04
Dec

Thursday – Gas Preview and Oil Inventory Review + WIOWIO

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Big Rest of Week In Stock Land.

  • The Big 3 will arrive in Washington today with their corporate jets tucked between their legs. The Street wants a bailout and Congress wants to look tough. Something probably gets done to avoid the B word and even the UAW has seen that the light at the end of the tunnel is a swiftly approach Prius and therefore must reopen negotiations.

 

  • The European Central Bank cut rates by 75 bips this morning. People wish Bernanke would cut again and soon and earlier this week he referenced rates by saying that "he had more ammo left". Here's to hoping he doesn't hand the next guy an empty gun. The rate cuts are too little, too late, have not had the desired impact on lending or rates in the real world (anything I have that's adjustable is going up, not down) and the market's reaction to ever bigger cuts is like that of a heroin addict running out of veins. Gone from ooohhhh, ahhhhhhh to hmmph, ugh. Plus, the U.S. is nearly out of room to cut so unless we want to pay banks to take the money ...

 

  • Tomorrow We Get Another Dismal Jobs Reports. Consensus is for a loss of 350,000 with Goldman Sachs looking for a bigger, 400,000 loss.  Since the market reacts to the delta between estimates and the reported numbers as much as it does to the holy-crapness of the data sets themselves you have to think Goldman is gaming the system, hoping to skew numbers so low that a mere third of million pink slips looks like good news.

 

  • 4Q Big Company Warnings Season Starting. The latest in a litany of negatives is DuPont seeing 4Q losses. On the whole I don't expect to see the producing energy companies to make similar warnings about losses but the refiners may  soon warn as well.

 

In Today’s Post:

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

Why I Own What I Own (WIOWIO) - Brief form as it pertains to near term options. I'll add a couple more for Friday's post.

XOM - Long here for the following reasons:

  • Troubled times = name you know investing. As balance sheet and couterparty risk and managerial acumen come under increasing and in many cases un-necessary scrutiny fund managers shrink their exposure to energy, back to big cap, liquid, household names.
  • Lots of cash: $36 billion
  • Low expectations: nobody expects these guys to grow domestic production
  • Inability to be manipulated by the shorts.
  • Downstream and chemicals provide a hedge to negative price pressure on the upstream segment, in theory.
  • Once a focus of the Obama administration's attack plan on energy, that ship has been sunk with lower oil prices and a a number of more important fires to be put out.

EOG - Like a mini XOM but more nimble with a few shiny bells and whistles.

  • Low leverage for an E&P company and lowest leverage of the Big Cap U.S. E&PS (APC, APA, CHK, DVN, XTO), and will be still lower by year end
  • It's produciton profile is gassy and partially hedged; the portion that is oil is inching up and is unhedged. 
  • Arguably the second largest player in the Williston Basin Bakken play, inarguably drills the biggest wells with its Parshall field and after first decrying the Three Forks Sanish play at Parshal as pretty iffy, it now sees strong TFS potential in the rest of its Neeson Anticline (North Dakota) acreage.
  • This one I'll continually roll into earnings as it has the lowest

SWN - Gassy, gassy, gassy, my play on natural gas, (far superior to (UNG) which I will abandon at a large loss this week)

  • Growing in the mid 70% range, almost all from Fayetteville Shale but E. Texas picking up as
  • seen as one of the few pure play names in natural gas
  • leverage
  • living within cash flow

NFX - Don't own it but will again when things show more signs of basing.

  • 5 deepwater finds in 2008 speak to the veracity of their program there, affording predicitable 8 - 13% growth in 2009 and more visibility into 2010.
  • As stated at the FBR conference yesterday their Woodford gross production is now "well above" 250,000 Mcfepd, which was their targeted 2008 exit rate from the beginning of the year. No small feat as they started the year at about 130,000 Mcfepd.
  • Strong hedge position: 60% of gas 90% of oil hedged for 2009 at strong prices and their hedge exposure keeps increasing.
  • I'd say cheap but no one believes the Street estimates on any of the E&P names. I'll still say cheap because I can haricut the numbers by 30% and the forward multiple still seems outlandishly low compared to historic levels.

CHK - I don't own much in the way of options but think the beating has simply been overdone. Down 25% since they announced their intention to potentially dilute the shares by 10%. Hmmm

  • Positives:
    • Large and growing reserve base and a domestic leasehold position unrivaled by peers in the non-conventional U.S. natual gas plays. leasehold easily support a stock valuation many times (insert your favorite number here but it needs to be north of 5) current levels.
    • Management - for doing a good job of getting asset sales and joint ventures done in a timely manner, as promised, at multiples of initial entry on the order of 10x.
    • High impact play in the Haynesville is high IRR as well, allowing them to high grade capital from lower return projects and still maintain double digit production growth profile.
    • Hedges: once hated for these when gas went to $13 they look pretty smart in the $8 and $9 range with gas at just over $6.
  • Negatives:
    • Debt load is high for the current environment. The first tranche may not be due for 4 years but that doesn't stop the market from fretting about it. Interest coverage is good but again, lots of debt worries people.
    • Management - gunslinger perception and an seeming inability or unwillingness to cut capex further to get well within cash flow.
    • Shelf filings. I can flexibility all I want, that Shelfs are routinely put in place but when they site acquisitions it bumps the risk profile beyond most investor's tolerance at the present time. I can argue their track record but at this point the Street would simply like them to stop buy leases, not buy any companies, and shut down drilling to a minimum to preserve acreage where possible by getting into HBP status.

 

OIH Puts - I just sold them earlier this weak but will re-enter on an opportunistic basis taking profits when they come.

  • This is the oil service index, containing 15  of the biggest names in service.
  •  I've gone over this pretty ad nauseum but just to quickly repeat, rig count dropping, much more than  it has to date, service rates have only begun to fall and numbers by the Street remain too with SLB highlighting that fact yesterday.

 

Holdings Watch: No changes yesterday.

 

Commodity Watch

Crude oil traded off $0.17 to close at $46.79 yesterday, pretty much unaffected by a seemingly bullish EIA report (see below). This morning crude is trading off about a buck after the warning from DD.

Natural gas fell 8 cents to $6.35 in directionless trading. Crude was little help, colder weather was no help. Trading still feels odd and light. This morning gas is trading flat ahead of today's storage report (see breakout below).

  • Lack of any foresight watch: Ample storage, combined with higher production and slowing demand, will combine to keep gas prices at an average of $6.36 per million Btu in 2009, George Hopley, an analyst at Barclays Capital in New York, said in a report on Tuesday. The closing price for gas Tuesday was...wait for it... $6.36. He's not alone, I'm seeing more analysts take the price of oil and gas of today and make that their 2009 forecast. 

Natural Gas Preview. Gas storage numbers are still a little squishy this time of year as we end the second shoulder season (the transition period between injections or withdrawals) and its not uncommon to see small reversals in the growth in withdrawals due to weather before winter really gets kicked off. The Street undershot demand last week and this week I think they may have overshot the mark as the weather week to week was actually a bit warmer.  Given the market's current propensity to hang on all numbers vs analysts I would prefer to be wrong this week and get another higher number but it appears they may have set the bar a just a touch too high. One of the things that's difficult to judge is the impact that consecutive weeks of colder have on demand relative to isolated cold spikes in the HDD readings. Again, its possible that the we get a bigger number than consensus today but the numbers are somewhat against it. Storage remains full of coarse and we are unlikely to make much of bump in the YoY deficit to total storage with this week's report.   

  • My number: 60-70 Bcf withdrawal.
    • Weather: Last week saw 168 gas weighted heating degree days vs 162 normal (so a little cold) and 175 in the year ago week (when we saw a withdrawal of 66 Bcf). The prior week had registered degree days of 176.
    • Imports: Flat week to week and down 0.6 Bcfgpd from last year, all due to lower Canadian imports.
    • Production: Still running about 5 Bcfgpd high to last year on total production figures without the impact of storms in the Gulf which still have almost 1.5 Bcfgpd shut in due to ongoing repair work.
  • Historically Speaking:
    • Last Year: 66 Bcf withdrawal
    • 5 Year Average: 45 Bcf withdrawal
  • Street Consensus: 69 bcf withdrawal

EIA Oil Inventory Review. Seemingly bullish report gets the cold shoulder from traders. Analysts and traders were expecting builds in all product categories but instead received withdrawals but the commodities failed to react as expected.

CRUDE OIL - Normally consumption of crude would rise this time of year to help build heating oil stocks and while the report's inventory level eased slightly, the YoY comparison shows crude as now 105% of year ago levels and 104% of the 5 year average so we're very well stocked. Crude stocks trade in a fairly wide band relative to the mean at any time but this relative build is on the mind of traders as they anticipate lower product demand.

Refiners may finally be starting to reduce utilization in the face of lousy margins, however I don't expect this to fall much more until January when a number of maintenance projects are scheduled.

 

 

 

GASOLINE - Inventories remain adequate,  a bit surprised how well production has held up in the face of pathetically slim margins. Demand has simply not picked up as fast I thought in response to 78 days of falling prices at the pump. This morning wholesale RBOB is on the cusp of falling through $1 per gallon. 

 

Imports

Demand -- we did not get a big boost from Holiday driving. Normally from now through year end Christmas shopping and later holiday related travel drives a slight increase in gasoline demand but I would not expect any rah-rah growth in demand, even with the low prices. I expected it already and it simply did not come to pass.

 

 

 

DISTILLATES - A little low on stocks, but I have a suspicion that export demand may be slacking off after record levels earlier this year. Diesel has been the one bright spot for the refining segment this year.

 

 

 

 

 

Odds & Ends

Analyst Watch: will add in comments.

157 Responses to “Thursday – Gas Preview and Oil Inventory Review + WIOWIO”

  1. 1
    Sambone Says:

    By Reza Amanat
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude prices drifted lower in London Thursday, after
    hitting their lowest levels in nearly four years during Asian trade.
    With the market unable to look beyond demand concerns as a result of the
    global economic slowdown, oil prices failed to glean any support from
    Wednesday’s unexpected draw in U.S. crude inventories or stronger European
    equity markets.
    “At the moment the only important feature for the energy complex is a
    continued demand weakness,” said Marius Paun, broker at ODL Securities. “The
    seriousness of this bearish trend is emphasized again by the fact that even in
    the light of rebounds in the equities markets crude seems to find no support.”
    Meanwhile, traders were keeping a close watch on the European Central Bank
    rate decision due 1245 GMT, after the Bank of England cut rates by 100 basis
    points to 2.0% Thursday.
    At 1225 GMT, the front-month January Brent contract on London’s ICE futures
    exchange was down $1.04 at $44.40 a barrel.
    The front-month January contract on the New York Mercantile Exchange was
    trading 98 cents lower at $45.81 a barrel.
    The ICE’s gasoil contract for December delivery was down $6.00 at $471.00 a
    metric ton, while Nymex gasoline for January delivery was lower 387 points at
    100.26 cents a gallon.
    U.S. Department of Energy figures released Wednesday countered market
    expectation, but the surprise near-500,000 barrel draw in crude inventories
    failed to staunch concerns over demand weakness.
    “Demand concerns have become very much forward looking, while supply
    shortfalls are being revealed more in arrears and very much in the rear view
    window,” analysts at Barclays Capital said. “Given that ordering, then without
    any move to some stabilization in macroeconomic expectations, or towards some
    consensus that a recovery dynamic is in place, there is unlikely to be very
    much of a stabilization in energy market sentiment and expectations.
    “In the short term, the demand dynamics will dominate price formation no
    matter how profound and offsetting might be the weakness of the supply side,”
    they said.
    Participants will keep a sharp focus on the ECB, with widespread anticipation
    it will follow its U.K. counterpart and cut rates, although perhaps not by as
    much. The ECB is expected to trim rates by between 50 and 100 basis points.
    Earlier Thursday the Swedish Central Bank surprised the market with a 175
    basis point cut, part of continuing moves by central banks to help their
    economies battle the worsening downturn.
    Oil prices took little respite from technical charts, meanwhile, with the
    outlook distinctively bearish, analysts say.
    “The short-, medium- and long-term trends are all bearish for oil, and while
    capped below $52 (a barrel), we expect the decline to continue,” technical
    analysts at Barclays Capital said.

    -By Reza Amanat, Dow Jones Newswires

    Dow Jones Newswires
    12-04-08 0736ET

  2. 2
    Sambone Says:

    New ETF’s

    UCD ProShares Ultra DJ-AIG Commodity
    CMD ProShares Ultra Short DJ-AIG Commodity
    UCO ProShares Ultra DJ-AIG Crude Oil
    SCO ProShares Ultra Short DJ-AIG Crude Oil
    ULE ProShares Ultra Euro
    EUO ProShares UltraShort Euro
    YCL ProShares Ultra Yen
    YCS ProShares UltraShort Yen
    UGL ProShares Ultra Gold
    GLL ProShares UltraShort Gold
    AGQ Proshares Ultra Silver
    ZSL Proshares UltraShort Silver

    Good place to research ETF’s is http://www.etfconnect.com. These may not be up yet on the site since they are new. Go to http://www.proshares.com for more info on these new ETF’s.

  3. 3
    zman Says:

    Thanks Sam – I’ll add that link to the link list and will compile a list of energy ETFs for the screens tab.

  4. 4
    BirdsofpreyRcool Says:

    IG 271 +9bps wide to last nights official close.

    Shorts are pushing their positions in credit this morning. There is little in fixed-income land to turn this around, bonds will look to the stock market today for direction.

    271 is a very very ugly (scary) number.

  5. 5
    elduque Says:

    z- It occurred to me in listening to CHK’s BAC conference call that the extra stock is there to retire the Conv. debt. Your thoughts?

  6. 6
    zman Says:

    El – D – I thought they already did that but could be mistaken. The 50 mm share shelf (the smaller of the two) was earmarked for acquisitions.

  7. 7
    BirdsofpreyRcool Says:

    One bright note: mortgage bond yields have plunged. So, anyone buying or re-financing their mortgage should be happy.

  8. 8
    Nicky Says:

    Morning all. Hope everyone is doing okay here.

    A few thoughts on the markets. I believe that the energy market will put in a low at around the same time as the US indices.

    As far as the indices go a minor low is due between 6th and 8th December – with 8th December being more likely and then a move up into the 12th December before turning lower where we should make a final low for this leg down around the 19th December and then stage a decent rally into the Spring.

    Oil has very important support at $40 which has been a huge number over the years. It looks likely that we will test it.

    It does seem quite incredible to me that we have seen absolutely no rally in the energy market since July.

  9. 9
    zman Says:

    A very good morning to you Nicky! You’ve been much missed.

    ZTRADE: Getting partially filled on SWN $35 December Calls (SWNLG) 3 of 10 so far at $1.10 with the stock off almost $1 with the opening weakness.

  10. 10
    zman Says:

    Filled on all 10 SWN $35 calls at $1.10 in the $10KP.

  11. 11
    zman Says:

    Nicky – I agree, looks like the fix is in for $40 at this point. At $70 we all said $60 and so on so I guess $30 will be the next big number. I would expect OPEC to announce a major slashing of quotas if we are $40 at the December 17 meeting. No doubt there will be cheating but I bet there is a good chance for a run for oil into year end in true bear market fashion. Hope you are well as well.

  12. 12
    Nicky Says:

    I am perplexed by this ‘leaked’ mortgage rate reduction proposal by the Treasury. On first view yes it looks like a positive but when I looked again it is only going to be on new purchases so not for refinancing. In other words a bailout out for the realtors and homebuilders – surprise surprise when the latter throws so much money at the government! If they were to do this I would think it would cause chaos – why the heck would anyone stay in their current house if they are going to be paying a higher interest rate?? Everyone may just as well go into foreclosure and then start again at a lower rate?

  13. 13
    zman Says:

    Nicky its outrageous. So much meddling by government…in the end we are all going to be paying this one off for the rest of our kid’s lives.

  14. 14
    kiaora Says:

    Z …Last nite Cramer’s take on the price of oil is “This is where OPEC wants the price to settle for awhile. It makes alternative energy much more expensive to produce than paying $40ish for their oil”.

  15. 15
    rlogan1301 Says:

    i heard that too kiaora…it was an interesting comment, not sure if it is true or not…seems like it is the “cutting your nose off to spite your face”..or whatever that comment is

  16. 16
    zman Says:

    Kia – That may b true for Saudi, but he’s dead wrong for many OPEC nations. $40 is not workable for Iran, Vz etc.

  17. 17
    BirdsofpreyRcool Says:

    Actually, I was referring to the dramatic drop in yields of mortgages in the secondary (bond trading) market. This sets the price for new mortages, either for new home buying, or refinancing. I have not read of any of the recent “homeowner” bailouts… they are all completely mis-directed, IMHO.

    Bailing (backstopping is a better word) the banks is one thing. No banking system, everyone takes their jobs and goes home. But, bailing out autos, states, local governments, consumers… is just pouring money down a black hole.

    Interesting how the UAW is now conceding all sorts of outrageous, above-mrkt perks and rules. The first trip to Washington, Gettlefinger (UAW) was very loud in his claim that “the UAW had already given all they could.” It’s only the threat of a real BK that gets GM et al. to clean house. “Bailing out” is a hideous way to transfer wealth from those who were prudent and productive and played by the rules, to people (and entities) who didn’t. A complete waste of our money. Real change only happens if there is a moral hazzard. If “they” bail out GM and friends, how will they be able to deny any one else?

  18. 18
    zman Says:

    Bird – think the argument is bridging and that now is not a good time. I would say when is a good time for the autos to fail? Either way, given the precarious state of the economy, it seems you draw the line here at autos, give them a bridge with a plan and ownership or this is the 2×4 that broke the economic camel’s back. I’m opposed to the concept too but the situation is what it is.

  19. 19
    Nicky Says:

    Anyone hear Guy Adami on Fast Money last night. Loved his idea which was to use the 25 billion dollars to buy as many SUV’s sitting in fields as possible (thereby giving the automakers some money) and then doing a lottery to give those same autos back to the public.

  20. 20
    BirdsofpreyRcool Says:

    z – I understand that argument, it has much merit. I would prefer to see the US Taxpayer backstop the D-3 payables to their suppliers and provide DIP financing, if required.

    Having followed automotive for many many years, it has been coming to this for a long time. And with all the incentives and low-financing offered over the last few years, is it any “surprise” that so many car sales were pulled forward? Is it any “surprise” that oil prices wouldn’t stay low forever? And these are the same guys that think they can (now) “see the future.”?

  21. 21
    zman Says:

    Nicky – better than the money going into a black hole called TARP. Good for gasoline demand too, lol.

  22. 22
    elijahwc Says:

    Re 17 & 18. I too am opposed to the concept & would agree that real change only happens if there is a moral hazzard. However in this case the real black swan is in the side bets, e.g. credit default swaps which are still without a central clearing faculity. IMO this is the systemic risk built into a managed BR.

  23. 23
    zman Says:

    64 Bcf, just shy of Consensus. In the middle of my 60 to 70 Bcf spread. This is a case of the Street getting the math wrong again. Dumb.

  24. 24
    BirdsofpreyRcool Says:

    mrkt not liking the nat gas storage number.

  25. 25
    zman Says:

    Hola Eli. Wonder what the CDS exposure is for hedged funds vs the big 3 and their supplier base. Gotta be enough to swamp many HF’s out of business and cause another big round of redemptions.

  26. 26
    zman Says:

    BOP – the number was in line with where it should be for the weather. It was warmer and we only inched back 2 Bcf. Why the Street bricked is to the upper end is beyond me. It was a good number for the weather. I run through the math in the post and like I said, this used to be my primary job in the real world.

  27. 27
    BirdsofpreyRcool Says:

    OK… now the GAO has weighed in on the topic. It’s their opinion that TARP funds CAN be used to bail out automotive.

  28. 28
    Sambone Says:

    Saudi May Cut Oil Supply Further

    By YEE KAI PIN andFLORENCETAN
    Of DOW JONES NEWSWIRES

    KUALA LUMPUR — Saudi Arabian Oil Co.’s surprise increase in official selling prices to Asia, a key market for the state-owned energy giant, may signal that the country is preparing for further reductions in oil supply.

    Fellow Middle East producers in the Organization of Petroleum Exporting Countries have lowered OSPs in response to continued weakness in demand, and they have largely failed to adhere to the cartel’s recent pledges to cut output.

    So the job of shoring up oil prices may be falling squarely on the shoulders of the kingdom, the largest and most influential producer, industry analysts and participants say.

    Late Wednesday, Saudi Arabian Oil Co. hiked its OSPs for next month’s crude supply to Asia while lowering most prices for the U.S. and Europe.

    The company, also known as Saudi Aramco, marked up its Arabian Extra Light oil even though regional producers such as the United Arab Emirates and Qatar cut their prices earlier in the week for similar grades of high-sulfur or “sour” cargoes.

    The OSP for flagship Arabian Light was raised for the first time in three months, according to a company notice — despite waning, not strengthening, demand for crude.

    “We are totally shocked. The adjustments are quite (unexpected),” said an official at a Southeast Asian refinery that processes mostly Middle East sour crude.

    “They’ve only adjusted for Asia, not Europe or the U.S. Is (demand in) Asia really so much better? We didn’t see improvement in product cracks.”

    Saudi Aramco, which doesn’t publicly comment on pricing policy, is widely known to demonstrate an accurate reading of market trends — including customer demand — and the surprise price hikes are fanning speculation that it may be laying the groundwork for a corresponding adjustment in supply.

    Oil producers are reluctant to further give up market share — for many, revenues critical to their state budgets — but they have come under intense pressure to do just that to stem the relentless drop in oil prices.

    On Thursday, benchmark U.S. crude futures traded around $46 a barrel, at their lowest levels since March 2005 and well off an all-time high of $147.27 registered on July 11.

    The global economic slowdown is fueling industry concerns that oil demand will contract this year, for the first time since 1983, analysts say.

    Cartel’s Discipline Tested

    Saudi Arabia and five other Middle East countries are members of OPEC, a group that pumps about 40% of the world’s crude.

    OPEC announced supply cutbacks in September and October totaling about 2 million barrels a day. Even though this didn’t stop prices from slipping further, the group opted at a November meeting to defer further action until a Dec. 17 gathering in Oran, Algeria.

    Given the relatively long lead time of about two months between a decision to cut output and an actual decrease in shipments, it appears Saudi Arabia isn’t keen to wait.

    Last weekend, Saudi oil minister Ali Naimi echoed earlier comments by King Abdullah, saying that the country wants to see oil prices stabilize around $75 a barrel, a level last traded in October.

    Meantime, traders noted signs that other Middle East OPEC members aren’t toeing the line on cartel policy.

    An official with one of Qatar’s largest customers, who asked not to be identified as she isn’t authorized to speak to reporters, said Thursday the country’s state-owned company didn’t cut this month’s supply, contrary to official announcements.

    Qatar — OPEC smallest member by output — will maintain a 3%-5% cut on term volumes, according to Nasser K. Al-Jaidah, the chief executive officer of state-run Qatar Petroleum International.

    Buyers “are the ones who want less, and it makes it possible for us (as producers) to follow OPEC,” he told Dow Jones Newswires in an interview Wednesday on the sidelines of an industry conference in Malaysia.

    Refiners say shipments of up to 5% below agreed volumes don’t count as a formal cut, as term contracts typically include an “operational tolerance” clause that offers suppliers some allowance in case of leakage during loading or delivery.

    With the exception of the U.A.E.’s Abu Dhabi National Oil Co., state oil companies from all the other Middle East OPEC members have announced cuts of no more than 5% in supply in the past two months.

    OPEC members elsewhere, including Nigeria and Venezuela, are already producing far below target levels and aren’t embracing additional output cuts themselves.

    Asia’s oil refiners, while expressing surprise at the Saudi OSP markups, say they’re ready to calibrate their throughput in response to poor product demand; many have slashed operating rates as margins slumped.

    Significantly, it’s unclear whether Saudi action alone will be enough to reverse the price downtrend.

    “It’s not the time to raise OSPs’ as most refiners are considering more run cuts in January and February next year, said an official with a South Korean refinery.

    “I think they will cut (supply),” he said of Saudi Aramco. “But I think the supply cut will still be less than the “cut” in demand.”

    —By Yee Kai Pin and Florence Tan, Dow Jones Newswires

  29. 29
    BirdsofpreyRcool Says:

    z – agree that the number was reasonable. But what I am seeing is, no matter how bad the economic news is, the stock market wants to rally. No matter how good the news is for energy, the sector wants to sell off. We may be in the inverse world of this spring: now it’s go long financials and short energy.

  30. 30
    Sambone Says:

    Oil Drops Anew; Nov US Demand At 9-Year Low

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — It’s been a bruising time for U.S. oil demand and there’s little sign of year-end holiday cheer on the horizon.

    Battered U.S. demand averaged at its lowest level for November since 1999, preliminary government data show. Demand reliably picks up in December, gaining about 500,000 barrels a day on average in the past five years. But even a rise of that size would leave demand at the start of winter at a seven-year low in the world’s biggest oil consumer. It would cap the steepest demand drop since 1980.

    The continued bleak showing in the U.S. compounds the pressure on OPEC to try to put a halt the price collapse, which has slashed $100 a barrel from crude prices since record highs hit in July.

    “The key factor is that demand forecasts are still falling with an additional worsening economic backdrop,” analysts at Barclays Capital in London said, joining others in projecting that global oil demand in 2008 will show its first decline since 1983.

    Four-week U.S. oil demand data published Wednesday by the Energy Information Administration show demand through Nov. 28 averaging 19.266 million barrels a day, down 6.2%, or about 1.3 million barrels a day below a year ago. Year-to-date demand is off 5.6%, or about 1.2 million barrels a day, still on pace to be the biggest drop since plunge of 1980, when the Iranian Revolution sent crude oil prices surging and slashed consumption.

    There’s little surprise in the persistent demand weakness, which kept pressure on prices. Nymex January-delivery crude oil futures prices dipped 17 cents to settle at $46.79 a barrel, the lowest level since Feb. 9, 2005.

    The fall in oil prices has come amid a deep reassessment of the global economy and sparked alarm among ministers in the Organization of Petroleum Exporting Countries. The group’s President Chakib Khelil, the Algerian oil minister, told a Spanish radio interviewer on Wednesday there is “no floor” beneath oil prices and said they could fall to unspecified a “very, very low level.”

    U.S. crude oil stocks posted a surprise fall of near 500,000 barrels, in the first decline after nine weeks of solid gains which boosted inventories by nearly 31 million barrels.

    But despite the drop, crude oil stocks at 320.4 million barrels ended November 6.7%, or 20.1 million barrels, above the year-earlier level, EIA data show. That’s the biggest overhang in stocks since mid-October 2006.

    Stocks Above 5-Year Averages
    In light of weak demand, refineries processed the lowest volume of crude in November since 1999, leaving stocks sufficient to cover 21 days of demand, nearly two days above the five-year average.

    Gasoline and distillate stocks, down on the week, also ended November above their five-year average levels.

    Despite the lowest gasoline prices since early 2005, early indications show November gasoline demand fell 3.2% from a year ago. At 8.935 million barrels a day in the latest four weeks, the figure would be the lowest in November since 2002, as the global economic crisis weighs heavily on demand.

    The last time U.S. oil demand in November was a low as it is now, U.S. crude oil prices were at a 34-month high of $25 a barrel. Some analysts said that technical charts point to prices soon moving toward $35 a barrel.

    Khelil will host an OPEC meeting on Dec. 17, at which ministers will review the scope of potential further output cuts. Pledges in September and October to remove a total of 2 million barrels a day from the market haven’t halted the price fall.

    Qatar’s oil minister said OPEC will “definitely” cut output at its upcoming meeting, but didn’t specify a level. In any case, OPEC looks likely to continue to chase declines in demand and in prices.

    Eventually, supply constraints, from OPEC cuts or non-OPEC declines, will turnaround the market outlook. But, as the Barclays analysts put it: “The current environment is one in which even a supply constrained market is likely to find upward price movements heavily capped in 2009.”

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

  31. 31
    Nicky Says:

    44 also an important number for crude.

  32. 32
    elijahwc Says:

    RE 25. And maybe another capital infusion into AIG, a few IBanks, and maybe a few sovereign counterparties bank, ins co, HF or otherwise.

  33. 33
    Nicky Says:

    Oh oh – Bernanke speaking in half an hour on housing…

  34. 34
    Sambone Says:

    Welcome back Nicky, we missed ya!

  35. 35
    BirdsofpreyRcool Says:

    a Merrill Lynch analyst is suggesting that oil could drop to $25 next year, if the recession spreads to China.

    Interesting… the analysts couldn’t wait to keep topping eachother’s numbers on the way up (did Goldman ever say “$250 super-spike”?). Now, they seem to be trying to make headlines, diving off the other direction. And we are supposed to believe them?

  36. 36
    zman Says:

    NG down 27 cents but holding over $6.

  37. 37
    elijahwc Says:

    FWIIW Put the nearby S&P EMini, ES/1 if you use Thomson on your screen. It has been previewing everything short term lately.

  38. 38
    zman Says:

    Re 35. They are all just trending the chart. Pretty pathetic. Goldman has basically given up covering oil price action as you recall they punted their commodity recommendations rather un ceremoniuosly a couple of weeks back.

  39. 39
    zman Says:

    Thanks Eli, while you are around have you got any busted converts people ought to be looking at?

  40. 40
    BirdsofpreyRcool Says:

    yeah… i don’t recall Merrill as being a powerhouse of energy price prediction. thx.

  41. 41
    zman Says:

    BOP – you’ve also got to consider that the Director’s of Research have their hand in the pot for crude estimates for next. “get it down, so you can raise it up next year” is a commonly used phrase, especially after the analyst has stopped writing first call notes of any substance and started moping about his lot in life. $50 is the new black for crude for 2009.

  42. 42
    Nicky Says:

    It all sounds just like the hype on the way up – overdone. I don’t believe we will reach the extreme levels they are suggesting before we see a rally. In fact its quite likely that this overly bearish sentiment is going to spark a rally.

  43. 43
    BirdsofpreyRcool Says:

    z – LOL… spoken like one who’s walked the walk. Thanks for the insights.

  44. 44
    zman Says:

    What possible good can come from Ben talking about the housing market. If this guy ran a funeral home, people wouldn’t die.

  45. 45
    BirdsofpreyRcool Says:

    not very active in corporate bond land today… haven’t seen a fresh quote in the IG index in a couple of hours.

  46. 46
    rlogan1301 Says:

    Z – what is your take on USO? is that a good way to play if you think oil has hit bottom?

  47. 47
    zman Says:

    RL – if you don’t have a futures account then yes. Another option would be to pick the double long for oil or to take an ETF tied to big cap energy which would benefit from higher oil prices, like DIG. Or you can go for SU which is very tightly correlated to oil.

  48. 48
    Nicky Says:

    euro and pound moving up – fairly obvious that the rate cuts there were priced in. So if the $ can put in a top there is further reason for a crude rally.

  49. 49
    zman Says:

    Nicky – have you noted the sharp contango in oil. Usually when they get that sharp its time for a turn but so far no joy.

  50. 50
    Nicky Says:

    Dow and SPX look like they are struggling. Very wedgie – resistance is at 885 – 896 on the SPX.

  51. 51
    elijahwc Says:

    Re 39: Three

    BACpL WBpT CpI. All are under papa’s umbrella. All 12%+ current yields. All down 40%+ from par. If the world does not end (in which case your site would have to go dwn)then you get twice the historic return of equities the last 60 years on a cash flow basis and probally a reasonable accreation to par if the issuers ever want to get rid of you.

  52. 52
    Nicky Says:

    Yes Z – its coming for sure.

  53. 53
    VTZ Says:

    90 is the max for the US dollar index?

  54. 54
    zman Says:

    Ben is very good a disspationately describing the state of the economic union. I bet he has nothing new to add in terms of ideas here though.

  55. 55
    zman Says:

    90 represents mid 2005 resistance. The index hit 120 back in 2000/2001.

  56. 56
    zman Says:

    FWIW (not much) SUN and VLO shining a bit today, had thought they would yesterday on the EIA data. Not going to go after them here, think the refining group is very dead money until year end at best. If pressed then SUN would be the one I’d take.

  57. 57
    md Says:

    The next 3 corresponding weeks in Dec.07 in NG were
    draws of 146,121 and 165=432
    The cumulative number look hard to beat.
    Next draw would be approx. 90.
    How does the weather map look going forward a couple of weeks.

  58. 58
    Dman Says:

    Hey Nicky, good to see ya!

  59. 59
    PackMan Says:

    CHK – fwiw

    Chesapeake explains SEC filing
    Published: December 4, 2008

    Chesapeake’s recent filings with the U.S. Securities and Exchange Commission would give the company the ability to sell additional shares of its common or preferred stock at some point in the future, the company said late Tuesday.

    The company said it has no plans at the present to issue shares, but is moving to obtain regulatory permission to do so depending on market conditions in 2009 and beyond.

    Chesapeake said the November 26 filing is not a traditional filing that would raise cash proceeds in one stock offering. Once approved by the SEC, Chesapeake may issue some shares, or no shares, but the program would be in place to provide Chesapeake with maximum financial flexibility.

    “This very challenging economic environment can create exceptional growth opportunities and we want to make sure our financial toolbox is fully and properly equipped to seize opportunities should they come along,” said Aubrey K. McClendon, Chairman and Chief Executive Officer. “Let me also say our 2009 budget reflects our stated goal to operate within our cash resources, which we fully intend to do.”

    The headline on the story in The Oklahoman implied that Chesapeake might not be able to make future interest payments.

    The company said it uses language about risk factors in every prospectus and Form 10-K Chesapeake and peer companies file with the SEC.

    Public companies are required to disclose the range of possible risks that may adversely affect their businesses, no matter how remote.

    “I can assure you that we will make our interest payments, which will total only about $500 million out of our expected cash resources in 2009 of over $7 billion, as well as our other obligations,” McClendon said.

    Furthermore, The Oklahoman headline on Saturday’s story said that Chesapeake’s cash flow had fallen. Chesapeake reported $4.3 billion in cash from operations for the first nine months of the year, up from $3.4 billion for the same period in 2007.

    “Our company is in excellent position to weather the current difficult economic situation in the U.S.,” McClendon said. “We have the necessary cash resources, great people and first class assets. Plus, we have a balance sheet that has been steadily improving. I can assure you that we will continue to create value for our shareholders, employees and other stakeholders for years to come.

    “Natural gas is indeed the fuel of the 21st Century, and no one owns more of it in the U.S. than we do,” he said.

  60. 60
    Dman Says:

    Educational request: I need to follow the coal futures in order to make sense of eg. WLT, JOYG

    But I don’t know where to start & my usual free futures site (quote.com) doesn’t seem to have broad coverage.

    Any pointers on which are important & where to find them would be appreciated.

  61. 61
    zman Says:

    I see those numbers in the history file. They don’t line up with the year ago numbers in the last version I have nor today’s report (see 3465 in year ago column), no matter, we won’t be able to hit year ago withdrawals with the weather on tap for this week, maybe next week but hard to tell. I think this was a good number with degree days only slightly low to last year and the withdrawal essentially in line with last year. That shows some crimping of supply is going on, and possibly some weak increase in demand due to low prices. We know there is 5 or so Bcfgpd extra around less 1.5 for the outage offshore so that’s 25 Bcf extra per week. And yet we didn’t see it in the numbers.

  62. 62
    md Says:

    Z
    From Sambone #104Wed.
    MMS said.
    Natural gas output of 1.544 billion cubic feet a day, or 20.9%, also remained
    off line.
    Is the Fed GOMEX only or does it inc. State output in GOMEX

  63. 63
    zman Says:

    That is Federal only md. State waters production that is offline would be pretty small, probably not noticeable.

    Dman – QL on quote.com is really all you need on the traditional coals. For Met coal pricing you have to dig quite a bit deeper or have a bloomberg.

  64. 64
    md Says:

    From your #61 It seems to incl. states.
    So it may be online in 6 months at which time we can count on dropped drilling to decrease production

  65. 65
    md Says:

    Got it.

  66. 66
    zman Says:

    Thanks Packman. Like I said when it happened, there has been no share issuance but the market has hair cut them for a potential secondary. As far as the headline in the Ok paper goes, that’s irresponsible journalism. Anyone can look at the hedges and the quarterly statement and come up with enough EBITDA to cover interest by several multiples.

  67. 67
    BirdsofpreyRcool Says:

    Listening to the Ben Bernanke Q&A, it is amazing to hear what people think the govt can do. Someone asked why the Fed can’t just make house prices go up, as that would benefit everybody.

  68. 68
    md Says:

    Is there an ETF yet for Ultrashort Ben

  69. 69
    jsaun14 Says:

    Z –

    Any thoughts on adding to those SWNLG’s? I don’t want to chase anything, but it’s still 30 degrs outside.

  70. 70
    VTZ Says:

    Any notes on HK today?

  71. 71
    zman Says:

    JS – I’ll give it a day or so. Agreed that moves in the group not making much sense today. NG may test $6 even and then bounce. On the whole, that was not a bad number and proves that demand is not fundamentally broken on the industrial side. Like I said, numbers are still normally a bit squishy this time of year but they are tracking to HDDs very well. Next week forecast is 175, up from this week’s number and I suspect light to what the final number will be on Monday.

  72. 72
    zman Says:

    V- watching it get slammed for no reason and see no words from the Street on it.

    JS – I’d also add that Bastardi’s forecast for a really cold winter looks to be developing on cue. I know it’s early but I’ve watched him a long time and bet against him before to my shagrin. If we start seeing the kind of HDD readings that his forecast would describe we suck a lot of gas out of storage.

  73. 73
    BirdsofpreyRcool Says:

    IG 275… auto execs speaking in front of the Congressional Committee now.

  74. 74
    BirdsofpreyRcool Says:

    Ron Gettelfinger (UAW) is talking about getting all parties of the D-3 together at the table to share the sacrifice. Equity, debt, management, workers. I have yet to see bondholders voluntarily take a haircut to preserve value for (subordinated) equity holders. Let the games begin.

  75. 75
    jsaun14 Says:

    Z-

    The old man said the horses are really showing shaggy coats right now. That forecast is twice as accurate as the farmers’ almanac.

  76. 76
    zman Says:

    Thanks JS. Somebody tell the stocks that.

  77. 77
    tomdavis12 Says:

    Z: Don’t forget my squirrel index

  78. 78
    zman Says:

    Tom – too true.

    I’ve got one for you guys as well:

    The Wyoming Indicator. Wyoming comments during the day time when he can based on how busy he is drilling wells. So if he becomes obnoxious in January we will know the well count is plummeting.

  79. 79
    Bob Says:

    I don’t get live NG quotes, but Dow Jones just reported that NG broke below $6

  80. 80
    Popeye Says:

    My screen is a bloody mess and DRYS is up 19%, go figure. On days like this I go for a long bike ride to preserve my sanity but I’m just too beat today.

  81. 81
    zman Says:

    It did briefly with oil just now as oil broke $45.

  82. 82
    zman Says:

    Popeye, yea, I’m getting shelled today. Everything just trickling lower, no buyers.

  83. 83
    Nicky Says:

    This looks like it could be 5 of 3 for crude. If so a few more divisions to the downside…

  84. 84
    Dman Says:

    Wasn’t Bastardi forecasting a cold early winter but with a warmer-than-average middle winter ?

  85. 85
    zman Says:

    Dman – I recall it was a colder early winter and then a normal or slightly warmer than normal mid winter and then cold again on the close. That would in aggregate be colder than last year.

  86. 86
    zman Says:

    md – just been puzzling over the data not matching in one file but matching in the other. Looks like the EIA made an adjustment to one of the files but not the other. Your tax dollars not at work very well.

  87. 87
    Pete Says:

    Z,

    I sold the common of CLR and CHK this morning so they should start to rally soon.

  88. 88
    VTZ Says:

    Today is completely nuts.

  89. 89
    VTZ Says:

    Z – Fyi, Suncor, Syncrude, Albian costs are likely ~37.50-40 for this month… getting down there in a hurry.

  90. 90
    zman Says:

    Pete – I hear ya.

    V – agreed. Absolute lack of buyers. Can’t call it capitulatory as the volumes are very light.

  91. 91
    zman Says:

    I wonder where the public announcements of production curtailments are.

    NG at $6.05

  92. 92
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil dropped to prices unseen for nearly four years
    Thursday as the world economic slowdown continued to take a toll.
    Light, sweet crude for January 2009 delivery was recently down $2.23, or 4.8%,
    at $44.56 a barrel on the New York Mercantile Exchange. The price was the
    lowest since January 2005 and more than $100 below oil’s record close July 3.
    On the ICE Futures exchange, Brent crude fell $2.28 to $43.16 a barrel.
    A lower close would mark five straight days of losses. Oil’s months-long
    decline has come as economies have slowed across the globe, the dollar has
    strengthened and investment funds have liquidated holdings in response to
    tightening credit conditions.
    Benchmark RBOB gasoline futures on Thursday fell below $1 a gallon. While
    there are signs that cheaper prices are reviving demand for gasoline and other
    fuels, the price momentum has been hard to stop.
    “It’s like catching a falling knife,” said Peter Van Cleve, president of
    brokerage T.W. Energy Consulting in Kansas City, Mo., where he said gasoline at
    the pump now sells for as little as $1.35 a gallon.
    Oil markets shrugged off the European Central Bank’s move to cut its main
    monetary policy interest rate by an unprecedented 75 basis points, bringing it
    down to 2.5%. The Bank of England also slashed a key rate by 100 basis points
    to 2.0%, a level last seen in October 1939, in an attempt to buoy the U.K.
    economy.
    “It’s obviously not having a big impact. These moves were expected,” said Matt
    Zeman, head of trading at LaSalle Futures Group in Chicago. “People are looking
    at the bigger picture. We are looking at a global recession and concerns about
    demand.”
    The Organization of Petroleum Exporting Countries has announced output cuts in
    recent months and appears likely to trim more at a meeting Dec. 17, but “the
    cartel may only be able to slow the decline rather than reverse the downtrend,”
    said Jim Ritterbusch, president of energy trading advisory service Ritterbusch
    and Associates, in a note.
    In November, OPEC pumped less crude but fell short of meeting the 1.5-
    million-barrel-a-day cut the group agreed to in late October, a survey by Dow
    Jones Newswires showed Thursday.
    The survey estimates daily production in November by all 13 of the group’s
    members combined fell by 815,000 barrels a day, or 2.5%, from a month earlier
    to 31.175 million barrels a day. Output by the group’s 11 members with
    production quotas, which excludes Indonesia and Iraq, fell 915,000 barrels a
    day, or 3.2%, in November versus October to 27.925 million barrels a day,
    according to the survey.
    However, the cut is well below the 1.5 million barrels a day OPEC agreed to
    take off the market from Nov. 1, raising questions about the members’
    compliance. The survey points to a compliance rate of about 60%, well below the
    80% or more claimed by OPEC officials at a meeting in Cairo last week.
    The president of Iran, OPEC’s second-largest oil producer, admitted to local
    media Thursday that the decline in oil prices will hamper government
    initiatives, local media reported Thursday.
    “If we fix the oil price at $30 a barrel in the budget, we will have to
    abandon much of our economic projects,” President Mahmoud Ahmadinejad said,
    according to Agence France-Presse. He acknowledged “oil prices will be low for
    some time” because of the global recession.
    Front-month January reformulated gasoline blendstock, or RBOB, fell 4.46
    cents, or 4.3% to 99.69 cents a gallon. January heating oil fell 4.80 cents, or
    3%, to $1.5360 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    12-04-08 1307ET

  93. 93
    zman Says:

    In today’s EIA storage number, withdrawals from storage came almost entirely from the Eastern consuming region

    East: -61 Bcf
    West: -1
    Producing: -2

    You can see which states are in which regions here:

    http://www.eia.doe.gov/oil_gas/natural_gas/ngs/notes.html

    This week, it is much colder in the South (producing region than last week). And this is the current forecast for Texas:

    http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=1&article=1

    Anyway, this reinforces my belief that next week sees a bigger HDD number and bigger injection

  94. 94
    Dman Says:

    Z – I know you have posted on this stuff before, but is it possible to assess the financial vulnerability of E&Ps just going by the Yahoo stats sheet?

    Eg SD enterprise value $3B
    market cap $1B

    SWN enterprise value $11B
    market cap $9.4B

    => SWN good, SD bad ??

    I know there is a lot more to it but for intraday judgement purposes a rule of thumb would be useful…

  95. 95
    BirdsofpreyRcool Says:

    This is one really weird mrkt today. Weirder than usual.

    IG 276 +15bps wider, yet the High Yield index is unchanged. Wonder if there isn’t some sort of blow-up or unwinding of a major fun (or two) going on today.

    Things are just trading out of whack.

  96. 96
    zman Says:

    I hear ya Dman.

    I don’t think that particular measure tells you much. It gives you a raw $ figure on their debt but that does not tell you what their ability to service that debt is. A more useful measure is debt to total cap which is their the debt / debt + equity on the balance sheet. Right now, less debt = better for a rule of thumb. There should be a debt to cap table on the E&P tab and if not I will add it back.

    As commodity prices fall, the companies generate less EBITDA to service their interest or their interest eats up a greater percentage of cash flow which which to fund cash flow. So in a falling commodity price environment like this (and I mean a plummeting environment) you want hedged names, who have compact cost structures, who don’t have a lot of debt). Those are names like SWN and EOG. HK is low cost but has a chunk of debt. GMXR has very little debt and low costs, etc. But right now, today, there’s no where to high as they are killing the hedged, unhedged, leveraged, and unleveraged all the same.

  97. 97
    zman Says:

    Agreed out of whack, very out of whack. Volumes stink and there has not been an uptick in quite some time.

  98. 98
    Bob Says:

    Sam..About a month ago I think you brought up CHKpE. One of the comments on the board was “how bout that lucky guy who got it at $110” (It hit $110 about 2 months ago, then moved to $210) Well it just traded at $109. Looks like it yields 14% at this price. Can you refresh my memory as to how/when it converts to common?

  99. 99
    zman Says:

    Market holding its breath over big 3 talks. So when would they vote to do something?

  100. 100
    Dman Says:

    Z – how do CLR, GDP look according to your #96

  101. 101
    zman Says:

    GDP = low leverage, high growth, good hedges

    CLR = low leverage, medium growth (higher in a higher commodity price environment), and no hedges.

  102. 102
    zman Says:

    NG back below $6, kind of trending $5.98 to $6.05. Street really botched that number and for what, rounding error vs total gas in storage.

  103. 103
    Dman Says:

    Thanx Z

  104. 104
    Wyoming Says:

    The counter to the index is when we get internet in the middle of nowhere like right now …

    Obnoxious? Come on, please. Sarcastic … well, a slight possibility.

  105. 105
    zman Says:

    Dman – except that today it looks like those companies produce something no one wants, a Ford Festiva or some such.

  106. 106
    Dman Says:

    Yesterday I said that I wouldn’t want to be short OIH unless I thought there was another leg down due in the commodities.

    Turns out:

    “unless I thought” = “doh!”

    “due” = “already”

  107. 107
    Sambone Says:

    Bob, CHKprE, Par value is 250 with a 6.25% coupon. Pays $15.625 per share, per year. It will convert to common on 06/15/09 at 7.172 common per 1 share of CHKprE. So if it were to happen today with CHK trading at $12.23, the price is $87.93, plus you add an additional $7.81 dividend = $95.74, which is below the current price of $104.00. I still like this because I don’t think that CHK will be at $12.23 in 6 months. We’ll see.

  108. 108
    Bob Says:

    Thanks for the explanation Sam

  109. 109
    zman Says:

    Re 104. Just thought I’d check to see if you were lurking. You can just feel those rigs getting stacked.

  110. 110
    Sambone Says:

    By Jim Murphy
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK (Dow Jones)–This just in.
    WASHINGTON (Laurel & Hardy News)–Executives of a trade group representing the
    purveyors and producers of two delicious deli meats arrived at Capitol Hill
    Thursday morning in the Oscar Mayer Weinermobile to ask Congress to provide
    funds to bail out the liverwurst industry.
    “Bologna is not doing bad, but liverwurst is in trouble,” Nick Nitrate,
    executive director of Bologna Enthusiasts and Liverwurst Lovers of Wisconsin,
    or Bellow, told reporters. Later, Nitrate and other deli meat representatives
    testified before the House Subcommittee on Cold Cuts.
    The Bellow biggies told the chairman of the panel, Rep. Barney Frankfurter,
    that the liverwurst industry wouldn’t survive until the end of the year unless
    it got federal taxpayer money. “That would be a real American tragedy,” Nitrate
    told the committee. “We all know how integral liverwurst is to the Christmas
    meal.”
    Another member of the trade group, Pat Pastrami, asked the subcommittee to act
    favorably on a request by Bob’s Blood Sausage of Beloit to change its name to
    First Liverwurst National Bank.
    According to Pastrami, the first order of business at Liverwurst National Bank
    would be to provide fridge loans to impoverished local pepperoni producers.
    Informed of Bellow’s testimony before Congress, U.S. Treasury Secretary Hank
    Provolone said he would consider using TARP funds to rescue the liverwurst
    industry. “I’ve always liked liverwurst,” Provolone added.

  111. 111
    zman Says:

    Local gas prices not reflecting the drop in Nymex much at all today:

    http://intelligencepress.com/features/intcx/gas/

  112. 112
    zman Says:

    Feels like a fund collapse. Oil down $3+ going into Nymex close on now new news. Someone or several someones throwing in the towel.

  113. 113
    tater Says:

    Very much agree with your #112.
    Also, as I live in Wisconsin, Sambone’s article gives me cause to add my first Shrinkage Report of the year. Just walked the dogs and it is COLD out. Now it would seem that I cannot locate my other constant companions. I’m going in for a bit of UNG, technicals be damned.

  114. 114
    BirdsofpreyRcool Says:

    Either a fund collapsed… or someone just launched a multi-billion dollar fund with a long-financials/short-energy focused strategy.

    Financials are rallying.

    In a way, it makes sense: go long that which the Gov’t is willing to save at all costs… and short that which the Gov’t wants to tax, in spite of their costs.

  115. 115
    zman Says:

    Tater – looking at 111, the local prices are not trading off like the Nymex price. That’s about as rare and weird a thing as I see. The stocks, which get paid based on local prices less a transportation charge, are trading off due to the lower oil and gas prices for WTI and Henry Hub. It makes not sense and the magnitude of the sell off makes no sense. Somewhere, someone had to punt it all and that inspired others to do the same and it just got out of whack. Look at EOG, down $10, same pattern as on November 20.

  116. 116
    zman Says:

    Tater – technically speaking, do the E&P’s look more interesting if they hold current levels or above the 11/20 lows. Seems like we have been basing since mid October and this would represent a higher low.

  117. 117
    tater Says:

    Sure was a volume spike on the sell-off this morning, but that was probably timed with the storage numbers. I’m mostly just kidding about jumping in due to cold weather, but BOP and I were talking about that a month or so ago, I remember you saying something about a cliche where if the the traders were cold on the train platform…
    Technicals look like crap though. Could get a quick spike back up to the 26.40 level on UNG then there would likely be more selling into your face.

  118. 118
    tater Says:

    What do you want me to look at?

  119. 119
    zman Says:

    Lot of the charts look similar post October, so EOG, HK, GDP, SWN etc. It looks like a series of fits and starts but actually trending up.

  120. 120
    BirdsofpreyRcool Says:

    tater – we’re getting lake effect snow flurries here today. Got some snow on the ground this last weekend and it’s sticking this time. Lakes are frozen over now… but, not enough to play hockey. So, we are doing our part to contribute to the HDD tally.

  121. 121
    tater Says:

    I’ll post a couple of them, should take about 20 min. Quick look at daily chart for XTO and the problem with higher lows is that it can be misleading if all it becomes (after the fact) is the old three steps up and one giant step back, three steps up and one giant step back.

  122. 122
    zman Says:

    By the way, RBOB solidly through a buck today, at 97 cents. That’ll yield a national retail average below $1.50 in coming weeks. This is a 7% drop today, worse than oil. Gee I wonder how prices would have reacted if any of the numbers yesterday had come in bearish.

  123. 123
    BirdsofpreyRcool Says:

    It doesn’t help that bloomberg keeps blasting the headline: “Oil Falls Below $44, Lowest Since January 2005, as Recession Crimps Demand.”

  124. 124
    zman Says:

    In a few months they’ll be able to write about lack of investment crimping supply, just as the global economy recovers.

  125. 125
    zman Says:

    Broad market collapsing into the close as CNBC comments about how it has not sold off on bad news.

  126. 126
    tater Says:

    I’m seeing too many sticky little special situations on the names you gave me to give a good answer without doing a good in-depth picture (couple hours at least). The higher lows idea is usually a very good one. Problem is that they are occurring in a broader pattern, mostly large triangles, that will supersede (supercede?), overpower, the smaller (time-wise) pattern. I am going to start in on it but I won’t have it done before the close.
    Do you have a better index than the XOP that I can use?

  127. 127
    zman Says:

    Sorry, shouldn’t have said into the close in 125, just feels like it should be closed. Unreal. Volumes have picked up after lunch, probably 2 to 1 relative to this morning… they’re paniccing.

  128. 128
    zman Says:

    Maybe the XNG. I was just looking for a general feel, don’t sweat it. I think we are oversold again, to use the term a bit out of context, meaning I think the group will pull a similar rebound. Saudi is going to get tired of this action very fast as will Russia. I would imagine they are using this time between meetings to work out a coordinated strike on oil on December 17. They know that 1.5 mm bopd cut would be simply ineffective.

  129. 129
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil sank for a fifth straight session Thursday as
    the market feared supplies piling up in the face of weak demand.
    Light, sweet crude on the New York Mercantile Exchange ended at its lowest
    point since Jan. 5, 2005, with the January futures contract settling at $43.67
    a barrel, down $3.12 or 6.7%. Brent crude on the ICE Futures exchange settled
    down $3.16 at $42.28 a barrel.
    Oil’s months-long decline has come as economies have slowed across the globe,
    the dollar has strengthened and investment funds have liquidated holdings in
    response to tightening credit conditions.
    Benchmark RBOB gasoline futures on Thursday closed below $1 a gallon, with the
    market seemingly unconcerned by news of a fire at Royal Dutch Shell PLC’s
    (RDSB) Pernis refinery in the Netherlands, Europe’s largest. While there are
    signs that cheaper prices are reviving demand for gasoline and other fuels, the
    price momentum has been hard to stop.
    “It’s like catching a falling knife,” said Peter Van Cleve, president of
    brokerage T.W. Energy Consulting in Kansas City, Mo., where he said gasoline at
    the pump now sells for as little as $1.35 a gallon.
    The global slowdown threatens to freeze growth in world oil consumption for
    the first time since 1983. Central banks worldwide announced deep interest-rate
    cuts Thursday in an attempt to address flagging economic growth.
    The European Central Bank cut its main monetary-policy interest rate by an
    unprecedented 75 basis points, bringing it down to 2.5%. The Bank of England
    also slashed a key rate by 100 basis points to 2.0%, a level last seen in
    October 1939, in an attempt to buoy the U.K. economy. These cuts were echoed by
    the Sweden’s Riksbank and the central banks of New Zealand and Indonesia.
    “We continue to see a market that’s reacting to all the bearish news and
    expectations of lower demand,” said Tom Bentz, a broker and analyst with BNP
    Paribas in New York.
    The Organization of Petroleum Exporting Countries has announced output cuts in
    recent months and appears likely to trim more at a meeting Dec. 17. In
    November, OPEC pumped less crude but fell short of meeting the 1.5-
    million-barrel-a-day cut the group agreed to in late October, a survey by Dow
    Jones Newswires showed Thursday.
    The survey estimates daily production in November by all 13 of the group’s
    members combined fell by 815,000 barrels a day, or 2.5%, from a month earlier
    to 31.175 million barrels a day. Output by the group’s 11 members with
    production quotas, which excludes Indonesia and Iraq, fell 915,000 barrels a
    day, or 3.2%, in November versus October to 27.925 million barrels a day,
    according to the survey.
    However, the cut is well below the 1.5 million barrels a day OPEC agreed to
    take off the market from Nov. 1, raising questions about the members’
    compliance. The survey points to a compliance rate of about 60%, well below the
    80% or more claimed by OPEC officials at a meeting in Cairo last week.
    “The market is concerned OPEC is one or two steps behind,” said Michael
    Wittner, global head of oil research at Societe Generale.
    Front-month January reformulated gasoline blendstock, or RBOB, fell 7.20
    cents, or 6.9%, to 96.95 cents a gallon. January heating oil fell 7.49 cents,
    or 4.7%, to $1.5091 a gallon.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    12-04-08 1519ET

  130. 130
    tater Says:

    You know how it is, general statements about TA usually suck. I need to look at it anyway so I’ll have it up later tonight. My one big question about King of Saud and Vlad, why haven’t they been able to get their poop together yet? Lots of $ being dropped on the floor. Wonder if they have monkeys running banana time just like us? Which leads me to believe that Dec 17 might not be a magic date.

  131. 131
    Sambone Says:

    Red, blood red

  132. 132
    VTZ Says:

    What the hell? I left for an hour and came back to this? Cmon guys, fess up, who’s selling?

  133. 133
    zman Says:

    Tater – hear ya on 130 re TA. On OPEC, I think they know they have to come with a big number at this point, not to send prices back up but to stop them from falling further. The kingdom is going to have to take on a bigger share of the cut for a large number to have any credibility.

  134. 134
    Sambone Says:

    V – No buyers

  135. 135
    tater Says:

    Sorry to be so wordy but the reason I don’t want to say something like we are due for a relief bounce or whatever is that some of the mathematical indicators, particularly RSI, are giving me the heads up that we are/could be looking at a breakdown below the pattern edges. Very tough place to make any kind of call without doing your homework.

    BOP, you are in Detroit?

  136. 136
    BirdsofpreyRcool Says:

    tater – yes.

  137. 137
    zman Says:

    Volumes were light. Not this afternoon. Huge upswing in volumes as the stocks hit their LOD at the close. Funds appear to be just giving up.

    The best group in energy is down 6.5%, the Majors.

    Gassy stocks and oil service off 10 to 11%.

    CHK down another 17.5%, that’s a huge over reaction to the secondard.

    HK down 20%, that’s a reaction to what I don’t know. They are weeks away from news on a second and third Eagle Ford Shale wells. That play is not in the stock at all.

  138. 138
    VTZ Says:

    How much more giving up can they do? Go to 100% cash? Doesn’t even make sense.

  139. 139
    Nicky Says:

    Cycles are not pointing to a major low for oil until January 2009. That said we are likely to start putting in a basing pattern and I am looking for a wave IV rally one we get this wretched low which will take us up to the high 60’s early 70’s before a final fall in V likely to 40. I am still hopeful that a low for 5 of 3 is almost in – 41 ish?

  140. 140
    Jay Reynolds Says:

    My production is now below breakeven..
    Hurry up Dec 19th!

  141. 141
    ram Says:

    Hello Nicky.

  142. 142
    zman Says:

    Jay – do you have any data or links on the % of U.S. production coming from stripper wells. I recall you said it was a significant piece of production. Can you point me to a good source?

  143. 143
    md Says:

    Nicky
    Excuse my ignorance. I have little understanding of charts. but seeing that CL is already below 43 how low would we need to go in the final fall to be called a V. Is 40 too optimistic
    Is your TA saying we’ll be going up to 60-70 before y.e. and back down to 40 sometine in January.

  144. 144
    Nicky Says:

    Hi md

    I think we are very close to a low for 5 of 3 – anywhere between today’s low and 39 I would say. Today’s almost vertical move down was very typical of a wave 5. Then in answer to your question we stage a very good bounce back towards the 70 region before turning lower again and making a lower low. The lower low could get as low as 20 where there is massive support or we could just undercut whatever low we make in the next few days.

  145. 145
    Jay Reynolds Says:

    Z –

    And the DOE says…….

    “One out of every six barrels of crude oil produced in the United States comes from a marginal well – a well whose production has slowed to 10 barrels a day or less. Over 85 percent of the total number of U.S. oil wells are now classified as marginal wells. There are over 420,000 of these wells in the United States, and together they produce more than 915,000 barrels of oil per day, or 18 percent of U.S. production. Stripper wells are more common in older oil and gas producing regions, most notably in Appalachia, Texas and Oklahoma.”

    http://www.fossil.energy.gov/programs/oilgas/marginalwells/index.html

  146. 146
    zman Says:

    Jay – any thought as to turning off the pump when below your cost yet? I assume your cost is largely electricity.

  147. 147
    zman Says:

    and transportation

  148. 148
    md Says:

    N
    Do you factor a bearish jobless report

  149. 149
    Nicky Says:

    Well the indices are brewing for a break and I think it will be to the downside. It looks like we are in v of C down so likely down to around 8250, bounce in wave 2 back to 8400 and then on down in 3. A move above today’s highs would say this count was wrong.

    As far as trying to align it with oil – I think oil count may be closer to completion on the downside.

  150. 150
    Jay Reynolds Says:

    Z –

    The transportation costs are already factored into the discount we receive from our purchaser off of the WTI daily price (averaged for the month).

    Turning off the pumps could make sense if I were willing to lose all cashflow, all employees, and if turned off for a period longer than the lease allows, (typically 90 days) then there would also be the danger of losing my leases as well.

    With the HS closing in and my leases covering deep rights, I really don’t want to lose the leases! Just the cost to recover the equipment would be a BK event.

    I’d like one of the SOB’s who’s always talking about windfall profits to walk in my shoes for a day!

  151. 151
    zman Says:

    Thanks Jay, I was thinking your main costs are the discount to WTI for transportation and employees and electricity. So if you were not concerned about holding the leases and you only owned a well or two on your property, you might shut in so you aren’t upside down. Just thinking that at some price, some strippers with quit pumping and wait on prices to return rather than lose money each month. Any chance you can ballpark me the discount to WTI, and the average LOE per BOE on the wells. If not I can probably dig up a good ball park. Just curious.

  152. 152
    Jay Reynolds Says:

    My discount to WTI for our 21-22 API gravity oil is about $3.00.

    My wells only make about .66 BOPD so there is no way only to produce a few of them and be able to keep going. The minimum number we can produce and not run afoul of the responsibility I have as an operator (from the Lessor’s perspective) is about 75 wells. I have nearly 250, with all of the remainder needing equipment and infrastructure rebuilt. All of the wells I operate were stripped of all equipment during the bust of the 80’s, all were very marginal then, all are marginal now.

    LOE/BBL is about $40. I have one pumper, ($1k/wk) two “hands” at $14.50/hr. We’d REALLY be dead if we still needed regular workover rigs, they haven’t lowered their rates a bit. Nor has electricity dropped, tubulars, small hardware, etc..

    I COULD quit pumping for a month at a time but would have no hope of having any (wage) income for myself during that time. What I REALLY need is to try to snag a grant to take the flexible production to the next level which would be to depths of 2,500′ or so.

    Long story short is that for folks in the same situation as myself, we can more or less hang on, and our production stays on the market for the time being (even if I have to cash in my IRA to subsidize the company) but there is NO WAY that I can get more wells into production because there is no profit to reinvest.

    Hope this answered your question, let me know if it did not and I’ll take another stab at it.

  153. 153
    zman Says:

    JR – more than adequate, thanks very much and kind of what I thought. They’ll keep pumping unless we stay down here a long time and then look to consolidators or just quit and shut and find another career.

    I guess I know where you stand on Pelosi’s “$35 oil is adequate to generate investment in oil drilling” statement last month.

  154. 154
    Jay Reynolds Says:

    PS Our discount to WTI is as low as it is because our oil has some special qualities as a napthenic that make it highly desirable for the manufacture of specialty waxes, “white oil” and lubricants.

    It is trucked all the way out of state to be refined in Smackover, Arkansas.

  155. 155
    zman Says:

    I did think the $3 sounded light. I’ve seen several comments lately of $10 to $12 per barrel (but not stripper wells) and they thought that was pretty good.

    Well at least at these prices I assume oil theft is down.

  156. 156
    zman Says:

    IEA on the tape saying oil prices are too low. Oil trading up a whopping 37 cents now to 44.04. These are the guys who said production was too low well into the recession and begged OPEC to produce more to get prices down. Now they are worried about long term investment in oil developments on a global basis. Way to go guys.

  157. 157
    http://prosharers.com/?r=34080 Says:

    http://prosharers.com/?r=34080

    Zman

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