26
Aug

Gustav Vs Euro Smackdown Tuesday

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Sentiment Watch: Bored but eying Hurricane Gustave which looks like the first serious threat of the season to the Gulf of Mexico. Trading volumes are typical for the last week of August and in many cases less half of norms and companies are likely to save any real news they have for a bigger audience next week. Analysts ... well, most analysts are barely around so look for a few token ratings changes but no sector calls. Commodities are mixed this morning with oil tracking the course of the dollar (see below), not the storm, while natural gas, which is local and could care less about the weakening Euro, is rallying hard pre open. My sense is that if Gustav remains on track for a central Gomex strike, the dollar and inventory reports will take a backseat to traders and guys like me playing junior meteorologist.

Tropics Watch: Hurricane Gustav (category 1) is currently expected to be a Cat 3 (major hurricane) by Saturday morning as it skirts the southern edge of Cuba and heads towards the central or western Gulf of Mexico. Some of the models forecast a more westerly track which could take it over the Yucatan before it hits the Gulf.

Short Interest Watch: With Gustave expected to be a Cat 3 storm on the lip of the south eastern Gulf going into the long weekend would you really want to be short the commodities or the stocks? Could mess up one's vacation.

  • NYMEX Natural Gas net short interest remains near record highs as it has all year long. This kind of thing may put a ding in that, especially since most analysts and traders are of the opinion that the worst of the damage to gas prices is behind us and that marginal economics in many plays will lead to curtailed capital programs before long.
  • Short interest figures for some of the names we follow around here:

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today
  4. Odds & End

Holdings Watch: No Changes Yesterday.

Commodity Prices:

Crude Oil closed up $0.52 at $115.11 in light but volatile trading with a late surge into green brought about by the quick formation of tropical storm Gustav. This morning crude is trading off $2 with a sharp rally in the dollar. I would expect this move to reverse if Gustav's track solidifies towards the central Gulf of Mexico.

  • Dollar Watch: The dollar is moving higher as the business sentiment index in Germany reported a bigger than expected decline, sending the Euro back to levels not seen since February. Just about every economist now expects the European Central Bank to cut rates and the Fed to raise them. I have no issue with the former but the latter is far from certain given the weak state of affairs in the U.S. (and the fact that we are in an election year) so while the Euro may look comparatively weaker than it did recently to the dollar, the idea that the dollar should be zooming higher as the Fed wages war on inflation seems a bit overdone.

  • OPEC Watch: As the dollar shows signs of life and the threat of a global inventory bloom continues, I would expect them to become a little more likely to shave production quotas and to really hammer home quota discipline at the September 9 meeting.

Natural Gas closed off 2 pennies to $7.82 but has no concerns about the Dollar and is rising $0.30 this morning as Gustav approaches.

 

Stuff We Care About Today

APC Repurchase Plan:

  • $5 billion share repurchase approved for now through August 2011 (that equates to about 18% of current shares outstanding at yesterday's close of $57.84),
  • $600 mm by year end 2008 expected to be taken taken into treasury,
  • They see increased spending in 2009 and beyond but maintenance of a 25 to 35% debt to cap ratio.
  • Also updated guidance and while not much is expected of APC's 2008 production profile they did say they are coming in above the mid point of 3Q08 guidance of 51 to 54 mm BOE.

Denbury Buys Conroe Field With CO2 Flood Potential:

  • Purchase price: $600 million for a 91.4% interest in the Conroe Field north of Houston
  • What They Get:
    • Conventional Reserves:  18.2 mm barrels with a PV10 of $530 mm (so this accounts for most of the deal value)
    • Tertiary Recovery Reserve Potential: 130 million barrels of oil equivalent
      • These are higher operating cost reserves no doubt in the $25 per barrel ($4.16/Mcfe range) for LOE and capital needed to develop them probably gets the full cycle cost up to $35 per barrel...still pretty attractive with an IRR > 60% at $110 oil.
      • Yes they need to build a pipeline for the CO2 but they're experienced at managing CO2 distribution and I don't see the cost as a major hurdle.
  •  All in all, I think it is a pretty strong deal for them, significantly boosting their tertiary recovery sourced reserves.
  • The stock is generally never cheap given their strong growth rate and somewhat unique operations but at 5.6x 2009 CFPS  of $4.35 it is cheaper than I can remember.
  • I'll be looking at calls here.

OII - Just a mention since they are my favorite "hurricane actually strikes the Gulf" play. They made a fortune cleaning up the mess left from Katrina / Rita and that business has only recently died back. The threat of a real powerful storm in the Gulf general sends their shares skipping higher and heh, I like them anyway.

Refining Watch:

ZComment: 1.5 Steps Forward and 2 Steps Back. I expect this trend to end soon as winter approaches and traders take note of the fact that the type of distillate the U.S. uses to heat its homes is in shorter supply than normal and that gasoline supplies have fallen sharply from recent bloated levels in only one month.

Odds & Ends

Analyst Watch: Jefferies cuts (GW) from Buy to Hold, BMO trimmed its target on (GW), ...otherwise, analysts have left the building.

125 Responses to “Gustav Vs Euro Smackdown Tuesday”

  1. 1
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures fell more than $2 in European trading
    Tuesday as fresh concerns over shrinking European economic growth boosted both
    demand fears and the U.S. dollar, and overshadowed the development of a
    hurricane in the Caribbean.
    German business confidence plunged to its lowest level in three years in
    August according to data published by the Ifo Institute Tuesday. It followed on
    from GDP data published earlier in the day showing the German economy shrank in
    the second quarter of 2008, the two raising fears that the eurozone’s largest
    economy is in recession – which could weigh on demand for crude oil.
    Adding to pressure on crude, the U.S. dollar powered higher against the euro
    and other major currencies following the German readings, amid concerns that
    other economies will endure the same severity of economic downturn experienced
    in the U.S.
    “The outlook for Europe is not good: the numbers are not good in the U.K., in
    Germany….Europe is also hurting. And a stronger dollar offsets some of the
    weakness in the price of oil – it’s very difficult to go back to $145 on crude
    oil with the euro where it is,” said Olivier Jakob of Swiss consultancy
    Petromatrix.
    At 1201 GMT, the front-month October Brent contract on London’s ICE futures
    exchange was down $1.06 at $112.97 a barrel, having earlier traded down to
    $111.65 a barrel.
    The front-month October light, sweet, crude contract on the New York
    Mercantile Exchange was trading $1.18 lower at $113.93 a barrel, up from
    earlier intraday lows of $112.36 a barrel.
    The ICE’s gasoil contract for September delivery was down $2 at $1,018.75 a
    metric ton, while Nymex gasoline for September delivery was down 223 points at
    286 cents a gallon.
    The U.S. National Hurricane Center Tuesday upgraded Tropical Storm Gustav to a
    category one hurricane and warned that it could become a category two hurricane
    before it makes landfall in Haiti later Tuesday.
    At 5 am EDT (0900 GMT) the center of Gustav was located near about 100 miles
    south-southeast of Port au Prince, Haiti and about 300 miles southeast of
    Guantanamo, Cuba, the NHC said, and is moving toward the northwest at nearly
    nine mph. It is expected to turn toward the west-northwest and a decrease in
    forward speed is forecast for Wednesday.
    While market participants were likely to closely monitor the path of Gustav,
    analysts questioned the potential influence the hurricane could have on oil
    prices given the current market environment. Many drew parallels with the muted
    impact that met the recent three-week closure of the Baku-Tbilisi-Ceyhan
    pipeline that transports, on average, 850,000 barrels of crude oil a day.
    “The chances are if it does cause disruption it’ll not be severe. The BTC was
    out for such a fair length of time and that didn’t have much of an impact. I
    doubt that a hurricane is going to have more of one,” said Simon Wardell,
    analyst at Global Insight in London.
    Comments from some Organization of Petroleum Exporting Countries officials
    lured traders’ attention to the group’s upcoming meeting scheduled for Sept. 9.
    After Iranian Oil Minister Gholam Hossein Nozari suggested Monday that a cut
    in the group’s crude production may be in order after the recent price decline,
    Iran’s OPEC governor said Tuesday that members favor a balanced crude oil
    market and could still decide on rolling over or cutting output. But a top
    Libyan oil official told Dow Jones Newswires Tuesday OPEC is likely to decide
    to keep its formal production policy steady when it meets.
    “While some price hawks will (and are already) calling for a cut in the
    cartel’s official production, I think this is unlikely,” said Robert Laughlin
    at MF Global in London, who suggested that OPEC was likely to rein in some of
    its reported overproduction first, while verbally talking the market up with
    “bullish rhetoric”.
    Market concerns over increased tensions between Russia and North Atlantic
    Treaty Organization countries, remained heightened Tuesday after Russia
    confirmed that it had signed a decree formally recognizing the breakaway
    Georgian regions of Abkhazia and South Ossetia as independent states.
    The Group of Seven industrialized countries had expressed “alarm” Monday over
    reports that Russia’s parliament recognized the two breakaway Georgian regions
    as independent nations, a U.S. State Department official said, while U.S.
    President George W. Bush said Russia should not recognize them.
    The U.K. government Tuesday rejected Russia’s formal recognition of the
    regions, while the French foreign ministry said it was a “regrettable
    decision”.
    -By Nick Heath; Dow Jones Newswires

    Dow Jones Newswires
    08-26-08 0825ET

  2. 2
    Sambone Says:

    Oil Stockpile Gain Predicted

    DOW JONES NEWSWIRES

    NEW YORK — U.S. crude oil stocks are expected to increase in data due Wednesday from the Department of Energy, according to a preliminary Dow Jones Newswires survey of analysts.

    The data, put out by the department’s Energy Information Administration unit and covering the week ended Aug. 22, are due at 10:35 a.m. EDT Wednesday.

    Crude oil inventories are expected to rise by 900,000 barrels, according to the mean of six analysts’ forecasts. Four of the six expect an increase, with estimates ranging from a draw of 2 million barrels to an increase of 3 million barrels.

    Gasoline inventories are seen falling by 2.2 million barrels, according to the analysts’ average, with all but one analyst surveyed eyeing a decline. Estimates range from a drawdown of 5 million barrels to an increase of 2 million barrels.

    Stocks of distillates, which include heating oil and diesel fuel, are expected to rise by 400,000 barrels. The six analysts are evenly split in predicting a decline or an increase, with estimates ranging from a decline of 1 million barrels to an increase of 2.4 million barrels.

    Refinery use is seen rising by 0.2 percentage point to 85.9% of capacity.

    In the prior week that ended Aug. 15, U.S. crude stockpiles swelled by a surprising 9.4 million barrels — the largest weekly barrel gain since 2001. The jump reflected imports whose arrival on the Gulf Coast had been postponed by Tropical Storm Edouard, analysts said.

    Tony Rosado, a broker at GA Global Markets, said he expects to continue to see gains in the past week, partly because a 110,000 barrel-a-day crude unit at Valero Energy Corp.’s (VLO) Corpus Christi, Texas, refinery was offline.

    “Added supply would help put a downward direction” on prices in the oil market, Rosado said.

    Analysts’ Estimates
    Analyst Crude Gasoline Distillates Refining
    Alaron Trading +2 +2 +2 +1
    Cameron Hanover +3 -5 -1 +0.45
    GA Global Markets +2 -1.5 +2.4 -1
    MF Global-Fitzpatrick +1.1 -3.6 -0.8 +0.8
    Ritterbusch & Assoc -2 -1.6 -1 unch
    Summit Energy -0.6 -3.4 +0.6 unch
    Average Estimate
    Figures in millions of barrels, except for refining use, which is reported in percentage points. Figures are rounded to two decimal places in table, one decim l place in averages and story. For analysts providing forecasts in a range, the verage of the upper and lower ends of the range is used.

    —By Gregory Meyer, Dow Jones Newswires

  3. 3
    Nicky Says:

    Gustav looks like it could be extremely dangerous to me – that said if it is behind a crude rally it is likely to be VERY short lived.

  4. 4
    Sambone Says:

    US Oil Demand May Be Weaker Than Indicated

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — The sharp decline in U.S. oil demand may be even greater than thought, raising the specter that third-quarter demand could slump below the second-quarter level for the first time in 20 years.

    Clobbered by the weak economy and surging prices, weak demand in the world’s biggest oil consumer is hardly a secret. But signs of a still steeper decline come amid inventory levels that have risen far above expectations.

    The combination could strike a heavy blow to crude oil futures prices, now groping for direction after a 21% drop from record highs in early July.

    Early data from the Energy Information Administration for the first half of August show oil demand running at 20.2 million barrels a day so far in the month.

    Measured against the revised demand for the full month of August 2007, at 21.025 million barrels a day (a five-year low for the month), current demand is off 3.7% or nearly 800,000 barrels a day.

    But the EIA projected Aug. 12 in its Short-Term Energy Outlook that U.S. oil demand would average 20.73 million barrels a day this month, a drop of 295,000 barrels a day, or 1.4%, from a year ago.

    Even if the apparently inflated August projection — which now looks like a pipe dream — is correct, U.S. demand this month would still lag the year-ago level for the 13th straight month.

    The 20.73-million-barrel-a-day figure for August, said Tancred Lidderdale, an EIA analyst in charge of the outlook, is based on “historical seasonality in demand for all products,” which shows average growth of 468,000 barrels a day in August from July.

    August Demand Spike Unlikely

    The August figure sticks out like an elephant hiding between two mice, as it is book-ended by demand estimates of 20.32 million barrels a day in July and an identical level projected for September.

    But latest preliminary EIA indications for July show U.S. demand averaged even lower than forecast, at just 20.148 million barrels a day. That’s some 600,000 barrels a day, or 2.9%, below a year ago, and the weakest level for the month since 2003.

    Signs of weaker-than-projected demand cast strong doubt on the EIA’s projection published less than two weeks ago that U.S. demand in the third quarter will average 20.46 million barrels a day, a surge of 520,000 barrels a day from the second quarter.

    Last year, U.S. demand in the third quarter rose by just 100,000 barrels a day from the second quarter, and the five-year average growth is 300,000 barrels a day in the period.

    Estimating third-quarter demand may be the trickiest test of the year, as the period straddles the peak of the summer demand season in July and August and the pre-winter month of September.

    Projections often take their root from historical patterns and in some ways it becomes a leap of faith as to which figures accurately reflect the trend. In the in-between-seasons month of September, demand has slumped from August by an average of more than 800,000 barrels a day in the past five years.

    Applying that drop-off to current indications for August would slash September demand to 19.4 million barrels a day, the lowest since 2001. And it would drop third-quarter 2008 demand to below 20 million barrels a day for the first time since 2002.

    A third-quarter level that weak would mark the first time since 1989 that demand in the July-August quarter averaged below the second quarter. The EIA currently estimates second-quarter demand at 19.95 million barrels a day, down 3.3%, or 689,000 barrels a day below a year ago, and the weakest level for the quarter since 1981.

    The EIA’s revised estimate for June demand is due out by the end of this month, and based on the recent trend, demand could be revised down.

    June Weak Before Revisions

    The current projection for June shows demand at 1.8%, or 377,000 barrels a day, below a year ago at 20.346 million barrels, the weakest June level since 2003.

    But the estimate also would show June as having the strongest oil demand for any month since December 2007, with demand for distillate fuel (heating oil/diesel) posting a record high for the month at 4.133 million barrels a day.

    There are strong questions, though, as to whether distillate demand for the month actually was that high. Demand figures have been strong reflecting record high levels of exports to Chile, where diesel fuel has been needed in electricity generation. But heavy rains in June have booted Chile’s hydro-power sector, slashing distillate demand. The only question is how quickly the lower exports will appear in the U.S. data.

    The EIA’s Lidderdale said typical increases in July-August U.S. oil demand aren’t driven by gasoline demand, but by distillates, as pre-season heating oil requirements move along the supply chain, and higher jet fuel and asphalt demand.

    “Right now there may good reason to suspect the increases in these products that we’ve seen in the past may not materialize with high energy costs and already stretched budgets,” he said. Further, he said, June and July U.S. demand data may also show “overstated” exports.

    Signs of potential weaker demand come as key U.S. oil inventories are sharply higher than expected.

    U.S. crude oil stocks in the week ended Aug. 15 jumped by 9.4 million barrels a day — the biggest weekly rise in seven-and-a-half years. At 305.9 million barrels, crude stocks at mid-month are up 12 million barrels from the end of July. They are already 18.9 million barrels above the level the EIA predicted for the end of August in its Aug. 12 outlook.

    Stocks Bloated As Runs Drop

    The rise in crude stocks comes as refiners, seeing low oil demand, have slowed operations. So far in August, refinery runs have averaged 14.8 million barrels a day, or 640,000 barrels a day below the EIA’s expectations for the month.

    As gasoline enters the final weeks of a stunted summer season, posting the biggest demand drop since 1980, stocks have slid below the EIA’s projected levels. At 196.6 million barrels, and 8.6 million barrels below the expected end-August, stocks are still in line with historical levels, due to lower demand.

    While the EIA projects that the pace of the decline in U.S. oil demand later this year won’t be as aggressive as the steep drops of almost 900,000 barrels a day over the first five months of the year, that’s far from a bullish sign.

    The year-to-year monthly drop-off in U.S. oil demand began last August. So while the first-half plunge is measured against strong year-earlier data, the latest figures are proving weaker than last year’s already weak demand levels.

    And, look for the those weak demand figures to be pushed even lower with coming revisions.

    –(David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years.

  5. 5
    Nicky Says:

    Broader market – support at 1260 and then 1253. Resistance at 1275 and then 1280.

  6. 6
    Sambone Says:

    Crude is up?

  7. 7
    zman Says:

    Morning Guys/Gal

    Fed minutes going to be pretty important today for the dollar.

    Nicky, I would agree it will be a short lived rally if it alters course. But on the current track Gustav will shut in most of the U.S. Gulf of Mexico oil production for several days and maybe a week even if no damage. That’s about 1.6 mm bopd or 31% of U.S. production. Then you’ve got the same for imports coming from Mexico. Finally this track, if it doesn’t weaken too much on an island or two along the way, will put it in position to strengthen to a five and then you’ve got to be looking at offshore and onshore damage. It is a slow mover and given that it will only be at the mouth of the southern Gomex on Saturday, who wants to be short oil into a long weekend as it marches through the center of the Gulf getting stronger the whole time. That is, if it stays on target.

  8. 8
    zman Says:

    Crude was up a dollar just a minute a go, now up 80 cents, Nat gas up 5%.

  9. 9
    zman Says:

    Berstein upgrades EOG to neutral with 127 target.

  10. 10
    zman Says:

    Sam – dollar also backed off a quarter of its morning move helping crude.

  11. 11
    zman Says:

    If Gustav hooks left, which it very well may, crude will come off hard although that may put Mex’s big offshore fields in its path.

  12. 12
    crysball Says:

    Z,
    If the scenario you outline in #7 comes about, besides ‘OIL’ are there other plays do you like going into the long weekend?

  13. 13
    zman Says:

    Crys – Besides oil and some oil service names like OII and the refiners (if we get a Gulf Coast strike) I might like puts on TRA and AGU as they could see a sudden large jump in their natural gas costs but it probably won’t translate and depends on their hedges which I’m not currently up on. Same goes for DD which has more liquid options but you can get countered there by a positive move in the Dow. If oil really moves up then the put play on the airlines and select truckers may be in order.

  14. 14
    zman Says:

    All of the east coast scenarios for Gus have left the building.

    http://tropics.hamweather.com/2008/atlantic/gustav/modelsmap_zoom1.html

  15. 15
    Nicky Says:

    Z – re 7 – I disagree – even if it were to enter the GOM it will still be a very short lived rally. If you remember Katrina we saw a spike which was retraced in a heartbeat. BTW my idea of a short lived rally is a week! If you want to play it imo you will need to be in and out very quickly.
    Unfortunately I still have two wave counts on the table. The more bullish one says we are now on our way up in C of an ABC and if we are I would say most likely target is between 125 – 130.

  16. 16
    zman Says:

    Then we don’t disagree since I was talking about through the weekend to next Tuesday which is by my count, 7 days, lol. If it tears things up then longer.

  17. 17
    zman Says:

    Take a picture of your screen and go to the beach…just not along the Gulf Coast. Nice green open. Will wait a little bit before nibbling at any new positions as the hype may back a bit as some of the charts come into overhead supply from the last 2 months of sell down.

  18. 18
    Dman Says:

    Silver up, gold only off .3%. Wow, how’s that for a dollar rally?

  19. 19
    ellwodo Says:

    Any views on how long you’re going to hold the HK 40s?

  20. 20
    zman Says:

    Shell apparently has no new oil discovery in Saudi’s “empty quarter”. Had been cited last week….apparently no true.

    Elwo – Friday/Tuesday thinking now, letting it run up a bit here but still down like 60 or 70% on that position. The $35s coming up nicely now.

    Thinking about adding COP as my refiner quick play while continuing to hold VLO.

    Thinking about adding HAL back.

    Go SWN, that’s much better.

  21. 21
    zman Says:

    ZTRADE: COP $85 September calls for $1.80 (COPIQ) with the stock at $83. Adding a little more refining exposure in the face of Gustav.

  22. 22
    Nicky Says:

    Oil taking everything with it now including the metals. Speculators all over this one and no doubt GS will be pushing it for all its worth.
    Also don’t rule out them opening up the SPR if Gustav hits the oil patch…

    I will add that even the more bullish count is very short term. Both counts are intermediate term bearish….this will come down faster than it has gone up!

  23. 23
    zman Says:

    Nicky – its only up $2.

  24. 24
    zman Says:

    Alhambra – took a long look at WEL last night. Very interesting, big transition going on there. Still cheap but chart doesn’t look like an energy stock. SWSI interesting too as the snubber/hyraulic workover rigs seem to be getting preference in the shale plays…faster completion, less chance of damaging the shale.

  25. 25
    Dman Says:

    That WEL chart is freaky.

  26. 26
    Bleemus Says:

    What time does the NHC release it’s next Gustav update?

  27. 27
    Dman Says:

    CHK thru $50

  28. 28
    zman Says:

    11 EST

  29. 29
    tater Says:

    Quick heads-up. Be careful with WEL. Resistance from the April ’07 high at 3.00 looks like an area for price to pullback. Doesn’t have to, but…

  30. 30
    BeWater Says:

    FYI,
    Jubak adds PBR


    (PBR) isn’t just discovering a lot of oil and natural gas. It’s discovering them in tough geologies and then drilling for them in really challenging environments. That combination showcases the Brazilian giant’s emergence through cutting-edge technology and makes it a very attractive partner for national oil companies that don’t want any piece of the Western oil majors as partners. Two 2007 discoveries, the Jupiter and Tupi oil and gas fields, exemplify the company’s new stature. Either of these fields alone would be the biggest find since the 2000 discovery of the giant Kashagan oil field in Kazakhstan. But the newfound oil lies under 4.5 miles of ocean water and then under as much as 17,000 feet of sand, rock and salt. Tupi alone could cost between $50 billion and $100 billion to develop. At the end of that process, though, Brazil’s proven reserves could equal those of oil powers Nigeria or Venezuela, and Petrobras will be an acknowledged leader in oil-field technology. As of Aug. 26, I’m adding these shares to Jubak’s Picks with a target price of $85 a share by March. Full disclosure: I own shares of Petrobras in my personal portfolio, and I will buy more shares three days after this column is posted.)

  31. 31
    Sambone Says:

    NEW YORK, Aug 26 (Reuters) – Shell Oil RDSA.L said on
    Tuesday it was making arrangements to evacuate some workers
    from offshore oil facilities in the Gulf of Mexico ahead of
    Hurricane Gustav.
    “Evacuations could begin as early as Wednesday. There is no
    impact on production at this time,” Shell said in a press
    release.
    (Reporting by Richard Valdmanis)

    Tue Aug 26 14:20:26 2008 -GMT

  32. 32
    zman Says:

    Thanks Tater. I like to see these little names make a higher high, bounce lower and then buy so I won’t be on it soon. Also, thinking longer term on that as it’s cheap and has no options, just a common trade.

  33. 33
    Nicky Says:

    $5 dollar reversal Z…

  34. 34
    zman Says:

    Nicky – You mean from from $112? Ok fine, although the $5 last $2 to $3 really as Gustav was just clouds yesterday. I’m just saying if it stays on course it the direction of crude will likely be up all week as it won’t get to the bottom of the Gulf until Saturday and we are in a long weekend and I don’t think people would want to risk being short after a $30 tumble from the highs with the possibility that it blossoms into something really nasty. But I’m not reading a chart when I say that.

  35. 35
    zman Says:

    North Korea reversing nuclear dismantlement ops:

    http://news.yahoo.com/s/ap/20080826/ap_on_re_as/koreas_nuclear

  36. 36
    Nicky Says:

    Z – Agree. What are the chances though they have more idea about where it is going before the week is out?

  37. 37
    zman Says:

    Nicky – we’ll know better every three hours on this one. If nothing going on by Tuesday agree oil gaps lower but I think it holds up until then unless it changes course (still could go ruin peoples labor day in Cozumel).

  38. 38
    isleworth Says:

    Z – any thoughts on the potential price ramifications for NG if Gustav does have a Cat 4 hit on U.S GoMex?

  39. 39
    Sambone Says:

    9:57 am EST

    Oil Rises $2/Bbl As Hurricane Feared

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures sprang more than $2 early Tuesday on fears a hurricane will hit the Gulf of Mexico’s extensive oil infrastructure.

    Light, sweet crude for October delivery was recently up $2.46, or 2.1%, at $117.57 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange rose $2.24 to $116.27 a barrel.

    A tropical storm churning across the Caribbean escalated into a hurricane overnight. Hurricane Gustav was passing near the Haitian capital of Port-Au-Prince. The National Hurricane Center said most indications are the tempest “will be an extremely dangerous hurricane” and reach the Gulf of Mexico by early Sunday.

    Whether Gustav would cause damage to the U.S. Gulf Coast, home to 40% of U.S. refining capacity and a quarter of the nation’s crude production, remained a matter of conjecture early Tuesday. So far this year, named storms and hurricanes have not destroyed any key U.S. energy infrastructure.

    “We’ve kind of dodged a bullet on a couple of these already,” said Peter Donovan, vice president at Vantage Trading on the Nymex floor. “The psychological impact of hurricanes working their way through the Gulf can put upward pressure under prices.”

    Hurricane fears competed with economic worries for the market’s attention. Nymex crude had dipped close to $112 a barrel as the dollar rose to a fresh six-month high against the euro on a dour business confidence report in Germany. The dollar’s recent strength has helped push down crude prices as investors have less reason to seek a currency hedge in hard assets. The euro was recently $1.4644, from $1.4754 late Monday.

    Along with short-term storm threats, uncertainty lingers over longer-term supply from the Organization of Petroleum Exporting Countries as the producer group’s Sept. 9 policy meeting approaches. Libya’s top oil official, Shokri Ghanem, said Tuesday the group is likely to keep formal production steady with oil prices at $115 a barrel.

    “There is some concern about extra production being in the market, but at today’s oil price I think OPEC may decide to keep production unchanged,” Ghanem, head of the Libyan National Oil Co., told Dow Jones Newswires from Tripoli.

    Iran’s OPEC governor, Mohammad Ali Khatibi, said Tuesday that “at the moment, the market is not balanced, there is oversupply.”

    Data on U.S. demand and supply is due for an update Wednesday, when the Energy Information Administration releases its weekly oil estimates. Analysts surveyed by Dow Jones Newswires on average predict crude stockpiles rose by 900,000 barrels the week ended Aug. 22, while gasoline stockpiles fell 2.2 million barrels and stocks of distillates, which include heating oil and diesel, rose by 400,000 barrels. The rate of refinery use is seen rising 0.2 percentage point to 85.9% of capacity.

    Front-month September reformulated gasoline blendstock, or RBOB, rose 9.77 cents, or 3.4% to $2.9800 a gallon. September heating oil climbed 9.91 cents, or 3.1%, to $3.2505 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  40. 40
    gaamblor Says:

    any idea why west coast crack was down so much?

  41. 41
    zman Says:

    Isle – pretty much just speculation but a run on the 8.70ish level (as per Nicky I think) which if surpassed makes $9 an obvious target. Depends on where it goes from there and how compact the storm is. They are going to evacuate a lot of people but if it cruises more westerly, its not as big a concern for nat gas, if it runs up toward NOLA into the Mississippi Canyon. Central vs West is about 4 to 1 on gas production so think Texas landfall not as bad, Louisiana landfall, very bad for gas.

  42. 42
    zman Says:

    G – yep, crude imports soared for the w. coast more on a per barrel and % basis than in the other regions.

  43. 43
    zman Says:

    324
    WTNT42 KNHC 261445
    TCDAT2
    HURRICANE GUSTAV DISCUSSION NUMBER 6
    NWS TPC/NATIONAL HURRICANE CENTER MIAMI FL AL072008
    1100 AM EDT TUE AUG 26 2008

    AN AIR FORCE RECONNAISSANCE MISSION EARLY THIS MORNING FOUND PEAK
    FLIGHT-LEVEL WINDS OF 91 KT…AND AN SFMR SURFACE WIND OF 78 KT.
    THESE MEASUREMENTS SUPPORT AN INITIAL INTENSITY OF 80 KT. A
    DROPSONDE RELEASED IN THE EYE OF GUSTAV DURING THE LAST AIRCRAFT
    PASS THROUGH THE CENTER JUST BEFORE 1200 UTC…FOUND A SURFACE
    PRESSURE OF 982 MB…BUT WITH 12 KT OF WIND AT THE SURFACE…SO THE
    MINIMUM PRESSURE HAS BEEN ESTIMATED SLIGHTLY LOWER. THE AIRCRAFT
    AND EARLIER MICROWAVE SATELLITE IMAGERY INDICATE THE PRESENCE OF A
    VERY SMALL EYE…HOWEVER THE EYE HAS NOT YET BECOME APPARENT IN
    CONVENTIONAL SATELLITE IMAGERY.

    GUSTAV CONTINUES TO MOVE NORTHWESTWARD TOWARD THE SOUTHERN COAST OF
    HAITI…WITH AN INITIAL MOTION ESTIMATE OF 325/8. TRACK MODEL
    GUIDANCE IS IN GOOD AGREEMENT ON A TURN TOWARD THE WEST-NORTHWEST
    VERY SOON AROUND THE SOUTH SIDE OF A MID- TO UPPER-LEVEL RIDGE
    LOCATED OVER FLORIDA. THERE REMAINS A LARGE AMOUNT OF SPREAD IN
    THE MODELS AT 72 HOURS AND BEYOND. THE 00Z UKMET AND ECMWF MODELS
    MAINTAIN THE RIDGE OVER THE GULF OF MEXICO…WHICH KEEPS GUSTAVE
    MOVING WESTWARD TOWARDS THE YUCATAN PENINSULA. THE
    GFDL…HWRF…AND GFS WEAKEN THE RIDGE WHICH ALLOWS FOR A
    WEST-NORTHWESTWARD MOTION INTO THE CENTRAL GULF OF MEXICO. THE NEW
    NHC TRACK FORECAST LEANS TOWARD THE GFS/HWRF SCENARIO AND IS A
    LITTLE TO THE RIGHT OF THE MODEL CONSENSUS.

    CONDITIONS APPEAR FAVORABLE FOR ADDITIONAL STRENGTHENING BEFORE THE
    CENTER REACHES MOUNTAINOUS TERRAIN ALONG THE SOUTHERN COAST OF
    HAITI. SOME WEAKENING IS FORECAST DURING GUSTAV’S PASSAGE OVER
    LAND…AND SINCE IT IS A VERY SMALL SYSTEM IT COULD WEAKEN A LITTLE
    MORE THAN SHOWN BELOW. THEREAFTER…GUSTAV IS EXPECTED TO BE OVER
    WARM WATERS AND IN A LOW SHEAR ENVIRONMENT…WHICH FAVORS
    STRENGTHENING. THE OFFICIAL FORECAST IS BELOW THAT OF THE GFDL…
    BUT IS CLOSE TO THE INTENSITY CONSENSUS AND THE HWRF.

  44. 44
    zman Says:

    Next advisory at 2. Crude backed a bit here as the worlds small storm and potential for weakening hit.

  45. 45
    Nicky Says:

    Nat gas could run as high as 9.0 – 9.5 imo – at this moment I am not convinced an important low is in but we could still see a run at the 9.0 area and then a lower low OR the low was in yesterday as it did get to the top end of my target area which was 7.3 – 7.6 and if that is the case there is plenty more upside ahead.

  46. 46
    isleworth Says:

    Tks Z. 11AM NHC update Gustav curves more northerly

  47. 47
    zman Says:

    From a sentiment standpoint I agree with Nicky on #45 on the part about “an important low not in yet” because fund managers still see a glut of gas next year.

  48. 48
    Sambone Says:

    By David Bird
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–U.S. oil demand in June was 1.17 million barrels a day,
    or 5.6%, lower than a year ago at 19.553 million barrels a day – the lowest
    level for the month since 1998 – revised government figures released Tuesday
    show.
    Demand was slashed 793,000 barrels a day, or 3.9%, from the earlier estimate
    that put the figure at 20.346 million barrels a day – which would have been a
    drop of just 1.8% from a year ago and the strongest level for any month since
    December 2007.
    The revised June figure is the weakest demand level for any month since May
    2003, data from the Energy Information Administration show.
    The 5.6% drop in June demand is the steepest in any month since a 7.2% fall in
    February, when demand fell 1.527 million barrels a day.
    The steep revision for June put demand in the first half of 2008 at an average
    of 19.780 million barrels a day, down 936,000 barrels a day, or 4.5%, from a
    year ago.
    That’s the biggest drop in the first six months of the year since 1982.
    Preliminary figures had shown a first-half drop of just 202,000 barrels a day
    from a year ago.
    Demand for gasoline, the most widely used petroleum product, was revised down
    to a show a 4.4% decline from a year ago, at 9.071 million barrels a day – the
    weakest level in June since 2001 and the lowest for any month since March. June
    demand was revised down 2.8% from preliminary data, which put the figure at
    9.335 million barrels a day, the strongest in any month since August 2007, but
    the weakest in June since 2004.
    Revised six-month gasoline demand is down 2%, or 180,000 barrels a day, from a
    year ago, at 9.071 million barrels a day.
    Demand for distillate fuel (heating oil/diesel) was revised down 9.8%, or
    405,000 barrels a day, from the estimate, to 3.728 million barrels a day in
    June, the lowest level for the month since 2002 and the weakest in any month
    since July 2003.
    June distillate demand was down 386,100 barrels a day, or 9.4%, from a year
    ago. That’s the biggest year-to-year decline for distillate demand in any month
    since March 2002, when it fell 393,000 barrels a day, or 9.5%, EIA data show.
    January-June distillate demand averaged 4.062 million barrels a day, down
    4.7%, or 199,333 barrels a day, from a year earlier.

    -By David Bird, Dow Jones Newswires

    Dow Jones Newswires
    08-26-08 1100ET

  49. 49
    zman Says:

    Thanks Sam – not pretty revisions. You gotta think the IEA and OPEC will be taking another look at their 2008 demand numbers and revising them lower for the 2H.

  50. 50
    teomax Says:

    those of you wondering about WEL. there is strong probability for them to earn around 25-30 cents EPS this year and market has just realized that (a bit lately). With 30 cents EPS and let say PE 15, which is still low for a company with around 50-70% yoy growth, you could get 4.5 dollar price.
    WEL is still cheap, if they manage to achive their own targets.

  51. 51
    Sambone Says:

    Z – I don’t think they have a clue. They use “Quant” models. Nobody is really sticking a dipstick in the tanks to see. You know the same models used to price toxic paper that the banks have as tier 3. Real numbers don’t show up until about two years after.
    The EIA has gotten demand numbers so wrong for so long, I don’t really listen to them that much anymore.

  52. 52
    teomax Says:

    everyone wondering about WEL monshoot, should look on their Q growth:
    http://finance.yahoo.com/q/is?s=WEL

    if they managed to retain their margins, 30 EPS in 08 is doable.

  53. 53
    Alhambra Says:

    Thanks for the input on WEL. Volume has picked up. The sell off in oil and energy really stung, but talk about resilience. Also note, Oil States Int’l controls a lot and has been selling lately, but officers have been holding.

  54. 54
    zman Says:

    Thanks Teo. Am still doing a little reading there…lots of big OPEC country contracts of late. Very interesting, don’t yet know what they plan to spend on the coming product line additions. Anyone got any recent or old Street language here only too happy to read on weekend. SWSI too. Thanks.

  55. 55
    zman Says:

    Sam – I evaluate the EIA numbers every week because price/traders do. Can you trust the numbers? No… but directionally they are generally, sort of, in the same universe as something close to reality. Gotta use what you have.

    A – wish owners held more, only 2.6% as per their Aug presentation.

  56. 56
    zman Says:

    Bill – what do you use for VLCC day rate data? I was using one site and their data went bonko on me. It’s the first link under tankers on the Transports tab.

  57. 57
    Sambone Says:

    By Jim Jelter

    Energy stocks pointed higher Tuesday, riding higher oil and natural gas prices
    as Hurricane Gustav raised concerns about supply disruptions in the Gulf of
    Mexico.
    Anadarko Petroleum Corp.’s (APC) shares rose 5.7% to $61.14. The company
    announced late Monday that it plans to buy back up to $5 billion worth of its
    stock, or roughly 18% of its shares outstanding.
    Anadarko’s move put it at the top of percentage gainers in the Amex Oil Index,
    which was up 1.3% at 1318 points.
    Oil giant Exxon Mobil Corp. (XOM) was up 1% at $79.48, Chevron Corp. (CVX) was
    up 0.2% at $85.70, and ConocoPhillips (COP) was up 1.1% at $82.72.
    Meanwhile, crude-oil prices reversed earlier losses on news that Tropical
    Storm Gustav had intensified to hurricane strength as it moved toward Haiti.
    The National Hurricane Center in Miami warned that Gustav could strengthen
    further over the next few days as it heads for Cuba, entering the Gulf of
    Mexico over the weekend.
    The forecast, combined with heightened rhetoric between Moscow and Washington
    over the situation in Georgia, pushed up the price of crude oil for October
    delivery by $1.83 to $116.94 a barrel on the New York Mercantile Exchange.
    Natural gas futures were also showing big gains Tuesday because of Hurricane
    Gustav, up 6% at $8.30 per million British thermal units, boosting the Amex
    Natural Gas Index 2.9% to 606.4 points.
    The Philadelphia Oil Service Index was ahead 1.9% at 299.3 points.
    -By Jim Jelter Dow Jones Newswires
    08-26-08 1124ET

  58. 58
    zman Says:

    Dollar now given up half its gains on the day. Was consumer confidence out today, don’t see it? Fed minutes in a few more hours.

  59. 59
    zman Says:

    Oil still selling down post the 11 est report on Gustav. As oil is trading based on the last words of forecasters I think it will move up again in the next day or so as it reaches warm water south of Cuba. Last thing I’ll say about Gus for the next few hours as its really a waste of time to get too hyped up over this just yet.

    http://www.accuweather.com/news-top-headline.asp?partner=accuweather

  60. 60
    zman Says:

    ZTRADE: Re-entering HAL calls. $47.50 September calls (HALIW) for $0.75 with the stock up about twenty cents on the day and underperforming the Oil Service group yet again.

  61. 61
    Sambone Says:

    NEW YORK, Aug 26 (Reuters) – Gasoline and diesel
    differentials in the U.S. Gulf Coast surged about a nickel each
    on Tuesday on fears that Hurricane Gustav may disrupt supplies
    in the nation’s refinery row by the weekend, traders said.
    The strength in Gulf Coast spilled into other hubs, with
    gasoline and diesel gaining in the Midwest, traders said.
    “All thinking is about the storm,” said a trader in the New
    York Harbor, where gasoline values also rose, albeit slightly.
    The U.S. National Hurricane Center said the storm could hit
    the Gulf Coast as a powerful Category 3 storm on Sunday,
    slamming into a region that is home to almost half of total
    U.S. refinery capacity. The Gulf also produces about a quarter
    of U.S. crude oil and 15 percent of natural gas output.
    In refinery news, a fire hit a hydroformer unit at Exxon
    Mobil’s XOM Baytown, Texas, refinery, but was extinguished
    and production was not affected.
    Valero on Monday cited no impact to production from a
    weekend snag with compressors at its Texas City refinery.
    The NYMEX complex was led higher by gasoline and heating
    oil futures, which both surged more than 2 percent on
    heightened worry over supply disruptions from the storm.
    “So, at this point, it appears that the market is a bit
    dominated by those buying ‘storm insurance’,” one Gulf-based
    market watcher noted in a report on Tuesday.
    For a list of refinery outages, click REF/US

    U.S. GULF COAST
    U.S. Gulf Coast gasoline and diesel rose sharply early
    Tuesday on fears that Hurricane Gustav would enter the Gulf of
    Mexico over the weekend, disrupting refinery and oil production
    operations.
    Prompt cycle 50 conventional M2 gasoline traded at 8.75
    cents over the October RBOB futures screen at midday Tuesday
    with offers holding at 9.00 cents over, up from the 2.75 cents
    over traded late Monday.
    Ultra-low sulfur diesel traded at 7.50 cents over the
    screen but offers moved up to 8.00 cents over the October
    heating oil screen. On Monday, it was pegged at 3.00/3.50 cents
    over the screen.
    Low sulfur diesel traded at 4.00 cents over the screen, up
    from the 2.00 cents over on Monday.

    NEW YORK HARBOR
    Any month conventional regular gasoline M2 was set at about
    4.00 cents under the benchmark September RBOB futures, up
    marginally, traders said.
    Reformulated F2 RBOB gasoline barrels were bid at 1.50
    cents over over futures for any month barrels, up about a half
    cent from Monday’s levels.
    Asked if gasoline in the hub was reacting much to the storm
    headlines, a trader said: “We’re up a little but not really.”
    Among the distillates heating oil barges were again offered
    flat at 1.00 cents under the screen and likewise ultra-low
    sulfur diesel offers were steady at 8.00 cents over futures and
    low sulfur diesel at 3.00 cents over.
    Jet offers fell a quarter cent at 10.50 cents over.

    MIDWEST
    Group Three gasoline differentials crept back up on
    Tuesday, tracking the Gulf after being pressured by a build in
    Magellan pipeline inventories on Monday.
    Group gasoline traded at 7.50 cents over the September RBOB
    contract, up 2.25 cents. Earlier, August any barrels traded at
    4.60 and and 5 cents over.
    Ultra-low sulfur diesel gained a cent from late Monday
    levels, trading at 13 cents over the September.
    In Chicago, newly prompt cycle 1 gasoline was pegged up a
    penny at 13 cents over the board.
    Same cycle ultra-low sulfur diesel was up about a penny and
    a half, pegged at 14 cents over the October heating oil
    contract.
    (Reporting by Haitham Haddadin, Janet McGurty, and Rebekah
    Kebede)

    Tue Aug 26 16:10:59 2008

  62. 62
    1520sbroad Says:

    Z – have you got any feel for GMXR mgmt? any insights there?

    any feelers out for the conference in Dallas next week? Looks like a couple of Haynesville related discussions there. HK looks like they are presenting afternoon of 9/4.

  63. 63
    zman Says:

    Isle – I don’t know them, like the way they present but that’s it.

    Re Lehman, have not looked at the schedule yet but everybody goes to that one. Count on the host to present bearish views on oil and natural gas. It will be interesting here the analysts who are looking for a glut of gas to introduce management teams who refute that.

  64. 64
    ram Says:

    Why would you hold a conference if your stance is negative? Aren’t these conferences for the benefit of their shareholders? It seems like a waste of time and money for LEH.

  65. 65
    zman Says:

    They hold it every year around the same time, its one of the big energy conferences.

  66. 66
    1520sbroad Says:

    not sure if this is the one you are talking about.

    http://www.hartenergyconferences.com/index.php?area=details&confID=67

    See the 3:30 pm timeslot

  67. 67
    Bob Says:

    Link to list of presenters at Lehman conference. (Click Tues, Wed, Thurs at top of page)

    http://cc.talkpoint.com/LEHM002/090407a_jw/agenda.asp?day=Tuesday

  68. 68
    zman Says:

    1520 – nope that Hart’s M&A conference.

    Thanks for the assist Bob.

  69. 69
    Sambone Says:

    Ain’t these the cats that supply europe with their energy, so they won’t freeze in the winter?

    Dow Jones Newswires
    08-26-08 1303ET
    PARIS (AFP)–Russian President Dmitry Medvedev said in an interview with
    French television broadcast Tuesday that if European nations “want relations to
    worsen, they will get it.”
    “We will do everything we can to avoid” a new Cold War, Medvedev said. “In
    this situation the ball is in the Europeans’ court.
    “If they want relations to worsen, they will get it,” he told LCI television.
    “But if they want to save a strategic relationship, which is absolutely in the
    interest of both Russia and Europe, everything will be fine.”
    The European Union heavily criticised Russia’s recognition of the rebel
    Georgian provinces of South Ossetia and Abkhazia as independent states.
    “It strongly condemns this decision,” the current French E.U. presidency said
    in a statement. “This is contrary to the principles of the independence, the
    sovereignty and the territorial integrity of Georgia.”
    The E.U. will now “examine from this point of view the consequences of
    Russia’s decision,” the statement said.

    Dow Jones Newswires
    08-26-08 1322ET

  70. 70
    Popeye Says:

    It seems to me that the more unstable this situation becomes the more Russia makes in oil revenue. No?

  71. 71
    ram Says:

    It sounds like NATO will take a back seat to EU’s energy needs.

  72. 72
    tomdavis12 Says:

    Z: There seem to be some new Wall St. consensus that was not around 3 months ago. 1 We are oversupplied with natural gas. 2 The ECB will have to cut rates and the US$ will strengthen causing commodities to weaken. These new accepted views seem to be why our sectors are being treated as cyclicals where peak earnings are now and ’09 earnings will be lower. How much do you agree or disagree with this NEW consensus view.

  73. 73
    ram Says:

    You would think that when Russia puts the energy carrot in front of the EU, that should be a positive for energy prices.

  74. 74
    Sambone Says:

    By Anna Raff
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Oil and natural gas futures prices jumped Tuesday after
    a storm in the Caribbean strengthened into a hurricane, sharpening its aim at
    Gulf of Mexico energy facilities.
    As of 11 a.m. EDT, Hurricane Gustav was approaching Haiti’s southern coast
    with maximum sustained winds near 90 miles an hour, according to the National
    Hurricane Center. Gustav is forecast to move into the warm Gulf waters on
    Sunday, and could make its entrance as a Category 4 storm, according to some
    meteorologists.
    Though weather models this early are volatile and subject to change, many show
    Gustav churning toward the Louisiana coastline later next week, cutting through
    hydrocarbon-producing regions and possibility hitting a key refining hub.
    Even with this uncertainty, “the entirety of the Gulf Energy Production region
    is now threatened by this potentially very dangerous weather scenario,” said
    Jim Rouiller, senior energy meteorologist at Planalytics.
    Light, sweet crude oil futures recently traded 60 cents, or 0.5%, higher at
    $115.71 a barrel after rising as high as $117.89 a barrel on the New York
    Mercantile Exchange. Natural gas futures were up 48.2 cents, or 6.2%, at $8.307
    a million British thermal units. Gas futures are more sensitive to potential
    output disruptions because gas volumes are more difficult to replace than
    crude, which can be easily delivered to the Gulf Coast via tanker.
    Shares of energy companies were also trading higher on the back of higher
    energy prices.
    Worries about Gustav’s impact to U.S. energy supplies have surfaced just days
    before the three-year anniversary of Hurricane Katrina, which hit New Orleans
    on Aug. 29. 2005. Not only did Katrina devastate homes and kill almost 2,000
    people, together with Hurricane Rita it damaged a swathe of refineries that
    account for 40% of the nation’s crude processing capacity. Plants were offline
    for months following the storms; fuel prices spiked as a result.
    So far, one energy company said it could evacuate crews from the Gulf as early
    as Wednesday, and others polled said they were watching the storm closely.

    Overshadowed By Sentiment

    While Gustav is the most significant hurricane threat to energy infrastructure
    to develop in a few years, oil traders’ responses have so far been relatively
    tepid. This is due partly to other factors that are weighing on oil, which has
    dropped 21% from an all-time record settlement high of $145.29 a barrel hit
    July 3 on the Nymex. A strengthening dollar, which makes oil more expensive for
    buyers using other currencies; falling U.S. oil demand; and more output from
    Saudi Arabia are offsetting bullish storm sentiment.
    Opening fresh bets that prices will rise is especially risky if the vagaries
    of the weather determine the payout. While Gustav may enter the Gulf with winds
    of 135-140 miles an hour, forecasts of the storm’s path four and five days out
    are considered to be unreliable. Earlier this season, initial run-ups in
    futures prices due to hurricane fears have fizzled out.
    “We’re going to see the market ebb and flow and see the expansion of the storm
    premium this week until we get a clearer idea of the path of this storm,” said
    Jim Ritterbusch, an energy trading advisor in Galena, Ill.
    Gustav will largely avoid making landfall in Cuba, which is “not good news”
    for Gulf interests, said Morris Bender, a senior meteorologist at the National
    Oceanic and Atmospheric Administration’s Geophysical Fluid Dynamics Laboratory
    in Princeton, N.J.
    Avoiding Cuba will allow Gustav to maintain strength, Bender said. A weather
    system coming from the U.S. likely will affect the storm in three days and will
    influence Gustav’s path.
    Royal Dutch Shell PLC (RDSA) said personnel evacuations could start as early
    as Wednesday.
    “Given the current track for Gustav and the expectation that it might enter
    the Gulf of Mexico this weekend, we are making logistical arrangements to
    evacuate staff who are not essential to production or drilling operations,”
    Shell said in a statement.
    Refiners have more time to prepare. By the time Gustav approaches,
    meteorologists will be more confident of its potential danger, and because
    their employees work on mainland, they don’t have to rush to coordinate
    helicopter evacuations out at sea.
    “We obviously have meteorologists, we obviously track storms,” said Karyn
    Grace, a spokeswoman for Total S.A. (TOT), which operates a
    232,000-barrel-a-day refinery in Port Arthur, Texas. “We will do whatever is
    appropriate. If a company in this region isn’t prepared, then shame on them.”

    -By Anna Raff, Dow Jones Newswires

    Dow Jones Newswires
    08-26-08 1338ET

  75. 75
    zman Says:

    Tom – At least 4 things have changed for the groups in the last 3 months.

    1) oil lost upward momentum as demand “growth” slowed. I put growth in quotes because global demand is still set to grow this year and next.

    2) We went from yahoo gas prices which had gotten too high to a huge sell down in nat gas prices due to fears of a supply glut. I think these fears are largely unfounded as: a) the deliverability out of the new basins like the Haynesville are a ways off, just can’t turn it on like a switch. b) The Marcellus won’t be meaningful until 2009. c) Demand keeps growing, especially at these prices for industrial and generation. d) prices are higher (much higher) internationally so LNG will stay away even as new supply comes on e) prices are sub marginal for many plays at current levels, especially in the Rockies – price takes care of price, f) the Barnett growth is slowing … this has been a big source of growth we have seen, g) the decline on these shale wells are asymptotic so after the initial flush production you are producing much less one month out and maybe 10% of initial production (IP) within 18 to 24 months…so if you don’t drill as many production falls off quick.

    On the earnings front, its more of a mixed bag than to say 2009 will be less than 2008. Many of the E&P names are set to grow top line volumes by double digits so depending on where prices are, you still have growth in earnings and the stocks are by no means expensive on P/CF

    On the dollar, who knows. Its all relative so while the U.S. economy may be circling the drain longer than expected, the dollar may rally against Europe which has only recently approached the loo. Dollar plays a part in price but supply will trump it over the long term.

  76. 76
    zman Says:

    …GUSTAV MADE LANDFALL ON THE SOUTHWEST PENINSULA OF HAITI…

    A HURRICANE WARNING REMAINS IN EFFECT FROM BARAHONA IN THE DOMINICAN
    REPUBLIC WESTWARD TO LE MOLE ST NICHOLAS HAITI.

    A HURRICANE WARNING IS IN EFFECT FOR CUBA…FOR THE PROVINCES OF
    GUANTANAMO…SANTIAGO DE CUBA…AND GRANMA. A HURRICANE WARNING
    MEANS THAT HURRICANE CONDITIONS ARE EXPECTED WITHIN THE WARNING
    AREA…GENERALLY WITHIN 24 HOURS.

    A HURRICANE WATCH REMAINS IN EFFECT FOR HAITI FROM LE MOLE ST
    NICHOLAS TO THE NORTHERN HAITI/DOMINICAN REPUBLIC BORDER.

    A HURRICANE WATCH REMAINS IN EFFECT FOR THE CUBAN PROVINCES OF LAS
    TUNAS AND HOLGUIN. A HURRICANE WATCH IS ALSO IN EFFECT FOR JAMAICA.
    A HURRICANE WATCH MEANS THAT HURRICANE CONDITIONS ARE POSSIBLE
    WITHIN THE WATCH AREA…GENERALLY WITHIN 36 HOURS.

    INTERESTS IN CENTRAL AND WESTERN CUBA AND THE CAYMAN ISLANDS SHOULD
    CLOSELY MONITOR THE PROGRESS OF GUSTAV.

    FOR STORM INFORMATION SPECIFIC TO YOUR AREA…INCLUDING POSSIBLE
    INLAND WATCHES AND WARNINGS…PLEASE MONITOR PRODUCTS ISSUED
    BY YOUR LOCAL WEATHER OFFICE.

    THE EYE OF HURRICANE GUSTAV MADE LANDFALL ON THE SOUTHWEST PENINSULA
    OF HAITI ABOUT 10 MILES…16 KM…WEST OF JACMEL…SHORTLY AFTER
    100 PM EDT…1700 UTC.

    AT 200 PM EDT…1800Z…THE CENTER OF HURRICANE GUSTAV WAS LOCATED
    JUST INLAND NEAR LATITUDE 18.2 NORTH…LONGITUDE 72.8 WEST OR ABOUT
    40 MILES…60 KM…SOUTHWEST OF PORT AU PRINCE HAITI AND ABOUT 190
    MILES…310 KM …SOUTHEAST OF GUANTANAMO CUBA.

    GUSTAV IS MOVING TOWARD THE NORTHWEST NEAR 10 MPH…16 KM/HR.
    A TURN TOWARD THE WEST-NORTHWEST WITH A DECREASE IN FORWARD SPEED
    FORECAST IS EXPECTED LATER TODAY…AND A GENERAL WEST-NORTHWESTWARD
    MOTION IS EXPECTED WEDNESDAY. ON THIS TRACK THIS HURRICANE SHOULD
    MOVE ACROSS THE SOUTHWESTERN PENINSULA OF HAITI LATER TODAY AND NEAR
    OR JUST SOUTH OF EASTERN CUBA ON WEDNESDAY.

    MAXIMUM SUSTAINED WINDS ARE NEAR 90 MPH…150 KM/HR…WITH HIGHER
    GUSTS. GUSTAV IS A CATEGORY ONE HURRICANE ON THE SAFFIR-SIMPSON
    SCALE. SOME WEAKENING IS LIKELY WHILE GUSTAV MOVES OVER HAITI…
    HOWEVER RESTRENGTHENING IS FORECAST AS THE CENTER APPROACHES
    EASTERN CUBA ON WEDNESDAY.

    HURRICANE FORCE WINDS EXTEND OUTWARD UP TO 25 MILES…35 KM…FROM
    THE CENTER…AND TROPICAL STORM FORCE WINDS EXTEND OUTWARD UP TO 70
    MILES…110 KM.

    ESTIMATED MINIMUM CENTRAL PRESSURE IS 981 MB…28.97 INCHES.

    GUSTAV IS EXPECTED TO PRODUCE TOTAL RAINFALL ACCUMULATIONS OF 4 TO 8
    INCHES OVER HISPANIOLA…EASTERN CUBA…AND JAMAICA…WITH ISOLATED
    MAXIMUM AMOUNTS OF UP TO 20 INCHES POSSIBLE. THESE RAINS WILL
    LIKELY PRODUCE LIFE-THREATENING FLASH FLOODS AND MUD SLIDES.

    COASTAL STORM SURGE FLOODING OF 2 TO 4 FEET ABOVE NORMAL TIDE LEVELS
    ALONG WITH LARGE AND DANGEROUS BATTERING WAVES CAN BE EXPECTED IN
    AREAS OF ONSHORE WINDS IN THE HURRICANE WARNING AREA.

    REPEATING THE 200 PM EDT POSITION…18.2 N…72.8 W. MOVEMENT
    TOWARD…NORTHWEST NEAR 10 MPH. MAXIMUM SUSTAINED WINDS…90 MPH.
    MINIMUM CENTRAL PRESSURE…981 MB.

    THE NEXT ADVISORY WILL BE ISSUED BY THE NATIONAL HURRICANE CENTER AT
    500 PM EDT.

  77. 77
    Dman Says:

    The bear case is particularly weird in the service area. The whole bearish view on NG depends on frenetic drilling causing a glut of NG. The shale flows fall off quickly if drilling slows… so the bears are trying to have it both ways. They say drilling will continue to grow, so therefore sell the drillers!

  78. 78
    zman Says:

    More for Tom

    Back to oil – 3) OPEC and friends went from talking oil up to talking it down. Don’t know if that is political or what but they got awfully dovish and I’d guess they are scared the U.S. will go green if prices goes higher, maybe they are trying to influence the election.

    4) Oil Service – fundamentals took a decided turn for the better as pricing power re emerged. Stocks are growing and its just not in them. Deepwater pull back makes no sense, onshore I can see the threat but I don’t see a big downturn in activity.

  79. 79
    zman Says:

    Ram – Agreed re EU, they don’t want to be shivering this winter.

  80. 80
    ram Says:

    ZMAN – Does it seem odd that HK would have a higher premium in their calls than SD?

  81. 81
    Sambone Says:

    Current track/model, which doesn’t mean much at this point.

    http://my.sfwmd.gov/portal/page?_pageid=3194,21328260,3194_21169354:3194_21260388:3194_21260861&_dad=portal&_schema=PORTAL

  82. 82
    Dman Says:

    Z – what do you think of KWK here. It is trading almost at year-ago levels.

  83. 83
    zman Says:

    Ram – re HK, its just been more volatile than SD since SD took that big fall. I sold SD $40 Sept calls against part of my position the other day which I may yet regret.

    Dman – need to have a fresh look but I like if um, ng bounces which I guess a bit of an obvious caveat.

  84. 84
    Nicky Says:

    FDIC releasing its bank report early – number of banks in trouble 117 up from 90.

  85. 85
    tomdavis12 Says:

    Z: Thanks for your detailed explainations. I did not mean for you to spend some much time.I do read your stuff so I do agree with most all of your thoughts. Maybe I’m just a little frustrated with the financial experts that keep repeating a consensus view even if it has no basis in fact. In June you could not get enough steel pipe. Steel stocks went up every day. Now they can’t move. You could not get enough rigs to drill. Now there is over supply. I guess a cold winter or 8.50 – 9.00 NG will change everything.

  86. 86
    zman Says:

    Surprised to see NOV flat today.

    Nicky – wonder if that impacts the dollar.

    From market watch ~ “Although members generally anticipated that the next policy move would likely be a tightening,” the timing was far from clear and depended on incoming barometers on economic growth and inflation. Many economists don’t believe the Fed will start to push up rates to fend off inflation until next year.

  87. 87
    Nicky Says:

    For all those not listening to CNBC (who are probably most wise!) they are ramping oil and Gustav every five minutes and are all sounding like Sharon Epperson on inventory day.

  88. 88
    Bleemus Says:

    Cramer is about to come on with “drilling and natural gas plays including some names you may not have heard about”

  89. 89
    Nicky Says:

    Cramer about to talk drilling and nat gas….

  90. 90
    zman Says:

    Tom – I appreciate the question as it makes me less complacent and forces me to stay awake on this cold, cold August day. I think September will be interesting. No one is making new, big bets now. Some very smart people are expecting a continuation of the same use of the energy and commodity sectors as ATM’s to buy shares of things like Freddie and Fannie. I happen to think things are about to get better but I won’t be pig headed about it and will go to cash rather than suffer another July to mid August style beating if the mkt wants to get really irrational again.

  91. 91
    zman Says:

    If it’s truly a name you haven’t heard of that’s doubly irresponsible of him to pump it into a hurricane. Very sad what has happened to that channel. They used to be good.

  92. 92
    Bleemus Says:

    I rarely watch CNBC but had to see how they were hyping this storm. Channel full of bozos now.

  93. 93
    Nicky Says:

    Don’t like the look of the broader market – has to hold these levels (11300 ish on Down and 1260 ish on SPX) or it could get ugly very quickly.

  94. 94
    Nicky Says:

    President Bush – Russia must reverse irresponsible move on Georgia.

  95. 95
    Sambone Says:

    DJ French Foreign Min Kouchner: ‘We Fear War, Don’t Want One’

  96. 96
    zman Says:

    Re 94 – yeah, that’s likely. What’s next, impost sanctions…do that and Med-Put will start their own SPR.

  97. 97
    kyleandy Says:

    z – u still have WH having nice day also my EVEP having good day. on their conf call last wk were very optimistic and raised div to 75 cents and indicated they would raise it again at end of quarter.

  98. 98
    zman Says:

    This may explain recent trading in energy names.

    http://news.yahoo.com/s/ap/20080826/ap_on_re_us/sat_scores

  99. 99
    Sambone Says:

    Off subject – Aaahh, only in the south!

    http://bluegrassbeat.wordpress.com/2008/08/26/sex-charge-dropped-after-hensley-apologizes-for-joke/

  100. 100
    Dman Says:

    Z – at the risk of being simplistic, I would have thought the fast money was out of energy by now. If they aren’t, then what are they doing calling themselves fast? Oh that’s right, *I’m* the one calling them fast. Well, anyways, it seemed like a good argument for a while.

    I’ve been looking at the Shanghai index lately, because if China’s slight slowdown becomes a recession, oil is going lower. The index is still grinding lower, after a big spike (7%) caused by a JPM analyst saying there would be a huge economic stimulus package. He clarified that he was not basing this on talks with officials but on his own analysis & the market retreated. But his analysis is interesting, based on past Chinese responses to economic crises and also on the pressing need for huge infrastructure works in China. He is essentially suggesting that the government will use an export slowdown as an opportunity to accelerate domestic development. This seems to me to be the flaw in the bear case on China: the bears say it is due for a recession and an export slowdown will trip it up. But China is a command economy with a big shopping list of internal projects, a stated intention of “surpassing” the West and is sitting on huge cash reserves. Why wouldn’t they just turn up the dial on the internal growth-o-meter?

    Another point arising in trying to understand the predictive value of the Shanghai index for the Chinese economy is that it is of course a very unseasoned market. There is (according to the JPM guy) a huge amount of insider stock now becoming free to trade and it is weighing on the market but (I infer) it doesn’t really have any economic significance.

    http://www.reuters.com/article/marketsNews/idINSEO1160220080826?rpc=44

  101. 101
    isleworth Says:

    LoL Z re SAT score comment 🙂

  102. 102
    reefguy Says:

    Z- The writing skills explain CNBC

  103. 103
    zman Says:

    It explains why I can’t find an intern with the ability to learn excel.

    See the WH up, have no idea why. I’ll take it though. Still thinking pretty long term there although deference to Dman’s comments should be made since I don’t follow the China markets and it is a Chinese stock.

  104. 104
    Nicky Says:

    Our local weather reporting that the wave coming off Africa which is behind Gustav most likely to head off into the Atlantic.

  105. 105
    Dman Says:

    #94 Let me see if I have this straight. President Bush is advising a powerful country that large powerful countries invading small, poor countries is not a good idea. Have I got that right? He could back up his argument by pointing to his own miserable experiences in the invading things department, but I suspect he forgot to mention them.

  106. 106
    tomdavis12 Says:

    Z: FDIC report: Problem banks 117 up from 90. FDIC coverage ratio fell. Will have to assess banks more.

  107. 107
    Dman Says:

    Z- er… I put just about everything I know about China into #100, so I’d be a bit alarmed if anyone started deferring to my China analysis. I do think it’s an important part of our puzzle though, so it would be great to hear from anyone who knows the country. Maybe even some Chinese ZEB subscribers out there (??)

  108. 108
    zman Says:

    Tom – right when they can’t afford it. Sounds like an industry I want to invest in, lol.

  109. 109
    zman Says:

    Another example of those SAT scores. Headline on OPEC with no basis in the story.

    http://business.scotsman.com/energyutilities/Opec-set-to-cut-oil.4421625.jp

  110. 110
    zman Says:

    CRR breaking out to 2 year highs, without me, CLB moving up as well.

  111. 111
    Dman Says:

    More headline fun: this article sez EOG is up 5% due to a Sanford Bernstein upgrade.

    http://biz.yahoo.com/ap/080826/eog_resources_mover.html?.v=1

    I guess NG up 6% had nothing to do with it.

  112. 112
    zman Says:

    Ah Dman, me thinks we thinks too much, lol.

    That OII is outperforming the OIH by double, shoulda listened to my morning thought myself. Ah well, can’t kiss em all and in this market most of them have been ugly shortly thereafter.

  113. 113
    Dman Says:

    NOV doing a whole lotta nothing is pretty weird on a day like this.

  114. 114
    zman Says:

    Agreed re NOV.

    My FRO started out dropping and is almost back to even. Still think that falls off but obviously they’ve got interest at current levels, pretty strong volumes.

    CNBC showing a track into the Gomex like it is a sure thing, satellite looks iffy to north, need to see it start turning soon. 5 pm est update will be interesting.

    Cramer has really lost his swing, his names were HAL and NBR and not pop for them since … I guess his recs only work in the thin air of the aftermarket.

  115. 115
    zman Says:

    Cantarell story around saying the field produced 974,000 bopd in July, this is about five days old but reuters is reprinting it for some reason. One thing I would add is that this biggest of Mexico’s fields is producing half of what it was in 2004 and PEMEX had said on Aug 1 that it expected production at the field to decline to 1 mm bopd by the end of 2008 so that came 5 months early. NBR, SLB, HAL all to benefit if Mexican congress goes ahead and allows foreign investment…their onshore Chicontepec field has given large bids to NBR and that would likely increase more if foreign dollars are let in.

  116. 116
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures crept higher for a second straight
    session Tuesday, bolstered by concerns a hurricane could churn through
    important energy facilities on the U.S. Gulf Coast.
    Light, sweet crude for October delivery settled $1.16, or 1%, higher at
    $116.27 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange closed at $114.58 a barrel, up 55 cents. Brent settlement
    prices weren’t immediately available.
    After strengthening from tropical storm status overnight, Hurricane Gustav
    made landfall on Haiti Tuesday, the National Hurricane Center reported, with
    maximum sustained winds near 90 m.p.h. Traders pondered whether it could
    eventually strike the U.S. Gulf Coast, home to 40% of U.S. refining capacity
    and a quarter of the nation’s crude production.
    “We’re going to see the market ebb and flow and see the expansion and
    contraction of the storm premium this week until we get a clearer idea of the
    path of this storm,” said Jim Ritterbusch, president of Ritterbusch and
    Associates, an energy trading advisory firm in Galena, Ill.
    The hurricane center warned the storm could reach the Gulf of Mexico by 8 a.m.
    Sunday. Royal Dutch Shell PLC (RDSA) said personnel evacuations from the Gulf
    could start as early as Wednesday as Gustav heads northwest through the
    Caribbean Sea. Shell reported no impact on production.
    Adding support to crude futures was Russia’s recognition of the breakaway
    Georgian provinces of South Ossetia and Abkhazia as independent states, a move
    that prompted protests among Western leaders. Russia is the world’s
    second-largest exporter of crude oil.
    “The strength in crude today was precipitated primarily by Gustav, and
    secondarily on Russian geopolitical concerns,” said Kyle Cooper, director of
    research at IAF Advisors in Houston.
    Cooper said new private forecasts indicated Hurricane Gustav now appears more
    likely to miss the U.S.’s coastal energy installations, helping damp an earlier
    rally that took Nymex crude prices to $117.89 a barrel.
    Oil remains pressured as triple-digit prices weigh on demand. The Energy
    Information Administration reported revised data Tuesday showing that U.S. oil
    demand in June was 5.6% lower than a year before. At 1.17 million barrels a
    day, that’s the weakest June consumption since 1998.
    A unit of MasterCard Inc. (MA) reported that last week U.S. gasoline demand
    measured by purchases at the pump rose 1.3%, to 9.579 million barrels a day,
    but it was down 2.9% from a year ago.
    Traders’ focus is likely to shift to weekly EIA oil inventory data due at
    10:35 a.m. EDT Wednesday. Analysts surveyed by Dow Jones Newswires on average
    predict crude stockpiles rose by 1.0 million barrels the week ended Aug. 22,
    while gasoline stockpiles fell 2.5 million barrels and stocks of distillates,
    which include heating oil and diesel, rose by 600,000 barrels. The rate of
    refinery use is seen rising 0.1 percentage point to 85.8% of capacity.
    Front-month September reformulated gasoline blendstock, or RBOB, rose 8.74
    cents, or 3%, to settle at $2.9697 a gallon. September heating oil climbed 5.85
    cents, or 1.9%, to $3.2099 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    08-26-08 1517ET

  117. 117
    zman Says:

    Stepping out 15 minutes early. Have a good one. Back with all the weather news you can use at 5 est, lol.

  118. 118
    mahout Says:

    Z:
    Thanks much for #75 and #78. They were great. “Price takes care of price”- I love it. How could it have been said more efficiently! As far as OPEC is concerned: I’m sure they are concerned about the U.S. going green. But I for one have great confidence in their greed. Also in their shortsightedness. I still feel they will not allow Cl to get much below 105. It would make them very uncomfortable.

  119. 119
    zman Says:

    Thanks mahout, too kind.

    Not much change since last updated at 5 EST
    Satellite: (click animate)
    http://tropics.hamweather.com/2008/atlantic/gustav/clir/latest.html

    Tracks:
    http://tropics.hamweather.com/2008/atlantic/gustav/modelsmap_zoom1.html

  120. 120
    crysball Says:

    TROPICAL STORM GUSTAV DISCUSSION NUMBER 9
    NWS TPC/NATIONAL HURRICANE CENTER MIAMI FL AL072008
    500 AM EDT WED AUG 27 2008

    GUSTAV HAS BEEN HUGGING THE NORTH COAST OF SOUTHWESTERN HAITI THIS
    MORNING WITH STRONG BANDS OF THUNDERSTORMS TO THE EAST AND SOUTH OF
    THE CENTER. AN AIR FORCE RESERVE RECONNAISSANCE PLANE FOUND A
    MINIMUM PRESSURE OF 998 MB AND RELIABLE SFMR WINDS OF 45-50 KT. THE
    INITIAL INTENSITY WILL BE SET AT 50 KT. LITTLE INTENSIFICATION IS
    FORESEEN UNTIL THE CENTER MOVES FARTHER AWAY FROM THE HIGH TERRAIN
    OF HAITI. THEREAFTER…A STEADY INCREASE IN STRENGTH IS LIKELY…
    ESPECIALLY AFTER THE CENTER MOVES INTO THE MORE OPEN WATERS
    NORTHWEST OF JAMAICA. VERTICAL SHEAR IS FORECAST TO BE LIGHT…AND
    COMBINED WITH THE DEEP WARM WATERS…RAPID INTENSIFICATION COULD
    OCCUR IN A COUPLE OF DAYS WHILE THE CENTER IS NEAR OR SOUTH OF
    WESTERN CUBA. THE OFFICIAL FORECAST IS REDUCED FROM EARLIER DUE TO
    THE INITIAL WEAKENING BUT STILL SHOWS THE STORM BECOMING A MAJOR
    HURRICANE IN THE NORTHWESTERN CARIBBEAN SEA. IN THE LONGER-TERM…
    THE GLOBAL MODELS HAVE A VARIETY OF UPPER-WIND PATTERNS…BUT IN
    GENERAL THE UPPER WINDS APPEAR TO BE FAVORABLE ENOUGH TO SUPPORT A
    MAJOR HURRICANE IN THE GULF OF MEXICO. IT SHOULD BE NOTED THAT
    BOTH THE GFDL AND HWRF ARE MORE AGGRESSIVE THAN THE OFFICIAL
    FORECAST.

  121. 121
    Bleemus Says:

    Oil & Gas Activity: locations and completions

    http://www.shreveporttimes.com/apps/pbcs.dll/article?AID=/20080827/NEWS05/808270368

  122. 122
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    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Gustav Vs Euro Smackdown Tuesday

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    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Gustav Vs Euro Smackdown Tuesday

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