECT A BDROP TOWARDS FRIDAAY.

    Like my hypthesis ????

  127. 127
    uop Says:

    Tater;

    watch SU, looks to be a great short when energy drops .
    I want to see whether they run oil closer to 130$, the I short.

  128. 128
    Sambone Says:

    Tini time

  129. 129
    zman Says:

    Honestly I don’t think the run in the group has much to do with options but more with a continuation of what has been working versus what has not.

  130. 130
    tater Says:

    Only thing that I’d watch out with shorting SU, if somebody gets violent in that little waterway they call a straight for a reason, ALL my money is going into Canadian oil, and I won’t be the only one.

  131. 131
    zman Says:

    I think SU is still a good correlation to oil for a short although it went up yesterday with oil off and it is a stock, not an index. The tightening differential mentioned in the post is also working in their favor now. If you want a pure oil short you can either use USO or open a futures account with somebody like Lind Waldock.

  132. 132
    tater Says:

    Z, you mentioned that you are playing around with the pay portion of the North Dakota site. Wondering what the benefit is as it seemed to me that the companies are able to keep info secret, I forget the term they use, for 6 months anyway. What did I miss?

  133. 133
    zman Says:

    I was trying to subscribe yesterday and never got it worked out. $15 a month and there are scout ticket photo copies available. Probably a dry hole of an exercise but it’s cheap and I thought I’d check it out.

    I think they call them confidential – CLR has a ton of wells on that list and yep, its about 6 months. Not every well from other operators goes there though.

  134. 134
    tater Says:

    Thanks, and again I appreciate the help from your site. I’m generally not big on trying to cash in on countertrend moves (CLR) but it can really suck when you’re trying to time an entrance point and all you can come up with is to either short or just sit tight and wait for it to come back. Have a good nite.

  135. 135
    BossmanG Says:

    Z, just a question about why you recommend Link Waldock, as opposed to others? Thanks.

  136. 136
    BossmanG Says:

    (or if you have any experience with them?)

  137. 137
    zman Says:

    It was just the first one off the top of my head, I think they have some free trading tools so you can learn without risking capital.

  138. 138
    scoop006 Says:

    Z#102 where do you come up with this stuff on the fly. You a mensa member?
    very impressive. Maybe you should name LZ2 son of einstein

  139. 139
    zman Says:

    Scoop – naw, just googled it but I know a little history.

  140. 140
    zman Says:

    Independence hub now set for mid June restart, not mid May. Gas producers and gas prices to go bonkers tomorrow. That’s 2% of U.S. production down for 30 more days and a short squeeze on gas is almost assured.

    NG closed up 12 cents with crude today after rumors came out that Enterprise, Ihub’s operator would complete repairs on the takeaway line from the facility on time. In after hours trading gas is now up 37 cents to 11.79.

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