03
Sep

Wednesday Morning

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 Posting an "in progress" post today as I have the remnants of Gustav over my head with high wind making power outage a real possiblity.

Housekeeping Items:

  • No inventory report today due to the holiday. EIA will release oil inventories at 1pm EST on Thursday.
  • The natural gas inventory report appears to be scheduled for its normal release time of 10:35 am EST Thursday.
  • I will have my natural gas supply update piece for the month of June out after the close today.

 

Sentiment Watch: Negative/Do Whatever Oil Does. My thought is to hoard cash and await OPEC's move next week. The energy group's are not as much a source of funds for a rally in other sectors as they are just detested at the moment with commodity instability seen ahead and peak earnings seen behind. S&P technical analyst said this morning that he sees oil basing in the $100 to $110 range (not having had many consolidation points on the rally from $110 to $147) so if oil holds at these levels it will be telling to see, on a non-hurricane based, the end of the world is not around the corner week, if institutional money has any appetite for the energy equities.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Natural Gas Supply Slide Show Update
  5. Odds & Ends

Holdings Watch: No change

Technical Opinion Watch:

  • XOI - The Majors Got Crushed But Held Recent Support. The index fell from the top to near the bottom of its 6 week trading range which was established after a 22% selloff from highs reach in May (the Majors peaked first). The XOI is within a hairs breadth of violating simple support and could then free fall (technically speaking) another 1%.

 

  • XNG -The gassy stock index fell a little harder, ending the day down just over 5% but also held recent support. The gassy stocks are down 25% from their early July peak also within a percent of the bottom of their recent trading. The group is back to a point where good news on the production front may give the stocks traction however further declines in natural gas prices, if they occur will send the group lower until a wave of Capex cuts hit, something I think we will see later this fall.

 

  • OIH -The Service stocks also fell 5% on the day, closed on their lows and violated support. No new money for them despite the fact that they are woefully cheap... in this kind of market charts will rule the day. The OIH is now trading into what looks like support from March 2008 and any bounce to fill yesterday's morning gap will require a change in the direction in crude and not just for a day or two. I will sell my wounded positions into such a bounce and wait for better days (better days for the stocks, not the company fundamentals as those continue to be strong and improve but since when did that last matter?).  

Commodity Watch:

Crude Oil oil closed off $5.75 at $109.71 yesterday after trading as low as $105.46. This is a 4 month low for crude and I think it is becoming more likely that OPEC will attempt to defend $100 oil unless the dollar rallies significantly more.  Whether or not oil would rally on a cut in production quotas is open for debate as traders may take such a cut as further evidence of week demand. This morning oil is trading off $1 to $1.50 on further dollar strength.


 

 

  • Russia Watch: "For us, the present Georgian regime has collapsed. President Saakashvili no longer exists in our eyes. He is a political corpse," Medvedev said in the interview broadcast on Russian television. Pretty much says it all.

 

Natural Gas dropped $0.68 to close at $7.26 yesterday and all eyes are now squarely on the $7 figure. As EOG pointed out during their presentation during the Lehman conference, only two storage numbers have come in high to consensus this Summer, one included the 3 day weekend from July 4th which may have reduced industrial demand more than analysts expected and the other was last week's injection, which came in hot to estimates due to very cool weather. Other than those 2 numbers, gas is being put into storage at about the expected pace. Given current prices, I would expect to see no additional LNG head to the U.S. and flat to downish imports from Canada.  This morning gas is trading off $0.05.

 

Crack Spread Update. Not too shabby. I continue to think we will see modest improvement into the fourth quarter gasoline prices at the pump inspire consumption and heating oil restocking begins.

 

Stuff We Care About Today

Aubrey Watch: CEO of CHK says a number of entities are interested in taking a piece of the Marcellus and put the chances of a deal there at 100% . For what it's worth, he see's natural gas prices settling in a range of $8 to $11 "over the coming months."

(RIG) Fleet Status Report Released. Transocean released an abbreviated version of its usual monthly fleet status report. In general new deepwater contracts increased over their last levels, while standard jackup renewal rates were more of a mixed bags.

Lehman Conference Wednesday (EST):

  • 9:05 NBR
  • 11:05 BHI
  • 1:05 TS
  • 1:45 NFX / SD

Odds & Ends

Analyst Watch: (X) upped to outperform at CIBC.

79 Responses to “Wednesday Morning”

  1. 1
    Bleemus Says:

    XTO XTO Energy updates Price Hedges; Hedges for 2009 Exceed 50% of Projected Production Volumes

  2. 2
    zman Says:

    Saudi announced the 500,000 bopd capacity new Khursiniyah field open for business. Originally scheduled for start up in December and probably ramping towards full capacity over a several month period although they will have to reign in something else to get near quota. Not a positive for oil.

  3. 3
    reefguy Says:

    EPL down 13% yesterday…assets in direct path of Gustav

  4. 4
    zman Says:

    Reef – so far everything in the path has been pretty unhurt, think it is an opportunity?

  5. 5
    reefguy Says:

    Production in shallow and state water may be down for a while on no electricity. I think it is a buy at these levels and may be taken out before spring at 20

  6. 6
    zman Says:

    Any word from our friends with the deep boondoggle?

  7. 7
    zman Says:

    Screen mostly green on pathetic opening volume. Not a bunch of buyers lining up, just that the sellers have not hit yet. I think the next week pre OPEC will be pretty choppy. So good trade opportunities in here for the quick but by and hold is out of the question.

  8. 8
    md Says:

    RE: NG 102 BCF injection surprise
    Here’s my theory
    August 07 CDD 359 August 08 Est. CDD 290
    Supply increase est. 1 BCFPD
    Consumption Decrease est 5 BCFPD (62 BCFPD -57 bCFPD) Total increase 6 BCFPD for August x 31= 186. Last three weeks increase = 153 with this week to report for a total of 28 /31 days. Not perfect but does explain the variance.

  9. 9
    zman Says:

    MD – yep, it is virtually all weather.

  10. 10
    zman Says:

    Refiner multiple table updated on the refiners tab, group remains cheaper than just about ever and rate of EPS decline by analysts has slowed in the last month as crack spreads try to find a bottom.

  11. 11
    zman Says:

    Nicky, when you get in could you give some levels on the broad market and take a look at gasoline? Thanks.

  12. 12
    reefguy Says:

    Gas price differentials: I just saw Opal, Whyoming hub showing daily posting of .69. How does this affect the pure Rockies players like KOG?

  13. 13
    zman Says:

    Reef – no decimal point moved over I take it? That’s awful. Caused by supply constraint out of the region and growing production. KOG is about a third gas and while the story is drill Bakken wells on Indian land how you make a go of it at give away prices. Gotta wonder how BBG and other pure gas players up there don’t crash. Hmmm.

  14. 14
    zman Says:

    ZTRADE: Added DUG $38 September Calls for $2 as the energy groups continue to beat their heads against a wall of apathy (aside from refiners).

  15. 15
    Nicky Says:

    Z – Broader market – support at 1275, 1265, 1261. Resistance at 1279 and 1289. Chart looks quite bearish to me short term. I think we will take a look at those lower support levels even if we consolidate between here and 1289.

    Will just take a look at the gasoline chart and come back to you.

  16. 16
    zman Says:

    Nicky – while I’ve got you can I get your read on the dollar index chart. On the daily and weekly charts it looks like a full fledged breakout now. The monthly chart looks a little overdone. There is no way oil can trade sideways, as the S&P TA guy was saying at current levels if the direction of the dollar is up,up,up on a daily basis. It’s just too simple of a trade for traders to make (buy dollars, sell barrels).

  17. 17
    zman Says:

    MD – having scrubbed the gas supply data pretty thoroughly, the trajectory of gas growth seems to be slowing but you really have to want to see that in the charts. As per above, the simple trade is to continue to sell gas off. Right now you have operators in the Barnett making conflicting statements about the basin rolling over or not rolling over next year. Two of the four core counties have stopped growing. One of the other two is supposed two. The other 14 counties in the Barnett are not putting on much of a show. But if you ignore the operator talk, the basin is up from the beginning of the year pretty strongly as is the rest of Texas. So a bounce in gas, which I think we get with a Rockies curtailment announcement in the next few weeks will be modest.

    Sam – any storm thoughts?

  18. 18
    tater Says:

    I know you toy with NOV once in awhile. Spent a little time with it recently (and the little maniac on TV was pumping it again) so I thought I’d throw my 2 cents in the ring.

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

  19. 19
    Nicky Says:

    RBOB – very good support between 25000 and 26000. Resistance at 30000 – 310000 area. It looks like we are in a fifth wave down and are likely to see a correction to the upside soon. If a lower support area is needed it comes in at the 22000 area. The bounce/correction will be a selling opportunity imo…

  20. 20
    Nicky Says:

    Hang on will take a look at the $ chart and agree oil will not trade sideways!

  21. 21
    zman Says:

    Tater – you got my vote. Group wants to go lower. NG about test $7.

    What’s doing well now? Truckers:

    JBHT, LSTR, CNW, WERN, HTLD, KNX

    and the airlines.

  22. 22
    bill Says:

    hk

    when will the carnage end

  23. 23
    zman Says:

    Bill – when oil and gas find a bottom. All I hold is the stock and the 40s there. Glad to be mostly away from the E&Ps here. Will dump my service names into strength (if any) from Ike which looks to be targeting the Gulf, arriving in Cuba as a Cat 3 now by Sunday.

    At least the refiners are working again…something makes sense.

    May turn the DUG into a series of day trades as that worked faster than I would have thought.

  24. 24
    md Says:

    What’s the rockies curtailment about.
    What’s the Definition for:
    rolling over
    section-
    Net vs. gross acres

  25. 25
    zman Says:

    ZTRADE: Out DUG $38 calls for $2.80, up 40%. Worked faster than I thought, will likely re enter if the group gets a recovery, sentiment remains very negative on energy outside of refiners which I’d put in the cautiously optimistic category.

  26. 26
    zman Says:

    Rockies curtailment related to too much gas being produced for the amount of pipeline capacity available to get it to market. They are literally awash in gas in the Rockies and it has trouble getting east or west. Been a problem for years, gotten worse lately with higher production and inability of pipeline expansions/looping to keep up.

    Where did you see “rolling over section”

    net vs gross just mean if you are in a play with a partner, for instance, you guys might have 100,000 acres with you holding 70% and your partner holding 30%. When you operate a lot of times a wells gross production will be reported but the net to you is the % you own. Used to be common to here 8/8ths (which is 100% or gross percentage) and then the net percentage. NRI comes after that which is your net interest less the royalty on the property.

  27. 27
    md Says:

    Gotcha
    Defintion of
    Rolling over-

    Section-

  28. 28
    Nicky Says:

    Okay Z – DXU. Currently trading close to 78.40. We are at a resistance area and above here we have resistance at 81 -82. I actually think we will correct back to the 74.50 – 76 level.

  29. 29
    zman Says:

    Ohhhhhh,

    Basin rolling over. Production growth stalling.

    Section = 640 acres, 1 sq mile.

  30. 30
    zman Says:

    Nicky – beige book out later, could be catalyst to drop the dollar … do you think there is anything in there that would say all’s better now, lol?

    Off topic, Hurricane Hanna going to be a problem for you? Gustav is trying to drown us.

  31. 31
    zman Says:

    OIH getting just crushed here. Chart looks very bad.

  32. 32
    zman Says:

    ZTRADE: Added TSO October $20 Calls for $1.14 average. Continuing to hold the September $20 calls for a few more days, just a little above breakeven. My thinking is that spreads are going to improve going into the fourth quarter and that any storm related increases in oil prices will carry with them the threat that Gulf Coast refining capacity will be in jeopardy. If oil prices fall as they have been at a greater rate than product prices (gasoline and heating oil) again, it is good for the refiners.

  33. 33
    md Says:

    I was browsing Canada NG and saw this paper from CSUG ( Canadian Society for Unconventional Gas)

    http://www.csug.ca/dl/TL_Apr_08_Mike%20Dawson.pdf

  34. 34
    Nicky Says:

    Z – I would like to see energy dive to one new low before the correction starts to be honest…but of course we don’t normally get what we want!

    At the mo Hanna is going to effect the East Coast and we should be on the dry side….you must be getting a ton of rain though…

  35. 35
    zman Says:

    ZTRADE: Took some HK Calls for a quick trade. HK September $30 calls for $1.55 as oil and natural get a little intraday bounce. Stock at $28.25 on execution. This is the 4th trip in the last month into these and again, a quick trade and small.

  36. 36
    zman Says:

    Oil down $0.40, NG down a penny. Odd.

    Majors starting to turn a little green but nothing to right home about and may re do that DUG trade as it has come well off its highs. Independent refiners continue to outperform, getting back all of yesterday’s losses and then some.

  37. 37
    zman Says:

    MMS says 96% of oil production and 92% of gas production still shut in as of this morning.

  38. 38
    zman Says:

    Nicky, can you repeat your levels on NG? Gas up two cents on the day now…could be Ike, most likely a head fake.

  39. 39
    zman Says:

    Nicky – thanks for 19, gasoline up 1% plus late in the session and heating oil trading slight green. The press is trotting out the tire headline of oil falling on weak demand when there is no new data to point at.

    Entergy saying there has been extensive damage to its power grid. 5 out of 12 Louisiana refineries have no power and it may take days or weeks to repower them.

    The LOOP said it plans to restart import operations in a the next couple of days.

  40. 40
    md Says:

    What do the imports and production figures look like for tomorrow and next week. Can you expect a bounce in price for the obvious. It’s not priced in at these levels

  41. 41
    tater Says:

    I don’t normally delve into the coals, but I just noticed JOYG. Wow! That trade sure seems to be off. Seems a bit overdone. Thinking quick trade long. Talk me out of it?

  42. 42
    Alhambra Says:

    New LNG plant in Baja to feed SW US. 40% to Mexico and 60% to US (I believe), Sempra is parent of SD and LA gas utilities.
    http://biz.yahoo.com/iw/080828/0428798.html

  43. 43
    Dman Says:

    Z – NFX now at Sept 06 levels. Just sayin’ is all …

  44. 44
    md Says:

    Hey, Don’t just stand there. Buy soemthing.

  45. 45
    zman Says:

    MD – imports were off 3.9 Bcfgpd, won’t have this week until next week but that makes things about even on the supply side. The Street is looking for another big build (88 Bcf) with is above the last year and 5 yr #s so if we get a bounce it’ll be because the number strays from the 88 by a ways. Weather by degree days is still unavailable for last week from NOAA and they are not answering the phones on that subject.

    Tater – don’t you know we don’t need to mine coal anymore, lol? Take a look at the coals, they are worse off than E&P all of a sudden. It’s got guys like me looking at truckers this commodity sell down does.

    Thank Al, will have a look. Is it approved or just planned?

    Dman – I hear ya, much unloved despite Woodford, despite Malaysia, despite deepwater Gulf of Mexico all since then and the reason it was that low then was they took a beating from Katrina/Rita and had to literally refashion the production profile for over a year to get back to where they were August 2005.

    MD – now that’s funny.

  46. 46
    Dman Says:

    Z – do you happen to know if any NFX production was in the way of Gustav?

  47. 47
    zman Says:

    Al – oh, that LNG facility, came on in May, I remember talking about maybe getting a pop in imports for commissioning volumes from them and one of (LNG’s) facilities, never really showed up in the number.

  48. 48
    md Says:

    I was asking about CL .
    Re: NG use the forecast as a guide.

  49. 49
    tater Says:

    I went with it. TA trade called a power spike. Basically volume is off the charts signaling the move is overdone and possibly all the sellers have sold (at least today). As for the fundamentals, I quick skimmed the article below first (sometimes I actually read fundamentals!) seems like it is worth a read.

    http://seekingalpha.com/article/93769-someone-needs-to-dig-out-joy-global?source=yahoo

  50. 50
    Dman Says:

    I’m wondering if the NG stability today has something to do with the fact that the Gulf is still shut in and a lot of it (eg 30%) is expected to remain so for 30-60 days based on analyses I’ve seen (http://www.theoildrum.com/node/4478). With the sensitivity of NG to supply-demand balance, I would have thunk that would be worth something to someone, but seems to have been completely ignored.

  51. 51
    zman Says:

    Dman

    Here’s the deepwater facilities in the path of the storm:
    http://www.rigzone.com/news/hurricanes/gustav_map.asp?m=FPS

    NFX was on the edge, no damage reported:
    See slide 18

  52. 52
    zman Says:

    See slide 18 using this link:

    http://www.newfld.com/pdf/Lehman_2008-09.pdf

  53. 53
    zman Says:

    Md – re oil, hard to say on imports as they may have rushed to port causing a large import number. Next week will see some whacky numbers, as imports will be cut by a third or so and production will be down by half to three quarters of a million barrel. This week’s inventory numbers should not show a drop in oil or gas production as most everything was still up through the beginning of last week end.

  54. 54
    ram Says:

    So NFX has made no progress stock wise in 2 years. That doesn’t make sense. Their NAV has to be higher due to current commodity prices.

  55. 55
    md Says:

    talking Lng . Stock LNG back down to $3.12 after they popped to $4.00 on financing and qtly. report, I think.

    The one thing that nags me is the lng facilities deals like Freeport with COP for 1 BCFpd “CAPACITY” from .500 BCF start mid 09
    Dow .500 and Mitusbishi for .150 for total of 1.65 BCFPD
    Cheniere – Total SA 1.BCFPD AND Chevron 1. = 2 BCF

    Sempra – .6 from Eni.
    Cove Point – Statoil
    Golden Pass – Exxon / Qatar. 1 BCF
    The total for all this is over 5 BCFPD CAPACITY ( as opposed to supply).
    How much of this will translate to supply. YTD LNG approx. .800 BCFPD

  56. 56
    Dman Says:

    #51 Thanks Z

  57. 57
    zman Says:

    Ram – you are correct and yet no one in the world cares about things like valuations right now. So I sit and wait.

    MD – re NG capacity vs supply. There is additional supply coming on globally next year. Much of it will go to Europe via contracts with Gazprom. It certainly won’t come here unless prices elsewhere collapse. On US capacity, when all is up and running that is under construction now I think the capacity number jumps to almost 10 Bcfgpd. I did a piece on this a while back (its at the bottom).

    http://zmansenergybrain.com/2008/04/24/thursday-night-gas-storage-review-lng-capacity-comments/

    These things were an investment bankers dream to build as they just planned to build it and have ships show up. Did not make sense since the 4 facilities we already had were not getting to capacity for 90% of the year. You can argue seasonal capacity but the gold rush here was pretty stupid.

  58. 58
    md Says:

    Agreed. So what does COP, TOTAL , Chevron and DOW do with their capacity. Are they required to bring in a minimum to keep facility running.

  59. 59
    zman Says:

    MD – don’t know but the volumes have not be showing up for LNG, the stock. It’s possible it’s not firm capacity or that they have a knockout clause in their contract. Price falls to a certain level here making shipping it from over there uneconomic. But I really don’t know anything more than it has not been showing up as it is all going to Asia/Europe.

  60. 60
    Dman Says:

    #59 If they could just fit a “reverse” switch onto those things (how much does a switch cost, yeesh!) the US price for NG would get real very quickly, i.e. double.

  61. 61
    Fred Says:

    Boone Pickens just on Bloomberg and says $150 crude within a year. They asked about a McCain endorsement and he refused.

  62. 62
    zman Says:

    Thanks Fred – did they ask him from where he pulled the $150 number? I don’t doubt that it is possible but I’d like to hear if there is anything new to the rationale.

  63. 63
    Dman Says:

    #61 Wow. Guess Boone noticed the Republicans aren’t on board his alt. energy plans. But still, I thought he was rusted onto ’em.

  64. 64
    tater Says:

    CRR

    I checked the holdings tab, you did a write up a couple days ago (I think), but you never traded it?
    Just wondering your current thoughts. Seems to be setting up for a long trade (Odd, coming from me). I think I am going to do some playing around with it tonight, but anything in particular (other than the Pinnacle sale to HAL) that I should know?

  65. 65
    zman Says:

    Re CRR – no nothing outside of all the basic stuff I put in there. The deal was minor as a piece of their business. Nice growing segment but minor. To some extent lower oil prices are good thing for them as they have rising fuel costs as they harvest the raw material for making proppant so if you think oil is going lower but not too much lower that will lead to a slight margin boost for them…I did not trade it yet as I wanted to see some pullback given their multiple but in this market, multiples, high or low, may not matter. Everybody thinks the Haynesville will flood the US with gas and to drill those wells you are going to need big loads o’ ceramic proppant.

  66. 66
    zman Says:

    Reuters story out saying GMXR could be one of the Haynesville players up for grabs and quoting the CEO as saying so. The story goes on to cite XCO, HK and GDP as attractive targets.

  67. 67
    zman Says:

    EIA says 13 refineries remain shut along the gulf coast with a combined capacity of 2.484 mm bopd due to power outtage. 10 more are operating at reduced rates.

    EIA also granted Citgo’s request for a small SPR draw.

  68. 68
    zman Says:

    Investment firm Ospraie Management said it was shutting down its largest fund after making bad bets on energy futures, including oil and natural gas. The firm in recent weeks has been selling large positions in commodities, and analysts said that may have added to the extreme downward pressure weighing on commodities in recent days.

  69. 69
    zman Says:

    Wow, NOAA just got their numbers together for last weeks weather. CDD were 59 which ties the prior week and was less than expect. Consensus for the injection may be too low.

  70. 70
    jsaun14 Says:

    Z-

    Rookie here missing the CDD acronym…Could you clarify #69.

    JS

  71. 71
    zman Says:

    Cooling Degree Day – CDD
    The number of degrees that a day’s average temperature is above 65o Fahrenheit, the temperature at which people will start to use air conditioning to cool their buildings. I use the climate prediction center’s population weighted degree day index for the U.S. Gives you a little more science on predicting storage than just saying it was hotter or cooler than normal. We use HDD’s (heating) in the winter months.

  72. 72
    md Says:

    HDD 10 Will that have a bearing

  73. 73
    zman Says:

    MD – no, they are bell shaped curves around their respective seasons. 10 is a tail end reading, should have noticeable impact.

  74. 74
    md Says:

    Does the low CDD summer say anything about the fall HDD

  75. 75
    zman Says:

    Not in my experience. It was a pretty normal looking summer until August got here and everything turned cool.

  76. 76
    md Says:

    May be a buying opportunity of sorts after the NG EIA release

  77. 77
    zman Says:

    There’s a good chance that we get another SIZE injection. Numbers get squishy the further out of line weather is with typical. I would not think we get as big as a number as you may have people tucking gas away to sell higher later but if we got a triple digit number gas would be running down into the $6s and I think it would be a heck of a buy there.

  78. 78
    tater Says:

    Thanks for #65

  79. 79
    zman Says:

    Natural gas supply post up.

    Hurricane Ike jumped from a Cat 1 to a Cat 3 and is now bearing west and expected to be a Cat 4 by the weekend moving towards Florida/Cuba.

    http://tropics.hamweather.com/2008/atlantic/ike/trackmap_zoom1.html

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