21
May

Wednesday Is Oil Inventory Day And A Rare Free Post!

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Yesterday was a good day. And not just because of a T Boone Pickens inspired mini-spike in oil prices. Catalytic news out of (CLR) drove the shares 23% higher on the day and I took a majority of my position off the table when it was up a mere 16%, (read on). Anyone with a parcel of moose pasture in the vicinity of the Bakken play of North Dakota saw their share price move higher, in some cases, drastically so. Buying of those names led to buying in their peers. Meanwhile, over in oil service land, Lehman Brothers targeted the oil service group for a seemingly sector-wide price target upgrade. So while the broad market burned, energy soared. Word to the wise, unfortunately, it will not always be this easy, although to be fair, I would quibble with the word easy as I feel that myself and others on the site have worked diligently to uncover the right names in the right plays and it has paid off. So a big thanks goes out to my readers/contributors. 

In Today's Post:

  1. Holdings Watch - another busy day
  2. Commodity Watch with oil inventory preview
  3. Stocks We Care About Today
  4. Odds & Ends

Holdings Watch: Wiki Holdings and New & Improved ZEB Performance Tab updated.

  • (CLR) - Sold the June $50 calls for $10.70, up 511%. This was house money that turned into more of my money as I had sold the first half position early last week for a 200% gain.
  • (CLR) - Sold three-quarters of my June $55 call position taken last Friday for $7.30, up 192%. I plan to hold the remaining calls through CLR's comments on Thursday.

Analyst Watch: (CLR) cut to  neutral by JP Morgan this morning. I had this possibility in mind when I sold down the positions yesterday, not by that particular analyst who has a problem abiding by SEC rules for calculating reserves despite the best efforts of schooling by Chesapeake, but by some member of the analyst community who couldn't justify a buy rating after the 23% run in the shares...if it dips I am likely to buy some of my sold position back.

  • (NFX) - Added the July $70 calls (NFXGN) for $2.90. See (NFX) UBS presentation notes below. 
  • (NFX) - Sold the June $60 calls for $8.40, 105% since entry at the end of April.
  • (WLL) - Entered the September $105 calls (WLLIA) for $6.20. Despite the recent massive run, this is one of the least expensive "Bakken" plays out there trading at 5.6x 2009 consensus CFPS vs a Bakken group average '09 multiple of 8.7x. Furthermore, they are in the known sweet spots of the eastern side of the Neeson Anticline.
  • (PBR) - Sold the June $67.50 calls for $8.40 (not a typo from NFX above), up 155%. This has had a good run and I plan on buying it back long dated and lower on an eventual pull back in oil.

Commodity Watch

  • Crude Oil. The July crude contract (CL/N8) takes over as the front month contract today. Yesterday it closed at its all time high at $128.98, up $2.26 on the day. Saudi Arabia and other OPEC members discounted rumors of a supply increase before the Cartel's meeting in September and T. Boone Pickens appearing on CNBC and saying that oil was going "higher" contributed to the rally. Congress voting to give the Judiciary the power to sue OPEC for oil prices (the so-called NOpec bill) only added to the laugh factor of the day. This morning oil is trading up slightly and has traded over the $130 mark in the overnight session.
  • OPEC Watch: Oil hits new high and OPEC head Abdalla Salem el-Badri meeting with Hugo in Venezuela reiterates his stance that the globe is well supplied with oil saying "there's no scarcity of oil in the market" because international oil supples are very high.

EIA Inventory Preview (expectations are from the Dow Jones Survey)

exp-051608.jpg

ZComment: Utilization is expected to continue the beginnings of its seasonal (albeit anemic) rebound climbing to 87.1%. If this occurs without a rebound in crude imports to levels back above 10.25 mm bopd look for a draw on the crude number and not the slight build that is anticipated. However, the real money is on distillates and anything short of a 1 million barrel build there will more than likely yield a bounce in HO contracts and a run on at least $130 crude.

  • Natural Gas rebounded sharply yesterday climbing $0.41 to $11.36 and in the comments section of Monday's post I said that I didn't buy into the apparently weakening natural gas chart and I won't, not until it is backed up by a strengthening imports picture ... something we currently don't see. Production is strong, true enough, and possibly running as much as 5 Bcfgpd ahead of year ago levels but with imports off nearly 3 Bcfgpd and evidence suggesting exports to Mexico may be up 1 Bcfgpd, the impact of the higher production is barely trickling through in the weekly gas storage numbers. This morning gas is trading up another $0.10 to $0.15 with the rally in crude.

Stocks We Care About Today 

(NFX) UBS Conference Presentation Takeaways:

In a nutshell, there is a lot going on a Newfield, a lot more than just being the dominant force in the Woodford Shale  and they spent the majority of their time slot focused on South Texas with Q&A leaning on their potential in the Mancos Shale (underlying Monument Butte) and their upcoming results from the Bakken. 

  • South Texas - Numerous Joint Ventures Building On Past Regional Expertise. Recent JV with XOM just extending their East Sarita know how to another set of acreage. The XOM JV gives them access to 87,000 contiguous acres to run with, not the easiest asset to come by in South Texas these days and they are looking at testing targets in the 6-10 Bcf Estimated Ultimate Recovery (EUR) range with a 2 to 3 rig program with Exxon for a cost of 8 to 12 mm per well again they are focused on adding low $/Mcfe reserves. They are currently drilling a 50 Bcfe ultra-deep gas test in the S. Tx Sanchez JV.

  • Uinta Basin, Utah, Monument Butte Field, Deep Gas - they have a Mancos shale test drilling now, and may deepen it to around 16,600 to test the underlying Dakota shale in this stacked pay environment. Note that Questar (STR) is the most experienced driller to date in the deeper Uinta (Mancos, Blackhawk, and Dakota formations). (STR) even reported one well flowing in excess of 6 MMcfepd from the Dakota unfracced so I have confidnece (NFX) can make this and the Mancos work but we will need to see results and I would bet on getting them the next quarterly conference call. The Mancos and potentially the deeper Dakota would be gravy to the economics here as gas could be commingled with the shallower traditional Monument Butte production uphole in the Wasatch and Mesa Verde pays. They see the Mancos as being fairly homogeneous under their acreage and plan a series of east to west tests to prove up that theory.
  • Bakken Play, North Dakota. Yes, they are here too as described in my note here from May 5 but so far the stock has not yet yielded itself to Bakken Mania. They are drilling their third Bakken test now and plan to announce results in short order ... sounds like they have 3 tests to talk about in the next 2 to 4 weeks. They plan a total of 14 Bakken tests in 2008 including a Three Forks Sanish test, below the typical middle Bakken productive member. 
  • Favorite quote watch: "Three Forks Sanish underlies much of our Bakken acreage". A test of TFS potential is in the planning stage...a successful test of the TFS is what sent (CLR) soaring yesterday.
  • Woodford Shale: They should spud a dual lateral in the Woodford in mid July so we could see results on the 3Q call of a 9 Bcf well for about $10 mm which significantly improves the already high IRRs in the play (they're getting 4.5 Bcfe EUR for the single extended laterals now which cost $6 to $7 mm drilled and completed). 

How To Spot A "Mania" Stock. Bulletin board stocks start press releasing data-poor stories regarding asset purchases in hot plays. Case in point, Western Standard Energy Corp - announcing the signing of a letter of intent to purchase Bakken acreage in the southern part of the play (Stark County, North Dakota). Here's how I spot a "mania" stock:

  • Bulletin Board Listing - that's a bad start but not enough to condemn them,
  • Lack of Details - No mention of dollars, no mention of drilling plans in the press release.
  • Use of the word "Billions" -  It does mention the "billions of barrels of undiscovered oil" in the Bakken. Yes and that can be found by people who know what they are doing.
  • Recent Name Change. Their 10Q reveals they were formerly named Lusora Healthcare Systems but with healthcare being what it is today who can blame them for jumping on the energy bandwagon.
  • History of Abandoning Their Game Plan. Before the health care idea they wanted to make finger print recognition systems for residential buildings in China. Anything that even sounds like that which cannot possibly be made up is a red flag.
  • Recent Upping of The Authorized Share Count: In this case, they have about 87 mm shares outstanding and recently upped the authorized count to about 2.8 billion. Hmmm, I wonder if those shares come on toilet paper rolls?
  • Lack of cash.  At $25,000, they have less cash on the balance sheet than most Americans have in their IRA's so of course they should be acquiring acreage and drilling multi-million dollar wells. 
  • G&A Outways Any Other Expense By Far. Plus massive consulting fees.
  • Management Has No Energy Experience. I see telecom, tech, healthcare, some accounting.
  • Management Doubled Its Salary 2007 vs 2006.  Again, despite the aforementioned dumping of their Game Plan,
  • Nepotism. I see a repeat of last names on list of people who made late filings to the SEC.
  • Late Filings To The Sec.
  • Management Apparently Lives in London ... the play is in North Dakota and while proximity doesn't insure success, being on the wrong side of the ocean doesn't either

...but I digress. These are just a few of my least favorite things to see in an "energy company" but maybe they'll make it. Good luck fellas.

END Announces Norwegian North Sea Success. Operator (STO) has said the well hit gas and they are sidetracking, (END) has 7.5% of this apparent discovery.

The Following is a reprint from yesterday's post on the UBS conference presentations I will be listening (all times CST): 

Wednesday (May 21):

  • (CHK) - 8:40 - they could give a test rate in the Haynesville shale but I doubt they are ready to further increase the price of lease acreage in the play. More likely they will update their acreage position here and hit the company highlights … but you never know. 
  • (FTI) - 8:40 (replay) - subsea trees and other bits
  • (PXD) - 10:00 - cheap and I keep missing it … coming up to speed.
  • (PBR) - 11:20 - would not expect anything new
  • (HK) - 11:55 - they could have news from their first horizontal well but I bet not as its probably still completing. They are more likely to update their acreage inventory in the Haynesville (last count was 150,000 acres). They also may have further results from the recently announced horizontal Hunton Lime play.

Thursday (May 22):

  • (SFY) - 7:30 - post New Zealand divestiture Swift.
  • (KWK) - 8:40
  • (VLO) - 9:25
  • (SD) - 10:00 
  • (PQ) - 10:35 - Not expecting anything new,
  • (APC) - 10:35 (replay)
  • (CLR) - 11:20 -  I'm fairly heavily here in June $50s and $55s and while the stock has been resting in the two since CLR reported 1Q results, analyst consensus estimates for 2009 CFPS have risen by 13% to $5.75 and at least one analyst has taken his '09 CFPS number over $7. At the time of the report my quick and dirty model took their 09 CFPS number to $6.20 with some fairly conservative cost assumptions so I expect estimates to continue to rally with a positive test at "TFS" providing impetus to analysts to get off the pot.  
  • (VQ) - 11:55

Odds & Ends

Analyst Watch: (NOV) and (SII) cut to add from buy at Calyon, (PDE) cut to underperform at Wachovia, (FSLR) cut to underperform at FBR, although they did raise their price target from $155 to $200 which shows a little bit of inattentiveness on the analyst's part if you get me,  (WFT) sees a large price target increase from Sterne Agee, (BHI) upgraded to add at Capital One.

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207 Responses to “Wednesday Is Oil Inventory Day And A Rare Free Post!”

  1. 1
    zman Says:

    Wiki tab updated.

    I’m likely to begin taking more profits in front month contracts this am pre inventory numbers. Especially out of the month options like the higher DOs may go. Depends on the open.

  2. 2
    tater Says:

    Morning. Been away playing with SDS options, just wanted to say congrats, you’ve really been dead-on. Saw the Sanish test info, was wondering if you have any analysis of SM? I keep seeing their name on acreage all over North Dakota.

  3. 3
    zman Says:

    big reversal in crude this morning, now up 20 cents, which may allow the broad market to get up off the mat. In my thinking, this could turn into a dip buying opportunity for traders looking to hit the $130 mark in the regular session…may be numbers this week or next that drive it there.

    Tater – thanks, it probably runs too although I don’t have anything specific on them. WLL kept running but was cheap enough still to make me want to own it. Will have another look at SM who has some other interesting plays as well.

  4. 4
    isleworth Says:

    PBR really running – $77 now

  5. 5
    Sambone Says:

    8:43 am EST

    Nymex Crude Pares Gain Ahead Of Stockpile Data

    By Nick Heath
    Of DOW JONES NEWSWIRES

    From MARKET TALK:
    [Dow Jones] Nymex crude pares gains after reaching a new high of $130.47/bbl in screen trading. A tight global distillate market continues to support crude. EIA data due out at 10:30 a.m. EDT are expected to show US crude stockpiles rose by 500,000 bbls last week, gasoline inventories rose by 400,000 bbls and distillates rose by 1.2 million bbls. Refinery use is expected to have climbed 0.5 percentage point to 87.1% of capacity. Nymex Jul crude +83c at $129.81/bbl. (greg.meyer@dowjones.com)

    LONDON — Crude oil futures set new record highs in London trade Wednesday as front-month Nymex light, sweet crude futures breached $130 a barrel for the first time and ICE Brent crude oil front-month futures traded above $129 a barrel, another first, as a fresh burst of technical buying drove up prices.

    Analysts said the sharp moves higher Tuesday had revitalized a bullish technical outlook for crude prices, with concerns over global supply levels and spiraling distillate prices also lending support to moves higher Wednesday.

    “The market needed to make fresh highs to continue in the current short-term bull trend (yesterday) and this was certainly the case as we moved up into a fresh range,” said Andy Riddell, energy broker at ODL Securities in London. “Once again there is just “fresh air” above us.”

    At 1134 GMT, the front-month July Brent contract on London’s ICE futures exchange was up $1.67 at $129.51 a barrel, just off a new high of $129.92 a barrel.

    The front-month July light, sweet, crude contract on the New York Mercantile Exchange was trading $1.19 higher at $130.17 a barrel, having touched a new record of $130.47 a barrel earlier

    The ICE’s gasoil contract for June delivery was up $16.25 at $1,246.75 a metric ton, while Nymex gasoline for June delivery was up 231 points at 332.75 cents a gallon.

    Market participants chose not to wait for the publication of the U.S. Department of Energy’s Market weekly inventory data — due 1430 GMT — before trading Wednesday, and many doubted whether any materialization of forecast inventory rises will be able to cool crude’s latest surge.

    “(The DOE) data comes out later today, but we doubt this will dent the bullish spiral; the market seems to have moved beyond the week-to-week changes in inventories,” said Edward Meir, analyst at MF Global in New York.

    According to the average of a Dow Jones Newswires survey of 15 analysts’ forecast, crude oil inventories rose by 500,000 barrels in the week to May 16.

    Gasoline inventories are predicted to have grown by 400,000 barrels, while distillate stocks are expected to have risen by 1.2 million barrels.

    Refinery use is seen growing by 0.5 percentage point to 87.1% of capacity.

    Distillate stocks are again expected to be closely watched Wednesday, with the recent surge in distillate futures prices seen contributing to crude’s strength.

    Some maintained Wednesday that near-term crude prices’ ascent to record highs continues to run counter to market fundamentals. Amid reports of tankers full of unwanted Iranian crude, a 300,000 barrel increase in Saudi Arabian output, refinery maintenance season in Europe and accounts of physical oil traders reporting good availability of spot crude oil cargoes, oil supplies could be construed as being relatively comfortable in the near term.

    That scenario has contributed to a change in the structure of futures prices relative to each other, if not to absolute price levels, said Olivier Jakob managing director of Swiss consultancy Petromatrix.

    “The divergence between the outright price levels and the structure of the oil markets continues to increase, with more markets flipping into a contango,” he said.

    Contango refers to a price pattern where near-term futures contracts are cheaper than contracts for delivery in the future. The pattern reflects expectations near term supply levels are relatively more comfortable than those anticipated in the future.

    Concerns over future supply levels remain heightened by the comments from the Organization of Petroleum Exporting Countries’ President earlier this week that OPEC is unlikely to boost oil output when it meets formally Sep. 9.

    “Traders see more demand than supply, so as many as 80% of them are buying,” said Peter Beutel of trading advisory firm Cameron Hanover. “The other 20% sees reasons to believe that prices are overdone on the upside.

    “But, with 80% buying and 20% selling, the illusion is created that there is four times as much demand as supply,” he said.

    OPEC’s Secretary General said late Tuesday that oil markets are well supplied and crude inventories remain “very high”, according to a statement from Venezuela’s information ministry.

    “There is no shortage of oil in the market because inventories are very high,” Abdalla Salem El-Badri was quoted as saying during a meeting with Venezuelan President Hugo Chavez.

    —By Nick Heath; Dow Jones Newswires

  6. 6
    zman Says:

    How to drive crude higher 101. I’m considering taking a small put position on SU depending on the inventory numbers. It has gone more ballistic than crude and the recent buyers are sitting on large profits. I’m pretty 50/50 on the reaction in crude today so I’m not willing to jump the number release.

    Note from the UBS schedule we have CHK 10 minutes after the open and HK just before lunch. We also have PXD in between at 10 cst.

    PBR speaks at 11:20 at UBS and they announced a 9 yr plan to add 40 newbuild deepwater rigs which is massive. Good news for the likes of DO, RIG, NE where their are concerns that 2010 and beyond new builds could soften utilization and rates.

  7. 7
    tater Says:

    I absolutely agree with your WLL pick (kiss of death?). Trying to narrow down the field; CLR WLL NBR should be good to go. Thinking about putting a little ERF on, but I am still having trouble getting my brain comfortable with the future of that dividend.

  8. 8
    zman Says:

    Just got my hands on the Opco note on WH. Positive comments and the miss was not a miss on the American depository receipt share count, it was in line at $0.16. From cont ops it was $0.08 which is what Dow Jones reported as a miss against the ADR number. So the news services compared apples and oranges, what else is new? I will continue to hold as the first call note agrees with the thesis that more pipe is needed and these guys are rapidly expanding capacity to meet that need in the states and abroad.

  9. 9
    zman Says:

    If it were not inventory day I would buy CLR back without blinking this morning on any significant weakness from the JPM call. This is the same brainchild who downgraded CHK at $46.

  10. 10
    BossmanG Says:

    Z, CLR JUN 55’s?

  11. 11
    kiaora Says:

    Z- had to take a bite of CLR jn 65s

  12. 12
    texana Says:

    buying dip on wll 94.16

  13. 13
    zman Says:

    K – can’t say I blame you although pre numbers is pretty gunslinger of you, lol. The WLL is the cheaper name here and reacted poorly to the downgrade too. I won’t add names before the EIA.

    NFX moving higher is nice to see as they are getting a little more respect and people are waking up to the idea that they too have a Bakken play and near term catalysts. Of course, moves pre numbers have little meaning as it can reverse in the blink of an eye.

    CHK call at UBS is delayed

  14. 14
    Dman Says:

    #6 PBR news: I guess that explains NOV up 5%

  15. 15
    zman Says:

    NOV just knocking it out of the park on that pt upgrade

  16. 16
    zman Says:

    D – probably so plus an updrade of NOV price target, see bottom of post, should be good for the drillers too and FTI

  17. 17
    zman Says:

    CHK call had a tech glitch, just starting now in progress.

  18. 18
    zman Says:

    Mobley of CHK doing his best to put the UBS crowd to sleep. Very 10,000 foot view so far, nothing new.

  19. 19
    zman Says:

    Would one of you chart types take a look at FTO, I’m increasingly liking what I see there.

    CHK call: Zzzzz

  20. 20
    Sambone Says:

    This is from the “Gartman letter” today.

    ENERGY PRICES STABILISED FOR
    ONE DAY AND THEN EXPLODED
    HIGHER ONCE MORE, with the
    psychologically important $130/barrel “target” now within
    reach. We are far more concerned, however, with what
    has happened and is continuing to happen within the term
    structure of the Brent and WTI crude futures markets, for
    both have gone contango across their entire term. WTI,
    from July ’08 on through December ’16, is now in
    contango, and although we suppose that that has
    happened at one point in the past (perhaps in the
    liquidation of MG trading many years ago), it is truly a rare
    circumstance. Note then that the 1st-to-5th futures spread
    for both WTI and Brent just keeps widening.
    There are two major problems with this shift in the term
    structure. Firstly, remember that Dr. Bernanke himself
    argued several months ago that the fact that the deferred
    futures prices for crude oil were lower as a reason for the
    Fed’s propensity to ease monetary policy. He argued that
    the futures told him that prices for crude were heading
    lower and that the Fed’s easier policies were warranted.
    We took him very strongly to task for this material
    misunderstanding of the term structure of the futures,
    noting that a backwardated market was the sign of future
    strength, not weakness. We argued that the work done by
    Professor Holbrook Working of the Stanford Food Institute
    many years ago regarding the grain futures market
    proved that markets in contango (that is, where the
    deferred futures are at a premium to the spot rate and to
    the nearer-by futures) tended to argue for lower prices as
    the underlying instrument “bids up” the price of storage.
    We argued further than Prof. Working proved that a
    market in backwardation (where the spot rate is at a
    premium to the nearest future, which is itself at a premium
    to the next future back, which is at a premium to the next
    and to the next and to the next) is a market that is strong
    and likely to rise. Backwardation, or a negative carrying
    cost, shows that demand is high and that the market
    wishes to price storage at a loss in order to draw
    inventories out into the market where they are needed.
    Dr. Bernanke and the others at the Fed have it now, and
    have had it in the past, entirely wrong regarding energy
    and the term structure of the futures. This we find wholly
    disconcerting. Having applauded Dr. Bernanke for his
    position regarding liquification of the banking system, we
    have to take him and the others at the Fed openly to task
    for this very ill advised position regarding oil prices,
    inflation, and Fed policy.
    That having been said, our friend, Phil Verlager, sent us a
    truly important note last evening that we wish, with his
    permission, to report in full here this morning. This is
    hugely important for those long or short of the deferred
    crude futures, and we urge them to take note. Noting the
    Hunt silver problem back in ’79, Dr. Verlager wrote:
    Dennis, There are clearly big problems in the
    dated crude contracts (Dec 11 to Dec 2016).
    One or more firms that sold the oil is trying to get
    out. They have a problem, though. The parties
    that are long do not want to exit. The situation is
    evident in the shift in open interest. From
    Monday to Tuesday the number of contracts
    outstanding for delivery from June 2013 to Dec
    16 declined while prices jumped $8/bbl. It is a
    classic squeeze.
    I would assert that this is not an oil market issue
    because the other indicator of long term oil
    prices, the BP Royalty Trust (BPT) did not
    increase with the 2016 crude.
    Someone has a big problem – and it could get
    much worse unless NYMEX and ICE order
    trading for liquidation….1979 redux.
    Phil has no position in crude. He is, as he says, and
    academic whose duty it is to observe and explain. We
    have been bringing this shift from backwardation to
    contango to everyone’s attention recently, arguing that
    this shift as prices move higher is unlike anything we’ve
    seen since the Hunt silver fiasco when silver moved from
    a contango to a massive backwardation, and since the
    days of MG Trading when crude moved from
    backwardation to contango… both moves in the term
    structures presaging massive changes in the flat price
    itself.
    Something is terribly amiss in the crude futures… terribly,
    terribly amiss. The elephants are coming out into the field,
    and we mice would do well to clear the decks and let
    these elephants fight with one another. We needn’t know
    the elephant’s names at this point. We will know them
    soon enough, but fore warned is fore armed!:
    July WTI up 246 129.00-05
    Aug WTI up 281 129.27-32
    Sep WTI up 308 129.46-51
    Oct WTI up 329 129.65-70
    Nov WTI up 357 129.90-95
    OPEC “Basket” $119.27 05/16
    Henry Hub Nat-gas 11.51

  21. 21
    texana Says:

    another solid move up in bexp lg ac pos in williston basin. wi in alot of wls that r drlg

  22. 22
    isleworth Says:

    Rumors today re SU for FTO

  23. 23
    zman Says:

    Sam – great article, agreed and it does make one nervous both from a strong probability that crude could “adjust” lower and from the fact that Ben has not a clue about his oil commentary.

    Group selling off highs as we approach inventories with crude trading into red land.

    Isle – that makes a bit of sense.

  24. 24
    zman Says:

    CHK Presentation: Has heard of casing in short supply but they have not seen it.

    They are seeing end of 1Q08 to now, rig rates are flat to slightly up. First increase in 18 months.

    Pressure pumping pricing generally lags that by 90 days…rates just starting to tick up. This is the largest cost in a horizontal well for CHK.

  25. 25
    Sambone Says:

    I wonder who the elephant is? Hope it’s GS.

  26. 26
    zman Says:

    another Elephant would be China buying crude as a currency hedge.

  27. 27
    zman Says:

    CHK – 100% of the debt raised in the last 2 days is to call or replace bank debt and senior notes. Extending the maturity and fixing the rates at better rates.

  28. 28
    zman Says:

    CHK call over, nothing new except that debt confirmation.

    EIA in 10 minutes, oil flat lining at flat on the day.

  29. 29
    Dman Says:

    Maybe not enough caffeine, but reading #20 I can’t figure out which way they think it’s going to go. Or are they just saying a high-volatility event is in our future, without saying which direction?

  30. 30
    Fred Says:

    Thanks Sam, great article.

    FTO has based and it’s moving up to it’s the 50 dma.

    http://stockcharts.com/h-sc/ui?s=FTO&p=D&yr=1&mn=0&dy=0&id=p19147112648

  31. 31
    tater Says:

    FTO just tested 50 EMA and pulled back for second time in May. Is sitting above its 20 EMA currently in sideways consolidation which could be interpretted as basing before a move. Support is seen at 25ish, but keep in mind the trend is down or sideways, not up currently. Question, do you absolutely have to be early or can you wait a couple points to see if it can hold above 50 EMA and establish a new up-trend? (Coming from the guy who is still waiting on X!)

  32. 32
    ellwodo Says:

    CHK – why big drop? Was market expecting them to say it was for more capex in Haynesville?

  33. 33
    zman Says:

    Tater – I don’t have to be in it at all, just dipping a toe in one of the better small cap names in that space.

    Elwo – group pulling back in front of inventories plus they spent no time on details so maybe there was a built in expectation that they’d say more. The thought that this is not new debt but replacement of debt should be viewed favorable but the group is selling off and it is snowballing in a small way at present.

  34. 34
    tater Says:

    Don’t get me wrong, I’ve successfully sold puts at 25 twice now.

  35. 35
    zman Says:

    crude: decline of 5.3 mm barrels
    gasoline: down 0.8
    dist: up 0.7

    utilization jumped to 87.9%
    imports 9.2 mm bopd – this is low.

  36. 36
    irished Says:

    Large volume move lower on CHK, almost at 10 day average in 1st hour.

  37. 37
    zman Says:

    These are pretty bullish numbers and go with what I wrote in the Zcomment this morning on stocks. Utilization up strongly without a commensurate rise in imports yields a drawdown in crude, pretty simple math.

  38. 38
    zman Says:

    The one hiccup may be the build in distillates though it was small. Stocks are treading water to up a little post report. No knee-jerk trade seen by me.

  39. 39
    reefguy Says:

    MXC- how a tiny royalty company buys some barnett minerals in about 600 acres and goes from 5 to 51 in 60 days

  40. 40
    gaamblor Says:

    what are the yoy and sequential gasoline demand?

  41. 41
    zman Says:

    Gasoline demand was off less than 1% from last year’s near record levels. Sequentially it was up less than 20K bpd to 9.359 mm bpd.

  42. 42
    sane Says:

    API

    Crude Down 4.1M
    Gasoline Up 820K
    Distillates Up 2M

  43. 43
    zman Says:

    MXC = wow.

    Think the muted response in the stocks is due to a combination of profit taking and the fact that as big draw downs in crude stocks go, I would term this one a low quality event as it was a function primarily of lower imports with only a slight notch up in crude demanded by refiners. That can lag utilization by a week or a little more so we could/should see a high input to refiners demand number next week.

    I would imagine traders try to take out $130 by the close, for more than a minute or two that is…

  44. 44
    Denise Says:

    Good Morning,
    Mr K’s opening missive suggests the Democrats could make it rough for our energy co’s. in the future

    Republicans want more drilling, more consumption and more tax giveaways for the big oil companies…. Democrats say that those are exactly the policies that got us into this mess to begin with…. We must end the billions of dollars in tax breaks for big oil companies whose executives have been hauling record profits while we pay record prices…by providing clean and affordable alternative energy and by protecting consumers from price gougers and greedy oil traders.
    — Democratic Senator Debbie Stabenow (Michigan)

    He is adding to his Dug and OIH

    Interesting Gartman colulmn Sam- thx
    Some how I doubt the elephant is GS

  45. 45
    Popeye Says:

    I received a Google alert rumor from buyonthedip saying Floyd wants $40/share for HK according to “friends”.

  46. 46
    antrimshale74 Says:

    reef- Look at the trio of MXC, PDO and FPP for the ultimate in pure speculative pumped stocks over the last two weeks. It is really too bad that one can neither short these stocks nor trade puts on them.

  47. 47
    zman Says:

    Pop – I got that too and its not new news. I think I said $40 a few weeks ago and Floyd said a similar number last year and has always said the company is for sale.

  48. 48
    tomdavis12 Says:

    CHK has ALWAYS corrected after any and all equity – bond offerings. Many analysts feel they have too much debt to net cap. They have also in the past promised to be investment grade by the first quarter of ’09. This will not happen. It is one of the few promises they might not keep. Raising cash for Haynesville to bond people is not as positive as it is for equity people.

  49. 49
    Dman Says:

    Bullish data on oil gets no response. Hmmm.

    Market to CHK: “OK, so don’t tell us what you’re doing every day”
    CHK: “I won’t”
    Market: “Fine!”
    CHK: “Fine”
    Market: “Fine then”

  50. 50
    scoop006 Says:

    Massive volume in FTO June $30 calls 10,000+ contracts

  51. 51
    Nicky Says:

    Dman – I am with you re #20 – someone tell me which direction they are expecting it to go please.

  52. 52
    zman Says:

    Tom – exactly.

    Careful talking puts on FPP, the president is a friend of mine, lol.

    Dman – it really was not that bullish

    Scoop – must be the rumored takeout by SU Isle mentioned above

    Nicky – #20 would be expecting oil prices to weaken.

    Sane – wow, they match up directionally for once, unreal. Thanks.

  53. 53
    zman Says:

    PXD presentation at UBS in 10 minutes. I really think these guys are onto something in their HBP acreage that could be SIZE.

    There went $130

  54. 54
    Jason Says:

    Hi Z – Big pullback on FSLR today. Any solar picks on your radar now?

  55. 55
    zman Says:

    Jason – nothing at present re solar. Probably a bottom fish for a day trade there as that analyst totally and completely missed the FSLR boat and his argument coming glut of PV is very old news. I need to do more work in the space before committing anything but mad capital but until the cloning works …

  56. 56
    Sambone Says:

    10:42 am EST

    Nymex Crude Hops After Big Stockpile Draw

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    From MARKET TALK:
    1437 GMT [Dow Jones] Crude oil futures jump nearly a dollar after government data show US crude stockpiles dropped by 5.3 million bbls last week. Analysts expected crude stocks would rise by 500,000 bbls. Nymex Jul crude +96c at $129.94/bbl. (GM)

    NEW YORK — Crude oil futures pared gains after surpassing $130 a barrel for the first time Wednesday, as the market awaited data expected to show rising U.S. petroleum stockpiles.

    Light, sweet crude for July delivery was recently up 19 cents, or 0.2%, at $129.17 a barrel on the New York Mercantile Exchange, having earlier peaked at a new trading record of $130.47. Brent crude on the ICE futures exchange were 71 cents higher at $128.55 a barrel after hitting a new all-time high $129.92.

    Amid record prices, oil futures have shifted into a modest contango pattern, in which barrels for imminent delivery cost less than barrels scheduled for delivery in later months. West Texas Intermediate crude for delivery in December 2015 was recently trading above $140 on the Nymex.

    “We now have a contango spread structure in WTI and Brent,” said Jim Ritterbusch, president of energy trading advisory firm Ritterbusch and Associates in Galena, Ill. “That is one of the ingredients needed to support a major price correction.”

    But Ritterbusch said solid global demand for distillate fuels, such as diesel, and renewed weakness in the dollar against the euro continue to bolster the oil market. Front-month crude is likely to hit $133.25 a barrel by the end of May, he said.

    “Diesel consumption continues to push the market higher,” Tradition Energy analyst Addison Armstrong said in a note to clients. “The Chinese upped their demand after last week’s earthquake. The strength of gasoil in the Europe has pushed heating oil and…gasoline to all time contract highs.”

    Other factors could pressure oil prices in the near future. Saudi Arabia last week said it began pumping 300,000 new barrels a day in response to consumer demand, while Iran is thought to be storing millions barrels of its oil in tankers.

    In data scheduled for release at 10:30 a.m. EDT, the Energy Information Administration is expected to show that U.S. crude inventories last week grew for the fifth straight week. Analysts surveyed by Dow Jones Newswires on average estimate that crude stockpiles rose by 500,000 barrels, gasoline inventories rose by 400,000 barrels and distillates inventories rose by 1.2 million barrels.

    Refinery use is expected to have climbed 0.5 percentage point to 87.1% of capacity, according to the survey.

    Front-month June reformulated gasoline blendstock, or RBOB, was trading 38 points, or 0.1% lower at $3.3006 a gallon, after touching a new record high $3.3357. June heating oil was up 40 points, or 0.1%, at $3.7790 a gallon, after hitting a record $3.3863.

    —By Gregory Meyer, Dow Jones Newswires

  57. 57
    Jason Says:

    Take your commission from your relative’s account and buy an intern, lol.

  58. 58
    Nicky Says:

    Thanks Z. And yes it would be too much to hope it was GS!

  59. 59
    regale Says:

    Re #20, who or what was the MG Trading event, and how did it end? And a little more clarification about the entity(ies) who wish they hadn’t sold oil and is trying to get out, the likely outcome, in a little more detail, of that situation. If anyone could explain, it would be much appreciated.

  60. 60
    sane Says:

    Re gasoline demand,

    I think gasoline prices are going to have to maintain a +$4 enviroment for a while to have a meaningful effect. I am hearing a lot of rumbling around here from people about having to get a more fuel efficient car out of neccessity rather than choice. If there is going to be s sustained demand drop it is going to be a slow bleed.

    I was at the Toyota dealership getting my wifes car serviced yesterday. We have been looking into getting a new car. I was looking at a Camry hybrid when I saw the price and almost choked. They wanted almost $8000 over the MSRP for the car, but I could get almost $4000 off of a Sequoia if I wanted one.

  61. 61
    zman Says:

    J – not a bad idea, he reads this so we shall see…

    For those of you wondering what I’m listening to here is the link to the conference presentations and times:

    http://events.streamx.us/US/Event/PresentationList.aspx?id=56&rid=132587&s=633469591370677694

  62. 62
    zman Says:

    Sane – I hear ya, this is another area where the govt has failed to properly incent purchasers of fuel efficient cars and prohibit fuel hogging cares. CAFE standards are a joke.

    I did see Honda is bringing a gas-electric hybrid to market next year that is supposed to beat Prius on mpg.

    PXD call starting.

    Nice rebound in the groups underway, Go NFX!

  63. 63
    zman Says:

    Crude up 2.85 to 131.80

    HO and gasoline not quite keeping pace.

  64. 64
    zman Says:

    SU probably legs up if this move in crude is sustained through the NYMEX close, up on ly $1.20 to 147 now. Wow, only.

  65. 65
    reefguy Says:

    clr- common or june calls?

  66. 66
    zman Says:

    Reef – I have a small piece of June $55s left and the common. I may add some July.

  67. 67
    reefguy Says:

    z- two fisted EXXI

  68. 68
    isleworth Says:

    Z – do you know WRES very well. Any current thoughts? Tks.

  69. 69
    Jason Says:

    Reef – You’ve had some great calls recently…out of 10 how are you feeling about EXXI?

  70. 70
    zman Says:

    Isle – I’ve started a piece on them twice and delayed it. I like them quite a bit. On PXD, back at ya in a bit.

  71. 71
    ellwodo Says:

    61 – thanks for the link. Hope HK says something more interesting thn CHK.

  72. 72
    Dman Says:

    Thoughts on deepwater rig-tech plays: 40 new rigs from PBR, but PBR is just one company, albeit a good one. So the real total? Huge. And that’s just deepwater, nevermind the landrush going on as well.

  73. 73
    ram Says:

    ZMAN – See the premeium in the HK 30’s vs the common?

  74. 74
    zman Says:

    Ram – yes, I own those, June and July. They speak in a bit and hopefully Floyd says something more interesting that CHK did, would not be difficult.

    Reef – nice, I think I’ll stick to my MMR.

  75. 75
    ram Says:

    ZMAN – Since I didn’t have an opp to get out of PBR yesterday, any thoughts to the recent strength?

  76. 76
    zman Says:

    By the way, by popular demand, the Thursday energy review will continue in long form only.

    PXD call over, very interesting Sprayberry, Raton Bason, North Slope, Tunisia, South Africa, very growthy with 14% CAGR production growth seen for next several years, CFPS seen growing faster due to scale, also near term pop as old oil hedges fall off. Mulling it now.

  77. 77
    zman Says:

    Nothing new other than today’s news, they speak at UBS at 11:20 CST and I will listen.

    If the group does green up this afternoon I would expect NFX to test $70 as it becomes more evident that they are a stealth Bakken play with Three Forks Sanish potential underneath.

  78. 78
    reefguy Says:

    jason- feel is a 7, well data has gone ultra tight. Scout check says drilling below 32,000′, 100′ /day

  79. 79
    Dman Says:

    Just took some DITM leaps on CAM. It’s only a few dollars higher than it was last November but its endmarkets have exploded since then. Will grab more if it gets poleaxed eg. due to some freaky crude volatility event (can only hope).

  80. 80
    zman Says:

    Reef: what’s planned TD there, 33,600′?

  81. 81
    reefguy Says:

    My understanding is 33,000′

  82. 82
    zman Says:

    so any day now

  83. 83
    reefguy Says:

    at 100′ /day and four days to log, more like two weeks

  84. 84
    Dman Says:

    CLB over $145. All time high was $155.50 last November. I think it gets back there in short order.

  85. 85
    zman Says:

    Reef – ok, on some scout tickets I’ve seen, the below 32,000 could mean 32,500 but I hear ya. I continue to hold the MMR August $40s just in case they have to side-track it or get a tool stuck or some such.

  86. 86
    zman Says:

    Here ya CLB, demand there is unreal now and if Canada comes back, wow. Sort of feel like it falls into the can’t kiss all the girls category and this one is hot and I missed it. Probably goes much higher but last time I checked it was a poor options trader (fat spreads)

    CRR in the same boat re increased drilling activity demand.

    BHI running hard to the upside and HAL likely to turn up as the day progress and SLB and BHI rally.

    OII breaking out again and I’m going to take a piece…PBR (and others) are going to need a lot of ROVs plus there’s hurricane season around the corner.

  87. 87
    Jason Says:

    Thanks Reef…picked up some EXXI.

  88. 88
    zman Says:

    ZTRADE: Entered OII July $80 Calls for $4.60 which is a hefty premium to pay in this thinly option traded name. Just easing in slowly.

  89. 89
    Nicky Says:

    Amazing reporting by CNBC saying that none of the energy traders on the floor can understand why oil is up $20 in a month as the fundamentals do not support it! Saying that even if inventories show a build the price goes up. Frustrated traders as they see the investment funds buying with not a clue what they are buying!
    Well hang on a sec isn’t this the same TV station who for months have been reporting a fundamental supply and demand concern. Now they are saying that TBoone and GS are causing the rise as the fundamentals do not support it.

  90. 90
    zman Says:

    Wow CLR going green

  91. 91
    Dman Says:

    Z – the CLB spreads are fat but I’ve never had a problem splitting them unless it is ramping right as I’m buying.

  92. 92
    js1 Says:

    fwiw, i closed out my OII common(as you mention premium is high) earlier at 77.38 from when we talked about it some weeks ago. I just had to book it.

    I just moved to San Antonio, woohoo. I would have moved to Houston but I noticed an excessive stink on my drive through.

  93. 93
    zman Says:

    Hear ya JS. Ya know Austin beats both of those towns.

    PBR presentation starting

  94. 94
    Dman Says:

    Nicky, to be honest I think the floor traders have not fully recognized that the old rules, where US inventories controlled the global oil price, no longer apply. They are puzzled that peasants in China will pay more for oil than hot-shot NYMEX floor traders want to pay.

    I really don’t know how much of this move is speculation & how much is supply-demand. The general trend is the latter; I guess the current spike is the former. But if the speculative component is large it will inevitably lead to a high volatility event to the downside. At least, it will if my simplistic understanding of it is right: i.e. speculation = hoarding and at some point, everyone will have a lot of hoarded oil & what are they going to do with it? It isn’t edible, so I guess they have to sell it. Meanwhile the real economy has to pay hoarding prices & that could crimp demand & add to the downside move.

    I’m interested in any comments on whether this simplified theory of speculation is close enough to be useful.

  95. 95
    Sambone Says:

    11:25 am EST

    Oil Tops $132 On Inventory Draw

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures pushed to a new record high above $132 a barrel Wednesday after government data showed U.S crude stockpiles slumped by more than five million barrels last week.

    Light, sweet crude for July delivery was recently up $2.75, or 2.1%, at $131.73 a barrel on the New York Mercantile Exchange, after touching a new record high $132.08 a barrel. Brent crude on the ICE futures exchange was $3.47 higher at $131.31 a barrel, earlier hitting a new all-time high of $131.57.

    The Energy Information Administration reported U.S. crude stockpiles fell by 5.3 million barrels last week, contrary to analysts’ expectations of a 500,000-barrel increase. Analyst Tim Evans at Citi Futures Perspective called the report a “bullish surprise.”

    Crude for delivery years from now was trading even higher than near-month contracts, with December 2016 Nymex crude at $141.25 after the data release.

    “The bullish emphasis has moved to the back end” of the trading curve, said Peter Donovan, vice president at Vantage Trading in New York.

    Kyle Cooper, director of research at IAF Advisors in Houston, noted the crude stockpile decline came amid a 696,000-barrel drop in imports last week.

    “It was a one-week aberration,” he said.

    In the data, distillates stockpiles rose 728,000 barrels, smaller than a 1.2 million-barrel gain expected by analysts. Gasoline stockpiles fell 755,000 barrels, compared with analysts’ forecasts of a 400,000-barrel gain.

    Front-month June reformulated gasoline blendstock, or RBOB, was trading 6.27 cents, or 1.9%, higher at $3.3671 a gallon. June heating oil was up 6.90 cents, or 1.8%, at $3.8440 a gallon. Both contacts earlier made new records.

    —By Gregory Meyer, Dow Jones Newswires

  96. 96
    uop Says:

    zman:
    could not follow lately:

    what is going on with HK ?

    takeover speculation again ?

    with crude over 131$, there could be and end to dragging energy stocks higher and higher,

    coal stocks, my KOL and TAN is high too,

    what is your take, also we are heading into a long weekend.

  97. 97
    zman Says:

    HK – moving up with prices and they are about to speak at UBS conference at 11:55 cst

    PBR speaking now, talking a lot about their non-Brazil operations.

    Uop – its very hard to call a top. Long weekend should boost demand for gasoline as people will still be traveling, maybe less than last year but they will fly and drive places. Demand is barely off in terms of gasoline and diesel remains very strong. On crude, lots of people have fallen on the sword trying to call a top in here. I have raised cash repeatedly but am not shorting/putting anything now. Same goes for natural gas as per arguments in the post.

  98. 98
    zman Says:

    SLB looks to be breaking out, still planning taking my calls out of play about $110.

  99. 99
    Jay Reynolds Says:

    I suppose there’s an outside chance that one of the HS players could say that they’ve acquired all of the acreage they could handle, give some results, per acre prospective valuations and let the per acre price rise for their competition.

  100. 100
    scoop006 Says:

    JR, Devious thoughts

  101. 101
    zman Says:

    Jay, now you’re just getting mean, lol. Hope it is HK. That call is just starting, slides on their site look same as last set so far.

  102. 102
    zman Says:

    Call still not quite started for HK

    I do see they have bumped their rig count in the Haynesville to 8 rigs by 4Q from 5-6 previously stated.

  103. 103
    zman Says:

    Floyd just said the meeting is poorly attended, that’s odd.

  104. 104
    BossmanG Says:

    Z, what do you think of MEE? (Massey Energy)

  105. 105
    zman Says:

    HK:

    No change to guidance. I expect them to bump this during the 2Q call.

    Haynesville: well over 150,000 acres in the play.

    MEE – they have some interesting law suits against them for filling valleys. I’d rather play a BTU or ACI or WLT in the coals

  106. 106
    zman Says:

    Thinks Haynesville is a little over hyped, says the results are not many but they have been uniformly “good”

    50 Bcfe recoverable per section (640 acres = 1 sq mile)

  107. 107
    zman Says:

    HK – Haynesville

    2 rigs now going to 4 next month 8 by 4Q

    now says the results from the horizontals he has seen are at the upper end of expectations.

    he’s going with 5 Bcf per well.

  108. 108
    zman Says:

    just said he did 3 recompletions in the Hosston at Elm Grove over the weekend for a 9 mmcfepd bump. Got the coil tubing unit out of the shop and there you have, they will do 100 of these this year and though they decline like any Cotton Valley well that’s nothing to sneeze at.

  109. 109
    isleworth Says:

    NFX announces that it had reset its oil hedge positions for 2009 and 2010 on ~6.6 million barrels of anticipated production. The new positions are: 2009 fixed price swaps on 3.3 MMBbls with a volume weighted average price of $128.93 per barrel; and 2010 “put spreads” covering ~3.3 MMBbls by purchasing “at the money” puts at $127.29 per barrel and selling puts at $105.58 per barrel, which retains the upside benefit for prices in excess of $127.29 per barrel and provides protection of up to $22.39 per barrel for prices below $105.58 per barrel. The cost to reset these hedges was ~$520 mln and was funded through cash on hand and borrowings under our credit arrangements.

  110. 110
    Jay Reynolds Says:

    HK: Finding cost at max $.30/mcf w/ lease costs of $10K in HS.

  111. 111
    zman Says:

    Floyd said that even at $10,000 per acre in the Haynesville, if the end results are half as good as what people are thinking the economics are going to be down well below a $1, like $0.20 per Mcfe.

  112. 112
    ellwodo Says:

    HK – Floyd’s a lot better ai Q & A than he is at presenting.Now he’s actually sounding enthusiastic.

  113. 113
    zman Says:

    never had the IP’s in other shale plays they are seeing in the Haynesville.

    I’m adding a little more here.

  114. 114
    Dman Says:

    Nicky, what’s your take on where the Dow is heading?

  115. 115
    kyleandy Says:

    z – cud u comment on the MMR -EXXI situation. bot EXXI cause of Reef, but would like to hear the story, also would like to thank u for my having a wonderfull may!!! not quite as good as the relative tho!!!

  116. 116
    zman Says:

    Kyle – its a massive potential deep test drilled from shallow water in a play known as Treasure Island. MMR operates, EXXI has a good sized working interest, and you can even take warrants on the play via TISDZ.

    Here’s a link to a quick run through:
    http://www.aapg.org/explorer/2008/05may/blackbeard.cfm

  117. 117
    freeflow Says:

    Any thoughts on ATN?

  118. 118
    zman Says:

    ATN is a Marcellus name that looked interesting … I don’t know them very well and am holding XCO instead

  119. 119
    reefguy Says:

    xco- down…HK haynesville big…Maybe add here

  120. 120
    zman Says:

    Am bidding some HK $30 July calls below the current bid, not feeling like chasing much with oil and gas spiking like this. The overall market is getting punished by $130 + oil.

  121. 121
    zman Says:

    nice move you are getting in the exxi, MMR not playing now, probably just noise on the latter.

  122. 122
    zman Says:

    Oil up $3.60 on those numbers is officially nutty. Especially after the run we have had. Traders have got to be eying each other and the exits.

  123. 123
    ellwodo Says:

    Z – as you’re buying the HK July 30s I’m selling. Too bad we don’t have our own exchange. I’m rolling over to the Sept 30s to give someone plenty of time to get good news out on haynesville.

  124. 124
    reefguy Says:

    HK calls I won’t step in front of you, i like the idea

  125. 125
    ram Says:

    Re #122 – I was toying with the idea of heading for the exits on everything as well.

  126. 126
    ram Says:

    ZMAN – Is $8B too much for HK based on known info. today?

  127. 127
    Dman Says:

    Nicky, you there? Any thoughts on how far the Dow might fall from here?

  128. 128
    Sambone Says:

    Boo Hoo, Boo hoo, Wall Streets not gonna get any more cuts by B52 Ben.

  129. 129
    zman Says:

    Ram – Probably not, not given the resource potential.

    Ellwo and Reef – I was bidding below market and canned the trade. Crude up is bad for the market and I’m on the verge of a flurry of profit taking myself.

  130. 130
    zman Says:

    ZTRADES:

    Out DO Calls:

    DOFW sold for $4.20, up 14%
    DOFU sold for $9, up 157%

  131. 131
    Sambone Says:

    LONDON (MarketWatch) — The 13% rise in Brent crude oil in sterling terms during April wasn’t driven by speculation, the Bank of England said in minutes from the last interest-rate meeting. “According to the Bank’s market contacts, speculative purchases did not seem to be the prime cause of the recent increases in the oil price. More fundamental demand and supply factors had probably been at the root of its steep rise during recent months, and there remained considerable uncertainty about the oil price outlook,” it said. Because there was little prospect of a significant rise in supply over the next two to three years, oil prices might take longer than that to fall back

  132. 132
    reefguy Says:

    z- exiting big today. Building cash for another day. Only buy was EXXI on two week timeline

  133. 133
    zman Says:

    ZTRADE: Out SLB June $110 Calls, for $2.80, up 93%.

  134. 134
    kyleandy Says:

    reef still have IOC?

  135. 135
    zman Says:

    ZTRADE: Out $17.50 PQ July Calls for $5.30, up 62%. I’ll buy this back when the dust settles. I continue to hold the $25 calls here.

  136. 136
    crysball Says:

    z have followed all the Marcellus major plaers closely for months. ATN will be the eventual ‘King of Marcellus’as they are execuing a very aggressive drilling plan [H&V] and have all the gathering systime in place to immediately realize the production potential…..unlike all the other players who have to build out. ATN also realizes both a distance & btu premimium. They are initailly drilling their sweetspot acreage in the Marcellus Fairway and on average new wells shows improvement in IP. 3 rigs (net) running in Macellus Fairway, and time to drill is coming down by 30% as they come up learning curve…..They are drilling faster than they are currently completing, but have plans to up completions. They impress me as very quick learners. Th disadvandtage is they have hedged a signifcant % of current production, but new production is going to reduce hedge %.
    Full disclosure am long ATN and short naket puts on ATN,

    ATN (via APL) owns all a large chunk of the Marcellus gathering system, which is already in place due to their long time shallow Appalachian Shale postition in the exact same area….which also lowers their LOC to below $1mcf…

  137. 137
    zman Says:

    ZTRADE:

    Out June HAL $50 Calls for $1.73, 26% to average cost. Continuing to hold my July $50 calls here.

  138. 138
    reefguy Says:

    going to sell half today. Keeping 1/2 for long term. My basis is $19.05

  139. 139
    reefguy Says:

    screens going red, CWEI up 6% to 84.11

  140. 140
    kyleandy Says:

    z -thks for MMR update

  141. 141
    Nicky Says:

    Dman – I think i mentioned yesterday that my target for the first leg down was 1395 spx which we have just hit.

  142. 142
    zman Says:

    Crude up $4.25, not just the front month but the strip, this is the kind of rally that generally ends badly.

  143. 143
    Nicky Says:

    What seems to have spooked the broader market is the Fed stating that they expect unemployment to increase substantially.

  144. 144
    QUARRYMAN Says:

    Hi Z.

    Is CHK on sale right now?

    I made a nice little pile during the earnings announcement time and sold them.

    THis a good time to buy back in.?

    Q.

  145. 145
    reefguy Says:

    xco down 4%, SWN 3%, CLR 3% building a shopping list, but not today..

  146. 146
    zman Says:

    Q – I’m not buying anything at the moment given the broader market sell off here I think it is a little early given the profits we’ve book to bottom fish, lot of people have not been booking profits.

  147. 147
    Nicky Says:

    Aye Z – but what’s to stop it right now? Absolutely nothing. Its all very well having Senate meetins on Capitol Hill but any resolution is likely weeks way. I still don’t understand why they don’t increase margin requirements across the board. For all those that say what a wonderful job the Fed have done then maybe take a closer look. They have dropped rates 3% we now have raging inflation, oil in the stratosphere, a housing market that is still on the bones of its arse, rising unemployment, debt everywhere you look. And they have no ammunition left to speak of. It seems to me we are far worse off than when they started back in January – great job Bernanke!

  148. 148
    zman Says:

    Re 145: exactly.

  149. 149
    Denise Says:

    My T/A lady says if the dow closes below 12700 a double top confirmed

  150. 150
    Nicky Says:

    Lots of support at 1391 spx.

  151. 151
    freeflow Says:

    DUG?

  152. 152
    zman Says:

    Crazy day, even SU down with oil up $4.60.

  153. 153
    Nicky Says:

    oil at 133.52

  154. 154
    QUARRYMAN Says:

    Erfahrung und Weisheit, mein Freund.

  155. 155
    Nicky Says:

    Cramer now saying oil needs a couple of down days for the stock market to recover. I thought he said higher oil prices lead to a higher stock market?

  156. 156
    zman Says:

    FF – Not me. I’d rather go to cash than try DUG which as someone pointed out is 1/4 XOM who is still up today and cheaper on earnings than the S&P500. Plus, the refining side is showing improvement and you have analysts taking numbers up there. I think this little bit of red will be short lived as the fundamentals are continuing to improve in both E&P and service but it may be a steep dip before a resurgence.

    Sturm und drang

  157. 157
    zman Says:

    Nicky – that was so 30 minutes ago.

  158. 158
    zman Says:

    If we do get an afternoon broad bound I think NBR and NFX will play nicely fro trades but honestly I do not feel at all compelled to bargain hunt in here. We’re red which is something I wasn’t sure my monitors were still capable of but just barely and when you consider where we’ve come from well, there you have it. The stuff I popped off earlier was generally higher strike and near month, except for the PQ and I just sold that as it is smaller and those can sell off hard when everyone decides to hate energy.

  159. 159
    QUARRYMAN Says:

    An old bottom fishing order tripped on DUG so I’ve bought my monthly DUG calls at $2.50 (DZGFX) when index was at 25.70

    Doing pretty good right now. Maybe I should take a quick flip?

  160. 160
    Dman Says:

    Maybe with the selloff we might have a few days to make sense of some promising alt energy plays.

    Nicky, I gather you prefer to read off the SPX rather than the Dow. I realize the Dow isn’t representative, but for some reason I use it is as a gauge of the broader market. Maybe as a gauge of sentiment. Or maybe just ’cause it moves in large numbers 🙂

  161. 161
    Sambone Says:

    Hey Nicky, did you see the news on MCO. Talk about fraud!

  162. 162
    Nicky Says:

    No Sam – not seen it. Will take a look around and try and find it.

    Dman – actually prefer to trade the Dow myself too. I am looking at a possible count which has us pretty much straight back down to 11800 from here on the Dow.

  163. 163
    Dman Says:

    I’m wary of shorting but can’t help noticing that there are still articles coming out (eg Charles Norton today in RealMoney) touting the continual growth in global air travel and continued growth in demand for new aircraft etc. It is really hard to believe this scenario as Jet-A increases daily & I wonder if anything can be shorted on it. Boeing is already down from its highs, but not enormously. Can its order book remain solid when the price of operating aircraft doubles or triples from when the orders where placed?

  164. 164
    ram Says:

    ZMAN – Would you ever think of stating a percent of cash after a flurry of trades just to give some sort of benchmark?

  165. 165
    zman Says:

    between 50 and 75% cash but that’s just how I like to roll. I rarely go below 20% cash as I never, ever, never want to be in the position of needing to sell one thing because I like another thing or because I want to double a position.

  166. 166
    ram Says:

    Thanks. Wasn’t trying to get personal, just trying to get a gage. I am only 40% cash proabaly because I was averaging down too much and before you know it you are overweighted in one position.

  167. 167
    zman Says:

    Tempted to bottom fish and am instead sitting on my hands. Say oil opens $2 off in the morning, the market may open up, may not but stocks will be with it. Say they drive oil up another $2 in Asia tonight. Market opens lower as do the stocks. Better odds in a casino of getting that trade right. So I wait.

  168. 168
    zman Says:

    NFX options up on the day after the stock round tripped a nearly $2 move. Still up 20% to yesterday. Anybody want 40 contracts for $3.60 on the July $70. Just kidding, I’m holding.

  169. 169
    Dman Says:

    Cash % = useful info.

    I’ve neglected the cash side in that I just use the broker sweep fund. Any ideas on liquid, safe, but better-that-broker-interest would be useful. I realize it’s off-topic and a very basic question but I’ve just never looked into it and there seem to be zillions of possibilities.

  170. 170
    ram Says:

    I am also in the process of switching to CHUCK from WELLS(broker had to override the system to sell the PBR calls).

  171. 171
    Sambone Says:

    Despite Crude’s Bearish Pattern, Few See Near-Term Downside

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — As the crude-oil market shot to a new record above $132 a barrel Wednesday, it breezed right past an evolving trading pattern that’s often red meat for bears.

    Known as “contango” in futures jargon, the pattern emerges when contracts for oil delivered further in the future cost more than near-month contracts. On the New York Mercantile Exchange, for example, light, sweet crude for August delivery was recently trading at $132.72 a barrel, versus $132.48 for July. Crude for delivery in December 2016 was trading at $141. Illustrating the price outlook for crude, the July contract was the cheapest of the main contracts on the Nymex board.

    The pattern reverses the trend of recent months, and some traders see it as bearish for prices. A lower front-month contract gives producers incentive to store crude rather than sell it, increasing the world’s stockpile cushion and theoretically pushing down prices.

    The phenomenon also cuts returns for commodity index funds, which are forced to sell low and buy high as they “roll” expiring futures contracts into later months.

    “A sustained crude contango would likely discourage incremental investment in traditional index products that rely on roll yield,” analysts at JPMorgan said in a note.

    Non-commercial investors, such as banks, hedge funds and pension funds, have been plowing into energy markets and are thought to have been a big force behind the rally that’s sent oil prices crashing through $100 a barrel.

    So far however, buyers haven’t run for the exits, instead pushing front-month crude to a new record high above $132. Analysts who have been forced to revise price forecasts all year are reluctant to call an end to the rally, contango or no.

    “The market is ignoring that right now,” said Adam Sieminski, chief energy economist at Deutsche Bank. “The market is saying, “Listen, the contango thing is not what we’re paying attention to.'”

    While the marginal cost of supplying oil is about $75 a barrel, “smart people are looking at supply and demand trends and saying that if you look out three to five years, supply might stop growing and demand is still going up,” said Sieminski. “The only way to close the gap is with prices much higher maybe even than today. That could be $150, or might even be $250.”

    Deutsche Bank estimates that crude will average $99.70 a barrel this year, but with “increasing risk to the upside.”

    Fear-Based Rally
    Walter Zimmermann, a technical analyst at brokerage ICAP/United Energy, last month said prices could reach $140 a barrel but expected a downturn to $80 next year as the U.S. economy slows. After seeing crude surpass $130 for the first time Wednesday, he now says a move to $135 to $145 a barrel is possible by next week and $190 a barrel if money flows into long-only commodity funds continues unabated.

    In what he calls a bubble, contango gets interpreted as a buy signal, Zimmermann said.

    “You could look at that as speculative excess — “There may be plenty today, but there won’t be enough tomorrow,'” Zimmermann said. “In the stock market, rallies are hope-based. In the energy market, rallies are fear-based.”

    As has been illustrated in recent years, the contango pattern hasn’t always resulted in a bear market. For example, oil prices were in contango until last summer, when they reversed into “backwardation,” when front-month prices are cheaper than those on contracts further out. When oil prices were in contango, they still barreled on.

    The contango pattern may not last.

    “Our view is that the U.S. and global oil balances are tighter than the current degree of front-to-back price contango might imply. We see potential upside in the front relative to the back,” Barclays Capital commodities analysts said in a note.

    For contango to really have an impact, the market has to be in that pattern for a couple of months and the spread between the first and second months should be more than $1.

    John Kilduff, senior vice president at brokerage MF Global in New York, sees $138 a barrel as an upside target, fed by a combination of refinery glitches, a weakening dollar and strong global demand for diesel fuel in China, Europe and Latin America.

    Jim Ritterbusch, president of energy trading advisory firm Ritterbusch and Associates, on Wednesday revised up his price target to $133.25 a barrel by the end of May.

    While Ritterbusch said contango casts a bearish shadow, it’s outweighed by a persistently strong distillates market and the dollar’s weakness. The “crack spread between Nymex crude and heating oil futures, an indication “of the profit margin for refining distillates from crude, widened to $32 a barrel Wednesday, a record.

    —By Gregory Meyer, Dow Jones Newswires

  172. 172
    ram Says:

    Also I sometimes wander from ZTRADES like NOV, so my cash percent can be diff.

  173. 173
    ram Says:

    “Deutsche Bank estimates that crude will average $99.70 a barrel this year, but with “increasing risk to the upside.” Are these the same guys that dumped CHK and DO? Is there an internal audit review of these guys that make dumb stsements?

  174. 174
    ram Says:

    Is “Leonard the monkey” a real person?

  175. 175
    zman Says:

    CHK was a JPM call but I think DO most recently was DB.

    Wow, DO and RIG getting shelled right now. Makes no sense other than people are taking profits. Those names are the least vulnerable to short term swings.

  176. 176
    Dman Says:

    # 171 : stocks=hope. Energy=fear. So what about energy stocks? Energy stocks = (1/2)(fear-of-hope + hope-for-fear) ??

    Is the week over yet?

  177. 177
    Sambone Says:

    3:35 pm EST

    Nymex Crude Surges Above $133; Fourth Record In Row

    By HYUN YOUNG LEE
    Of DOW JONES NEWSWIRES

    OTTAWA — Crude oil futures leaped past $133 a barrel Wednesday, as ongoing market momentum pushed prices deeper into record territory after an unexpected slump in U.S. oil inventories.

    The new front-month July contract for light, sweet crude settled up $4.19, or 3.3%, at a record $133.17 a barrel on the New York Mercantile Exchange, but hit a new high of $133.82 a barrel just after the close. The gain is crude’s fastest ascent in dollar terms since March 26 and marks the fourth straight session in which oil has hit a new record.

    Brent crude on the ICE futures exchange closed $4.85 higher at $132.69 a barrel, also a record, after racing to a high of $132.93 a barrel earlier. Settlement prices weren’t in yet.

    The move extends a red-hot rally that’s brought the price of oil and a host of products derived from it to levels many analysts have found flabbergasting. The rally is taking its cue primarily from strong global oil demand, most notably from China and concerns about supply disruptions.

    Nymex crude futures are up 39% since the start of the year, when prices first breached $100 a barrel, while futures are up 17% since the beginning of May. Futures contracts for oil products also settled at all-time highs.

    The weekly U.S. inventory data kickstarted the run earlier in the trading session. The Energy Information Administration reported U.S. crude stockpiles fell by 5.3 million last week as refineries ratcheted up utilization rates amid a sharp drop in imports, defying analysts’ expectations of a 500,000 barrel increase.

    Distillates stockpiles rose 728,000 barrels, less than the forecast 1.2 million-barrel gain, while gasoline inventories fell 755,000 barrels versus the expected 400,000-barrel gain.

    While the report certainly invigorated crude prices, sheer momentum in the market amplified the rally, analysts said.

    “The feeling here is that the bears just can’t catch a break and the bulls are in the driver’s seat,” said Peter Beutel, president of trading advisory firm Cameron Hanover. “It just seems to be a game of leapfrog.”

    Prices have also jumped at the outer end of the futures curve, trading at a premium to front-month contracts in a direct reversal of recent patterns. Nymex crude for August delivery settled higher than for July and September higher still, but the longest-dated contract for December 2016 settled at $142.09 a barrel.

    Outer-month contracts have steadily been climbing through the year, but their appeal has grown as volatility spiked at the front end of the curve, particularly for investors who want to hold positions for longer, said Eric Wittenauer, energy analyst at Wachovia Securities.

    “Though we could see $150 oil in the next couple of weeks, a longer-term bet on $150 or $200 or whatever your target is…just gives you more time to get there,” Wittenauer said.

    Front-month June reformulated gasoline blendstock, or RBOB, settled up 9.21 cents, or 2.8%, at $3.3965 a gallon. June heating oil settled 13.34 cents higher at $3.9084 a gallon.

    —By Hyun Young Lee, Dow Jones Newswires

  178. 178
    ram Says:

    HK JUN 30 unchanged with stock down .48 – unusual?

  179. 179
    zman Says:

    Ram – yep, I see quite a bit of that, of course, could have sold it earlier for $0.85, now $0.65 bid.

  180. 180
    BossmanG Says:

    Z, what do you think about bargain hunting tomorrow in names like HAL, CLR, OII, etc.?

  181. 181
    Dman Says:

    # 171 has correct definition for contango
    “when contracts for oil delivered further in the future cost more than near-month contracts”

    but then uses the same definition for backwardation
    ” when front-month prices are cheaper than those on contracts further out. “

  182. 182
    zman Says:

    Boss – let’s see how we open but I have no problems in rebuying what I sold today. I’d probably wait to average the OII unless it gets woodsheded. I’d add NFX to the top of the list of the bottom fish list but I’m not going to be in a big hurry.

  183. 183
    zman Says:

    crude trading up $5 on the day in the aftermarket at $134 even.

  184. 184
    scoop006 Says:

    Z any idea why SU ended the day- with oil+

  185. 185
    Fred Says:

    Boone Pickens may have his $150 oil this week!

  186. 186
    zman Says:

    Scoop – whacky day, just thinks its profit taking, given oil and ng up this much in a vacuum all of our names would have been riding him but the pull of gravity from the broad market, the poor, poor broad market pulled us back down. Ya know, I got everything in the report I was musing for in terms of the perfect storm that would drive crude higher yet oil went up too much and killed the market and the trade in all but say, USO.

  187. 187
    zman Says:

    Fred – If so I’ll go to the sidelines and await the crash.

  188. 188
    Brian Smith Says:

    A situation similar to the energy market (i.e. basic commodity higher, most related stocks lower) occurred in the precious metals market also. Gold and silver were strong, but the mining shares were mostly down.

  189. 189
    Nicky Says:

    http://www.marketoracle.co.uk/Article4793.html

  190. 190
    bill Says:

    screw up of the week

    i had 100 june 50 calls and my gtc sell order went off at 2.80 ARRRRRRGGGGG

    GAIN AVOIDANCE

    CRED UP BIG TODAY do we still have time to ride this pony or others?

  191. 191
    Nicky Says:

    Interestingly the metals stocks and indices (HUI) may have topped today and could be leading gold and silver. Likewise the XOI had a bearish candle and may be leading the commodity.

  192. 192
    texana Says:

    ceo of exxi said that they had to test the bop every week , so they had to roundtrip and said it would probably be a couple of weeks before they announced anything. said total depth was not set in stone & would be based on what they see as they drill. on hk if 50% of their ac is productive @5bcf thats about 6.5 tcf just on hs. their recompl in elm grove add substantial prod & res. hk’s price tends to follow the broader mkt so further downside in spx will present another great entry point for hk. i tend to buy common instead of ops so it doesn’t have to happen tomorrow. back of the napkin says over 2 bil in lse bonus $ already in overall hs play. this is definitely what is called legacy plays for these cos. wll held up well today & would expect consolidation here for awhile before next move up, expect chart pattern to look like clr recently. any pullback on hes to 120 level would provide excellent entry point for longer time frame holders

  193. 193
    BossmanG Says:

    Z, do you think CLR can reveal anything new at the conference tomorrow?

  194. 194
    Denise Says:

    Great article Nicky-

    mules vs camels (if you saw the FT artcle a week or so ago)

    High gas prices drive farmer to switch to mules
    May 21, 2008 6:51 PM EDT

    MCMINNVILLE, Tenn. – High gas prices have driven a Warren County farmer and his sons to hitch a tractor rake to a pair of mules to gather hay from their fields. T.R. Raymond bought Dolly and Molly at the Dixon mule sale last year. Son Danny Raymond trained them and also modified the tractor rake so the mules could pull it.

    T.R. Raymond says the mules are slower than a petroleum-powered tractor, but there are benefits.

    “This fuel’s so high, you can’t afford it,” he said. “We can feed these mules cheaper than we can buy fuel. That’s the truth.”

    And Danny Raymond says he just likes using the mules around the farm.

    “We’ve been using them quite a bit,” he said.

    Brother Robert Raymond added, “It’s the way of the future.”

  195. 195
    zman Says:

    Texana – thanks and agreed re HK potential is huge but also agree they are likely to track the broad market to some extent.

    Bossman G – I think they will give be able to give people a better sense of where under their acreage they have Three Forks Sanish potential and how much in terms of recoverable reserves that could translate into.

    Very funny Denise, love the “way of the future” comment

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