11
Dec

Thursday – Natural Gas Preview and Oil Review

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In Today’s Post:

  1. Holdings Watch - I cut back on the CHK holdings after a 50% run in the first half of this week but continue to hold December and January calls.
  2. Commodity Watch
  3. Natural Gas Preview - a somewhat wordy look at this week's storage number which I expect to best the Street estimate and which should be good for natural gas.
  4. EIA Oil Inventory Review -  In a nutshell: an odd and somewhat bearish report.
  5. Stuff We Care About Today - BEXP, GMXR
  6. Odds & Ends

 

Holdings Watch:

  • CHK - $10KP Trade - Sold 2 of the 3 CHK Dec. $10 calls CHKLV for $5.50, up 157%.

 

Commodity Watch:

Crude oil rallied hard closing up $1.45 at $43.52 yesterday despite what was universally perceived as a bearish EIA inventory report (see breakout below). The main point about that report was that products built at what would be an alarming rate for bulls as the refining industry lost its mind and sent utilization up to a four month high despite lackluster demand. Stranger things have happened and I would not expect them to continue this course of action, not given where cracks are (think somewhere under the cellar). This morning crude is trading up another $1 to $2.

  • Saudi Watch: According to Reuters ~ Saudi Arabia told major customers yesterday it was reducing supplies substantially next month in a move that could bring the kingdom's output below its implied Opec target of 8.47 million barrels per day. Also this morning, Saudi said it produced 8.493 mm bopd last month, much lower than traders had assumed.

Natural gas rose $0.11 to close at $5.69 yesterday on the back of higher if not more stable oil prices. This morning gas is trading up slightly ahead of storage data.

Natural Gas Preview

  • My number: 90 Bcf withdrawal.
    • Weather: gas-weighted HDDs were 192 last week, the coldest yet of the season.
    • Imports: flat with last week and just under year ago levels so it shouldn't be much of a factor week to week. 
  • History:
    • Last week: 64 Bcf withdrawal with HDDs of 168.
    • Last year: 129 Bcf  "   " 
    • 5 year average: 108 Bcf withdrawal
  • Street Consensus: 83 Bcf.

ZComment: Last week the Street overestimated demand calling for a season to date high withdrawal despite warmer weather in the reporting week. The result was that gas cracked into $5 handle territory plunging ---% over three straight sessions. This week it looks like the analysts have their numbers more in line with reason. Of particular interest to me is finding comparable weather figures between this year and last and comparing storage withdrawals. On that front we are in luck:

  • This year the week ended Nov 22 scored 176 HDDs and recorded a withdrawal of 66 Bcf.
  • Last year, the week ended Nov 29 scored 175 HDDS and saw a withdrawal of 88 Bcf.
  • The delta of 22 Bcf between the two reports should be the increase in supply on a YoY less change in demand.
  • In this case, the answer is 3 Bcfgpd, which is lower than I would have expected given that we know supply is running 4 to 5 Bcfgpd heavy to year ago levels and that demand must be off due to the economy (but apparently only modestly so).
  • Part of the difference will be attributable to differing storage levels, the shape of the NG futures curve (currently in contango (rising in the future)) and where the HDDs were derived from (although the numbers I use are population weighted and further weighted towards homes that use natural gas as a space heating source). Anyway, the 3 Bcfgpd number is still smaller than I would have thought, especially since imports are coming back into line with year ago levels.
  • Anyway, I digress. My point is that this week we are again graced with matching HDD numbers and this time they nearly match the comparable week from one year ago at 192 this week vs 194 in the year ago week.
  • Recall from above last year saw a withdrawal of 129 Bcf on that 194 HDD number. So I blew the delta out to 5 Bcfgpd (35 Bcf in total for the week) and then rounded down to come up with my 90 Bcf number. Its as much art as it is science but last week barely saw withdrawals from the Producing and West gas regions and that will change with today's number.

EIA Oil Inventory Review - one small step for crude stocks, one giant leap for distillate. In short, a very bad number for what has been the one bright spot in the refining segment in terms of margins.

CRUDE OIL - Much smaller than expected stock build as refiners crank up production.

Utilization and refinery inputs rose last week. Refiner inputs were at their highest level since August at 87.4%. Maybe the idea here is to make product with cheap oil, stockpiling it for future sale at higher prices. Demand certainly doesn't warrant the uptick in utilization.

 

 

 

Crude Stocks move up less than expected last week due to higher input to refiners but the overall trend in stocks remains up when it normally would be coming off seasonally. OPEC has been talking about this build in U.S. and other developed inventories for months now and the shape of this curve should give them considerable cause to further curtail output next week.

 

 

GASOLINE - Much bigger than expected build brought about by a confluence of fat imports and production. I don't expect production to stay up here long as gasoline margins are negative in 4 out of 5 regions of the country and producing more at a loss in the face of weak demand (still down 3.5% YoY according to last week's report) makes little economic sense.

 

 

 

 

 

 

DISTILLATES - Production up and demand slouching. Exports have been a key driver in supporting distillate margins in the second half of 2008 but that appears to be coming to an end. Anecdotal evidence is cropping up that China is increasing diesel exports at an alarming rate.

 

Stuff We Care About Today

BEXP -  beaten down but looking up.

  • Oil & Gas Investory Bakken Shale Webcast at 11 EST at www.bexp3d.com
  • Shareholder rights plan put in place with 15% trigger
  • insider buying starting to show up

GMXR - low debt, gassy, high production and reserve growth. Presentation worth a look if you never have.

  • Rapid CFPS Advance. Even as price expectations for natural gas fall on the Street, CFPS estimates rise from $0.93 in 2007 to $1.90 this year to $2.44 next year to $4.99 by 2010.
  • As they shift/expand drilling to the Haynesville from the Cotton Valley, they are targetting 93% production growth next year to 25 Bcfe.
  • Enterprise value to reserves: $1.04 per Mcfe based on 2007 proved reserves of 435 Bcfe. What they call 4P reserves come to 4.1 Tcfe.

Odds & Ends

Analyst Watch: (DBLE), (RAME), and (TEC) started at Buy at Wunderlich.

134 Responses to “Thursday – Natural Gas Preview and Oil Review”

  1. 1
    elduque Says:

    Doesn’t anyone love you?

  2. 2
    zman Says:

    Dunno. Pretty quiet today.

  3. 3
    jsaun14 Says:

    Trying to stay warm…

  4. 4
    zman Says:

    XOM within a hair of that breakout level, need to see it solidly through $81.

    NG stocks kind of holding their breath pre numbers as is NG.

    Sitting here thinking about taking some GMXR. GDP just rebounded like crazy. Same kind of high growth, low debt, focused play.

  5. 5
    zman Says:

    JS – no kidding. I think the forecast for HDDs will prove to be too warm for this week. Snow flurries over night in LR, hopefully good sledding this Christmas.

  6. 6
    zman Says:

    BEXP back to $4 from mid $2 last week. They should have a pretty good speech on the Bakken today.

  7. 7
    BirdsofpreyRcool Says:

    Credit indices all over the place this morning… and trading outta whack with the underlying single-bond mrkt. Just another day in paradise.

    IG 263 +1bps

    HY 73 1/2 <== worse, for first time in last 3 days… could be the auto-bailout affect

  8. 8
    BirdsofpreyRcool Says:

    looks like the “infrastructure plays” are still heading higher this morning. Adding onto some pretty amazing runs already.

  9. 9
    zman Says:

    I’ve tried splitting the bid/ask on 5 different sets of GMXR calls this morning. No sellers, not even when I get up very close to the offer. Stock walking higher. They speak at Prichard Capital tomorrow. Looking at $30s and $35 in various maturities.

  10. 10
    zman Says:

    ZTRADE: $10KP Trade

    Bought (3) GMXR February $35 calls for $2.10 with the stock up $1.75. Its had a good run but remains very cheap (see details in today’s post). They speak at another conference tomorrow and I’ll take more today if it dips post gas numbers. Very interesting story, see to latest presentation link on site today.

  11. 11
    zman Says:

    NFX creeping up nicely off the lows. Just hold the common there, hard to play options. Lots of long term value and a strong international and deepwater portfolio could make it a target of someone like DVN when the markets do free up.

  12. 12
    zman Says:

    knock, knock. This thing on?

  13. 13
    zman Says:

    EOG doing its thing again as well.

    CHK racing again and volume is half of a normal day’s already.

  14. 14
    BirdsofpreyRcool Says:

    IG 260 -2bps oh, goody. a rally! for now.

  15. 15
    zman Says:

    SWN working again as well having blown back up through its 50 day on Tuesday, 200 day at about 36 so it has $4 room to run should the gas number come out as benevolent as I’m looking for.

  16. 16
    zman Says:

    Thanks for the credit color BOP. So hard to tell (impossible) by what the talking heads are saying. One minute it sounds like things are working, the next like no one is at home.

  17. 17
    zman Says:

    NG up 2 cents with 1 minute to go until inventories.

    Consensus is 83 with a broad range from 65 to 112 for the number. Median seems to be about 90 which is what I’m looking for.

  18. 18
    zman Says:

    67 Bcf, horrible number.

  19. 19
    BirdsofpreyRcool Says:

    yikes! wonder why the number is so low… affect of industrial (non)usage??

  20. 20
    zman Says:

    Gotta be some more industrial demand destruction showing up in a number like that. Now, we are pretty beat down on gas and if the market shrugs this off, which it may in the stocks at least, then we are going to be looking at a further rally. Gas sank 10 cents on the number and is trying to rally. Tells you the “enough is enough” trade may be on, similar as the reaction to bearish looking oil numbers yesterday.

  21. 21
    zman Says:

    BOP – gotta be a combination of slack Steel and Chemical demand on the Industrial side. Also, the fact that imports are finally trading in line with year ago levels having been in deficit all year long is not really helping the cause for higher gas prices here. One other factor that I may have bricked on is the trickle higher in Gomex production over the last several weeks as platforms come back on line from storm outages.

    Anyway you slice it, the combination of higher supply and lower demand come to 9 Bcfgpd of change from year ago levels. So maybe 5 Bcfgpd of extra supply and 4 Bcfgpd of lower demand. Ouch.

  22. 22
    BirdsofpreyRcool Says:

    nice insider buy on XCO yesterday… director bought 50k shares at $8.43

  23. 23
    Popeye Says:

    HK held up better on that number than CHK.

  24. 24
    BirdsofpreyRcool Says:

    z – good point about the GOM trickle-back affect. That, plus you just know industrial demand is down… AGU announcing production cuts is just one example.

  25. 25
    zman Says:

    Bird – thanks for pointing that out, did not see one that big. I really ought to be long there.

    Popeye. Yeah, CHK may take a breather but there seems to be a lot of volume on the buy side there right now. Really impressed with GMXR up $2 after the number. That’ll change though if NG can’t fight it off, now down 12 cents.

  26. 26
    zman Says:

    BOP – and the Dow Chemical 120 plant announcement…gotta be a good piece of gas in that one. Steel mills being shuttered left and right doesn’t help either.

  27. 27
    BirdsofpreyRcool Says:

    what did you say avg industrial use of nat gas is during the draw months… something like 20%?

  28. 28
    BirdsofpreyRcool Says:

    also, wonder if the slow-down in oil sands projects means more canadian gas hitting the US.

  29. 29
    reefguy Says:

    cpe up another 33%- a five day change of 240%

  30. 30
    zman Says:

    Industrial over the winter ranges from 25 to 30%.

    Gas from Canada still a little low to year ago numbers.

    CPE – I know. Unreal. Saw a director sold a little, didn’t phase the stock. I just keep thinking my single digit midget play in BEXP will turn…start to.

  31. 31
    BirdsofpreyRcool Says:

    IG 260… holding in there

  32. 32
    zman Says:

    If anything, today’s gas number will just solidify the move to fewer rigs.

  33. 33
    zman Says:

    Pretty impressed with the gassy names not getting slaughtered after the run they’ve had and that weak gas number.

    GDP probably a gift here. GMXR still up $2 on the day, just didn’t pull back like I would have thought.

  34. 34
    zman Says:

    By the way, physic nobel laureate Steven Chu of Berkley, a nuclear guy, to head DOE.

  35. 35
    zman Says:

    Oil up nearly $4. Nicky, I think that’s through your level now at $47.30. Market starting to trust the Saudi’s are serious.

  36. 36
    zman Says:

    BOP have you looked at the Bakken Shale oil and gas investor slides. Very interesting. Have not seen your KOG mentioned yet.

  37. 37
    BirdsofpreyRcool Says:

    z – thanks. on a diff conf call… but, want to join after. KOG is just a flea on the Bakken Elephant, right now. But, partnered with Hunt Oil… so, can’t write them off yet.

  38. 38
    zman Says:

    Very definitely can’t write them off just yet. Can’t get the audio to launch on the BEXP call but the slides are pretty cool, doing a little learning on an otherwise quiet day.

    Energy outperforming the broad market by a wide margin again. Apparently oil is the new black.

  39. 39
    BirdsofpreyRcool Says:

    IG 258… credit (or, at least the investment grade index) grinding a bit higher.

  40. 40
    zman Says:

    Wunderlich picked up GMXR with a Buy rating and $67 price target this morning. Does anyone have any idea who Wunderlich is?

  41. 41
    BirdsofpreyRcool Says:

    Russia on the tape, talking about lowering production to support oil prices.

  42. 42
    BirdsofpreyRcool Says:

    does “wunderlich” mean “great picks” in German? never heard of ’em.

  43. 43
    zman Says:

    Thanks BOP

    Wunderlich out of Memphis with a whopping 250 employees. Don’t know the energy analyst there.

  44. 44
    MMarkkk Says:

    Z – Chu is an alternative energy guy and a big global warming fan! Maybe he should have been down on Galveston Beach last night when it was SNOWING!! Yeah, its warming alright! Sand and snow don’t make good snow balls…but they hurt when they hit you!

    His appointment concerns me but doesn’t surprise me. I guess Natural Gas driven cars aren’t going to be real high on his list!

    Been looking at selling way-out-of-the-money puts on EOG and CHK. Apr $40’s on EOG were selling at $2.50 yesterday. Seems like a pretty good bet that EOG doesn’t get down to 40 and even if it does, I don’t mind buying it there! Hey, its Christmas break and trying to eat up vacation days! These are just small money raising trades while waiting for a bottom in the overall market…think we may be getting there but we’ll probably bounce on that bottom for a while. Would like to see a sustaing move up before jumping in. What else are you going to do? Look over all the money that’s been lost?

  45. 45
    zman Says:

    Mark – hear ya on Chu. Goes hand in hand with other appointments of late. What, did Al Gore want too much $? Anyway, gotta like solar, wind, rainbow power et al out of this.

    Any sign of a pickup in the M&A thinking? Last I heard, the big boys were still content to sit on their hands and watch E&P fall through the floor.

  46. 46
    zman Says:

    Another day for BEXP like today and I’ll be back to even.

    NG still shrugging at that inventory number, off only 8 cents. Energy still looks to be the play of the week, day, maybe into year end.

    XOM on the tape saying Golden Pass LNG regas terminal on the coast to be delayed beyond original mid 2009 start date due to hurricane damage.

  47. 47
    zman Says:

    Russian oil cut story:

    http://www.nytimes.com/2008/12/11/business/worldbusiness/11oil.html?ref=world

  48. 48
    Dman Says:

    Z – thought I’d better chime in here re. #34.

    Steven Chu won his Nobel for experiments in laser-trapping of atoms. So you could certainly say he worked in “atomic physics”. But you couldn’t say he worked in “nuclear physics” because this work doesn’t involve any reactions in the nucleus of the atom.

    So these were really fundamental experiments in quantum mechanics and unrelated to anything to do with nuclear power or (for that matter) nuclear weapons. From what I can see, his earlier work also involved atomic physics, as opposed to nuclear physics.

    Having said that, with that background he will be far better equipped than the average appointee (to put it mildly) to understand the nuclear physics that DOE supervises. So his underlings had better not try snowing him the way they would a normal bureaucrat. According to his webpage he is already on some kind of nuclear advisory committee.

    Recently he has spearheaded a move by the Lawrence Berkeley National Laboratory into solar-generated fuels (eg biofuels).

    (note that this is not the very similar sounding Lawrence Livermore National Laboratory that does the weapons research)

    I would imagine that from Obama’s viewpoint, Chu’s alt-energy enthusiasm combined with obvious ability to understand the nuclear side makes an ideal combination.

    Frankly, this is the only appointment so far that gives me much “hope”, to use phrase much used recently. All the others looked somewhere between “OK, probably not a catastrophe” to “not sure”. Whereas Chu is, pretty obviously, a good appointment.

  49. 49
    Bleemus Says:

    Dman,
    I agree. Chu increases my feeling that we will see CNG cars sooner rather than later. I have seen some great speeches by him on water resources and he appears to be very well versed in commodities.

  50. 50
    BirdsofpreyRcool Says:

    IG 257… still moving tigher (better)

  51. 51
    zman Says:

    Thanks very much for setting me straight on the guy Dman and Bleemus. As long as he’s not anti-nat gas that’s a positive. I was a little concerned by some of the anti-gas moves in the West that I’ve heard about post election. CNG could be very much of a game changer for the U.S. if we just go ahead and do it.

  52. 52
    zman Says:

    Re 48 and 49. One of my favorite things about this site is that I don’t fall into “knowing” what I think I know. Thanks guys.

  53. 53
    MMarkkk Says:

    Z – all you have to do is look at the number of deals being done to see the direction…very few making moves at this point.

    Christmas wish list: all of the current pipeline expansion projects in Haynesville area are severely delayed by any cause you can think about, right of way issues, landowner protests, pipe shortages, endangered species, whatever. Marcellus shale drilling permitting shut down by new incoming EPA director. Then, we might have a chance for demand and supply to get back in balance and level out the prices for NG! If HK and those guys keep bringing in those monster wells we’ll continue to have surpluses and low low prices.

  54. 54
    BirdsofpreyRcool Says:

    IG 256 1/2 -4 1/2… picking up a little activity. good to see.

  55. 55
    cargocult Says:

    What is your outlook on HK between now and expiration? I own Dec. 17.50’s.

  56. 56
    zman Says:

    Cargo – my best guess is we go higher through Tuesday. I’m no chartist but I’d say we have a good shot at testing $20, key points are 19.70 and then resistance at $22. I don’t think they get an Eagle Ford pr out the door before the end of next week but its a possibility. I think the group runs into the day before the 17th, OPEC and then profit taking sets in so I want to be out of most things December by then. I’ll reload in January or longer dated calls if oil takes a breather on the OPEC news. I know its gassier than it is oily but gas will be much influenced by oil over the next few weeks.

  57. 57
    zman Says:

    Thanks Mark – so the chatter is still not very interested? They must at least be having their M&A guys run daily looks at what’s gotten absurdly cheap.

    Re the big wells vs gas prices, yeah, I know, I just want to have my cake (big wells) and eat it too (stabilized gas prices as other companies reign in spending). Along with low debt, conservative spending on the shopping list are high growth for me, low for the other guy. Which points to names like GMXR who are going to pull off higher EBITDA generation in a lower gas price environment due to a hockey stick shaped production profile.

  58. 58
    zman Says:

    NG up a nickel now.

  59. 59
    jy Says:

    Per Encana 2009 Budget conference call today:

    Haynesville-
    Plan to drill 28-30 net wells in 2009.
    ½ of the wells on 100% Encana leases and other ½ on mixed leases.
    $300,000,000 budgeted for Haynesville in 2009, $8-10,000,000/well cost.
    Encana “sees no layoffs in 2009 even though they foresee a significant spending decrease”

  60. 60
    zman Says:

    Thanks jy. Money seems to be flowing away from everywhere else to punch holes in the Haynesville.

  61. 61
    zman Says:

    XOM up through its 200 day ema now.

  62. 62
    zman Says:

    CVX just below its 200 day, COP not even close. I may add some COP as they are cheap and if XOM is greenlighting a move in the Majors, COP probably has further to run as fund managers look for greater leverage on a move higher.

  63. 63
    Dman Says:

    Z – I don’t know any specifics on Chu’s views about natural gas, but I can tell you how physicists think: if you are trying to build an electric/alt energy/biofuel future, that is not going to happen overnight. Natural gas makes an ideal bridge to that future. I mean, this is all obvious so I won’t belabour it but CNG is cleaner than what is would be replacing and the US actually has the stuff. So I can’t see how a physicist who embraces biofuels would be opposed to CNG.

    On the environment side, CNG is *cleaner* than biofuels in ordinary pollution terms, although arguably not as good on the greenhouse side (mainly because unburnt CH4 is a nasty greenhouse gas), whereas (in theory) biofuels suck out CO2 from the air when you make/grow them, so they don’t add to CO2 (ideally). If there was a way to solve the unburnt CH4 problem (the sort of problem a physicist might allocate funding to) then CNG is a clear greenhouse winner.

  64. 64
    zman Says:

    The only fear I have of the enviro guys with regard to natural gas is the frac/water issue. They could move to limit how the wells are completed.

  65. 65
    MMarkkk Says:

    Z – So far, everything is absurdly cheap! We are well beyond that! 2 things in play: waiting for even better bargains (!) and overall budget cutting i.e. the Encana comment in #59 above. But with $30-40 B-b-b-billion in cash, XOM has to be a little itchy!! Their ROCE on that cash must be dragging down their overall ROCE.

    Also, just looked at some numbers on differentials in the gas market: based on a benchmark NYMEX price of $6.81 per MMBtu for Q4,
    Rockies (Opal) prices $3.57 per MMBtu (52% of NYMEX) and the
    Mid-Con $3.80 per MMBtu (56% of NYMEX). Appalachia at a premium
    (107% of NYMEX), Houston Ship Channel (South Texas) 94% of NYMEX. Probably will get worse going in to 1Q09 in the Rockies and MidCon going forward
    as the REX East line not expected to be completed until November 2009.

    Those MidCon prices make NFX’s Woodford look kind of rough. I’m sure they have hedges in place but if they didn’t back up the differentials, they could stll be getting hit.

  66. 66
    Dman Says:

    #64 Is it a water usage/shortage issue or a contamination issue?

  67. 67
    zman Says:

    Mark – thanks for the color.

    Re Exxon. Since when have they cared about growing domestic gas or oil production, lol? They punted Barnett the other day due to low gas prices. I think they much prefer spending way too much to drill a well than they do buying a CHK who cuts costs as they improve the science. Sorry to any XOM guy who reads this today. I have a cold so it may just be the fever talking.

  68. 68
    BirdsofpreyRcool Says:

    from Ed Nardelli’s daily mrkt commentary. Pretty much along the lines of what we have been saying…

    In Chicago, they also asked me about the best indicator to monitor for confirmation that the credit crunch is finally ending and the stock market has really and truly bottomed. The answer is credit quality spreads in the corporate bond market. They remain near this cycle’s highs. They need to narrow significantly to confirm a bottom in the Financials, which has always been a necessary condition for making a bottom in the overall stock market. Not surprisingly, the inverse of the spreads between corporate investment grade bond yields and the 10-year Treasury yield are highly correlated with the forward earnings of Financials, particularly Diversified Banks and Regional Banks.

    TARP capital injections won’t do much good unless the economy recovers and banks stop losing money. If the Treasury unveils a Home Recovery Program soon, then capital gains on fixed-income securities held by banks should help to stem losses and boost bank capital. If the program actually revives overall economic growth, as I expect it will, then credit spreads should narrow dramatically, and Financials should continue the rally from the sector’s bottom on November 20. Then happy days will be here again for the overall stock market.

  69. 69
    Pete Says:

    Z,

    Do you have any feeling how deep OPEC will cut next week? A followup would be is the cut already built into the price and would you sell before the meeting or hold?

  70. 70
    zman Says:

    Dman – a little of both re 66. There are some scary mercury stories out there. Marcellus promises to be tougher in a number of ways as permitting has gotten tricky up there due to local enviro concerns. Now, Aubrey would probably drink a glass of the return water to prove his point but I won’t.

  71. 71
    BirdsofpreyRcool Says:

    IG 256 -5bps

    HY 73 1/2 … stuck in the mud

  72. 72
    zman Says:

    Pete – I think they know 2 mm bopd will be a disappointment and they do not want to do that. I expect 2.5 but not 3 mm bopd. The nature of the cut itself may be more important than the size. Saudi has to take a bigger share on their shoulders. At these prices, Iran and Venezuela, really can’t afford to stay within their quotas despite their rhetoric. So they will cheat more the lower prices go.

    The other thing that will keep prices at current levels or even see them into the $50s will be a joint cooperation statement with Russia, and possibly with Norway and Mexico (but again, Mexico is one that will not follow through on any promise to cut as they are being naturally cut by steep declines and can’t come close to balance their budget at these oil prices). It looks like Russia is on board with this plan and I know the other two have been approached but I’ve not seen a response yet. Russia had a great decade of growth which is coming to an end both due to the financial markets and due to partners who are feeling the strain of shifting deal metrics based on Putin’s whim. So they are going lower next year either way but I could see them having fun pushing the U.S. a little via a 1 mm bopd cut. If they announce a cut of that size, then look for Brent to spike and crude futures to top $55 muey pronto.

  73. 73
    zman Says:

    And Pete, with 72 in mind, I plan on lightening up pre meeting next week.

  74. 74
    Pete Says:

    Much appreciated Z

  75. 75
    Dman Says:

    PQ up 16%.

    Z – any thoughts there or on the other midgets at this point? (Aside from BEXP that you mentioned earlier).

  76. 76
    Jay Reynolds Says:

    I have a good friend who moved from head of sciences at LSUS to an enviornmental company. While they operate salt water disposal wells, he says they will need none in five years and are moving very quickly on recycling/rendering harmless all “flowback” fluids from NG HS completions.

  77. 77
    zman Says:

    Dman – let me do that in tomorrow’s post. Right now there is a bit of rising tide feel to the moves and while I think they are overdue for a pop, some of these names are truly going to be in pain next year. Don’t want to just wing it.

  78. 78
    BirdsofpreyRcool Says:

    funny thing, I noticed CLR hadn’t moved much this morning. Well, it’s made up for that now. Seems to be a lot of faith going into the next OPEC mtg.

  79. 79
    zman Says:

    Crude up $5, stocks are balking a bit at that action, which to me looks like short covering. Tomorrow the story could be “oil retreats on global recession gloom” or some such so you really can’t blame them.

  80. 80
    zman Says:

    BEXP up 22% to $4.60. Talk about some $5 calls coming back from the dead.

  81. 81
    Dman Says:

    On a 10 day chart, EOG sticking to USO like glue. CLR way ahead of USO (up 17% vs down 8% over the 10 days).

  82. 82
    zman Says:

    Dman – combination of oil outperforming gas and risk outperforming relative safety last couple of days.

  83. 83
    zman Says:

    re 82, hence you start to see names like HK outstrip names like SWN in terms of performance. Risky vs less risky starting to work. Probably get a sharp snap down soon as people will be tempted to go into that meeting flat. Maybe a Tuesday sell off mid day.

  84. 84
    BossmanG Says:

    BOP, who is Ed Nardelli???

  85. 85
    Dman Says:

    Yep, it sure looks like the OPEC effect is being spent ahead of time.

  86. 86
    BirdsofpreyRcool Says:

    z – an energy analyst i know is advising his PM to get flat on energy Tuesday morning. Ahead of OPEC. He points out that OPEC almost always disappoints the hype run up before the mtg. So, basically, you guys are saying the same thing.

  87. 87
    zman Says:

    …maybe some DUG calls soon and/or OIH puts. Just feels long in tooth for the near term.

  88. 88
    BirdsofpreyRcool Says:

    BossmanG – LOL. oops. little slip between the brain and the keyboard: meant to attribute that comment to Ed Yardeni. Guess I’ve been watching too much testimony from the auto-guys.

    Good catch!!

  89. 89
    Dman Says:

    Is there an ETF that tracks the dollar index?

  90. 90
    BirdsofpreyRcool Says:

    IG 255 -6bps… but, there is a disconnect between the index (good) and the individual bond CDS curves (bad). So, some games being played with the index that are not reflected in the underlying single-bond mrkt.

    Still beats seeing the IG index at 292, tho!

  91. 91
    Bleemus Says:

    Dman,
    UUP is a dollar ETF.

    The investment seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures index. The index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

  92. 92
    choices Says:

    UUP is dollar up, UDN is dollar down.

  93. 93
    orion Says:

    Z, Your thoughts on XLE puts as a hedge vice OIH. I don’t recall you ever using XLE.

  94. 94
    BirdsofpreyRcool Says:

    IG 256 -4bps

  95. 95
    zman Says:

    Orion – I like the service specific index a little better as service names should see a more demonstrable reduction in fundamentals over the next couple of months. But if you are just looking at next week then XLE generally has better spreads and will likely work as well.

  96. 96
    BossmanG Says:

    lol no prob BOP, I thought it was me…drinking last night…warmup for work xmas party tonight…open bar 🙂

  97. 97
    orion Says:

    Z, thanks

  98. 98
    Nicky Says:

    Good afternoon all.

    Z following up from yesterday I am now thinking that if we go up into OPEC decision then for sure we sell off after and vice versa.

    My thoughts here are that we are in ii up of v down for oil in which case we may see another shot at today’s highs or just above and then the sell off down to the previous lows.

    Everything I am looking at is building up for a reversal – $, euro, metals, indices…..

    Indices – 884 continues to act as support and whilst it holds there is still a chance of another look at the highs set earlier in the week. Once 884 is taken out then likely we test 857 or lower.

    High is due 12/15 Dec plus or minus a day so we are in the window….

  99. 99
    zman Says:

    Orion – re timing of that, I’m waiting for those jokers on the Hill to pass the auto bailout and the subsequent spike we will see. I saw someone saw the Reps who were against it yesterday are now happier because the timeline for re-org plan went from March 30, to March 15. Anyway, they have to know they will get trussed up for boosting the recession if they let the big 3 die so they are probably looking for something in return for their support. Market wants the deal so its passage should inspire a pretty sharp trip digit rally. This is no way to run a country.

  100. 100
    zman Says:

    Afternoon Nicky, me too re oil, especially given the velocity of the move. Feels like a big cover and then new positions and down we go again, maybe not piercing $40 but the amount of tankering at sea could serve to limit a bigger rally too. Say range bound $40 to $50 unless something really big comes out of the OPEC meet and greet with Putin.

  101. 101
    Bleemus Says:

    14:41ET DJ Saudi Oil Min: Saudi Cut Output To 8.5 Million B/D In Nov-Bloomberg

  102. 102
    BirdsofpreyRcool Says:

    IG 260 now

  103. 103
    choices Says:

    Z, I’m a new subscriber (3d day)

    What do you feel is the short and intermediate impact of today’s nat gas number? The Nat gas producers are now selling off and nat gas itself is weak-the weak industrial usage is very troublesome for the short and intermediate term out a few months.

    Thanks.

    Tom

  104. 104
    reefguy Says:

    cubic, mainland, How much HY leasehold?

  105. 105
    zman Says:

    Tom:

    1) thanks for subscribing

    2) re gas, in a nutshell its not great. Not so much from an absolute amount of gas in storage standpoint but rather from what it tells us about industrial demand. I think much of that weakness is priced into gas at present although we may drift towards $5. At this point you can point to uneconomic production over a broad swath of the U.S. So rigs fall off even faster and another round of capex cuts is probably around the corner.

    3) while the gassy stocks are off its much more of a function of the broad market sell down which is part profit taking and part worry of the car deal.

    4) short term is a bit better than a crap shoot for another move higher soon for the producers even with gas falling into the lower $5s (which it has resisted so far but only due to strength in oil).

  106. 106
    zman Says:

    I recall 6300 acres for Cubic. Will double check.

  107. 107
    BirdsofpreyRcool Says:

    HY 73 3/8

  108. 108
    tater Says:

    I’ve been out all day and am very reluctant to listen to the garbage on CNBC. Was there a catalyst for this sell-off over the last hour (news)?

  109. 109
    zman Says:

    Reef, yep, QBC has 6326 acres in Haynesville (around Bethany Longstreet field) as of mid year, no update I see since then.

  110. 110
    choices Says:

    Thanks, Z

  111. 111
    BirdsofpreyRcool Says:

    IG 262… falling with stocks.

  112. 112
    zman Says:

    Tater – it seemed to be just an inability to go higher in the face of Senate resistance and then the selling kind of built on itself. The gas number stunk up the cave but oil has helped mitigate further price declines there. The stocks were not really buying into up $5 oil early on and when the broad market tanked, so did they.

  113. 113
    BirdsofpreyRcool Says:

    LOL… you’re pretty funny with the cave jokes, z. Keep ’em coming. More fun than watching all this red splattered across my screen.

  114. 114
    tater Says:

    Appreciate it. Went to go get the family jewels removed from my dog. Just not in the mood for the Dennis and Friends show.

  115. 115
    zman Says:

    CNBC just mentioned CHK as the worst performer on the day in the group and that Dec 20 call option activity is through the roof.

  116. 116
    zman Says:

    Surely those Rep senators have bloombergs and will come around to a deal soon.

    Housekeeping Watch: intern #2 has just been scheduled for delivery bright and early next Wednesday.

  117. 117
    zman Says:

    ZTRADE: $10KP Trade

    Added (4) COP December $55 Calls (COPLK) for $1.09 with the stock at 52.40.

  118. 118
    BirdsofpreyRcool Says:

    it’s kinda funny… i don’t know why the mrkt is selling off on the news that the Senate seems to be going the Ch11 route for GM/C. I’ve been hearing “prepackage chapter 11 with DIP” all day. But, that would get Washinton EXACTLY what they wanted: a Car Czar + senior status for taxpayer money. A chapter 11 is probably unavoidable at some point anyway. This just accelerates the process and pours the least amount of money down the black-auto-hole.

    I mean, any real restructuring of the D-3 is going to involve asset sales and downsizing anyway. A pre-pack Ch11 may actually be the best outcome in the long run. No doubt, it’s going to take a toll on the economy. But, it’s pretty much inevitable with the global economy in the tank.

  119. 119
    sportlock Says:

    Z,

    Given that we dropped 175 gas rigs since September and should be down 300 from the peak by the end of the year (roughly) and heading a lot lower in Q1 when do think we will see a fall off in production?

    Thanks

    Bill

  120. 120
    zman Says:

    Sport – I’ve been thinking we see it in the February data which we don’t get until the end of April. As long as the rig count falls through much of 1Q09 I think gas starts discounting that before the numbers really show it.

  121. 121
    BirdsofpreyRcool Says:

    I don’t mean to sound… well… mean. But i have watched how Detroit has “functioned” for years and years. They haven’t made smart choices for a long time. Without major oversight, it’s tough to believe they will make smart choices now. And “major-oversight” would trigger a change-of-control in the GM/C CDS and make some bonds putable. So, it is actually quite difficult to come up with a way to do anything meaningful outside of a formal process.

    I know i’m not making any friends here… but, just saying it as i see it.

  122. 122
    ram Says:

    Exciting times again.

  123. 123
    Nicky Says:

    Hi Tater – I think sell off just caused by indices inability to make any headway after the highs put in earlier in the week.

    Next cycle low is due 19th December plus or minus a day. 850 is going to attract the price here on the SPX although if it fails I dont rule out a full retest of the lows.

    884 SPX is now resistance.

  124. 124
    Dman Says:

    Bleemus & choices, thanks for #91 &#92

  125. 125
    tater Says:

    Thanks Nicky. Looks like a bit of goofiness here and there. Just playing HOG lower, wondering what pushed everybody overboard on the broader picture. I am still only playing the downside, chose to miss the last push upwards.
    If you don’t mind my asking, what are you using for the timing cycles? Is that EW or something else that gives such a precise read?

  126. 126
    zman Says:

    beerthirty

  127. 127
    VTZ Says:

    Budget deficit of 180 million the reason for the fall or is that a reason to cheer these days?

  128. 128
    VTZ Says:

    2+ trillion budget deficit for 2009? Plus some more bailout programs? Sounds about right.

  129. 129
    crysball Says:

    ATN coming up the LEARNING CURVE rapidly in the Marcellus…..has doubled the IPR on Vertical Wells from 1.0 to 2.1 mcfd. using a 2 stage frac….see PR from their website below. [Note these vertical wells are Cheaper than Dirt to drill ….only 7-8,000′ deep]

    Atlas Energy Announces Sharply Higher Results with New Technique in its Marcellus Shale Drilling Program
    Monday November 24, 11:11 am ET

    PITTSBURGH–(BUSINESS WIRE)–Atlas Energy Resources, LLC (NYSE:ATN – News) (“Atlas Energy” or “the Company”) – Over the past several weeks, Atlas Energy has successfully pioneered the use of a two-stage frac design for five of its vertical wells as part of its Marcellus Shale drilling program in southwestern Pennsylvania. Using this frac design, the Company has averaged initial rates of production for 24 hours into a pipeline of 2.1 million cubic feet per day (”Mmcf/d”), more than double the Company’s historical average of approximately 1 Mmcf/d over 90 previous vertical completions in its Marcellus program. Further, early results indicate that a well having a two-stage frac exhibits a shallower decline rate than a well with a single stage frac. Assuming these results continue, which are not assured, the Company expects to realize sizable increased reserves and production per vertical well drilled. The incremental cost of the two stage design over a single stage design is approximately $125,000.

  130. 130
    zman Says:

    Late Thursday auto deal:

    http://www.marketwatch.com/news/story/Senators-working-auto-aid-compromise/story.aspx?guid={01358784-ABDC-4333-8C55-2FA96BB138AE}&dist=hplatest

  131. 131
    mahout Says:

    BOP #118 and #121,

    Agree with “Chapter 11 probably unavoidable at some point anyway”. My honest feeling is to accelerate the process at this time is to court heavy unintended consequences. I greatly fear the gathering momentum of massive dealer and parts manufacturers closings of their doors and losses of jobs spreading beyond the auto industry itself. Things like this are hard to stop and get turned around. People will simply stop buying vehicles the second BK is announced. If you are a dealer or parts provider your business is toast. We have a great problem with fear walking the land in a big way. A BK announcement will only add significantly to that fear.

    I grieve for GM and FORD and the industry. This is an American tragedy.

    You are still my friend. I value your comments.

  132. 132
    zman Says:

    Senate still working on deal, still may vote tonight.

    http://news.yahoo.com/s/ap/20081212/ap_on_go_co/congress_autos

  133. 133
    zman Says:

    Auto bill dies in Senate:

    http://www.marketwatch.com/news/story/Automakers-bailout-falls-apart-Senate/story.aspx?guid={01358784-ABDC-4333-8C55-2FA96BB138AE}&dist=hplatest

  134. 134
    Wyoming Says:

    JR Re returned frac/produced water. There are already systems out there that convert waste water to clean. Oilfield Koolaid.

    Problem is that it is too expensive relative to hauling. Companies will dispose for $1.80 per bbl, reduced this week to 1.50. Also, 3 companies just went out of the Barnett. Probably heading to the HS for any type of work. That will drop costs there too. Don’t worry, we will inject less water because the LNG will be dumping gas in the US when they have nobody else to take it and they have to pay for the Palm tree shaped Islands.

    Good news is the headhunters are still active today. Frequency is way down though.

    IMO section. Drilling activity in 2009 will be done only by those who have hedged the best. No drilling = poor hedge.

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