17
Nov

Monday Morning And Almost Everyone Is In Recession

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G20 Comments. Ok, raise your hand if you are not in recession. The G20 leaders provided a united front over the weekend but came up short with regard to actual proposals to fix the global slump.

 Slow energy news day. A link to the weekend wrap can be found here. Included in the wrap were comments on the rig count (down across the board), alternative energy vs Obama, crack spreads (lousy), and a switch from net short to net long in the oil speculator crowd. The latest natural gas table and graphs are located on the natural gas tab located here.

In Today's Post:

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

Holdings Watch: The Wiki and $10KP tabs are updated.

Commodity Watch:

Crude oil fell 7% last week to close at $57.04. This morning crude is trading off slightly.

  • OPEC Watch: OPEC Trims 2008/2009 Demand Forecasts: 2008 global oil demand falls 280,000 bopd while 2009 shows growth of 500,000 bopd, down 200,000 bopd from last month's forecast. The Cartel is issuing mixed signals at this point regarding possible cuts at its Nov. 29th meeting voiced by several members while its president basically stating over the weekend not to expect a reduction this month.
  • Nigeria Watch #1: (CVX) pipeline attacked late Friday, 120,000 bopd capacity may have been affected. Market appears willing to ignore further disruptions to Nigerian supply. This same pipeline was blown up and in June and subsequently repaired.
  • Nigeria Watch #2: "Bunkering". The term given to crude theft off the coast of Nigeria. Estimated at 100,000 bopd (yep, barrels per day) stolen. The following table depicts last official EIA and Nigerian spokesman crude output levels.

Natural gas fell just over 6% to end the week at $6.31 with prices actually rebounding after a larger than expected mild weather boosted injection to storage. Given last week's weather I'd expect that to be the last injection of size for the year. This morning gas is trading nearly a dime.

  • Weather Watch: Heating degree days rose to 122 last week, coldest of season so far. Still waiting on the CPC forecast for this week.
  • Forecast Watch: More cold air for the northeast and deep south, warm out west this week.
  • LNG Watch: Proposed liquefaction plant in Angola sees costs double to $8 billion. As with oil sands projects, there have been rampant overruns in the LNG plant construction space and it makes you wonder when some of these projects will get shelved in light of what appears to be global over capacity for LNG exports.

Stuff We Care About Today:

Weekend Mailbag Watch

Query From md: "Which of the steel and oil service will suffer due to declining rig demand."

Response:

Steel: X and TS are probably the two most obvious names in the tubulars that are already starting to suffer from a downturn in pricing but which will likely take further hits on decline volume.

In oil service, looking for problems with the land drillers (GW, PTEN, UDRL, BRNC, and even NBR). Pressure pumping will also see some softening prices so names like (BHI) and (HAL) could see results deteriorate but I'd point out that all of these names have already come off quite a bit. Bigger is probably better as investors cut the breadth of their holdings in the space.

 
Odds & Ends

Analyst Watch: (STP) target price cut by Jefco from $70 to $25, remanins Buy.

 

101 Responses to “Monday Morning And Almost Everyone Is In Recession”

  1. 1
    Sambone Says:

    LONDON (Dow Jones)–The Organization of Petroleum Exporting Countries said
    Monday it may have to intervene in the world oil market and cut production more
    frequently than in past years because of declining crude demand amid the global
    economic crisis and falling oil prices.
    “In the current extremely volatile situation, closer monitoring and more
    frequent intervention are required,” OPEC said in its monthly oil market
    report.
    In more aggressive wording than its October report which talked about
    financial problems “impacting” oil market fundamentals, the group’s latest
    report said “demand destruction dominates” the world oil market.
    Consumption of OPEC oil, which supplies about four of out of every 10 barrels
    used globally every day, was seen falling by 910,000 barrels a day in 2009, or
    about 40,000 barrels a day more than forecast in October.
    All of the group’s members are planning to meet in Cairo Nov. 29 at an
    already scheduled gathering of Arab oil producing nations. Various OPEC
    ministers and delegates have said in recent days that another production cut
    could come later this month or at the group’s end-year meeting on Dec. 17 in
    Algeria.
    OPEC is already in the process of implementing an output cut of 1.5 million
    barrels a day announced in October. Most analysts think, at this point, that
    the bulk of those cuts are being implemented.
    Oil prices traded around $1.35 lower at $55.70 a barrel at 1240 GMT Monday
    after new data showed Japan, the world’s third biggest oil consumer after the
    U.S. and China, had entered its first recession since 2001.
    OPEC, as it often states in its monthly oil market reports, said it would
    continue to monitor the market closely and stood ready to “take the necessary
    decisions” to support “oil market stability.”
    The group said it was more concerned that the spillover effects of
    rich-nations’ financial problems to emerging markets were growing stronger and
    darkening the outlook for oil consumption. Most of the growth in world oil
    demand is coming from China, Saudi Arabia, and other emerging markets.
    It revised lower its 2008 global oil demand growth forecast by 260,000 barrels
    a day and its outlook for next by 270,000 barrels a day. Demand this year is
    forecast to average 86.2 million barrels a day, in line with the International
    Energy Agency’s most recent forecast.
    Consumption in 2009 was forecast at 86.7 million barrels a day, about 200,000
    barrels a day more than the IEA’s latest forecast.
    OPEC production, minus Iraq and Indonesia, in October was 28.88 million
    barrels a day, about 200,000 barrels a day less than in September and about
    80,000 barrels a day above the group’s production target. Iraq isn’t part of
    OPEC’s quota system and Indonesia is leaving OPEC officially at the end of year
    due to its falling oil production.
    -By Spencer Swartz, Dow Jones Newswires

    Dow Jones Newswires
    11-17-08 0800ET

  2. 2
    Sambone Says:

    7:04 am EST

    Crude Over $1 Lower On Gloomy Economic Data

    By Angela Henshall
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures traded lower in London Monday as fears of deteriorating demand amid a slowing global economy weighed on prices.

    “Demand looks poor because of severe contractions in economic activity worldwide,” said Peter Beutel, analyst at Cameron Hanover, following a barrage of negative news in the last week highlighting weakening economies across Europe and Asia.

    At 1150 GMT, the front-month January Brent contract on London’s ICE futures exchange was down $1.08 at $53.16 a barrel.

    The front-month December contract on the New York Mercantile Exchange, which expires Thursday, was trading $1.35 lower at $55.69 a barrel.

    The ICE’s gasoil contract for December delivery was down $7.50 at $571 a metric ton, while Nymex gasoline for December delivery was down 363 points at 120.28 cents a gallon.

    Oil prices continue to melt away on gloomy economic news. Japan’s economy shrank in the third quarter, marking its second straight quarterly contraction and sending the nation into its first recession since 2001. Europe appears to be heading in the same direction, with poor third-quarter growth figures pointing to the region’s first recession in 15 years.

    Looking at technical charts, crude oil futures look likely to continue their path lower, with traders expecting to see crude target $50 a barrel before the week is out. “The cyclical bull trend of 2007 to 2008 has ended, and we expect further weakness toward $50 a barrel, ahead of a recovery,” analysts at Barclays Capital said.

    “The trend is very much intact and rallies will continue to be sold at relevant levels,” said Glen Ward broker at ODL Securities. Moving averages are all bearish, signaling the next “big test” for Brent at $50.60 a barrel. Any rally back towards the $60 a barrel level would require a firmer base to be formed on charts or major fundamental news, Ward said.

    However, with oil heading to levels unimaginable just a few months ago, the market “must start to entertain the notion we may be close to a bottom,” Edward Meir, oil analyst at MF Global pointed out.

    Meir said this could happen after prices test, but fail, to break down to new lows, and a sharp bounce is seen instead. “This, in turn, could signal the start of a long-overdue trading range,” Meir said.

    The oil market is looking ahead to the next meeting of the Organization of Petroleum Exporting Countries, to be held in Cairo on Nov. 29.

    Iran’s OPEC governor Muhammad Ali Khatibi said Sunday that OPEC may take two separate actions in the coming month and that he hopes non-OPEC oil producers will help the organization’s efforts as early as the Cairo meeting. OPEC issues its monthly report at 1240 GMT Monday.

    —By Angela Henshall, Dow Jones Newswires

  3. 3
    Sambone Says:

    DUBAI (AFP)–Pirates Monday attacked and took control of the Saudi-owned very
    large crude carrier Sirius Star off the coast of Kenya, a spokesman for the
    U.S. Navy 5th fleet said.
    “The vessel is under the pirates’ control,” the spokesman told AFP following a
    statement saying that the tanker, which is owned by Saudi Aramco, came under
    attack more than 450 nautical miles southeast of Mombasa, Kenya.
    The ship carried 25 crew members from Croatia, U.K., Phillipines, Poland and
    Saudi Arabia, the statement added.
    The 318,000-metric-ton vessel, launched earlier this year, is flagged in
    Liberia and operated by Vela International.
    Last week, the European Union started a security operation off the coast of
    Somalia, north of Kenya, to combat growing acts of piracy and protect ships
    carrying aid agency deliveries. It is the E.U.’s first-ever naval mission.
    The International Maritime Bureau has reported that at least 83 ships have
    been attacked off Somalia since January, of which 33 were hijacked. Of those,
    12 vessels and more than 200 crew were still in the hands of pirates.

    Dow Jones Newswires
    11-17-08 0840ET- – 08 40 AM EST

  4. 4
    zman Says:

    Hard to believe people still steal whole ships. 3 million barrels per month from Nigeria alone.

    The heating degree day data came in at 122 for last week, as expected, coldest of the season so far. This week zooms to 153 gas weighted HDD’s which is slightly colder than normal and last year.

  5. 5
    bill Says:

    #4

    and the world watches doing nothing

  6. 6
    bill Says:

    ng is up 14 cents ..id like to see this strentgh spill over th the gas stocks

    rig count down this week

  7. 7
    Jay Reynolds Says:

    It is only a matter of time until they figure out SAM/RPG + Speedboat + Crude Carrier = Very Big Problem

  8. 8
    1520sbroad Says:

    #3 – what do they do now that they have control of the ship? Not like they can just pull into port somewhere and offload crude? or onload crude? ransom?

  9. 9
    zman Says:

    Morning Bill, futures edged up once the CPC go its data out…chilly.

  10. 10
    zman Says:

    JR – if you swap VLCC for LNG carrier its an even bigger problem.

    1520 – lot of times ransom, sometimes they try to offload the cargo to smaller ships at sea, a dangerous occupation not approved by OSHA.

  11. 11
    bill Says:

    they hold the ship hostage in ethipoia until someone pays tem 10 m in cash

    last month they took a russian ship loaded with tanks and weapons

  12. 12
    zman Says:

    in case you missed it, BRK raised its stake in COP on Friday and had apparently requested that it delay this disclosure.

  13. 13
    zman Says:

    Bird – if you want to say today closes green re energy I’m ok with it.

    Just not a lot of news out there today. Broad market in charge early.

    Reuters put together a good piece listing all the oil sands projects that are getting shelved due to low prices/weak economy. Same for refining projects in the U.S., quite a few upgrades going undone.

  14. 14
    BirdsofpreyRcool Says:

    z – ha! you are too kind… i’ve been on the wrong side of intra-day volatility lately. I’m getting the overall trend right (fugly), but the intra-day stuff is designed to baffle even the most seasoned market participant.

    The one thing that seems to hold true is that the mrkt will continue to move in the direction that inflicts the most hurt on the most people. So, since everyone’s coming in to the office today in a Blue Mood… guess the obvious thing to do is stage a rally.

  15. 15
    zman Says:

    Likely to take a little more EOG, but in December calls, today.

  16. 16
    BirdsofpreyRcool Says:

    In light of the overall trend still pointing south, there is tacit mrkt agreement on the “new range” for the Investment Grade Index. It used to be that 200 was the tipping point (with fear on one side and cautious optimism on the other). But that has now shifted. The new range for IG is 195 – 215 basis points. Any trading on either side of that range is worth noting. Anything within that range is just the market playing solitaire, with major Bulls and Bears on the sidelines.

    IG 209 currently.

  17. 17
    zman Says:

    Bird – thanks for the credit update. Would you say we are absolutely frozen still?

  18. 18
    BirdsofpreyRcool Says:

    Stiff as the North Pole on December 31st.

  19. 19
    BirdsofpreyRcool Says:

    I heard last week the GE Capital was going to bow out of the DIP (debtor-in-possession) market. Since DIP financing is what makes a Chapter 11 reorganization process even possible, that is pretty bad-serious news. My guess is that we will see the Federal Govt get in the process of lending to companies in bankruptcy… It’s pretty scary when even the scary option (Chapter 11) is less and less available because credit isn’t there.

    Sorry to be so upbeat this morning!

  20. 20
    zman Says:

    ZTRADE: $10KP Trade

    Bought (1) SWN December $25 Call (SWNLE) for $7.60. Its been overly beat up and should benefit from natural gas prices as they bounce due to colder weather and approaching withdrawals from storage.

  21. 21
    zman Says:

    Missed getting EOG Decembers, will wait.

  22. 22
    zman Says:

    Bird – best to get it out of your system early.

  23. 23
    BirdsofpreyRcool Says:

    Not surprisingly, it looks like the max pain trade right now is to go beat up on the shorts. Sell the rallies, buy the dips. There is no such thing as a “long-term investor” these days.

  24. 24
    Sambone Says:

    Hmmm, crude going green.

  25. 25
    zman Says:

    Bird – agreed for now re long term investor, few and far between. I get emails from long time subscribers asking me for long thoughts and I point them to the MLP study from late October and to the Majors, CHK (holding for the long, long haul) and names like EOG. Its a toss up between huge prospect inventory, low debt, and being a household name (with the hedge funds). If you can pull off all three (like EOG) so much the better.

    At some point, once there is again credit, consolidation is going to take place in the E&Ps and likely in oil service and all the way down to shipping. As far as the E&Ps go, it is now cheaper to drill on Wall Street than it has been in at least the last decade.

  26. 26
    Dman Says:

    Hi Z,

    #20: what is your thinking in using the DITM call in this instance?

  27. 27
    zman Says:

    Dman – I’ve already gotten into a couple of tranches of what were near the money calls and have not been liking how the premium fell off as volatility increased (kind of the opposite of what you’d expect even with the price move). The deep in the money call if you can really call $25 that was just a bit more defensive for a rally as I may not get back to even before this market takes a header but I figured the stock will play well with gas this week. In short, its a little safer. Note the lower number of contracts (1) but with actual intrinsic value. I may do a little more of this as these get hurt less in a downturn.

  28. 28
    BirdsofpreyRcool Says:

    z – agree with your post in #25. Great strategic thinking. One thing about shipping, tho. I do think consolidation will take place (as in the last downturn in shipping). But I also think most of that consolidation will take place under Chapter 11 proceedings (as in the last downturn in shipping). Of course, bankruptcies in shipping are more complicated, as so many are not based in the US and therefore not suject to our bankruptcy laws. We are the only country (i believe) that has a true Chapter 11 reorganization option. In other countries, bankruptcy is really just an orderly liquidation process.

    As far as E&P goes, however, this time around, balance sheets are much more conservative (than in 1998 – 2002)… so I agree that we will see consolidation, but not really Chapter 11s. As an aside, for anyone looking for an income stream, the bonds of the e&p companies are yielding 8% or better. Not a bad return, in the face of 2 yr govt bond yields under 1.25%

    So, I think both equity (consolidation) and debt (income stream) investors in E&P are in the right place at the right time.

  29. 29
    italyinvestor Says:

    I’ve been buying long positions in the good names and selling OTM calls as I wait for stuff to settle down. It’s not flashy but i’m not losing $ with all the swings.

  30. 30
    zman Says:

    Bird – one other thing I would add is that the higher cost names will see ceiling test right downs. If you juxtapose that vs debt levels, you may see some names put into technical default.

    Its the safe play Italy. I continue you to do that on CHK, SWN, SD last couple of months. Still holding the shares.

    EOG getting teed up again.

  31. 31
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil hovered close to unchanged Monday in a market
    preoccupied with the strength of demand as world economies cool off.
    Light, sweet crude for December delivery was recently up 36 cents, or 0.6%, at
    $57.40 a barrel on the New York Mercantile Exchange, after falling to lows near
    $55 a barrel. January Brent crude on the ICE Futures exchange was up 33 cents
    at $54.57 a barrel.
    Crude was under pressure as data showed Japan, the world’s second-largest
    economy and third-largest national oil consumer, slipped into recession for the
    first time since 2001. On Friday, a European statistics agency reported the
    euro-zone economy is in recession.
    The Federal Reserve reported U.S. industrial production increased 1.3% last
    month, rebounding from a big drop in September that was caused by hurricanes
    and labor unrest. The data gave oil markets a “little boost to the upside,”
    said Jim Ritterbusch, president of the Ritterbusch and Associates energy
    trading advisory firm.
    U.S. stock markets opened lower, with negative sentiment bleeding into oil
    markets. The Dow Jones Industrial Average was recently down more than 150
    points.
    “Unless we get some cooperation for the day from equity markets, it will be
    difficult maintaining any strength above $57” a barrel, Ritterbusch said.
    Analysts see strong odds of softer demand as economies around the world slow
    down. Leaders of the Group of 20, the world’s top economic powers, met over the
    weekend to discuss the financial crisis, trade and other economic issues. The
    meeting failed to inject much enthusiasm into the oil market.
    “Our guess is that with the U.S. basically rudderless now in terms of
    leadership, and many details yet to be worked out, participants may conclude
    that nothing substantial will be done quickly,” said Edward Meir, an analyst at
    MF Global, in a note to clients.
    The Organization of Petroleum Exporting Countries said in its monthly oil
    market report that it may have to intervene in the world oil market and cut
    production more frequently than in past years because of declining crude
    demand.
    “In the current extremely volatile situation, closer monitoring and more
    frequent intervention are required,” the group said.
    OPEC is meeting Nov. 29 in Cairo to discuss oil prices. Various OPEC ministers
    and delegates have said in recent days that another production cut could come
    later this month or at the group’s next scheduled meeting on Dec. 17 in
    Algeria.
    Heating oil futures remained stronger as the National Weather Service
    predicted below-normal temperatures later this month in the Northeast, the
    world’s largest market for the fuel. December heating oil rose 2.32 cents, or
    1.3%, to $1.8550 a gallon.
    Front-month December reformulated gasoline blendstock, or RBOB, rose 59
    points, or 0.5% to $1.2450 a gallon.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    11-17-08 0951ET

  32. 32
    Sambone Says:

    10:11 11/17 *DJ Saudi Tanker Sirius Star Heading For Somalia – US Navy

  33. 33
    zman Says:

    ZTRADE: $10KP

    Added EOG December $80 Calls (EOGLP) for $9.

  34. 34
    1520sbroad Says:

    #29-30 – positive working capital is a good gauge i think for starting new positions right now. Folks like SWN have been actively managing the balance sheet (EOG too but i don’t know them as well) to deal with their debt effectively. I too have been writing out-but-close-to-the-money calls. Good premiums due to the elevated volatility levels. I want to continue to own the stocks for a long time but i will let the market pay me rent.

  35. 35
    zman Says:

    That last should have said added (1) EOGLP to the $10KP.

  36. 36
    BirdsofpreyRcool Says:

    z – good point on the asset base. Perversely, that would affect companies with more senior secured bank debt in their capital structures, as opposed to unsecured or subordinated debt. So, if buying fixed income in an e&p, you would want to look at what percentage debt was bank vs non-bank. The lower the bank debt percentage, the better.

  37. 37
    BirdsofpreyRcool Says:

    1520 – SWN’s debt is rated “BB” while EOG’s debt is rated “A-” So, that’s one quick way to get a gauge on the “riskiness” of a company’s debt structure. Just a thought. Managing for cash flow, as you point out, is the key to who wins and who loses in this downturn.

  38. 38
    zman Says:

    Bird – good point in 36. It’s going to key off bank’s willingness to work with companies on redeteriminations of the borrowing base. Do they cut them some slack or stick to the covenants, put them in CH 11 and IPO them in 2 years.

  39. 39
    1520sbroad Says:

    #37 – agreed on the ratings metric but i like cash/working capital as the lead metric at the moment.

    Thanks for your continued credit market tutorial/updates. i worked at citismithbarney for a while and we would always track down the credit analyst for a particular stock when we had a hard question. They always knew the real deal. Sadly many of those folks are gone.

  40. 40
    BirdsofpreyRcool Says:

    z – #38… i know your “question” is rhetorical, but I want to answer it anyway: totally depends on how much the company depends on it’s bank. If a company is in technical default with their banks, while at the same time they need to fund capex or (worse yet) a subordinated bond interest payment, the bank will demand a cash paydown. If a company can sell assets, bring in a new bank (to take out the old ones), or do something like an accretive VPP, then the banks will work with them. But, the banks will also command blackmail, in the form of a covenant violation payment.

    That’s why a frozen credit market really really stinks. Your banks can get totally unreasonable and you have no where else to go. Makes for some ugly showdowns. But the larger a company is, the more assets they hold, the larger their sub-debt + equity cushion, the more the banks will work with them on any asset-based covenant violation.

  41. 41
    1520sbroad Says:

    #40 – APL (Atlas Pipeline) is going to be a case study for the situation you are describing.

  42. 42
    BirdsofpreyRcool Says:

    1520 – thanks for the pat on the back of credit analysts everywhere. we are the Nerd Herd of the investing world… so in good times, no one pays much attention to us. AND THAT IS THEY WAY IT SHOULD BE… if a economy, market, banking system is working as it should. When you have to pay attention to the Nerd Herd, you know times are tough.

  43. 43
    Sambone Says:

    Just what we need now, another nut with a “Nuke”.

    CARACAS (Dow Jones)–Venezuela’s President Hugo Chavez said late Sunday his
    government could build a nuclear reactor in the state of Zulia with help from
    Russia.
    “I want us to start planning here a nuclear reactor for the state of Zulia,”
    the president said as he addressed a large crowd of supporters in a late night
    speech in Maracaibo. “We will work now with Russia on the issue of a nuclear
    energy program,” he added.
    Chavez has lately strengthened ties with Russia through a host of business
    initiatives, notably in matters pertanining to the oil and natural gas sectors.
    Petroleos de Venezuela SA, PdVSA, is expected to create a consortium for joint
    venture investments in Venezuela and abroad.
    Both countries are also set to develop nuclear energy. The partners have
    signed a memorandum of understanding to share nuclear energy know-how and
    develop future projects.
    Chavez’s announcement of a possible nuclear reactor in Zulia is the first such
    mention of any nuclear reactor plans following the Russia-Venezuela agreements
    signed earlier this month.

    -By Raul Gallegos; Dow Jones Newswires
    Dow Jones Newswires
    11-17-08 1024ET

  44. 44
    BirdsofpreyRcool Says:

    1520 – when banks and bondholders get actively involved in a company, that is usually when that company is headed for the rocks. One rule of fixed income investing is that you NEVER voluntarily give up any value to a subordinated entity if you think you can get out with more. So, any time I see equity appealing to their banks or bondholders for some concession (as we are seeing in some of the homebuilders right now), you can almost smell the toast burning for equity.

    On the other hand, when banks/bonds mess with a company and cause their stock to plummet, that CAN provide some of the best risk-adjusted returns in the equity universe. But, understanding the capital structure and how it interacts (and reacts) is key. And it’s complicated. That is why equity holders will flee a company with debt problems. If those problems are major, 99 times out of 100, the equity is toast. But, 1 time in 100, you can make many times your investment by buying the equity. This is why “distressed investing” is so compelling… you can make a lot of money, if you spend some time understanding the overall capital structure situation.

  45. 45
    Sambone Says:

    As OPEC Sets Crisis Talks, Market Mulls $30 Oil

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — It seems the only people using more oil these days are OPEC ministers jetting off to crisis talks about tumbling global oil demand and collapsing prices.

    OPEC ministers will hold emergency talks in Cairo on Nov. 29. Confirmation of the rumored talks came Friday as OPEC also said the price of its reference basket of crudes fell to $47.73 a barrel, the lowest since May 2005.

    It’s unclear whether OPEC will weigh further cuts in Cairo or simply assess the impact of output cuts agreed in last month’s crisis talks ahead of still further talks scheduled for Dec. 17 in Algeria.

    Alarm bells are ringing for OPEC because extra oil sloshing around in the market not only drags down prices now, but adds to bloated inventories and threatens to keep values depressed for months to come.

    U.S. crude oil futures dipped to near $55 a barrels early Monday and some analysts warn that the bottom may be as low $30 to $35 a barrel. Inventories in consumer countries could climb to their highest level since 1998 as global oil demand posts the first year-to-year drop since 1983, they warn.

    Amid the global economic meltdown, OPEC’s reference price for crude has fallen by about 17% since it met on Oct. 24 to announce a Nov. 1 cut in output of 1.5 million barrels a day. In a budget-bruising drop, prices are down a whopping 66%, or $93 a barrel, from the highest price for OPEC oil, of $140.73 a barrel set in July.

    Analysts had expected OPEC to agree a further cut of 1 million barrels a day in its output ceiling at a Dec. 17 meeting in Algeria. Now they are reworking the numbers to see whether that cut would be enough to mop up extra supply and if the earlier meeting date would make a difference in stabilizing the market.

    Ministers from the Organization of Petroleum Exporting Countries are still set to meet in December, their fourth consecutive monthly gathering and the sixth conference this year, not including a hastily arranged meeting with producer countries in Saudi Arabia this summer, called to address record-high oil prices.

    First Demand Drop Since 1983
    Deutsche Bank said Friday that crude oil prices could fall to as low as $30-$ 5 a barrel, levels last seen in late 2003 and early 2004.

    But while Adam Sieminski, the bank’s chief energy economist, is holding to a $60 forecast for U.S. benchmark crude oil in 2009, he warns that world oil demand next year will fall for the first time since 1983 due to the global economic turmoil.

    Sieminski forecasts a 500,000 barrels a day drop in global oil demand in 2009, adding that even with huge revisions, latest forecasts from public sector oil agencies are still too optimistic. The U.S. Energy Information Administration expects global oil demand to be virtually unchanged in 2009 from 2008, while the Paris-based International Energy sees growth of 350,000 barrels a day in 2009.

    OPEC’s expert staff said in a report Monday that “closer monitoring and more frequent intervention” in the oil market are required amid the current turbulence. OPEC cut its estimate for global oil demand growth in 2009 by 270,000 barrels a day, but still expects an increase of 490,000 barrels a day.

    A slight silver lining for OPEC in the dark clouds over the oil market is that credit problems are keeping oil companies from building inventories as high as they might otherwise.

    In the U.S., the world’s largest oil consumer, crude oil stocks as of Nov. 7 are up 2% on a year ago at around 312 million barrels, but are some 12% below the recent high hit in June 2007. Measured against refiner demand (which is expected to hit a 12-year low for November), stocks cover 21.6 days of need, above the five-year average of 20.8 days.

    U.S. crude oil and petroleum products inventories cover 52.6 days worth of stunted demand, compared with the five-year average of 48.8 days and the most in November since 2001.

    Call For Non-OPEC Cuts
    The IEA said commercial inventories held by the major industrialized nations in the Organization for Economic Cooperation and Development covered 56 days of demand in October.

    OPEC, in early September, said it considered prevailing OECD stock cover of 53.4 days “comfortable.”

    But Sieminski sees stock-cover in the major industrialized countries rising to 57 days by the third quarter 2009. EIA said stock cover hasn’t reached or exceeded that level since the third quarter of 1998, when prices were 30% below a year earlier.

    In times of weak oil demand growth, as in 1998 and 2001, Sieminski said, OPEC output cuts provide little early support for prices. Market rallies lagged by three to six months from the last cut in OPEC output during those years.

    “Since we expect the current quota reduction cycle to persist until the fourth quarter of 2009, it implies any sustained rally in crude oil will have to wait until sometime in 2010,” he said in a report. In 2010, prices will average $57.50 a barrel, a $2.50 dip from the projected 2009 level, but will climb to an $80 a barrel average in 2011, he said.

    With prices continuing weak, keeping OPEC harmony and achieving real output cuts will become increasingly difficult.

    Although non-OPEC producers like Norway and Mexico are experiencing steep output declines and would ignore such pleas, OPEC is likely to urge producers outside the group to limit supplies to help rebalance the market. The Cairo meeting, which has been added to an already scheduled meeting of Arab oil exporters, is a likely venue to press the case.

    It was in Cairo in December 2001 that OPEC took a ground-breaking step in this direction, under Algerian Oil Minister Chakib Khelil, who then, as now, serves as the group’s president.

    Back then, OPEC had earlier said it would cut output by 1.5 million barrels a day, but would do so only if non-OPEC producers made collective cuts of 500,000 barrels a day.

    Russia, which recently has made strong overtures of increased cooperation with OPEC and said it wants to have more influence over oil prices, already has committed to attend the group’s December meeting in Algeria as an observer.

    Back in 2001, Russia, after earlier snubs, contributed 150,000 barrels a day of the non-OPEC cuts sought by OPEC. Still, some said the Russians simply were making virtue of necessity, as output already was expected to drop in the Siberian winter. Now, IEA projects Russian output of 10 million barrels a day in 2008 will drop to 9.85 million barrels a day next year.

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

  46. 46
    zman Says:

    Sam – what better way to head off a recession than to export technology (nukes) from Russia? Its either that, weapons, or oil.

  47. 47
    1520sbroad Says:

    #44 – agreed on the banks+bondholders=99% disaster

    APL is an interesting one i think. I have owned a small position in them for a while. For an MLP they own a nice set of assets that they haven’t overpaid for (I don’t think). Their basic problem is the price of crude hammering their ratios. Obviously crude moves this year have been historic. I have been trying to research as much as i can about APL and their associated companies – ATLS, AHD. Any tips from your credit desk experience as to other rocks to look under?

  48. 48
    rlogan1301 Says:

    BOP – what is the IG at?

  49. 49
    BirdsofpreyRcool Says:

    RL – I haven’t seen a fresh quote on the IG since 9:25 am… just before the stock market opened. There’s just not a lot of volume going through the bond market right now. But, thanks for asking… I’ll post an update as soon as I see one.

    Reminder: the bond market essentially shuts down Thanksgiving week through the end of the year. So, any company needing funding during that time is especially “up a creek.” GM comes to mind here….

  50. 50
    ddaley Says:

    SWN
    Triangle forming, since 10.10. Now between 29.5 and 32.5

  51. 51
    zman Says:

    Thanks DD. I was commenting on the E&Ps basing since early/mid October. Looks like they want to make a little progress as the analytical crowd has now bashed their 2009 price decks down to a range $60 & $6.

  52. 52
    BirdsofpreyRcool Says:

    yikes!! the SEC just filed insider trading charges against Mark Cuban. Guess that accounts for his great performance. wow.

  53. 53
    BirdsofpreyRcool Says:

    IG 212 … 3 bps wider from this morning’s quote.

  54. 54
    BirdsofpreyRcool Says:

    wonder if Mark will have to give back the Dallas Mavericks….

  55. 55
    Pete Says:

    Z,
    See any hope for Nov FSLR to make up any ground from here till expiration?

  56. 56
    BirdsofpreyRcool Says:

    IG 211 now

  57. 57
    zman Says:

    With FSLR you never know. Broad market governing action there so if we get a rally today/this week FSLR will move a multiple of the % gain in the same direction. Little chance to get whole on the higher strikes.

  58. 58
    zman Says:

    Crude suddenly dropping off, giving in to the broader market fears.

  59. 59
    zman Says:

    Dow down 50 now. Silly market, volatility is for kids.

  60. 60
    zman Says:

    Anyone see news or a broker comment on NFX? I show a news ticker bug but no story. Thank.

  61. 61
    tomdavis12 Says:

    Z: The inventory numbers over the last eight weeks seem to indicate that there has been a tipping toward the supply side for nat gas. The horizontal drilling and technology improvements seem to be adding to supply without a bigger demand variable. I would love to see us export LNG or have CNG demand from autos increase nicely. Do you share this concern? PS My squirrel indicator is very bullish for the winter season. They are much fatter than normal and have been eating the left over pumpkins. ALWAYS a bullish sign.

  62. 62
    zman Says:

    Tom – we added about 5 Bcfgpd, give or take to production in 2008, this is about 8% growth. That’s unprecedented. The numbers in the weekly reports are showing a combination of mild weather and that extra growth, offset somewhat by lower imports (both LNG and piped volumes from the north). With that said 2009 is unlikely to grow more than 1 or 2%. On the LNG front, it won’t be next year but maybe in 3 or 4 years that you see some more flowing out aside from the dribble that goes from Alaska to Japan now. You are likely to see increased exports via pipe to the south. LNG in 2009 remains a wild card which will act as a governor on price, potential limiting the size of any run up as rig counts plummet which I expect to trough during 2Q09. Right now there is 5 to 8 Bcfgpd of gas coming onstream next year internationally that will be looking for a home (Asia, Europe, U.S.). CNG is a pittance of demand. Real demand growth to come from increasing electricity generation.

  63. 63
    bill Says:

    cnbc ask — how can a vlcc be hijacked?

    Answer machine guns!

  64. 64
    zman Says:

    Probably going to take my lumps on the November XOM calls tomorrow or later today if the DJIA mini rally fails. Will continue to hold the Decembers and may add to that position.

    Am just above water in the EOG November calls and will let that run at least another day. The influence of the broader market still trumps (by far) stories but the lower leverage, bigger cap but not necessarily growthy stories continue to outperform.

  65. 65
    tomdavis12 Says:

    Z: The figures I have seen has electricity demand following GNP. Every 1% increase in GNP equals 1% increase in elec generation. Not likely to help over the next six months.

  66. 66
    zman Says:

    Tom – electricity generated by burning natural gas has been capturing share so its growing faster than that. During abnormally high demand periods, its the only source with excess capacity leading to wider swings in demand for gas.

    Over next six months? Did not know that was the time frame but over that period what we should witness is a slowing of the flush initial production from shale plays as the number of wells that get drilled decline modestly.

  67. 67
    zman Says:

    Tater – when you get a chance, have a look at SWN and XOM please. TY

  68. 68
    zman Says:

    BOP – any IG update? Very erratic markets. E&P and to a lessor extent, oil service place to be. Coal, alt energy lagging again.

  69. 69
    BirdsofpreyRcool Says:

    z – the Investment Grade index hasn’t traded (or quoted) since my last update. I see that the High Yield index has traded… and it’s moving lower.

    Aside: investment grade bonds are traded on spread, so higher = wider = bad…. high yield bonds are traded on price, so lower = lower price = bad.

    Volumes very very light.

  70. 70
    BirdsofpreyRcool Says:

    z – there ya go… guess you gotta ask. IG just traded… slightly better.

    IG 210

  71. 71
    zman Says:

    Thanks Bird, just doing a little reading, very quiet market, even for a Monday.

  72. 72
    zman Says:

    SWN catching a little move here compared to the group. In the mid caps a lot of the moves downward can be accounted for by forced sales and then subsequent piling on (or out as the case may be). Pressure on Friday here was overdone on no news, no its snapping back. At 8x next year’s cash flow, the name is cheap for it given the long reserve life and large, low risk prospect inventory and coming increased takeaway capacity from the Fayetteville.

  73. 73
    tater Says:

    SWN –
    Daily chart shows a downtrend line from July to recent, then breakout above line in November with most recent action back down as a possible return move test of the downtrend line. That would be the most bullish view of the Nov pullback. Last couple days sees a fight at the 20 and 50 MA’s.
    Bearish that it is still below the 200 EMA, so it’s still playing in bearish zone. Also, last Wednesday price broke back down below upward slanting 50 and 20 EMA’s, they “should” have held as support and did not. Means to me that “players” are involved with the stock, pushing it around. I’ve seen the name be mentioned around more than its fair share, so I tend to believe there is hot money.
    XOM needs to get above 78, that would be a breakout of its current ascending triangle activity. It is also playing around with the general area of its 50 and 20 moving averages. If 20 goes above 50 you will get money piling in as this will be a MACD crossover trading signal (bullish for people who use that, many do).
    The above is pretty 50/50 analysis. I don’t really have an opinion one way or the other on either name.

  74. 74
    zman Says:

    Thanks Tater.

    Watching FSLR go green now.

    Also, GDP, one of the smaller low leverage, high growth names, great 3Q call continuing to look strong.

  75. 75
    zman Says:

    Ah yes, another one of those days where we could have done without everything between the opening and closing 15 minutes.

  76. 76
    zman Says:

    CNBC running adds for Cramer with Jim Hackett (ceo APC). Hackett is worth listening to. I would imagine Jim will say now is the time to buy gas but ya never know. I like APC quite a bit but don’t care for the debt load. at present. CHK kind of in same boat re balance sheet but a past Cramer favorite and all U.S., more concentrated and growthier than APC. SWN could get a mention there as well.

  77. 77
    zman Says:

    Bush Admin to NOT request the additional $350 billion. At point, not sure if that’s good or bad news.

  78. 78
    antrimshale74 Says:

    I would think that would be bad news. Adds to the perception of indecision in Treasury.

  79. 79
    zman Says:

    Antrim – yeh, maybe so. There’s always three choices, buy, sell, do nothing. They are going with the later.

  80. 80
    antrimshale74 Says:

    I think market already gave up on the government. LOL.

  81. 81
    BirdsofpreyRcool Says:

    antrim – i think it’s “positive.”

    once the original intention of the TARP (providing liquidity and price discovery for illiquid assets) was breached and Paulson started just handing out cash, the “program” (and intent) was doomed. There is not enough cash in the entire WORLD to satisfy all the hands that have started grabbing for the TARP. Detroit, Calif, Atlanta, auto suppliers, Philadelphia… where do you draw the line? Guess they drew the line. That in itself, is decisive.

    I have to admit, however, I gave Paulson more credit for being able to do the right thing, than he was able to deliver.

    Note to self: it’s a lot different, running GoldmanSachs than it is having to answer to Barney Frank.

  82. 82
    antrimshale74 Says:

    One thing about Barney Frank, though, is he sure is entertaining!

  83. 83
    BirdsofpreyRcool Says:

    Getrag Transmission just filed for bankruptcy protection in Michigan. They were unable to obtain the $300mm in debt financing to finish a plant in Tipton, Indiana (JV with Chrysler).

    This is what “frozen credit markets” looks like. This is only the beginning.

  84. 84
    BirdsofpreyRcool Says:

    antrim – agreed! watching Barney Frank is like watching saturday morning cartoons. Only without the laugh track…

  85. 85
    bill Says:

    FREE (a bulker co) cuts its divy to .30 yr

    stock is now at 1.12..tempting

    but still too early

  86. 86
    bill Says:

    you can go to this site for daily spot charters

    http://reports.platou.com/OnlineServices/Pages/BulkPeriodFixtures.aspx

    it shows a cape 130 m ship went for 1500 day!! That doesnt cover the crew expense which runs about 10 k day

  87. 87
    BirdsofpreyRcool Says:

    IG 213

  88. 88
    zman Says:

    Hear ya Bill…credit staying frozen a lot longer than many people expected it too. Demand for ships still dry.

  89. 89
    ram Says:

    Frozen credit market creates no demand for heavy construction equipment. If companies do not have enough receivables to hold them over for a couple of quarters, then more people will be looking for jobs.

  90. 90
    ram Says:

    So the $300 plus billion went where?

  91. 91
    zman Says:

    Think he had spent $260B as of last week, not sure how much was in distressed assets and how much was spent buying stocks or otherwise propping capital of financials.

    Energy sector did ok in a boring, mixed session, broad market ending poorly.

    NG had a good day, up 25 cents on weather. Will put the weather chart in tomorrow’s post but we should be looking at withdrawals this week, or next at latest.

  92. 92
    antrimshale74 Says:

    And like clockwork, the rug is pulled out from under us.

  93. 93
    BirdsofpreyRcool Says:

    IG 215… wide for the day and at the wide end of the newly-established 195-215 trading range.

  94. 94
    ram Says:

    Sort of a quieter, gentler, 200 point loss.

  95. 95
    zman Says:

    I hear ya ram, only the open and close matter…yet again. Beer thirty.

  96. 96
    ram Says:

    ZMAN – One of your “buddies” just added SWN to his portfolio. Should add some boost.

  97. 97
    zman Says:

    Thanks Ram, which one?

  98. 98
    bill Says:

    on bulkers

    Declining freight rates and lack of cargo availability are forcing dry bulk operators to idle their vessels for the time being. Some owners with older vessels are also weighing the option of sending them for scraping. In India, the country’s largest shipping company, Shipping Corporation of India is understood to be thinking of idling some of their bulk carriers. It has also said to be weighing delaying acquisition of the capsize vessel it plan to add to its fleet. Indian import of coal and export of iron ore have been severely affected the country’s shipping business. The financial meltdown across the world has also led to problems to free availability of credit lines to operators stalling whatever scope there was for shipping. Even though Indian demand for coal to fuel its large number of power stations will never cease, the present crisis in financial circles have constricted money flow.
    World over at least 20% of vessels that are most commonly hired to haul coal and ore are sitting empty as steelmakers cut output and dwindling trade credit halts deliveries.
    According to reports quoting Lorentzen & Stemoco A/S shipbroker Kjetil Sjuve, 50 to 100 so-called capesizes have been unable to find cargoes or their owners won’t accept rental rates that have plunged 98% in five months.
    Meanwhile, leading ship owners, traders and charterers are planned to gather in London on Wednesday, November 19, under the aegis of Baltic Exchange, to discuss the financial crisis enveloping the dry bulk shipping industry.
    The meeting aims to address freefalling charter rates for dry cargo shipments, which have plunged to below breakeven levels, amid bankruptcies, rising charterparty defaults, and major losses looming in paper markets.
    “There are a lot of different meetings going on around the world with a lot of different initiatives, and we thought it would be good for a group of people to get together in London to discuss the crisis and to fund solutions going forward,”

  99. 99
    zman Says:

    Thanks Bill. Cramer talked about the BDI holding even last few days being one of the few positive signs in the market. Don’t normally watch him but was waiting to see Hackett of APC speak.

  100. 100
    nifkin Says:

    Kodiak today announced that its Horseshoe Basin Unit well, HSB #5-3 (non-
    operated, 50% WI; 41.7% NRI), was recently connected to sales. During the
    first 6.5 days of production, the well produced 3,836 barrels of
    condensate and 21.7 million cubic feet of natural gas (MMcf). Currently
    the well is producing 412 barrels of condensate and 2.19 MMcf of natural
    gas equivalents per day on a 24/64″ choke with 850 psi flowing casing
    pressure. The well was initially drilled and completed by Kodiak in
    November 2007. Devon Energy now operates the well as part of the first
    quarter 2008 Vermillion Basin Exploration Agreement. Drilling activity
    continues as noted in the Company’s last operations update, with drilling
    operations continuing on two horizontal wells.

  101. 101
    bill Says:

    BRIEF-Barclays cuts price targets on several oil service & drilling cos

    Nov 18 (Reuters) – Oil Service & Drilling: * Barclays cuts Basic Energy Services Inc price target to $16 from $21 * Barclays cuts Chart Industries Inc price target to $29 from $32 * Barclays cuts BJ Services Co price target to $16 from $19 * Barclays cuts Dresser Rand Group Inc -price target to $34 from $37 * Barclays cuts Dril Quip -price target to $48 from $52 * Barclays cuts Halliburton Co price target to $31 from $38 * Barclays cuts Key Energy Services Inc price target to $11 from $12 * Barclays cuts ION Geophysical price target to $14 from $16 * Barclays cuts Oceaneering International Inc price target to $59 from

    $63 * Barclays cuts National Oilwell Varco price target to $50 from $58 * Barclays cuts Smith International Inc price target to $40 from $54 * Barclays cuts Schlumberger Ltd price target to $74 from $95 * Barclays cuts Superior Energy Services price target to $38 from $41 * Barclays cuts Tetra Technologies price target to $17 from $18 * Barclays cuts Weatherford International Ltd price target to $26 from

    $33 * Barclays cuts Global Industries Ltd price target to $6 from $7 * Barclays cuts GulfMark Offshore Inc price target to $45 from $47 * Barclays cuts Hornbeck Offshore Services Inc price target to $30 from

    $33 * Barclays cuts Diamond Offshore Drilling Inc price target to $121 from

    $134 * Barclays cuts Ensco International price target to $56 from $59 * Barclays cuts Hercules Offshore Inc price target to $6 from $10 * Barclays cuts Pride International Inc price target to $30 from $32 * Barclays cuts Noble Corp price target to $55 from $59 * Barclays cuts Rowan Companies Inc price target to $32 from $35 * Barclays cuts Transocean Inc price target to $129 from $144 * Barclays cuts Grey Wolf Inc price target to $6 from $7 * Barclays cuts Helmerich & Payne Inc price target to $39 from $53 * Barclays cuts Nabors Industries Ltd price target to $21 from $26 * Barclays cuts Parker Drilling Co price target to $7 from $8 * Barclays cuts Patterson UTI Energy Inc -price target to $15 from $20 ((Bangalore Equities Newsroom; +91 80 4135 5800; within U.S. +1 646 223 8780))

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