06
Jan

Tuesday Morning – Flirting with $50

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Housekeeping Note: I'm making more of a concerted effort going forward to add comments like yesterday's brief note in the post on (GST) to the reports tab and for the more frequented stocks, like CHK to the  appropriate notes link, also on the reports tab.  Also, the E&P tables from yesterday's post have been added to the E&P tab. 

The Economic Week Ahead:

  • Tuesday: Factory Orders (forecast down 2.1%)
  • Wednesday: ADP Employment (forecast down 250,000), 10:30 EST Oil Inventory Report
  • Thursday: Initial Jobless Claims (forecast of 492K), 10:30 EST Natural Gas Inventory Report (looking for a return to double digit withdrawals again as the weather moderated smartly last week)
  • Friday: Non-farm Payrolls (forecast down 500,000 which is actually better than last report's 533K loss), Unemployment (forecast rising to 7%)  and these are probably the two most important numbers of the week


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Multiples Update Continued (Refiners), tomorrow (diversified mid and small cap E&P, Oil Service), Thursday (Solars, Bulk Shipping)
  5. Stuff We Care About Today - GDP's first Haynesville well + thoughts on the name
  6. Odds & Ends

Holdings Watch: The Wiki tab is updated.

  • SU - Sold half of the SU $22.50 January Calls (SXHAX) for $1.70, up 312% since entry on 12/29.

 

  • HK - added HK January $20 Calls (HKAD) for $0.40 and
  • HK - added HK February $20 Calls (HKBD) for $1.45. Both added with the stock at $17.90

 

Commodity Watch:

Crude oil rallied $2.47 to close at $48.81 yesterday and this morning crude is flirting with $50. In some ways, this move seems a bit of a stretch as we are now up 27% from the lows seen on Christmas Eve. In response to a question from Pearl regarding what's really changed with regard to crude I wrote the following in comments yesterday (highlighted in bold below) and augmented in italics and with some charts:

The geopolitical risk factor is up a bit but not terribly so.

  • MEND seems to be stepping up their activty
  • Russia has signaled a willingness to once again cut off parts of Europe in the dead of winter from heating supplies after having made the first steps towards forming a gas -OPEC.
  • Israel has stormed Gaza. Neither area produces oil and only a little natural gas but this often gets the saber rattling going from regional players, notably from the 4th largest oil producer in the world, Iran.

OPEC cuts are gaining some believers

  • There are more calls for another emergency meeting for mid January or mid February.
  • Overnight, Kuwait announced that it  will further cut volumes by 5% beginning Jan. 22 to three of its main Asian buyers and that it will continue to disallow the usual "operational tolerance" on shipments which had allowed customers to take up to 5% over quota.
  • Saudi Arabia, UAE, Angola, Venezuela and Libya have signaled in the last 2 weeks that they are making the previously agreed upon cuts.

Demand for gasoline in the U.S. has leveled off.

  • I see a lot of stories out there in the mainstream media citing U.S. drivers' reluctance to return to their old way, claiming that there is a permanent change in consumption. I would point out that at least 1.75 million people lost their jobs in 2008 and many of these people drove to work. Moreover,  from a statistical standpoint, there has not been enough time for the journalists to back up their "permanent change" theories. This kind of reporting is what happens when you only score well on the verbal side of the SAT.

Crude inventories are up but not to the level many had predicted 3 months ago.

Crude was, for lack of a better term, oversold and is getting a bounce as institutions rotate into less treasuries and more equities and commodities.

  • The pendulum has been swinging too far both last summer and this winter.

 

Natural gas rose a dime to close again over the key psychological level of $6 at $6.07 yesterday.  Yesterday's move was oil related as the forecast for the next two weeks is fairly balmy and the rigs drop should have been discounted by Friday's rally and it fact, gas did move up late in the session as oil hits it high of day. This morning gas is trading up another dime. I continue to expect range bound motion for gas and though we are already five days into the year, am confident in my $6 to $7 average price with a year end close to $9. 

  •  Weather Watch: The CPC got around to publishing their HDD forecast for this week: 199. That's a little better than last week and by the looks of the forecast will probably breach 200 when the final number comes out.
  • Imports Watch: Imports are running about 1.3 Bcfgpd lower than year ago levels, all of the divergence attributable to lower volumes from Canada.

 

Crack Spread Update: The following graphs show the full year regional crack spreads for 2008 by region. Other than a modest bounce at year end 2008 was a bad year for margins. The recent rally in crude stocks has started to help cracks as gasoline as not as over stocked.

Multiples Update Continued (Refiners)

Independent Refiners Continue To See Small EPS Estimate Contractions ... In most cases estimates continue to trickle lower with the notable exception over the last month of SUN . Meanwhile, analysts continue to downgrade members of the group on a weekly basis.

Refiners have had a good sized move over the last month. This feels like a deadcat bounce to me and I'm not going to chase it. Valuations have become scattered with some names trading at the low end of historic ranges on next years numbers and others trading closer to the high.

Refiners one month move:

Stuff We Care About Today

GDP Announces First Haynesville Shale Success

  • (CHK) operated Holland 17H-1 IP of 14.5 MMcfgpd (one of CHK's better wells to date here)
  • Working interest (50% GDP, 40% CHK, 10% PXP)
  • Nothing to write home about as Haynesville wells go but very solid...does make one wonder if CHK has an ops update around the corner.
  • GDP also announced a stout 7 MM/d James Lime horizontal.
  • Quick stats:
    • GDP net debt to total cap is 4%, ($250 mm debt but $224 mm cash), $175 mm revolver remains undrawn
    • reserves are 97% natural gas,
    • 1P reserves of 422 Bcfe (properties concentrated in E. Tx and NW and W. La),
    • Primarily a Cotton Valley player, increasing focus on Haynesville Shale and James Lime
    • 3P reserves of 2 Tcfe + another 2.5 to 5 Tcfe for the Haynesville, 
    • 2009 estimated growth: 30 to 40%
    • 65% of $300 million 2009 budget goes to the Haynesville (capex entirely out of cash flow and cash on hand)
    • In 2009 they plan to drill 47 net wells with 27 of these targeting the H.S.; they have over 2,500 net well locations on their acreage
    • 2009 hedges: just under 50% of expected gas production hedged at $8.54 with another 20% hedged with $8.75 floors and $13.10 ceilings. Nice.
    • Trades at 7.5x 2009 CFPS estimates which is high to the group now (group closer to 4x) but it is one of the few expected to generate positive top and bottom line growth next year.

Odds & Ends

Analyst Watch: (XTO) and (SWN) go from Hold to Buy at KeyBanc, (JASO) cut to Hold at Collins Stewart, (DVN) and (NXY) cut to Equal Weight at Barclays.

143 Responses to “Tuesday Morning – Flirting with $50”

  1. 1
    zman Says:

    Keybanc on the tape adjusting lots of targets, including KOG which goes from $4 to $2, rating still Buy.

  2. 2
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures climbed more than $2 to above the
    psychologically important $50 a barrel Tuesday, spurred by concerns that a
    reduction in Russian natural gas flows to Europe could spark increased demand
    for oil products for heating and power generation.
    Nymex light, sweet crude hit $50.47 a barrel, while ICE Brent crude reached
    $51.86 a barrel, the highest levels for both since Dec. 1.
    Prices rallied after Eastern and Southeastern European countries announced
    deeper cuts in natural gas imports from Russia Tuesday. Energy giant OAO
    Gazprom reduced supplies transiting Ukraine bound for Europe, as the gas
    dispute between Russia and Ukraine deepened.
    “The flow of gas to southern Europe is getting worse apparently and a solution
    needs to be quickly found otherwise you will see an impact on oil because the
    lost supplies of natural gas will need to be replaced by fuel oil, by heating
    oil and by naphtha,” said Olivier Jakob, managing director of Swiss consultancy
    Petromatrix.
    At 1259 GMT, the front-month February Brent contract on London’s ICE futures
    exchange was up $1.80 at $51.42 a barrel.
    The front-month February light, sweet, crude contract on the New York
    Mercantile Exchange was trading $1.19 higher at $50 a barrel.
    The ICE’s gasoil contract for January delivery was up $41.50 at $520.25 a
    metric ton, while Nymex gasoline for February delivery was up 412 points at
    122.36 cents a gallon.
    Tuesday’s rise in gasoil prices outpaced those on crude, pushing crack spreads
    – a representation of the profit made from refining crude into the finished
    product – around $3 higher to above $20. Traders added that a burst of colder
    weather across Europe had swelled the impact of the gas dispute in supporting
    gasoil prices, and the oil complex as a whole.
    Meanwhile intense fighting between Israeli armed forces and members of Hamas
    in the Gaza Strip Tuesday bolstered prices, even though supply of crude oil has
    not been directly affected by the conflict.
    “I don’t think the issue is a real cut-off or loss of supplies,” said Michael
    Wittner, head of global oil market research at Societe Generale. “There’s a
    general fear, which we’ve seen in umpteen occasion going back before 2006 (when
    Israel fought with Hezbollah in Lebanon): when there’s war in the Middle East,
    even if countries are not big producers, the oil markets quickly start to price
    in a risk premium.”
    Further bringing supply issues into focus, indications continued to emerge
    that Organization of Petroleum Exporting Countries may follow through on their
    declaration to cut crude oil supplies in order to help support prices.
    Iran will cut oil shipments to all customers with long-term contracts
    beginning in January but hasn’t determined the size of the cuts yet, an oil
    ministry official told Dow Jones Newswires Tuesday.
    “We sent a telex yesterday to all of our customers – western and eastern –
    that, based on the OPEC quota, we will cut from Jan. 1 and we will reduce (oil
    supplies) from our customers with long-term contracts,” the official said.
    OPEC has announced three production cuts since September to take a combined
    4.2 million barrels a day of crude out of the market.
    -By Nick Heath; Dow Jones Newswires (Roshanak Taghavi in Tehran contributed to this item)

    Dow Jones Newswires
    01-06-09 0802ET

  3. 3
    pearl1301 Says:

    z – do you look at what russia is doing and their way of trying to prop up oil? From the above article, it would seem to indicate that the more underlying reason to cut off gas to E and SE Europe is to prop up oil and not due to any sort of true political reason..even though that is the front…i just look at it as an artifical way to prop up oil so that Russia doesn’t go down the tubes…is what Russia is doing sustainable?

  4. 4
    zman Says:

    Re 3 – I’m sure that outcome doesn’t hurt their feelings. Kiev does owe the money and Russia has made a lot of moves over the last decade to put themselves into the upper ranks of energy players. Having someone welch on a bill doesn’t help that cause. I think if they wanted to really get oil back up, at no cost to them, they would have cut 1 mm bopd in concert with OPEC’s last cut. They chose instead to show OPEC just how important they are. They also have a history of cutting off gas during the dead of winter, and personally having read about Putin for quite some time, I think the guy gets off on the power trip of freezing some former comrades.

  5. 5
    zman Says:

    Looks like a nice open on the way for may stocks. A special thanks man to the KeyBanc analyst for upping his rating on SWN, nice timing pal.

  6. 6
    BirdsofpreyRcool Says:

    KOG – the Keybanc downgrade in price target sounds fair, given oil prices and acreage values in the Bakken are down.

    However, it will remain an “event-driven” option on the prospectability (is that a word?) of the company’s 36k of net acres on the undrilled Fort Berthold Indian Reservation in Dunn County, ND. No way to really put a viable yardstick against the value of those acres until KOG reports the tested results of it’s first well. I confirmed that KOG will put out a PR this week about having TD’d the first well and skidding to commence drilling the second, but the PR will only say something like: “we TD’d at 15,000+ and are moving to the second site.” Maybe we get a bonus and they mention that they could smell oil from the drilling samples… but, I don’t expect much more than an operational update. That said, it is nice to see that they are on-time and on-schedule with their Bakken program (so far).

  7. 7
    zman Says:

    Flipside to #4 is that when a deal is worked out, somewhere between the $6 Ukraine wants to pay and the $12 plus the Russians want, oil will have a bad day.

  8. 8
    zman Says:

    Thanks for the update BOP, stock could easily trade 2 standard deviations above that target on good well results at least brief. I’m going to add a little of this and GST, small to be sure, to a wild money account.

  9. 9
    zman Says:

    Clever finance move of the day: Hyundai offering “lose your job, just hand over the keys” policy on new cars.

  10. 10
    BirdsofpreyRcool Says:

    Credit Market Update:

    So far, 2009 credit markets looking good. The Indices themselves are down a bit this morning, but that’s not telling us the true story. The Indices got ahead of the underlying components… by a lot. I haven’t talked about that, but it was just another example of frozen credit. Now we are seeing real buyers snap up cheap individual bonds, instead of just buying the indices. This is really good news! It’s called “basis tightening” and needed to happen at some point. So, Indices a tad wider this morning, but the underlying cash market is rallying nicely.

    I’ve included the Fair Values for the Indices as of yesterday’s close, just to show how far the cash market has to tighten to catch up:

    IG 202 bps (vs fair value of 253.5)

    HY 81 1/4 point (vs fair value of 71.99)

  11. 11
    BossmanG Says:

    Z, think that policy only applies up to a year after purchase…
    Some dealers seem to be offering a lot of “2 for 1” deals

  12. 12
    zman Says:

    Bossman – Ahhh soooo. That’s not as good but it does get people through 2009 and then we should be in an upswing, right?!

    BOP – I’m seeing more deal flow than in the past 3 months now, little and medium sized land and prospect deals, CHK’s VPP yesterday (which was financed through GS loan dept.)

  13. 13
    zman Says:

    Seeing an inability to hold $50 oil in pre market action, profit taking coming in, volumes are very high for this time of morning.

  14. 14
    BirdsofpreyRcool Says:

    z – more deal flow, yes. But the terms are still pretty outrageous. No one, who doesn’t abolsultely have to, will issue debt in this market. That said, it’s nice to see the ones who do have to issue, getting done.

    Remember our Kansas City Southern bonds that were issued just over 2 weeks ago? The bonds were priced at a discount of 88 to yield 16.5%. Those bonds were cheap cheap cheap. The KSU bonds have rallied to almost 102 and now yield 12.5%. That is still TOO MUCH for the private sector to pay for debt… when a company has to pay that much in interest expense, it leaves less left over for salaries, capex, M&A, etc.

  15. 15
    zman Says:

    Hear ya BOP, debt mkt gotta crawl before it can walk/run. Nice trade call on the KCS bonds.

  16. 16
    BirdsofpreyRcool Says:

    z – seeing several comments about $50 oil being the average for 1Q… guess that means not to chase it here… but, clearly could go higher for a while.

    Near-term thoughts? Personally, if we continue to see the credit markets rally, I think the E&Ps will participate, for a while. At least through the Inauguration.

  17. 17
    orion Says:

    Almost sold my Jan SWN yesterday, glad I held on.

  18. 18
    zman Says:

    HK working on a base breakout.

    BOP re oil and $50. I’d rather see it trade $45 for a month. Spike up could get sold hard on cease fire in Gaza and Russia easing stance on Europe (although they are really pushing it this time around). My sense is that the E&P group is still quite beaten down and that you don’t need oil prices going higher to get higher energy stock prices, just a discontinuation of the trend over the back half of 2008. Still could be a head fake and the volumes are not there yet to support this move. My sense is that the buyside is reluctant to go out on a limb pre reserve numbers and potential writedowns for the 4Q so we trade thin up with some scary days into late Jan, then we see volume buying come in on the first really bad week.

  19. 19
    BirdsofpreyRcool Says:

    pete – your TBT trade should continue to do well, as corporate bond issuance ticks up. If, for no other reason than trading desks sell treasuries to hedge positions in new debt deals. But also should see investors moving out of treasuries and into risk-assets. This will cause treasury yields to move higher. Good call.

  20. 20
    zman Says:

    Re 17 – me too. Watching closer now and I really don’t want to own it going into the
    Thursday gas number.

  21. 21
    orion Says:

    Z, Re: 20, No one ever went broke taking profits.

  22. 22
    zman Says:

    Wow CHK

    Roger that Orion

  23. 23
    zman Says:

    missed my shot at GDP for the morning session it seems.

    Key point is that news matters again.

  24. 24
    Sambone Says:

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude futures extended their rally Tuesday as Russia
    reduced natural gas exports to Europe, which could increase demand for oil as a
    replacement.
    Light, sweet crude for February delivery traded up $1.10, or 2.3%, at $49.91 a
    barrel on the New York Mercantile Exchange, after trading as high as $50.47 a
    barrel earlier in the day. Brent crude on the ICE futures exchange traded $2.26
    higher at $51.88 a barrel.
    Oil prices have surged 28% in the last week, prompted by a series of
    international crises that could affect oil supplies. Russia continued to reduce
    natural gas supplies to southern Europe overnight, raising the odds that
    countries would switch over to oil-based fuels for heating and electricity.
    Israel also stepped up its offensive in Gaza, leaving open the possibility that
    Iran, a major oil producer, would be drawn into the conflict.
    The chances of either situation significantly affecting oil supply or demand
    are remote, however. Iran’s attempt to organize a cut in oil exports to
    Israel’s supporters failed, and Russia’s gas dispute would need to stretch out
    for days or weeks to force a switchover to oil.
    Instead, events involving Russia and Israel are mainly providing cover for the
    market to change course in the new year, said Gene McGillian, an analyst with
    Tradition Energy in Stamford, Conn.
    “As we close out last year, we seem to sense a little bit of sentiment change,
    maybe some of the downward bias, the dire economic straits we were dealing with
    … will work their way through,” McGillian said. “Whether or not that’s going
    to be long-lived is the real question.”
    Traders said crude futures could easily bounce back to about $55 a barrel,
    though real signs of improvement in the global economy would be needed for
    further gains.
    The market also needs proof that the Organization of Petroleum Exporting
    Countries has reduced production enough to halt the build in inventories seen
    in the final months of 2008. A Dow Jones survey found OPEC members in full
    compliance with lower quotas set in October, though the group agreed to a
    second cut of 2.2 million barrels a day in December.
    U.S. analysts believe oil inventories rose by 400,000 barrels in the week
    ended Jan. 2, according to a separate survey. Gasoline stocks are seen rising
    by 1.2 million barrels and distillate inventories, including heating oil and
    diesel, by 700,000 barrels. The U.S. Energy Information Administration is due
    to release weekly data on Wednesday.
    Front-month February reformulated gasoline blendstock, or RBOB, recently
    traded up 4.05 cents, or 3.4%, at $1.2229 a gallon. February heating oil traded
    7.39 cents, or 4.7%, higher at $1.6502 a gallon.
    -By Brian Baskin, Dow Jones Newswires (Oliver Klaus in Dubai contributed to this article)

    Dow Jones Newswires
    01-06-09 0948ET

  25. 25
    zman Says:

    If you like nice daily charts take a look at SU.

  26. 26
    zman Says:

    Group feels like it is in the midst of a buying panic.

    GST up another 33% today. Lots of the really small names like TXCO and CPE, KOG running hard.

  27. 27
    BirdsofpreyRcool Says:

    ISM non-manuf reported… stronger than expected at 40.6 (vs 36.5 exp)

  28. 28
    zman Says:

    Thanks BOP, that should support gas a little longer until people take profits ahead of this week’s storage number.

  29. 29
    BirdsofpreyRcool Says:

    Day-Trading Algo From the Trading Desk for today: Low of day expected at 9:35, morning high around 12:20 – 12:45, high of day 3:30 EST.

    But, the eco-numbers may have thrown a wrench into those. Will update, if i get one.

    Just passing along these comments, no conviction on my part (except the trading desk is usually more right than wrong)

  30. 30
    Dman Says:

    Z – I like the SAT comment.

    So far, I think the impact of Gaza has merely been to remind the market that there was no geopolitical risk at all in the price as of a few weeks ago. Now there is some risk premium in the price. Everyone is expecting the Gaza op to wind down, perhaps because living conditions there are now untenable (=no water). But there is a risk the op will actually expand from here & if it does so it could end up in Obama’s lap on day 1. This would be bad for the broad market & good for energy.

    I know it seems like an outlier possibility but here is Aluf Benn’s comment in Haaretz:

    “The message yesterday from Jerusalem was that it is impossible to end Operation Cast Lead without an achievement, and if in the next two days there is no satisfactory diplomatic solution, Israel will have to broaden the operation.

    “Broadening the operation” could mean moving from house to house as in Operating Defensive Shield in 2002 in the West Bank, aiming to kill or capture as many Hamas fighters as possible. Or it could mean surrounding Gaza City, similar to the way the Egyptian Third Army was cut off in 1973, or like the siege of Beirut in 1982, until Hamas’ leaders emerge from their hideouts with their hands up. This could take several weeks. “

  31. 31
    zman Says:

    Profit taking in oil underway. Seems the move is running out of steam for the moment. Stocks are very quick to follow so I’ll be pretty careful with my January calls if it gets out of hand. For now, I’m think we go higher in the stocks for a while as long as oil doesn’t get whacked all the way back into the low $40s and am thinking to bottom fish in a few names for short term swings.

  32. 32
    zman Says:

    Thanks Dman, that’s a good read on it.

  33. 33
    Pete Says:

    Z,
    Would you sell out of the GUHBG – GMXR FEB 35 CALL on the anticipated pull back or hold on into FEB?

  34. 34
    zman Says:

    ZTRADE:

    GDP – Added February GDP $40 Calls (GDPBH) for $3 with the stock at 35.75, up 7% on news. Reasoning in the Tuesday post.

  35. 35
    tater Says:

    I did a chart of OXY that pretty much describes what you say in #31 if anybody wants a look.

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

  36. 36
    zman Says:

    Pete – I’m thinking to hold that one through it and add lower strikes if it gets beaten back. I’ll punt the rest of my SU in a heartbeat though if oil does pull back.

  37. 37
    zman Says:

    Thanks for the comments Tater. When the Contango backs off on oil or goes into backwardation we probably need to look at the USO, eh.

    Re OXY – I would not want to own those guys going into earnings. Big chemical division should have a pretty depressing outlook.

  38. 38
    Dman Says:

    Z – #37, 1st line: do you mean look at USO on the short side if crude goes into backwardation?

  39. 39
    zman Says:

    I meant long as the fund would at that point be structurally advantaged to crude. So, if that time, we also thought crude would go higher, then I’d look at owning USO. These ETFs came out when oil and gold prices were surging and people wanted in, in any way, and they are really only good for the people selling them. They have done very poorly vs the underlying instrument.

  40. 40
    pearl1301 Says:

    R: 39..i would agree…i actually have puts on USO, but i think yesterday USO performed must higher than the underlying oil did…btw..hating my puts on USO, but still think oil ran up too fast.

  41. 41
    zman Says:

    Oil just tipped red.

    Pearl – I hear ya. For one reason or another, I have had very little luck playing with the options for the ETFs for oil or natural gas.

  42. 42
    zman Says:

    ZTRADE:

    Sold another quarter of my SU Jan $22.50 call position for $2.50, up 506% as oil starts to ease.

  43. 43
    Nicky Says:

    Morning all.

    Z – bit confused by your percentage gain for oil? I have it as up from $36 to $50 since last Wednesday (actually only 3 trading sessions). This is nearly a 40% gain?

  44. 44
    tater Says:

    So how does it feel to say things like “up 506%” ?

  45. 45
    Nicky Says:

    Bit of shock of a story this morning that Germany’s equivalent of Warren Buffet committed suicide. Apparently is as wealthy as WB. He got caught short Volkswagen and was then caught in a short squeeze. Lost 400 million euros.
    Imagine the effect on the markets here if WB committed suicide!

  46. 46
    BirdsofpreyRcool Says:

    Nicky – The story about Adolf Merckle is truly sad. He sounds like he was a good man and 94th on the Forbes’ list of the richest people. One major difference between Merckle and Buffet is that Merckle used leverage and debt. He was despondent after having negotiated over the last two months with his bank group of over 30 members.

    This credit crisis is no where near over yet. So sad…

  47. 47
    zman Says:

    $36 dollars? I never saw it at $24. Looks like I had a bad number for the low. 36% off the lows from December 24 on the Feb contract. Still, the rally pales in comparison to the fall.

  48. 48
    zman Says:

    Tater – feels like I don’t get to say it often enough, lol.

  49. 49
    Dman Says:

    tater, ya want me to tell ya how it feels to say “I bailed out of the SU trade when it was up 33%” ??

    🙂

  50. 50
    Nicky Says:

    re 47. The low last week was $36 (although its been lower). A 40% rally from there takes us to $49 and we were higher this morning. Or is my math wrong.

  51. 51
    Nicky Says:

    Sorry that should have said a 40% rally is $50.40 which we hit this morning.

  52. 52
    zman Says:

    Feb contract low of 35.35 on 12/24 to close yesterday of 48.81 is 38%, pretty much splitting hairs. Fall from high was mid 70%s. I think the near term move is probably a bit ahead of itself but that the sell off was even more overdone. What’s changed is outlined in the post from the fundamental and more so from the psychological side.

  53. 53
    VTZ Says:

    I didn’t even hardly partake in this last move up so I don’t really feel bad for you guys 🙂

  54. 54
    zman Says:

    V – I think you’ll get another shot soon. I missed out on all the tiny player moves, some of which have come close to doubling in the last week.

    Nicky – do you have some levels in mind for crude near term?

  55. 55
    zman Says:

    Things that I’ve thought were nonsensical for a long time. The propensity of traders to pile into things that are going up or pile out of things going down.

    Case in point today, the moves in crude. The crowd here gets more comfortable with crude going up because crude is going up. Does not make sense, but it is a truism of trading mentality. Goes completely against the buy low sell high concept.

  56. 56
    Sambone Says:

    ROME (AFP)–Russian gas deliveries to Italy were down about 90% Tuesday as a
    result of Moscow’s dispute with Ukraine over pricing, an official with Italian
    oil giant ENI SpA (E) told Sky24 television station.
    “At 10:00 am, we were getting only 10% of the quantities we normally get,” an
    ENI spokesman said, adding that Italy depended on Russia for 30% of its gas
    supplies.
    According to the Ansa news agency, Russian energy giant OAO Gazprom (GAZP.RS)
    normally supplied ENI with some 60 million cubic meters of gas daily.

    Dow Jones Newswires
    01-06-09 1141ET

  57. 57
    Sambone Says:

    PARIS (Dow Jones)–French natural gas giant GDF Suez (GSZ.FR) Tuesday said
    supplies from Russia transiting through Ukraine dropped over 70% in France but
    it nonetheless guarantees supplies to its customers.
    In a short statement, GDF Suez said the level of deliveries of Russian gas
    passing through Ukraine was normal until Jan. 5.
    “All the necessary measures have been taken to guarantee the continuity of
    natural gas supplies for all GDF Suez’s customers in France and in Europe,
    thanks to the group’s sourcing portfolio,” the company said in the statement.
    Russian gas deliveries represent around 15% of GDF Suez’s total supplies in
    Europe, GDF Suez said.
    Russian state-controlled OAO Gazprom (GAZP.RS) Thursday stopped shipments of
    gas to Ukraine after its supply contract with Kiev expired and the two parties
    failed to sign a new one.
    Gazprom said it has increased the amount of gas being pumped to European Union
    consumers after the cut to Ukraine, and has accused Kiev of illegally siphoning
    off gas in transit.
    Company Web site: http://www.gdfsuez.com

    -By Geraldine Amiel, Dow Jones Newswires
    Dow Jones Newswires
    01-06-09 1139ET

  58. 58
    BirdsofpreyRcool Says:

    z – agreed on the nonsensical trader moves. However, the only “strategy” that has worked from the long side for the last 14 months is the momentum trade. Fundamental is secondary… the mo-mo and day-traders rule the roost for now. Until real value-oriented, long-only investors step off the sidelines with conviction, I think we see the mo-mo guys rule.

  59. 59
    Nicky Says:

    Sorry I didn’t mean to split hairs but was only querying your morning post which said 27% and I was thinking I must be wrong as I had it as a bigger percentage rise and it is only relevant in so far as 40% is way to fast in 3 trading sessions.

    I am looking for signs of a top for oil and the indices which seem to be moving together. I had thought we may get to $52 or a bit higher but this morning’s move may be it.

  60. 60
    zman Says:

    BOP – I think the mo-mo guys are a tool of those who can spin the fundamentals. The question is which way are the fundamentals being spun now. It seems we are in transition (could be a head fake) form negative to positive spin on oil.

    The OIH is outperforming again, feels like a short squeeze, would not want to be long SLB or BHI or HAL for their 4Q calls. Outlooks may take back over and beat those down.

  61. 61
    zman Says:

    Nicky – no problem, just my bad math. I didn’t feel the delta between the post and the correct number changed my thoughts on the move much however. That’s all I meant by splitting hairs.

  62. 62
    zman Says:

    Nicky – what about a low if this was the high? Thanks.

  63. 63
    BirdsofpreyRcool Says:

    z – have you ever met with Allis Chalmers?

  64. 64
    BirdsofpreyRcool Says:

    sorry, should be Allis-Chalmers (ALY)

  65. 65
    zman Says:

    Nope, thought they looked interesting prior to the fall of everything. Getting into Latin America could be a good move for them.

  66. 66
    BirdsofpreyRcool Says:

    z – thanks. no reason to own any service guys for a while… but, want to get a few ducks in a row for when the time comes.

  67. 67
    zman Says:

    Hearing from well placed sources that the big boys of oil service are about to announce some major job cuts. Question is, its it bad for stocks or good since they are already beat up.

  68. 68
    BirdsofpreyRcool Says:

    lately, any time i read about job cuts at a company, the stock moves up on the news.

  69. 69
    zman Says:

    BOP – right. I guess what matters will be the size of the cuts relative to expectations. Need to find a better way to gauge expectations.

    FYI, looking at the strip, Feb crude is up 25 cents but all the out moves are up 70 to 90 cents through next July.

  70. 70
    Nicky Says:

    Well….once the top is in which i believe to be the wave 4 correction we should see a 5 wave move down for wave 5 which is most likely to make a new low or at least test the previous low. So I am still thinking 30 – 35 area.

  71. 71
    zman Says:

    Thanks Nicky. A lot of people would like to see it hold $40.

  72. 72
    Sambone Says:

    By Selina Williams and James Herron
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Increasing numbers of European countries saw sharp cuts in
    natural gas imports from Russia Tuesday afternoon after energy giant OAO
    Gazprom (GAZP.RS) reduced supplies bound for Europe through Ukraine.
    As the afternoon progressed, supplies of gas from Russia were down 90% in
    Italy, 70% in France and were halted completely in Hungary, according to
    company or government officials.
    Germany’s economic minister said gas supplies there had also started to fall,
    but said they had sufficient storage gas to make up the deficit.
    This followed a total halt in Russian gas supplies to Bulgaria, Greece,
    Macedonia and Turkey overnight, according to the Bulgarian Ministry for Economy
    and Energy. Romania, Croatia, Poland and the Czech Republic have also seen
    supplies fall. Austria said deliveries had fallen to 10% of the expected
    amount.
    A top European Union official said the situation had dramatically worsened and
    crude oil prices surged over to $50 a barrel on fears the dispute could spark
    increased demand for oil products for heating and power generation.
    Hungary’s minister in charge of energy issues, Csaba Molnar, said his country
    can’t fulfill its gas transit obligations to Serbia and Bosnia and called on
    local power plants to switch to alternative energy sources.
    France’s GDF Suez (GSZ.FR) said in a statement that despite the reduction in
    imports, “all the necessary measures have been taken to guarantee the
    continuity of natural gas supplies for all GDF Suez’s customers in France and
    in Europe, thanks to the group’s sourcing portfolio.”
    Gazprom and Ukraine’s gas company Naftogaz said Tuesday afternoon they were
    ready to resume talks aimed at resolved the dispute over pricing and debts.
    Late Monday, Russian Prime Minister Vladimir Putin also ordered reductions in
    natural gas flows transiting Ukraine and bound for the European Union, accusing
    Ukraine of stealing E.U deliveries in transit as the dispute between the two
    countries worsened.
    Ukraine denied syphoning off Russian gas and has accused Moscow of engineering
    the crisis.
    Ukrainian state gas company Naftogaz said Tuesday that deliveries from Russia
    were down almost 70% at between 72 million cubic meters a day and 80 mcm from
    221 mcm a day Monday.
    “As we had no documents on how this reduced supply should be distributed, we
    divided it equally between our pipelines, and some gas reaches our neighbors in
    Europe,” Naftogaz spokesman Valentin Zemlyansky said.
    Late Monday, the E.U. sent a delegation of top energy officials and a minister
    from the Czech Republic, which now holds the E.U. presidency, to meet officials
    from both sides.
    A similar dispute three years ago led to shortages in the E.U., which gets
    about 80% of its Russian gas imports via Ukraine and depends on Russia for a
    quarter of its gas needs.
    Ample gas storage in many European countries and supplies via alternative
    routes have so far been sufficient to shield consumers from large-scale
    disruption. But problems supplying consumers could arise if the dispute
    continues and temperatures remain low, Germany’s E.ON Ruhrgas AG said.

    -By Selina Williams and James Herron Dow Jones Newswires (Alexander Kolyandr and Nick Heath in London, Alessandro Torello in Brussels,
    Luca di Leo and Liam Moloney in Rome and Margit Feher in Budapest contributed
    to this story.)

    Dow Jones Newswires
    01-06-09 1222ET

  73. 73
    BirdsofpreyRcool Says:

    SD – Sandridge issued $750mm of bonds May 2008. The notes are rated B3/B- with an 8% coupon, priced at par to yield 8.0%.

    Anyone care to guess where those bonds are trading today? What yield do investors demand to lend SD money these days?

  74. 74
    zman Says:

    BOP – I give, how high is it?

    Want a good short, try portfolio management software and the financial news services. Guarantee these guys are going to see some bad debts in 2009.

  75. 75
    BirdsofpreyRcool Says:

    I am seriously thinking about buying these bonds myself… priced at $60 (down from $100) with an 8% coupon gives a yield to worst case of over 16.5%. If these bonds are called at the first call date, 6/13, the yield jumps to 24.5%.

    That’s an annual yield! 16.5% per year for the next 9 years… or 24.5% for the next 4 years. At some point, investors are going to jump on this stuff.

  76. 76
    zman Says:

    Anybody see the estimates for tomorrow’s EIA numbers? I see oil expected to rise 1 mm barrels according to Bloom but I don’t see the other two.

  77. 77
    BirdsofpreyRcool Says:

    z – i hear ya on the financial services short idea. we dropped our Thompson service at the end of the year… hearing that just about anyone associated with small cap is pretty much going out of biz. Still makes for more potential sellers than buyers in the micro and small-cap universe.

  78. 78
    Dman Says:

    XOM just 15% off its all-time high.

    44% above its recent spike-low in October.

    Anyone care to interpret this in light of we are now in the middle of the biggest cluster%*#@ since the great depression?

  79. 79
    zman Says:

    Dman

    1)Large pile of cash, no net debt

    2) Flight to safety from recently hot energy sector into perception of the safest name in energy

    3) Even on reduced oil price decks, they are set to earn over $30 billion in 2009.

    4) Not a lot of other companies can say that and at the same time have 0 expectation of volume growth.

  80. 80
    Dman Says:

    BOP – a question I saved up from last week: what do you think of the idea the credit markets going forward represent the beginning of a new era, i.e. a permanent break from the long-term trend toward lower rates that had been in place for many years.

    By “permanent” I mean a shift lasting a decade or more, so as to qualify as a new era.

  81. 81
    elduque Says:

    re 75 – Well you can still buy some of the Canadian Energy Trusts with yields of 16% and in PWE’s case 25%. I realize that the yield is attractive on the bonds, but I can’t help thinking that the equities will outperform. Probably should diversify and have some of both.

  82. 82
    Dman Says:

    elduque – do you have any info on PWE, or links to info. Eg. how safe is the distribution?

  83. 83
    Dman Says:

    Z – #79. $30 billon. Yep, 10 billion here, 10 billion there, pretty soon you’re talking real money.

  84. 84
    BirdsofpreyRcool Says:

    Dman – depends on whether you are in the deflation or inflation camp. I’m in the deflation camp… with higher commodity prices, if that makes any sense.

    Specifically, I think salaries, homevalues (in general), cars, and returns on investments come down… while oil, waterfront property, and healthcare costs go up. If that is the case, all returns are relative.

    If the stock market gets back to returning “only” 8% on average a year, then that means that the “riskless” US Treasury bond yields stay low. Can’t recall the historical equity risk premium off hand, but think it’s around 4%. So, if stocks return about 8%, long bond yields should stay below 4%.

    To have the kind of “inflation” that mere mortals can do anything about, workers need to have “pricing power.” When China and India entered the scene and jobs were “shipped overseas,” the average US worker lost his pricing power. The UAW has yet to come to grips with this… but most of the rest of the country has. I am even thinking we go so far as back to the 1-worker household. If only 1 parent works, there are a lot of service-based industries that go away (and take jobs with them). But, that is a long-term trend.

    Commodity prices are set by supply and demand (except for short bursts in either direction), so I don’t look at commodities prices as something monetary policy can really control (unless you kill employement… which the global market is doing without help from the Fed).

    Long-winded, rambling answer. Bottom line: I agree that returns on investments — across the board — have come down and will stay down. That will keep bond yields low too. Not as low as they are today, but low relative to the last 30 years.

  85. 85
    BirdsofpreyRcool Says:

    Dman – and if you believe what I just said, you should jump on something like the SD 8% Notes due 2018, priced to yield 16.5% to worst case.

  86. 86
    BirdsofpreyRcool Says:

    Jason Trennert (one of my fav macro-guys) has been talking about lower returns on investments for several years now. I haven’t heard his recent forecasts, but I got the 8% from a talk he gave about 2 yrs ago.

    I think it’s consistant with what the boys over at Pimco are thinking too.

  87. 87
    Dman Says:

    BOP – deflation with higher commodity prices. That’s an interesting scenario and not one I’ve seen discussed explicitly. However it can be inferred from comments of Jim Rogers, who points out that in the Great Depression, commodity prices rose due to a collapse in supply investment. And I presume that was in general a deflationary environment.

    Rogers has recently been buying commodities on the basis that new investment in mines and agriculture is off the table for a while. In energy, he didn’t even mention investment (which we know has collapsed): he just pointed to the 7% decline rate per the recent IEA report.

    I’ve been thinking lately that this IEA decline rate was presumably based on data for recent years which includes heavy and continuous oilfield investment. Now that that investment has been turned off or sharply reduced …. decline rate = ??

  88. 88
    elduque Says:

    Dman- I sent Z, ML latest report in which they stated Div could be cut to $3.00 Canadian in 2009. Which is 2.40/13.43 is 17.8%

    Then only get 85% of that if you can’t offset the Can. withholding tax.

  89. 89
    BirdsofpreyRcool Says:

    Dman – i know it’s not the classical definition of “inflation,” which is just prices moving up. But, I try to separate price increases into two buckets: irrational and rational.

    Irrational price increases (what i think of as inflation) are when you show up for work on Jan 1st and automatically expect a pay-raise. Not because you are any more productive or your workload got heavier or your environment got riskier… you just expect a raise.

    Rational price increases (like what we are seeing in commodities) is when the marginal cost of production really does involve more cost, risk, time, inconvenience, etc.

    On top of the price/inflation dynamic, when the world truly became global, it was clear that the American way of life would have to come down, while the rest of the world came up. Like water finding a new level. This is the deflation I see in our future. The US deferred that process for a while… first through our technological innovations and stock market rally, then with the homevalues rally/home-equity extraction, and now with the US Govt debt (backed by the earnings power of the US population) propping up the economy. But, you can’t hold back the inevitable forever (although we held it back longer than I thought… thanks to loose lending policies). The American consumer lifestyle will have to shift to the left and down. This is deflationary to the US economy. On the other hand, the average quality of life for China, India, Brazil, and Russia has been improving. So, this will keep commodities well-bid.

    US lifestyle deflation (as defined by how much “stuff” you can buy) vs commodity price increases (or “inflation”).

    This doesn’t lend itself to a high-return on investment environment.

  90. 90
    cargocult Says:

    Here is some info on PWE from bullmarket.com
    The Canadian Royalty Trusts have been good to me.

    Penn West Energy Trust

    Ticker Symbol: PWE
    Yield: 24.7% at $12.83 (closing price on November 21st)
    Dividends:
    Year Paid: 2008 2007 2006 2005 2004
    Dividend: $3.26 $3.854 C$4.05* C$1.97* N/A
    * 2006 and 2005 figures are in Canadian dollars, 2005 is for half a year.
    Structure: Canadian Royalty Trust
    Market Cap: $4.9 billion
    Business Description: Calgary, Alberta-based Penn West is the largest conventional
    oil and natural gas producing income trust in North America. It primarily operates in the
    Western Canadian Sedimentary Basin with estimated production of about 195,000
    barrels oil equivalent per day (boe/d). Production is split approximately 43% natural gas,
    38% light and medium oil, 14% conventional heavy oil, and 5% natural gas liquids
    (NGLs).

    The company owns 4.1 million net acres with proved reserves of 561 million barrels of
    oil equivalent (mmboe) and probable and proved reserves of 750 mmboe. Its proved
    and probable reserves are split approximately 47% light and medium oil, 37% natural
    gas, 10% conventional heavy oil, and 6% NGLs. Its overall reserve-life-index (RLI) is
    10.3 years.

    Penn West says its operational strategy is to “stabilize production through active
    management that focuses on the efficient reinvestment of a proportion of cash flow into
    opportunities for internal development and external acquisitions.”

    Strengths:
    ! Penn West has a large undeveloped land base, including 300,000 net acres in
    the Peace River oil sands region.
    ! Its production base decline of -18% is one of the lowest among the trusts.
    ! It has a tax pool of nearly $6 billion to offset future taxes when the trusts become
    taxable in 2011.
    ! It has one of the most attractive hedge books for 2009, with West Texas
    Intermediate (WTI) collars on 30,000 barrels per day at US$80.00 per barrel by US$110.21 per barrel and 101,000 gigajoule (GJ) per day of 2009 natural gas
    production under collars at $7.88 per GJ by $11.27 per GJ.
    ! Dividends are paid monthly.

    Weaknesses:
    ! The company is exposed to fluctuating energy prices.
    ! The global credit crunch could boost future funding costs and make growth
    projects less desirable.
    ! The company faces integration risks after the acquisition of three companies this
    year.
    ! Penn West has higher finding and developing costs than its peer group.
    ! Royalty trusts will lose their tax-advantaged status beginning in 2011 and most
    trusts are expected to convert to corporate structures; the increased tax bite
    could lead to distribution cuts.
    ! Oil is priced in U.S. dollars and Canadian companies can be affected by
    exchange rate shifts. With costs mostly in Canadian dollars, a rising dollar helps
    on the expense front. However, it will negatively impact distributions for U.S.
    investors.

    BMR Take: While the recent decline in energy prices will likely cause Penn West to
    reduce its dividend, the trust should continue to still pay out a juicy yield the next couple
    of years. Working in its favor is one of the strongest hedge books among the trusts and
    a low payout ratio the last few quarters. Meanwhile, a diversified production base,
    significant unconventional opportunities in the oil sands, and a large undeveloped land
    base position it well if energy prices rise. Based on current energy prices and a 75%
    payout ratio, we would expect an annual average distribution rate of about $3.21
    Canadian ($2.40 U.S.), which would be about an 18.7% yield.

  91. 91
    zman Says:

    going to be an interesting close for crude, bulls seem to be back. Wonder at Kilduff and Flynn thoughts

  92. 92
    Dman Says:

    el-d & cargo, thanks for the info

  93. 93
    Nicky Says:

    Move up off the earlier low for oil looks corrective.

    Phil Flynn is still short and has a stop at 51.00.

  94. 94
    zman Says:

    Thanks, that’s probably not a bad bet on his part, at least down to the mid to low $40s.

  95. 95
    kyleandy Says:

    long some BEXP with an urge to sell, but feel we haven;t had any news out of the bakken (except for KOG) in quite a while. u think any of the players up there could have some news soon???

  96. 96
    zman Says:

    Kyle – I think we see more news in general before earnings than we did in November / December. NFX, EOG, CLR, WLL probably all things to say at this point in the Bakken, pent up wells, think they have been saving it for a time when people cared.

  97. 97
    zman Says:

    Re 96. I know that’s not very helpful, will see if I can track some well timelines and see if any one is more likely than the rest to have well news. That’s one of those questions these guys rarely answer on the phone and less so in email, “when are you going to have news?”

  98. 98
    Nicky Says:

    Indices need to think about rolling over here if the top is in.

  99. 99
    Sambone Says:

    2:45 (Dow Jones) Crude oil looking bullish lately based on its 44.7% uptick
    since its closing low of $33.87 on Dec. 19, Bespoke Investment Group says.
    Recent gains come on the heels of an 88-day decline that saw oil fall 72%,
    which blog notes is by far the steepest drop the commodity has ever seen
    without a 20% rally. “The last four bull and bear markets in oil have all come
    within six months, highlighting the extreme volatility in the commodities
    market,” blog says. “It’s likely that we’ll continue to see these big swings in
    short periods of time until the financial markets cool down.” (SMR)

  100. 100
    zman Says:

    well, if you read it on a blog it must be true.

  101. 101
    Sambone Says:

    NEW YORK, Jan 6 (Reuters) – U.S. retail gasoline demand continued to
    drop during the New Year holiday week, according to a MasterCard
    SpendingPulse report released Tuesday.
    Gasoline demand averaged 8.969 million barrels per day during the week
    ending Jan. 2, down 1.8 percent from the previous week and down 3.5 percent
    from the same week a year ago, according to the weekly report.
    Regionally, gasoline demand rates varied due to weather.
    “While the Midwest and Central Atlantic experienced noticeable
    week-to-week declines, other areas posted slightly negative to positive
    growth,” said Michael McNamara, vice president of research and analysis at
    MasterCard Advisors.
    During the past year, U.S. gasoline consumption was dragged down as the
    ailing economy shrank consumer spending.
    U.S. gasoline consumption in 2008 ended 3.2 percent lower than it was
    in 2007, according to the report.
    “This is a reversal from the typical year-over-year increases in
    gasoline consumption, increasing 1.0 percent to 1.2 percent per year for
    2007 and 2006 respectively,” McNamara said.
    The decline in gasoline demand has occurred despite plummeting gasoline
    prices. Average gasoline prices dropped another 4 cents last week to $1.61
    a gallon, bringing them about 47 percent below last year, the report
    showed.
    The four-week moving average for gasoline demand, which is often more
    reflective of long-term trends, was down 4 percent from the same period
    last year.
    MasterCard Advisors estimates retail gasoline demand based on aggregate
    sales activity in the MasterCard payments system coupled with estimates for
    all other payment forms including cash and checks. MasterCard Advisors is a
    unit of MasterCard Inc MA.
    (Reporting by Rebekah Kebede; Editing by John Picinich)

    Tue Jan 6 19:00:01 2009

  102. 102
    Nicky Says:

    It looks more likely that the indices are in 3 of 5 up. Last week I had a target of the 950 region for the spx and 9400 for the Dow – this still looks possible. Only concern is that everyone knows the 950 area is huge resistance so its a bit too obvious.

  103. 103
    BirdsofpreyRcool Says:

    z – does GST have another Bossier well to report on in a coupla days?

  104. 104
    zman Says:

    The only thing I know of is the sidetrack mentioned in the pr.

  105. 105
    Sambone Says:

    Uncle Phil

    http://www.321energy.com/reports/flynn/current.html

  106. 106
    BirdsofpreyRcool Says:

    z – would the results of the sidetrack impact the stock? or, is this just routine stuff, already priced in.

  107. 107
    zman Says:

    Thanks Sam

    BOP – I think it would be the news to sell on, given the run this has had, they indicated they had another 5 to 10 days on it, and I’d bet another few weeks to complete. I looked over their latest presentation yesterday and they have one other horizontal drilling in the 15,000 acres of Hilltop but since they didn’t mention it in the pr its probably further out…pretty deep (18,000 feet), 100 day wells here.

  108. 108
    zman Says:

    Wow, was Reef right or what about XCO, up another 20% today. Nice call there.

  109. 109
    zman Says:

    I’m going to toss half my position in SWN from the $10KP before the close.

  110. 110
    BirdsofpreyRcool Says:

    to follow up on yesterday’s posting… here’s a look-back on what Byron thought a year ago. My thoughts in [-]

    Byron Wien’s 10 Surprises Coming in 2008

    Here is his look-ahead for 2008:

    1. In spite of Federal Reserve easing, and other policy measures, the United States economy suffers its first recession since 2001 as housing starts stay soft and banks are reluctant to lend to anyone where a whiff of risk is apparent. Federal funds drop below 3%. The unemployment rate moves definitively above 5% and consumer spending is lackluster. [Mostly right]

    2. Standard and Poor’s 500 earnings decline year-over-year and the index drops another 10 percent. Energy and materials stocks hold up relatively well in what is viewed as a correction rather than a bear market. Market conditions start to improve during the summer. [Mostly wrong]

    3. The dollar strengthens in the first half reaching $1.35 against the euro and weakens in the second exceeding $1.50. The European Central Bank begins an accommodative monetary policy. Foreign investors flock in to buy cheap assets in the U.S. early in the year but the dollar declines later as several countries holding large reserves diversify into other assets. [wrong]

    4. Inflation rises above 5 percent on the Consumer Price Index as higher commodity prices and oil finally begin to have an impact in spite of modest wage increases. The 10-year U.S. Treasury yield rises to 5 percent. Stagflation becomes a frequent presidential campaign and Op-Ed discussion topic. [wrong]

    5. The price of oil goes down early in the year and up later, sinking to $80 a barrel in the first half as western economies slow and inventories are drawn down, and rising to $115 in the second. Established wells continue to decline in production while China, India and the Middle East increase their consumption. [Totally wrong]

    6. Agricultural commodities remain strong. Corn rises to $6 a bushel and cotton to 85 cents a pound. Gold reaches $1,000 an ounce as disillusionment with paper currencies spreads across Asia. [wrong]

    7. The recession in the United States slows the Chinese economy modestly but its stock market declines sharply. Investors recognize that paying biotechnology stock multiples for highly cyclical companies doesn’t make sense. The Chinese revalue the renminbi by another 10 percent to control inflation and as a gesture to foreign governments participating in the Olympic Games who complain that Chinese terms of trade are unfair. Several long distance runners refuse to compete in certain Olympic events because of continuing air pollution problems. [Half right]

    8. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir Putin, becomes more assertive in world affairs. He insists that Russian oil and gas be paid for in rubles and demands a Russian seat at major world conferences. Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council markets begin to attract interest among emerging market investors. [Mostly right]

    9. Infrastructure improvement becomes an important election theme for both parties and construction and engineering stocks rally in anticipation of huge programs beginning after the new President’s inauguration. Water becomes a critical problem world-wide and desalination stocks soar. [Half right]

    10. Barack Obama becomes the 44th President in a landslide victory over Mitt Romney. With conditions in Iraq improving, the weak economy becomes the determining issue in voters’ minds. They want to make sure that gridlock ends and Congress gets something done for a change. The Democrats end up with 60 Senate seats and a clear majority in the House of Representatives. [RIGHT]

    Wien added that he believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50 percent probability of occurring at some point during the year.

    In previous years, he noted, more than half of the elements of the list have proven correct

  111. 111
    Sambone Says:

    # Two

    DJ 01/06 15:08 *WSJ: Good Was Chief Executive Of Sheldon Good & Co

    DJ 01/06 15:07 *WSJ: Good Dead From Apparently Self-Inflicted Gunshot Wound

    DJ 01/06 15:05 *WSJ: Real-Estate Exec Steven Good Found Dead Monday

  112. 112
    Sambone Says:

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude futures fell for the first time this year, as the
    market paused to evaluate whether oil could continue to rally in the face of a
    severe economic downturn.
    Light, sweet crude for February delivery settled 23 cents, or 0.5%, lower at
    $48.58 a barrel on the New York Mercantile Exchange. February Brent crude on
    the ICE futures exchange settled 91 cents, or 1.8%, higher at $50.53 a barrel.
    Oil prices paused after rising 25% in the previous three sessions, in a rally
    driven by investors who believed the worst of the global economic downturn was
    already priced into the market. On Tuesday, the Federal Reserve released
    minutes from a recent Federal Open Market Committee meeting that threw cold
    water on that assumption, predicting that the U.S. economy would contract in
    2009 and that unemployment would rise “significantly” into 2010.
    “You’re still in the throes of a global recession, so one wonders how much
    further upside there is,” said Andy Lebow, senior vice president for energy at
    brokerage MF Global in New York.
    Traders are paying attention to signs of political risk that might have been
    ignored a few weeks ago, indicating that the market does have the potential to
    rise further in the short term, Lebow said.
    Futures saw support from Russia’s dispute with Ukraine over natural-gas
    prices, which has led to countries in southern and central Europe being cut off
    from supplies. Several countries are already talking about switching heating
    and power complexes over to oil-based fuel.
    Heating oil posted the biggest percentage gain in the futures market, rising 5
    cents, or 3.2%, to settle at $1.6263 a gallon. Front-month February
    reformulated gasoline blendstock, or RBOB, settled 68 points, or 0.6%, higher
    at $1.1892 a gallon.
    The market is also tracking Israel’s offensive into Gaza, though the odds of
    that conflict affecting the region’s oil production is seen as remote.
    “The headline provided a good excuse for those who saw the market as oversold
    to get off the sidelines,” wrote Greg Priddy, an analyst with Eurasia Group, a
    consultancy.
    Oil inventories are likely to play a major role in determining whether the
    recent rally lasts through the month. The Organization of Petroleum Exporting
    Countries appears to be complying with production cuts announced in October,
    though the level of adherence to a second reduction in December won’t be known
    for weeks.
    In the meantime, U.S. inventories are expected to continue to build. Analysts
    surveyed by Dow Jones gave an average forecast of a 700,000-barrel build for
    the week ended Jan. 2, as well as a 600,000-barrel increase in gasoline stocks
    and a 900,000-barrel build in distillate inventories, including heating oil and
    diesel. The U.S. Energy Information Administration is due to release inventory
    data at 10:30 a.m. Wednesday.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    01-06-09 1515ET

  113. 113
    zman Says:

    XOM trading lower since lunch, accelerating lower now. Have not seen a broker comment, usually it follows the DOW, a little odd here. Just a theory but there could be funds in it as a safety play that are now being withdrawn and put to work in all these smaller boats that we see rising. One big fund family like Fido could account for this. Again, just a theory but I’ve seen it before.

  114. 114
    BirdsofpreyRcool Says:

    maybe a call went out over the Merrill squack box…

  115. 115
    Sambone Says:

    Z – This might be it on XOM

    By Liam Denning
    A DOW JONES COLUMN

    With energy investing, geopolitics might provide the drama, but the slowing
    global economy is the main plot.
    Nymex crude has moved back towards $50 a barrel. War in Gaza and Moscow’s
    latest spat with Kiev are cited as reasons. OPEC’s moves to cut production are
    a more likely culprit.
    That said, compliance with OPEC’s quota reduction is unconvincing so far. And
    each cut increases spare capacity, which has doubled already to 3 million
    barrels a day. And as Deutsche Bank analyst Paul Sankey points out, while 1.5
    million barrels a day represented a year’s worth of demand growth in 2008, 3
    million represents “infinite” spare capacity relative to demand when it is
    falling, as it looks set to do in 2009.
    It might seem odd, therefore, that oil majors’ stocks outperformed their
    respective markets in the last quarter of 2008. The reason was other liquid
    assets: cash on balance sheets. The oil boom left the six largest integrated
    oil companies with aggregate net debt of just $34 billion at the end of the
    third quarter, according to energy consultancy IHS Herold. That compares with a
    current total market capitalization of $1.1 trillion. Even as other sectors
    slash dividends and buybacks, the likes of ExxonMobil and BP still offer a
    combined yield of double digits in percentage terms.
    For now, the integrated companies still offer a safe haven for energy
    investors. Independent refiners, at the bleeding edge of falling oil
    consumption, remain a value trap. Oil services stocks, meanwhile, need crude
    prices to stabilize before a sustainable rally can get under way. Some
    independent exploration and production companies will struggle to survive, let
    alone grow.
    But even for the majors the clock is ticking. Leverage is low, but unlikely to
    remain so for long, unless shareholder payouts and capital expenditure are cut.
    Credit Suisse estimates that, if oil averages $60 a barrel this year, the
    integrated oil companies can meet these levels of spending while raising net
    debt to equity to a still manageable 19%. In 2010, however, even if oil reaches
    an average of $80, operating cash flow after capex only just covers current
    payout levels.
    Payouts shareholders have come to rely on could be threatened if oil prices
    remain subdued for a year or two. Not all majors are in the same boat.
    ExxonMobil sits on net cash of $26 billion and, perhaps, enjoys more
    flexibility given the greater role stock buybacks play relative to dividends in
    rewarding shareholders.
    Overall, though, the majors have grown payouts rapidly even as production of
    oil and gas has stagnated. Now that the tailwind of rising crude prices has
    gone, they must grow production or earn stellar returns on new projects to keep
    that cash cycle going at the current pace. Neither looks likely.

    (Liam Denning joined The Wall Street Journal from the Financial Times, where
    he wrote for the Lex column. Previously, he was an investment banker at Goldman
    Sachs.
    Dow Jones Newswires
    01-06-09 1346ET

  116. 116
    zman Says:

    Scratch that prior comment re selling SWN, fell as I typed it, will punt tomorrow.

  117. 117
    zman Says:

    Thanks. Maybe so. But the other Majors are outperforming the mkt.

  118. 118
    BirdsofpreyRcool Says:

    IG 197

  119. 119
    zman Says:

    How long has it been since we were < 200 there BOP?

  120. 120
    zman Says:

    Ameriprise Financial names XOM Top Pick for 2009, maybe that caused the sell down.

  121. 121
    BirdsofpreyRcool Says:

    DOG YEARS, z… dog years.

  122. 122
    BirdsofpreyRcool Says:

    mid-November?

  123. 123
    BirdsofpreyRcool Says:

    market sold off on comments from BAC and a downgrade of WFC by Moody’s.

  124. 124
    BirdsofpreyRcool Says:

    IG 195… remember when anything over 175 was head-spliltting? I do… seems like lifetimes ago, tho

  125. 125
    tater Says:

    Z,
    I just looked at the chart that I had posted for CHK (last week ?) with the RSI price projection. Buy signal gave a target of $19.78. That stuff still gets me spooked whenever I see it happen.
    Seems to have run into the top of the gap from the end of Nov.

  126. 126
    zman Says:

    Nice work T

  127. 127
    zman Says:

    Beer thirty!

  128. 128
    Sambone Says:

    Tini time!

  129. 129
    BirdsofpreyRcool Says:

    Alcoa to cut 13,500 jobs.

  130. 130
    zman Says:

    S&P Equity Research raises CHK tgt price by $5 to $24 just before the close.

    On 12/8 S&P had cut their target by …wait for it… $5 to $19.

    Some research director’s budget not at work.

  131. 131
    zman Says:

    If anyone has access to S&P research I’d love to see their tgt cut from 12/8 and their increase today. I dare them to justify the move back up with yesterday’s VPP alone.

    What do you call 10,000 analysts at the bottom of the sea?

  132. 132
    RMD Says:

    What do you call 10,000 analysts at the bottom of the sea?
    still useless.

  133. 133
    zman Says:

    I was going for a good start to carbon sequestration but I’ll accept that one too.

  134. 134
    ram Says:

    Who are the priciples in the Thunder Horse platform and the Tahiti platform in the GOM?

  135. 135
    zman Says:

    Thunder horse 75% BP (operator), 25% XOM

    Tahiti – CVX

  136. 136
    zman Says:

    BOP – did you see the DVN debt deals post close?

  137. 137
    ram Says:

    Thanks. Are you still trying to come up with a short term contest?

  138. 138
    zman Says:

    yes

  139. 139
    VTZ Says:

    Dman – if you want a canadian yield play with leverage to equities/oil you should consider COS.un. Think of it as SU in high yield form.

  140. 140
    VTZ Says:

    Other names you could look at are AET.un, CPG.un, BTE.un for more agressive ones. IPL.un and ESN.un for safer plays.

    In my opinion IPL.un for a safe play and COS.un for an more leveraged play are the best.

  141. 141
    crysball Says:

    Bloomberg feature on Crude Oil Cotanngo driving leasing of VLCC’s for storage, and in turn pushing up leasing rates as crude tanker capacity disappears [spot & long term leasing]

    Is there anyone publishing data on crude tankers used for storage?

  142. 142
    crysball Says:

    Jan. 7 (Bloomberg) — Oil traders are seeking as many as 10 supertankers to store crude, potentially taking the amount hoarded at sea to almost five days of European Union demand, according to Frontline Ltd., the largest owner of the vessels.

    About 25 of the carriers, each able to hold about 2 million barrels of crude, were already hired for storage. There are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

    Thirty-five supertankers represent about 7 percent of the global fleet of very large crude carriers, according to data from London-based Drewry Shipping Consultants Ltd. Storing oil in tankers may boost rental rates that fell by a record 78 percent last year as slower economic growth sapped demand for energy.

    Traders are seeking to lease ships for three to nine months, Jensen said. Crude oil for December delivery traded at $61.71 a barrel as of 7:35 a.m. in London, about $14 more than the February contract. Oil companies and traders may be able to profit from storing the oil, assuming shipping, insurance and financing costs are covered.

    Iran, the second-largest member of the Organization of Petroleum Exporting Countries, idled as many as 15 of its biggest ships in May to store crude. That contributed to three consecutive months of higher rental rates for ships.

    EU oil consumption averaged 14.8 million barrels a day in 2007, according to data from BP Plc.

    To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net

    Last Updated: January 7, 2009 03:27 EST

  143. 143
    VW Dealer Albuquerque Says:

    VW Dealer Albuquerque…

    […]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Tuesday Morning – Flirting with $50[…]…

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