02
Oct

Thursday – Gas Preview & Oil Review (In Progess)

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The Senate voted in favor of its version of a financial center rescue package and it looks like the House will vote again on Friday. Fingers crossed there. The SEC extended its ban on evil short sellers to mid October 17 and if that does not do the trick I'm sure oil companies will be required to invest in financial institutions by Halloween. I continue to hunker down doing the occasional trade here and there but the energy groups and the broader market remain essentially trendless, lacking confidence in any move. Valuation is not much of a consideration when you have redemptions on your mind and the possibility of a global meltdown hanging in the balance. Even if the House votes in favor of the "rescue package" (which is still a matter of some debate) there will be the "what's next" hangover in the markets this month. So I'm walking softly and trading with a small stick. 

 

In Today's Post:

  1. Holdings Watch
  2. Commodities Watch
  3. Natural Gas Preview
  4. Oil Inventory Review
  5. Stocks We Care About Today
  6. Odds & Ends

Holdings Watch: The Wiki tab is updated.

  • (DUG) - Added DUG $45 October calls for $3.50 on negative inventory numbers.
  • (HK) - Added HK October $20 calls for $2.70 with the stock off 4.5%.

 

Commodities Watch:

Tropics Watch: Zip, nada, nothing.

Weather Watch: Upper midwest to have pockets of freezing weather today and Friday, with New England to follow. Summer has left the building.

Crude oil fell $2.11 to $98.53 yesterday after a bearish looking set of numbers emerged from the EIA's weekly inventory report (see review below). Losses were muted by a turn in the broad market brought about by Senate action and to be fair, the numbers out of the EIA continue to be distorted by Gustav and Ike issues. Pressure remains on crude as global economies weaken. This morning crude is trading off $1 to $2 in very early trading.

 

Natural gas rose $0.29 to close at $7.73. I think this buoyancy is a function of four factors:

  1. North American producers are reigning in capital spending. First CHK, then HK yesterday. More are certain to follow and many smaller private operations will do so without ever thinking of issuing a press release. This takes their foot of the pedal of North American natural gas supply growth to some extent.
  2. Heating oil inventories fell more than expected in yesterday's EIA report. This exacerbated an already positive day for gas. As the season wears on lower than average heating oil inventories will likely be supportive of gas (but probably not a driving force behind much higher prices either).
  3. Flight to something safe relative to other, more globally-focused, energy commodities. Gas is mostly a "local fuel" meaning most of the gas consumed in the U.S. is produced in the U.S.
  4. Natural gas has had a heck of beat down. Natural gas is down by nearly 50% from its highs in July. This outpaces other commodities and its chart is forming what we in the lay-technical analysis crowd like to call a nice saucer shape.
  5. It's getting closer to that time of year. Ya know, cold weather. Prices typically rise in the fourth quarter and after such a beat down, taken in conjunction with fall spending, the potential for a small rebound is increasing.

If you missed the natural gas supply review last night click here.

Natural Gas Preview:

  • My Number: 70; Last year's numbers: 62 Bcf; 5 year average: 72 Bcf
    • Weather: Pretty mild compared to last year's warmth
    • Imports Impact: back to "weaksville", down 1.6 Bcfgpd or 11 Bcf from year ago levels
    • Gomex Impact:  about 32 Bcf was shut in offshore last week
    • Production Impact: probably running about 5 Bcfgpd ahead of last year or 35 extra Bcf for the week.
    • Exports: were down in July by 0.2 Bcfgpd which is relatively immaterial but it was the first month this year to show down YoY.
    • So in a nutshell we milder weather, lower imports, a temporary wash on production caused by Ike, and an uncertain handle on exports.
  • Street Consensus: 75 Bcf Injection (from the Reuters survey)

 

Crude Oil Inventory Review

In A Nutshell: Weird numbers. Refining came back but not as much as did imports leading to a surprise build in stocks.

CRUDE OIL - Bigger than expected rebound as rebound in imports more than offset rebound in demand from refineries.

Utilization and Refining Inputs: After scoring a record low last week, refinery utilization edged back from a just back from the abyss 72.3%. I would expect a recovery into the low 80%'s in coming weeks but little more as the industry completes Fall maintenance turns. Low product stocks and low refinery runs should be welcome news for 4Q cracks.

 

GASOLINE - Small build vs an expected withdrawal. Demand numbers here rebounded slightly which may be a function of certain regions topping the tanks in fear of not having the opportunity the next time they pass a station as is happening in the Southeast and particularly Atlanta. Looking ahead I would expect the consumer to continue to conserve as much as possible with gas near the $3.60 mark nationwide until such a time as prices fall back closer to $3. Given the low levels of inventory, I would expect prices to remain elevated relative to crude on a percentage basis for the remainder of the year.

 

 

 

 

 

 

 

 

DISTILLATES - Bigger than expected withdrawal. Stocks are towards the lower end of the range, especially the higher sulfur variety used to heat homes. This should be supportive of heating oil prices going into the fourth quarter. 

 

 

Stuff We Care About Today:

----to be added.

McCain - I've tabled this table until Friday.

Odds & Ends

Analyst Watch: Merrill cutting (BRY), (DNR), and (MUR) to underperform. Goldman adds (SU) to Conviction Buy List (that's pretty bold)

Housekeeping Watch: I will be traveling from Noon tomorrow through Tuesday for IPAA Oil & Gas Investment Syposium - San Fransisco. I will be intermittently available on Monday from the conference.

 

 

 

 

123 Responses to “Thursday – Gas Preview & Oil Review (In Progess)”

  1. 1
    zman Says:

    Dman – in answer your question from last night re SLB and the curtailment in activities in North America.

    They basically said that unless their is a severe global recession they are sticking with their thoughts of stronger for longer for the oil service cycle. They said prices will have to come down a lot more than they have to really impact global capex which is their focus. They did add in the Q&A a rider on that which basically excludes “the roller coaster that is N. America”. So basically they said they will be fine, and are looking for small improvements in margins going forward.

    SLB noted that they are generally more pessimistic regarding global decline rates than they were just 2 or 3 years ago. So you need more drilling to just stay i place in terms of volumes, not to grow but just to stay on the treadmill. It varies a lot from place to place but they pointed out that in aggregate, current rate of global drilling are not enough to stem declines.

    They were asked about $60 oil price impact on capital spend. They basically see all the non-conventional projects coming off first and that most of the projects they have going around the globe would stay intact.

  2. 2
    Sambone Says:

    Hmmm, your up early today.

  3. 3
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures fell more than $2 in European trade
    Thursday following a burst of strengthening in the U.S. dollar, particularly
    against the euro.
    The euro’s drop to a one-year low against the dollar prompted oil’s spike
    lower Thursday, contributing to already-volatile oil price moves. Trading
    volumes remained thin with many participants waiting on the outcome of a
    proposed $700 billion bailout package for the financial sector, set for a House
    of Representatives vote Friday following approval from the U.S. Senate late
    Wednesday.
    While somewhat subordinate to developments on Capitol Hill, the oil market’s
    fundamental concerns remained centered on a worsening demand outlook, lending
    downwards pressure on prices Thursday. Consumption fears were exacerbated after
    weekly U.S. government inventory data Wednesday revealed U.S. domestic oil use
    in the past four weeks fell 7.1% from a year ago, while gasoline demand fell
    4.5% to its smallest amount in almost three years.
    At 1209 GMT, the front-month November Brent contract on London’s ICE futures
    exchange was down $1.36 at $93.97 a barrel, up from an earlier intraday low of
    $92.53 a barrel.
    The front-month November light, sweet, crude contract on the New York
    Mercantile Exchange was trading $1.07 lower at $97.46 a barrel, recovering from
    its earlier drop to $96.02 a barrel.
    The ICE’s gasoil contract for October delivery was down $7.25 at $910.50 a
    metric ton, while Nymex gasoline for November delivery was down 217 points at
    233.83 cents a gallon.
    While many investors in crude oil, like those across most financial markets,
    opted to sit tight ahead of Friday’s vote, the successful passage of the rescue
    plan isn’t guaranteed to provide a lasting fillip for crude oil prices,
    analysts said.
    “An approved new bailout plan…could potentially boost equities and support
    commodity markets in the short term. Yet, it will take much longer to restore
    investor confidence and for global growth rates to pick up once again,” said
    Andrey Kryuchenkov, analyst at Sucden Research in London.
    Given the global economic outlook, oil prices are likely to be steered by the
    market’s concentration on demand issues. Analysts at Barclays Capital suggested
    that 2008 is set to rank alongside 1998 and 2002 as one of the weakest recent
    years for oil demand growth.
    “The market recently has tended to be heavily focussed on demand, and that
    focus seems to have been significantly magnified by the less-than-smooth
    progress of legislation through Washington this week,” they said.
    “Given that focus, that scale of demand-side weakness is likely…to make it
    difficult for prices to stick above $105 per barrel for too long in current
    market circumstances.”
    Reduced market participation amid uncertainty surrounding the U.S. financial
    rescue plan continues to allow for significant volatility in oil prices,
    meanwhile.
    Nymex crude oil prices spanned a more-than $11 range Monday, the sort of
    fluctuation that itself may be warding off investors.
    “The combination of increased risk aversion and increased price volatility,
    (the latter in part due to lower participation), may be currently feeding off
    each other,” said DresdnerKleinwort analysts Gareth Lewis-Davies and Daniel
    Pfaendler in London. And as long as the outlook for all markets remains highly
    uncertain, oil prices face the prospect of further turbulence, they added.
    -By Nick Heath; Dow Jones Newswires
    Dow Jones Newswires
    10-02-08 0810ET

  4. 4
    zman Says:

    Carris takes TSO to average from below average. How exciting it must be to be listed as average.

  5. 5
    rseidman Says:

    02-Oct-08 09:04 ET

    Halliburton: RBC reducing ’08/’09 ests (30.32)

    RBC is reducing their ’08/’09 ests to $2.78/$3.39 from $2.83/$3.50 (consensus
    FY08 $2.91; FY09 $3.66). Firm is reducing their ests to reflect the impact of
    hurricanes Gustav and Ike as well lower their ’09 rev expected ’09 rev growth
    to 12.9% from 14.0%. Firm’s new 3Q08 EPS est is $0.71 compared to the
    consensus est of $0.76.

  6. 6
    tomdavis12 Says:

    Z: The tape seemed to say the great commodity super cycle is over. If you agree the E&P space can only be used for short term scalp type trades which you are doing. What would you like to see in your space before you can be comfortable thinking in terms of long term investment ideas.

  7. 7
    zman Says:

    Thanks RS…seems pretty well reflected in the stock at this point.

    Tom – 1) stability in the commodity prices. Starting to see it in natural gas but that’s pretty tentative and won’t last without oil hanging in there. As SLB said yesterday, if we see a global protracted recession, all bets are off. 2) stable financial markets. Funds still using what has recently worked as a source of funds. They are meeting redemptions and worried about keeping their jobs. Makes it hard to be worried about the fundamentals.

  8. 8
    zman Says:

    Tom – I’d also add that if the House passes tomorrow’s bill its probably only a bump in the road for the broad market as the data coming out seem likely to worsen in the near to medium term now. We’re going to need a real capitulation day in everything at some point. My short term trades will come off the table if the House passes and we get a pop.

  9. 9
    BirdsofpreyRcool Says:

    comments from an i-bank CDS trading desk this morning… not a very perky picture:

    “As I stare into the abyss, also known as the credit mkt, it
    seems clear that Congress clearly made a huge mistake. And
    once the bill passes its likely to do very little to the
    perception and fear in the market now. Its just too late. The
    mkt knows that the blind man is somehow in charge, and the
    Congress clearly showed that they do not know what they are
    doing. Only after u get $1 trillion in mkt value disappear did
    they listen. That is a very expensive way to educate someone.
    They are just too late w/ it now. And what about a rate cut?
    Shouldn’t it come as well now? I hope the FED is jus planning
    to do it w/ the TARP. I am changing my view here.. Mainly
    because there is no trust in people deciding about how to fix
    the problem.. It’s probably going to get worse.”

  10. 10
    isleworth Says:

    Z- what do you make of PQ news?

  11. 11
    zman Says:

    Isle – I don’t show any PQ news since 9/19.

  12. 12
    zman Says:

    Bird re 9 – what’s that old Eddie Brickel song? “I quit, I give up, nothing’s good enough for anybody…” Sheesh. Tough market.

  13. 13
    BirdsofpreyRcool Says:

    You think it’s tough in equities… you should see what is going on in fixed income right now.

    No credit market, no economy. It’s just that simple.

  14. 14
    mnt Says:

    Z – Do Sandridge stockholders here need to be concerned with the comments made yesterday on the blog. Any insight much appreciated.

  15. 15
    zman Says:

    I still have not received the requested email. I think there are a lot of rumors in the market now with the stocks down.

  16. 16
    isleworth Says:

    U.S. Energy Corp. Announces Spudding of Second Well With PetroQuest Energy, L.L.C.
    Wednesday October 1, 9:30 am ET
    Second Well Represents a 12 Bcfe Target

    RIVERTON, Wyo., Oct. 1, 2008 (GLOBE NEWSWIRE) — U.S. Energy Corp. (NasdaqCM:USEG – News) (“USE” or the “Company”), a natural resources exploration and development company with interests in molybdenum, oil and gas and real estate today announced that PetroQuest Energy L.L.C. (“PetroQuest”) (NYSE:PQ – News) has spudded the Highlands Prospect in Louisiana.
    U.S. Energy Corp. is participating in this well as a 20% working interest partner with PetroQuest. This initial well will be drilled to a depth of about 13,700 feet, and PetroQuest believes it is targeting a resource of 12 BCFE. This well is the second of the previously announced three well drilling program. Drilling is expected to be completed in the fourth quarter of 2008.

    “With drilling completed at the Bluffs prospect, our oil and gas program continues to expand as our partner, PetroQuest, has redeployed the rig to begin drilling at the second of three projects where we have an interest,” stated Keith Larsen, CEO of U.S. Energy Corp. “As we advance our oil and gas program through the balance of 2008, we expect to report initial production rates at the Bluffs and additional drilling at our other prospects. With approximately $70 million held in U.S. Treasuries and cash, we are well positioned to take advantage of any additional opportunities identified in the year ahead,” he added.

  17. 17
    zman Says:

    Its not newsworthy. That’s just ticker spamming by a minority interest owner in a well. That company is just trying to boost its own stock. Nothing new there.

  18. 18
    arodeen Says:

    Just FYI – looking at the monthly chart, the S&P500 appears to be at both the 14 year uptrend and the 50% retracement. If the support ~1080 holds or breaks, it may be pretty significant on a technical basis.

  19. 19
    mnt Says:

    Thanks for that. Amid all of this turmoil, I would be interested in everyone’s thoughts on an energy stock to buy over the next few weeks and forget about for a few years ( kid’s account type of thing ) I am toying with CHK and PBR. Any comments ?

  20. 20
    Sambone Says:

    Wow, look at RIG

  21. 21
    rlogan1301 Says:

    R: #6 – at these prices, its like commodities will never be used in the world again…like there will be no more sales or something…

  22. 22
    elduque Says:

    SD on the tape. Cutting capex to 1B from 2B. Money for capex can be generated internally. 2008 prod. of 100 Bcfe. and has lowered 2009 to 120 Bcfe from135Bcfe

  23. 23
    zman Says:

    Thanks EL D. We have to expect that. So now they grow 20% spending half as much. Good idea in my book as you are not getting paid (via a higher stock price) for the high profile growth anyway.

  24. 24
    zman Says:

    ZTRADE: Out DUG $45 October $45 calls for $4.30, up 23%.

  25. 25
    zman Says:

    ZTRADE:: Added SD $17.50 November Calls for $2.65 with the stock down another 8% upon announcement that they too are reigning in Capex and trimming growth expectations in the face of low gas prices. This move from nearly 70 to $16 in the last three months seems more than a little overdone.

  26. 26
    arodeen Says:

    SD $12.50 Jan09 Calls for $6!! Z – Your thoughts?

  27. 27
    elduque Says:

    re SD. Doesn’t sound like there is anything a matter with the company. Results are good. Do you see anything to warrant the price action?

  28. 28
    BirdsofpreyRcool Says:

    87… uh-oh

  29. 29
    rlogan1301 Says:

    Thoughts on HK oct20 calls…you planning on holding through the vote?

  30. 30
    zman Says:

    RE SD: I think the sell off is way overdone. The results have been better than expected in the east Pinon and I’d bet you they are moving rigs and dollars east in the field where the CO2 content has been lower.

  31. 31
    zman Says:

    RL – yes, I plan to hold through vote. Sold the DUG’s because I think while we may go lower very short term I do think they pass it and the market pops. Whether passing it now unfreezes the credit market waits to be seen.

  32. 32
    Garyinhou Says:

    shell shock

  33. 33
    zman Says:

    28, 32 roger that. Unreal. If the House does not pass the bill they have to know we face a Friday/Monday melt.

  34. 34
    Sambone Says:

    Ya know, watching this made me somewhat sad in the energy patch, but just looked at AAPL and makes me feel better. I’m ready to buy in a big way, but everytime I get ready to pull the trigger, these puppies keep falling.

  35. 35
    hermanmar1e Says:

    re SD comments, check your email Zman

  36. 36
    zman Says:

    Hermanmar1e – when did you send? I don’t have anything.

  37. 37
    Wyoming Says:

    I would have imagined that Gold would be a flight to quality thing, but it is dropping like a stone too.

  38. 38
    zman Says:

    RBC reiterating outperform ratings on HK and HAL. And no one cares.

  39. 39
    zman Says:

    Wyoming – Mattress funds the only thing growing right now.

  40. 40
    rlogan1301 Says:

    R:#38 – so frustrating…

  41. 41
    zman Says:

    Contact your Rep. A no vote means the first quad point loss day on the Dow.

  42. 42
    Sambone Says:

    DOW JONES NEWSWIRES

    The Standard & Poor’s 500 Index’s energy sector was getting pummeled for a
    second straight day as crude-oil futures continue to fall and money keeps
    rotating out of the group as a result.
    The segment was down 8% – almost double the next worst sector – with every
    member in the group down. The same scenario took place in early trading
    Wednesday, but Exxon Mobil Corp. (XOM) and OGE Energy Corp. (OGE) managed to
    claw their way back into the green by day’s end.
    Exxon was the least-worst performer Thursday, falling 1.9%. On the downside,
    oil-services and equipment firms were the biggest losers, with Weatherfield
    International Ltd. (WFT) down 15% at $20, National Oilwell Varco Inc. (NOV) off
    12% at $41.22 and Transocean Inc. (RIG) down 10% to $30.73.
    Small oil-and-gas producer and refiner Murphy Oil Corp. (MUR) slid 14% to
    $52.82 as the investment rating on its stock was cut to underperform from
    neutral by Merrill Lynch.
    The November crude contract was recently down 3.6% at $95.02 a barrel on the
    New York Mercantile Exchange.
    Coal miners were also against among the weakest performers, with Massey Energy
    Co. (MEE) down 13% to $29.59 and Consol Energy Inc. (CNX) falling 10% to
    $37.48. Coal and crude prices generally move in the same direction.
    -By Kerry E. Grace, Dow Jones Newswires

    Dow Jones Newswires
    10-02-08 1116ET

  43. 43
    QUARRYMAN Says:

    VMC

    Adding Oct 70 calls here at $4.

    Stock is around 69, the lowest I’ve seen it in a while.

    Q

  44. 44
    QUARRYMAN Says:

    Zman,

    What do you think of the Nov 32.5 CHK calls?

    I’m down about 15% in a small position, add more here?

    Q

  45. 45
    zman Says:

    Q – I like the stock, hate the market. It’s a coin toss right now.

  46. 46
    QUARRYMAN Says:

    … and if the House votes yes quickly… what would you say?

  47. 47
    mahout Says:

    Sambone #34,

    From over $200. to nearing $100. for AAPL. During this fall all they have done is demonstrate technical superiority, marvelous innovation, expand their market dramatically around the world, make solid profits and generate large amounts of cash to add to their over $20 billion in cash with no debt. Success sucks.

    To me, this action in Apple together with what we see happening in outstanding Energy names (RIG and CHK for example) means only one thing. We are in another round of heavy Fund liquidations. We had better stand aside for a few minutes.

  48. 48
    ram Says:

    I think I’m going to stick my neck out and buy more CLR for my 401K. I believe we will still be needing oil even in a recession.

  49. 49
    antrimshale74 Says:

    Looks like many energy names at three year lows.

  50. 50
    zman Says:

    Going to be one helluva dead cat bounce. Question remains from what level.

  51. 51
    hermanmar1e Says:

    re #36

    just sent another one, first was sent early AM today

  52. 52
    mahout Says:

    Z #41,

    I think Bailout #2 will certainly be passed by the House:

    1.The banking system crisis has deepened since their last vote. Reason enough.

    2.The shocking fall of the stock market has hit their own pocketbooks by now.

    3.Public sentiment has turned a good bit toward passage of any kind of Bailout legislation.

    4.There will likely not be a repeat of the obnoxious partisan speech just before the vote by a lame-brained Speaker of the House.

    5.We are that much closer to the election where angry voters may punish severely a failure to get anything done.

    I think it is as good as passed.

  53. 53
    zman Says:

    Mahout – fingers crossed.

    Herm – gotcha I think.

  54. 54
    BirdsofpreyRcool Says:

    sounds like not 1 dem in the House has changed his vote… so, they are laying it all on the reps.

    the thinking might go: why change my vote, when the other guy won’t change his?

    i think there is still an awful lot of uncertainty about the outcome.

  55. 55
    BirdsofpreyRcool Says:

    that said, bond spreads have come in from their wides of the day (so credit is a tad “better”)

  56. 56
    antrimshale74 Says:

    I am afraid to say that my Congressman, Joe Knollenberg, has drawn a line in the sand and has no intention of crossing it. He is still opposing it, even though our City has taken an enormous hit this week, not to mention the disastrous local economy. I am past the point of being upset with him, though when I called today I mentioned that I still had hope that he would do the right thing. Trying to attract with honey instead of the proverbial stick in the eye.

  57. 57
    mahout Says:

    BOP #54,

    Yes, there certainly is uncertainty (wow,that sounds like a quotable quote).

    There were a large number of Dems that voted no last time and the Dems are very good at threatening and arm twisting. I think they will get enough of them to change their vote, OR ELSE, if you know what I mean. Politics can get very rough.

  58. 58
    antrimshale74 Says:

    The move down in all the commodities today is striking. Silver is down about 15%, for example. Copper is at $2.65, an area of unprofitability for many North American producers, or at least marginal profitability. Oil’s price decline will probably cause projects in Alberta to be curtailed or indefinitely delayed, I would presume. Venezuela will become very unstable politically with prices below $85.

  59. 59
    zman Says:

    CPSAN carrying House discussion. Last Demo from Tx saying the taxpayer should get preferred stock like Buffet.

  60. 60
    mahout Says:

    Z and all #58,

    We need to pay attention to the price of copper and what it is telling us in these dangerous times. A drop to $2.65 is definitely a bad sign as to the world ecomomy.

  61. 61
    Garyinhou Says:

    if anyone saw the cute little californy kids singing for Barry O.. must see the pongyang remix… enjoy..

  62. 62
    antrimshale74 Says:

    Railroad stocks looking very ugly today.

  63. 63
    Sambone Says:

    A Palin/Biden bingo game to help you veep score during the debate

    The Rules:
    1) Download and print off the Palin and Biden boards (there are 10 different boards in total), and pass them out to all your friends.
    2) Mark on your board whenever Palin or Biden says one of the listed words during tonight’s debate. (Doesn’t matter who says what.)
    3) If you get five words in a row, stand up on a chair and shout “Biden!” or “Palin!” (depending on which board you have).
    4) Sit down.
    5) Pour yourself a drink either to celebrate or commiserate with the veep candidate who just won the debate.

    http://gristmill.grist.org/story/2008/10/1/171917/937

  64. 64
    zman Says:

    A few more thoughts on SD.

    Now set to grow 20%.
    At $16 it is trading at 4x current cash flow estimates for 2009 of about $4.
    Say Street ’09 CFPS falls to $3 (which it shouldn’t but for argument sake say it does.
    That would put it at just over 5x 2009 CF.
    For a company with a reserve life north of 10 years, growing at 20%? That’s just going to look very cheap when the dust settles.

  65. 65
    zman Says:

    Antrim – anything commodity related they are taking out and shooting. Shipping ETF SEA down another 4%, coal ETF KOL down another 8%

  66. 66
    Dman Says:

    Z – thanks for #1. Leaving aside the US onshore for a moment: the “except for a severe global recession” caveat sure isn’t just boilerplate at this juncture.

    A note on the decoupling theory: it really ought to be called the “coupled decoupling” theory because it is based on multiple economic centres (say half a dozen) all tightly interlinked. This means that everyday disturbances to one or two players can be ridden out due to the ability of the remaining players to compensate & due to the multiple redundant linkages. But the flipside is that when a disturbance is big enough, all those links can drag everyone down more tightly. Also, since the global engine has been humming along so smoothly for so long, the scope for retrenchment is much greater than it was during the traditional US-driven busines cycle, as inefficiencies have been building for much longer.

    The trouble with all of the above is that we still don’t know how deep the recession will be or even if there will really be a “global” recession. Eg. does it count if China/India merely slow down as opposed to actually contracting?

  67. 67
    zman Says:

    Dman – was about to ask if you saw that, good. I would add two things. SLB is a pretty conservative group of guys. For them to reiterate the “strong for longer” on the exploration spending cycle carries some weight with me. Their business is very complex. They are scattered across the globe and increasingly doing soup to nuts (IPM work). One thing they do well is explain themselves. If you go to their website, ir, presentations and look at their latest you’ll see the CEO’s comments interlaced with the slideshow.

  68. 68
    Dman Says:

    #9 Although I am anything but an expert on the credit markets, my ambivalence about whether the $700B will work is hardening to the view that it would be much better if they just yanked it and found a better way to deploy the $700B.

    The only real argument in its favour was that it would restore confidence and I find that hard to believe for reasons given in #9. I also think they are aiming the $700B at the wrong target.

    It is clear now that massive economic stimulus is going to be required even if the credit markets get themselves unclustered. Where are the funds going to come from? Lookout below for the $US.

  69. 69
    Sambone Says:

    I like this quote, makes sense to me;

    WINNIPEG, Manitoba, Oct 2 (Reuters) – Agrium Inc AGU.TO
    AGU continues to see bigger margins and more profits from
    its fertilizer business despite a sharp plunge in its stock on
    Thursday, its chief financial officer said in an interview.
    “I think it’s just a lot of panic in the market right now
    and the market is very, very skittish, and any hint of even a
    possibility of bad news seems to generate a huge overreaction,”
    said CFO Bruce Waterman.
    “What it really comes down to is no individual company can
    stand up to a tidal wave of panic selling,” Waterman said.
    (Reporting by Roberta Rampton; Editing by Peter Galloway)

    Thu Oct 2 17:20:00 2008 -GMT

  70. 70
    zman Says:

    In his case, it doesn’t help that mainstream media outlets are interviewing farmers who say they can’t borrow to buy fertilizer and seed.

  71. 71
    Dman Says:

    Z – #67 Yes I am sure it was a very considered view: they do not seem to be a promotional bunch (anti-Cramers, you might call them).

    I think the decline rate issue has to be at the heart of their thinking and they are in as good a spot as any to judge. I saw something from the US ASPO meeting where someone stood up in front of a group of petro-geologists & asked for a show of hands as to who agreed with the “official” 4.5% decline rates. No takers. Hands started to go up at the 8% to 10% level.

    Now it is argued that these awful decline rates to not apply to the OPEC mega-fields as they are not yet (some say) at peak and are (some say) managed conservatively. I think a 2.5% decline rate is claimed for them.

    Getting a handle on the real global average decline rate would be seriously helpful.

    Back of envelope: 8% for Non-OPEC (60% of production) and 2.5% for OPEC (40% of production) gets overall decline at 5.8%. Yikes.

    Would be nice to refine that calculation (eg is it a 60-40 split or 65-35?).

  72. 72
    Garyinhou Says:

    Buffet probably has “panic” on his license plate. mos, pot, agu etc. pummeled… just like every thing else I guess. They need some Miracle Gro.

  73. 73
    Garyinhou Says:

    CLR at $31 .. -18.5%

  74. 74
    Garyinhou Says:

    Z.. CLR touts selves as low cost.. list “cash costs” on slide presentations as 11.71 (to 16.67) last few years… is this per BOE cost??

  75. 75
    zman Says:

    Gary – yep. Don’t know if that’s clean or if it has transportation. At $12 per BOE or $2/ Mcfe to put it in my normal talk points I’d call them mid to low cost.

  76. 76
    Sambone Says:

    Ahhh, for those that like numbers;

    http://storage.jpmorganclientextranet.com/GTM4Q08.pdf

  77. 77
    zman Says:

    XOM = Wow. The reason I don’t like that DUG trade as a hedge.

  78. 78
    zman Says:

    Thanks Sam

    How the heck can XOM be green on a day like today? Oh, maybe Buffet is buying that too. Looks like a flight to one name in energy as the sellers know the group is over sold but don’t care sell and then take XOM for the bounce potential. Very sloppy.

  79. 79
    mahout Says:

    Dman #66,

    Re:”Does it count if China/India merely slow down as opposed to actually contracting”

    Everything I see indicates that China and India will continue to grow, but at a slower rate, maybe half as much, because their internal economies are now mature enough and vital enough to generate growth without much help from exports. This looks like it would leave China/India growing and the rest of the world contracting. I have to think in terms of the world economy(we are now quite interrelated) this would mean a painful net contraction.
    Since we happen to be in the rest of the world, we will have to take it on the chin for a while. The bright side of this is that the world needs someone to lead it out of a recession. The world used to rely on the U.S.A.to do this. This time it may be different and China and to a lesser extent,India, may be able to lead the world out of its economic malaise.

  80. 80
    zman Says:

    Local news reporting the Verizon for Alltel deal will likely be delayed because some Alltel properties that were going to be spun out to smaller entities as part of the deal will not work now since the smaller entities cannot get financing. The logjam is growing.

  81. 81
    zman Says:

    Read a couple stories in last few days saying China would likely embark on a major public works program spending its foreign reserves to do so in an effort to keep itself moving. Foreign reserves are largely $.

  82. 82
    Dman Says:

    M #79 OTOH, if the shock actually gets thru to Washington they will be forced to institute huge spending programs (eg infrastructure investment: passenger railroads anyone?) so maybe it will “first in first out” of recession. The risk in China is that it is actually a command economy, which is great when everything (export orders) are only going up. Who knows how their financial structure will cope when things get rocky? Not well, I’m guessing.

  83. 83
    Dman Says:

    #81 : yep they are taking note of the advice/prediction made about a month ago by an analyst (JPM in HK if I recall).

    From their perspective: better to spend those $ while they are still worth something.

  84. 84
    mahout Says:

    Dman #68:

    I totally agree with you the $700B is aimed at the wrong target, and is a bad bill. Still, if I was in the Congress I would have to vote for it. The crisis is too severe not to.
    Lines in the sand can be obliterated with a swoosh of the foot. I expect there will be a lot of swooshing friday.
    If not, the carnage will be awesome. If they should not pass the bill they must immediately pass their own bill and send it to the Senate. Otherwise – hell to pay.

  85. 85
    zman Says:

    By the way, the gas number was 87 Bcf, well above consensus. Doesn’t change my thoughts on end of season storage but it was a pretty large number. Weather was just too mild it seems.

  86. 86
    Sambone Says:

    *Farm suppliers like fertilizer, seed firms hit hard
    *Credit fears hit U.S. farmers despite recent good years
    *Food chain companies likely to see global shocks roll on

    By Carey Gillam
    KANSAS CITY, Mo., Oct 2 (Reuters) – Wall Street woes have
    washed down Main Street and on Thursday plowed their way
    through farm country, leaving big companies that buy and sell
    to farmers with plummeting share prices and shaken outlooks.
    Sinking commodities prices for grains, cotton and
    livestock, along with doubts about a government rescue package
    for the U.S. banking system and growing recession fears,
    brought the credit crisis home to roost in agribusiness
    shares.
    From the world’s largest tractor maker Deere & Co DE.
    to seed company Monsanto Co MON, fertilizer producer Mosaic
    Co MOS and grain processors Archer Daniels Midland Co
    ADM and Bunge Ltd BG, farm-related firms caught the
    downdraft of Wall Street’s latest weakness.
    “The impact on the man on the street — a rural street or a
    city street — is dramatic,” said Bruce Scherr, chairman of
    Informa Economics Inc, an agricultural consulting firm. “The
    financing process is frozen. The only way it will thaw out is
    with some sort of definitive action by the Congress.
    The outlook for higher farm production costs spurred the
    sell-off in farm-related shares.
    Deere was down more than 12 percent to $40.72 on Thursday
    afternoon while Mosaic shares fell 37 percent to $42.71, the
    second-sharpest drop on the New York Stock Exchange.
    ADM, one of the world’s largest grain and food ingredient
    processors, was also down about 11 percent at $19.05 after
    hitting a new 52-week low of $18.13. Bunge, one of its main
    competitors, was down more than 22 percent.
    Tyson Foods Inc TSN and other big meat producers who
    depend on farmers were also hit, with Tyson shares down about 3
    percent and Smithfield Foods Inc SFD down about 6 percent.
    Farming is intensely dependent on bank credit, so the
    outlook for farm production and profits tightened even after
    two years of record farm income and soaring grain prices.
    The outlook for weaker consumer spending as the U.S.
    economy faces recession weighed on shares, analysts said.
    “It’s the start of a recession,” said Jim Clarkson,
    livestock analyst at A&A Trading Inc. “It is going to cut the
    demand for everything, including beef and pork.
    Cattle ranchers, hog producers, dairy farmers and poultry
    processors are all feeling the effects of tighter credit
    markets and the economy’s weakness, analysts said.
    “People are still going to eat but they are going to eat
    cheap because they are going to be unemployed and not going out
    to any restaurants,” Clarkson said. “Everybody is just going to
    be cutting back.”

    EFFECTS FELT IN THE FOOD, BIOFUELS CHAIN
    The American Farm Bureau said last week that the financial
    crisis now gripping the United States could moderate both
    global and domestic demand for U.S. farm products.
    “The fallout from the general financial malaise is being
    felt worldwide,” Farm Bureau economist Terry Francl said.
    Francl said farmers are being offered lower prices for
    their products at the same time they are being forced to pay
    higher prices for the fertilizer and other supplies they need.
    Consumer demand worries are just part of the negative tone
    in the agribusiness and food sectors. With credit crisis
    uncertainties spreading out globally, suppliers to farmers are
    being swamped with doubts.
    Tighter credit in the United States may force farmers to
    cut back on equipment spending and fertilizer use. But it could
    have the same effect in Brazil, Argentina, Australia, Canada
    and the European Union, all key sources of food exports.
    Monsanto shares fell as much 21 percent on Thursday on
    concerns about reduced global demand for its herbicides before
    recovering somewhat; they were off 13 percent to $84.94 in
    afternoon dealings.
    The U.S. Agriculture Department, in its latest world crop
    supply-demand projections issued on Sept. 12, forecast higher
    prices in the coming year for major U.S. row crops like corn,
    wheat and soybeans, all positive for grain farmers.
    But futures prices continue to sink, with Chicago Board of
    Trade wheat prices hitting a 14-month low, corn a 9-month low
    and soybeans an 11-month low on Thursday nN02278427.
    Chicago Mercantile Exchange cattle, hog and pork futures
    also set life-of-contract lows nN02281750.
    (Reporting by Carey Gillam, additional reporting by Jerry
    Bieszk, James Kelleher, Julie Ingwersen and Euan Rocha. Editing
    by Peter Bohan and Gerald E. McCormick)

    Thu Oct 2 18:08:40 2008 -GMT

  87. 87
    mahout Says:

    Dman #82,

    You may be right about the huge spending programs. But think of the time line. It is difficult to get ANYTHING done now. And the huge spending programs would also be very divisive and controversial.
    With the election just days away, it probably could not be done till after January 20, 2009 with a new Congress and a new President. By that time, sad to say, the economy may be just a heap of smoking ruins, so to speak.

  88. 88
    Dman Says:

    Things not actually at new lows:

    oil
    NG
    XOM

    Things not at new lows but below closing lows:

    EOG
    UPL

    Interesting chart: $VXO.X
    Still not yet at 2001/2002 levels let alone 1998. Surely this crisis is much worse but not yet reflected in volatility.

  89. 89
    Popeye Says:

    Anyone else having problems with Scottrade today? (scottrade elete)

  90. 90
    Garyinhou Says:

    my acct and pos info not there… trade ability not there.. for a while.. mine came back though..

  91. 91
    zman Says:

    XOM = wow.

  92. 92
    Popeye Says:

    Tnx Gary, same here.

  93. 93
    antrimshale74 Says:

    VIX up and over 45.

  94. 94
    Sambone Says:

    This thing is fixing to get ugly.

  95. 95
    zman Says:

    as opposed to?

  96. 96
    Alhambra Says:

    XOM out of Barnett:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aGP5QKVlqbXA&refer=home

  97. 97
    Sambone Says:

    Emotionally this market is ready to melt. This last hour is going to get ugly as in Monday ugly.

  98. 98
    Sambone Says:

    HOUSTON (Dow Jones)–Crude oil and natural gas output from the Gulf of Mexico
    increased Thursday as energy companies continued to restore production that was
    shut in by Hurricane Ike, the U.S. Minerals Management Service said.
    The agency reported that 55% of crude oil, or 714,501 barrels of oil per day,
    remained shut in, compared with 58.8% on Wednesday.
    Natural gas output of 3.413 billion cubic feet, or 46.1%, remained shut in,
    compared with 47.7% Wednesday.
    The Gulf of Mexico produces about 1.3 million barrels of oil a day and about
    7.4 bcf of natural gas, the MMS said.
    Workers remained evacuated from 116 production platforms, or 16.7% of the 694
    staffed production platforms in the Gulf of Mexico, the MMS said, citing
    numbers it gathered by 11:30 a.m. CDT Thursday. On Wednesday, MMS said 123
    platforms remained evacuated.
    Personnel had not returned to one of the Gulf’s 116 rigs.
    Hurricane Ike made landfall on the Texas Gulf Coast Sept. 13 as a Category 2
    hurricane.

    -By Jason Womack, Dow Jones Newswires

    Dow Jones Newswires
    10-02-08 1440ET

  99. 99
    zman Says:

    I know Sam.

    Re 96. Strange, it did not show up on the CHK ticker. Don’t know size of XOM’s hold.

  100. 100
    zman Says:

    Re 98. Pretty slow ramp there, funny how many platforms have not been returned to yet. I don’t know if the 49 destroyed ones are in that count.

  101. 101
    Sambone Says:

    Z – Doesn’t matter.

  102. 102
    zman Says:

    So the senate approves various tax incentives for solar wind and biodiesel with their version of the bill last night and look at Solar stocks today.

    FSLR down $24, others worse on a % basis.

  103. 103
    zman Says:

    Solar Tax Credits – Senate voted to extend for 8 years.

    The federal tax credits cover 30 percent of the cost of buying equipment and installing solar power systems for businesses, and up to $2,000 for a residential system, which typically costs $8 to $10 per watt.

  104. 104
    BirdsofpreyRcool Says:

    Pelosi saying Financial-Rescue Plan is likely to win House Approval.

    Didn’t she say that on monday too?

  105. 105
    zman Says:

    She must not be watching the outdoor press conference on CSPAM being held by a bunch of no voters who are going to vote no again and see their numbers growing. They are saying if you think you can trust Paulson, think about the fact that he may be gone Jan 1.

  106. 106
    BirdsofpreyRcool Says:

    maybe she should work a little harder on pressuring her own party.

    to say this was totally mishandled is to imply that it was handled at all.

    are these people implying that it is better to trust THEM? i mean, we have to trust SOMEone here. that’s what got us to this place… no one trusts the financial system anymore.

  107. 107
    rlogan1301 Says:

    caught the tail end of the press conference, sounds like the guy from ohio was saying that after monday, he got alot of calls on support of the plan vs. prior..anybody else watch it? anything to take away from it?

  108. 108
    zman Says:

    RL – it was a small group but kind of a grim feeling as to passage. Their leader said they all voted no before, were still going to vote no and had increased their number by 1 maybe who did vote yes but was now possibly going to vote no because of “all the pork”

  109. 109
    zman Says:

    CLR down 21%. One-fifth off in a day with oil down 5%. Hmmm.

  110. 110
    Dman Says:

    Shorter way of putting my #68: Rev Shark today suggesting that the market is looking past the plan and what it sees ain’t good.

    #106: I’m not even sure if the Dems really think the plan is a good idea. But they have a long history of caving to any kind of scary story & this is just another example. Their “leaders” don’t want to be blamed for it failing but they also don’t want to be tied to the “credit” for passing it. They want the Reps lashed to them tightly while it passes, hoping this will protect them from Rep attacks, a hope that has already proved just as forlorn as it sounds stupid.

  111. 111
    tater Says:

    Much agreed on the CLR

  112. 112
    Dman Says:

    WFT off 21%. Any actual news?

  113. 113
    zman Says:

    WFT is down on the Merrill price target reductions in service today but that seems well overdone too. I’m not going to bite as in listening to SLB the other day I remember management saying they lost a high profile IPM contract to WFT that was bid below their cost (think that’s right, going on memory). SLB basically said good luck with that one fellas.

  114. 114
    ram Says:

    News … who needs news to get shreded. People liquidating to get cash.

  115. 115
    zman Says:

    Yep, no buyers.

    Have they set the time of the vote tomorrow?

  116. 116
    rlogan1301 Says:

    R: #114 – understatement of the decade

  117. 117
    rlogan1301 Says:

    R: #115..heard it was around noonish…called the rep. dan burton from indiana and told him to vote yes, he voted no.

  118. 118
    tater Says:

    My favorite valuation today is RIG. Sell some puts, get a better price, take it home and enjoy Brazil’s example of an economy that understands how to become energy independent. Sooner or later all you guys who want the fed to own everything will realize that even the socialist need deep water drillers.

  119. 119
    Dman Says:

    Z – #113 thanx
    ram #114 Sure but WFT getting hit harder.

  120. 120
    Dman Says:

    I was looking for some ITM Oct calls for WFT but there aren’t any! Fallen too fast.

  121. 121
    zman Says:

    Here ya Dman, lots of stocks into that position. There are $15s in January.

    Needastiffdrinkthirty.

  122. 122
    BirdsofpreyRcool Says:

    this is kinda funny… except that there is a lot of truth in it.

    New Hedge Fund breaks ground…
    http://strategerycapital.com/index.php?slug=home

    must have been put together by an ex-Lehman mortgage bond trader with a little time on his hands these days.

  123. 123
    mahout Says:

    Z,

    Internet connection crashed. Perfect end to a rotten day. This feels like a capitulation today. But it surely can’t be, can it? I’m thinking of buying a little early tomorrow as a bet on the Bill passing. How does it feel to you?

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