07
Jan

Wednesday – Oil Inventory Preview

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ADP Payrolls for December shows a much steeper loss than expected ... if the market can fight this kind of terrible news off then the direction of the market may have truly turned. I suspect things are about to get bumpy.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Price Deck Update
  4. Oil Inventory Preview
  5. Multiples Update Continued (Oil Service), rest of week (small and mid cap E&P, Solars, Bulk Shipping)
  6. Odds & Ends

Holdings Watch - the wiki tab is updated.

  • GDP - Added February GDP $40 Calls (GDPBH) for $3 with the stock at 35.75, up 7% on news. Reasoning in the Tuesday post.
  • SU - Sold another quarter of my SU Jan $22.50 call position for $2.50, up 506% as oil starts to ease.

 

Commodity Watch:

Crude oil eased $0.28 to close at $48.58 yesterday after briefly trading over $50 for the first time in 3 weeks. This morning oil is trading off as much as a buck.

  • OPEC Watch: Iran says an emergency Cartel meeting will be held in mid February to review production levels and quotas. No confirmation from other Cartel members at this time. Two weeks ago they said January so this rally in crude has not gone unnoticed.
  • Hugo Is A Cheap Nutbag Watch: Citizen's Energy has been informed by Citgo that the discount heating oil program supplying 200,000 U.S. homes will be discontinued due to falling oil prices and the weak global economy. Hugo Chavez started the program to show everyone what a great humintarian he is but is now canning the program due to costs ... low oil prices must really be hurting Venezuela now.  Or maybe Hugo is just taking his cue from Putin about cutting off the heat in the dead of winter. Nice.
  • MEND Watch: XOM platform off Nigeria attacked and 3 workers were taken hostage. The platform lies 2 hours offshore by boat.

Natural gas fell 9 cents to $5.98; its warmish and crude's failure to keep rising left gas without support after a morning rally. This morning gas is trading flat to off slightly.

  • From Russia With Not So Much Love Watch: Vlad "the refrigerator" Putin goes on TV saying Ukraine is stealing gas not from Russia but from paying customers in Europe. He claims Ukraine is stealing 15% of westward bound volumes. Many EU nations are now reporting volumes have been halted entirely. Three way EU-Ukraine-Russia summit may take place Thursday.

Price Deck Update: In a nutshell, the spread between analysts' price decks and the crude and natural gas 2009 strips have narrowed significantly in the last 3 weeks.

  • The crude deck for the street is actually unchanged with a median estimate of $62.50 for 2009 while the 09 has advance to close to $57, or 9% below the analysts. This is a lot better than the 24% negative gap to the analytical community that we saw just before the holidays.
  • The natural gas deck is still a little high to the strip at $7.38 vs 6.35 for the futures but this 14% gap is nearly half the size of the pre holiday gap.
  • In short, analyst estimates for the E&P group have less far to fall all other things being equal.
  • The following table has been added to the E&P tab

Oil Inventory Preview

ZComment: After all the Israeli/Gaza premium and Russian cutting off gas to Ukraine/Europe heating oil directed premium today's numbers are likely to get traders re-focused on their concerns about demand, especially if the big three numbers show bigger than expected builds. This could send oil scooting back into the mid $40s and I see no better way to play a dip in oil than puts on the OIH or some of its more conspicuous components (more on that in today's multiple section).

  • Crude - Normally this time of year stock piles of crude are being drawn down to make more heating oil...heavily. Not so this time around as we well know. Look for signs imports are starting to come off as something that may support crude. Also, last week saw the first slight dip in stocks at Cushing, Ok. Without continued reductions there crude will have trouble rallying further.
  • Gasoline - gasoline stocks are the one area where the U.S. is not oversupplied at present. Normally this time of year we see builds 3+ times the size of the one expected today but with margins hovering around breakeven in most regions its understandable that refiners are taking more maintenance and just plain shutting in production. Demand remains key to support for crude prices as it is seen as a direct reflection of the consumer. We have seen demand off YoY holding in the down 4 to down 2% range for several weeks now and low prices have had only a modest impact on driving in the last 3 months. The Spending Pulse survey is looking for another similarly down week for demand in today's report.
  • Distillate - Over the last five year's we have seen strong builds in distillate inventories during the first week of the new year as refiners increase efforts to maintian adequate heating oil supplies in front of the back half of winter.

Multiples Update Continued (Oil Service)

Quick thoughts on oil service in general. The recent rally is overdone. The group has yet to reflect not only the reduced activity levels we are seeing but also the reduced pricing environment. I'm not alone in this thought as many on the Street are expecting a sell off soon as the shares have snapped higher in the New Year for little reason other than they are down "a lot". The only area that looks to be accurately reflecting this year's numbers is the deepwater sector. 

 

Odds & Ends

Analyst Watch: Oppenheimer actually raised its target for drybulk shipper (DSX) by $3 to $18.

Reports Watch: GDP notes from yesterday have been added to the reports tab.

140 Responses to “Wednesday – Oil Inventory Preview”

  1. 1
    Nicky Says:

    Good morning all.

    Did I read it correctly that they have agreed some sort of truce in the Middle East.

    If so, that news combined with the lousy economic data should cause oil to pullback. From a fundamental point of view anyway. Technically further upside still looks possible.

  2. 2
    zman Says:

    CNBC said it but this is what I saw, that attacks are to be halted for 3 hours per day.

    http://www.marketwatch.com/news/story/Israel-halt-Gaza-attacks-temporarily/story.aspx?guid={B2ACA70A-777C-4FEE-8F4E-3AC040DF53EF}

  3. 3
    zman Says:

    Hopefully sooner rather than later the fighting will stop. There’s probably $5 of fear premium in the price of oil that should not be there right now as no one but Iran (and only the Iranian military at that) is supporting using oil as a weapon over Gaza.

  4. 4
    zman Says:

    This looks like a cease fire though:

    http://news.yahoo.com/s/ap/20090107/ap_on_re_mi_ea/ml_israel_palestinians

  5. 5
    BirdsofpreyRcool Says:

    yikes. ADP report along the lines of what we were fearing… -693k vs -495k exp’d. At the end of this will be fewer jobs for fewer people… back to the one-worker household. I haven’t heard any one else (economist) talking about this yet… but, I think it will happen. For the most part, it will impact the service economy. Also, I expect manufacturing to regain some footing with respect to the last 2 decades. Bring Manufacturing Back, will be the trend. This should be good for energy, in the long run, I would think. But, that is really really long-run stuff.

    Credit Market Update: Single-name credit continues to rally, along with the indices… hearing investors are shorting individual names and selling the IG index to hedge that bet. They are losing money on the individual names-short right now, as the cash bond market is moving tighter. But they are making money on IG. The more they lose on shorting individuals, the more they are selling IG and causing it to collapse tighter. Bottom line: The basis is narrowing. This is “good,” but complicated… as there are more than two sides to this trade. So, have to look closely to draw implications from the credit market.

    GE selling $4B of bonds without the explicit backing of the FDIC was “good.” But, it came at a terrible price for GE… And their current bondholders. 7% is a LOT to pay to place AAA-rated paper. For comparision, Devon Energy was able to place $700mm 10 year notes yesterday at around 6.35%. Granted, the GE paper is 30 year, and Devon is 10 yr… But, there usually isn’t much difference between 10 and 30 yr yields when coupons get this high (it’s a “duration” thing). Devon is rated Baa1/BBB+, or 8 whole credit points lower than GE. So, you can’t point to the GE issuance as an example of a credit market thaw… Rather, it’s just investors jumping at the chance to buy a cheap cheap cheap bond. Like the Kansas City Southern bonds issued in mid-December. On the other hand, it’s good to know that “at the right price,” some buyers are not comatose.

  6. 6
    crysball Says:

    SHAM WOW……..for Crude Carriers

    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

  7. 7
    BirdsofpreyRcool Says:

    Bond market shrugging off bad employment numbers, as investors continue to buy single names and sell the IG index.

    IG 195 bps -1 from yesterday’s official close

  8. 8
    sportlock Says:

    Z,

    It seems something is kind of funny with robry’s production numbers and the ones that report last week. If several states were rolling over production in October I do not see where the increase is coming from. I do know some offshore came back but still it is now enough to explain the difference. What I suspect is the explanation is that production is tracked at the wellhead and robry uses pipeline receipts from which it is very hard to extrapolate out production vs storage pulls. What to you think? Seems to me the storage numbers would be a lot worse if production continued to grow.

    Thanks

    Bill

  9. 9
    zman Says:

    On a call, back in 5 minutes. Market and crude holding up better than I would have thought under ADP. Seems they changed their methodology.

  10. 10
    BirdsofpreyRcool Says:

    IG 194 1/2

    Credit market traders are scratching their heads over the equity market. They are seeing a credit market rally, but not reflected in stocks. This will make for a volatile trading day. But, what else is new?

  11. 11
    tater Says:

    CHK
    I’ll post a chart in a bit to show my thoughts, but be very careful with CHK. Popped up to cover late Nov gap on yesterday’s action. Now gapped lower this morning (intra day view) which creates a bearish outlook (possible island reversal). Seems to fit with near term fundamental news.
    The move back up into the gap currently going on now is usually faded in short time.

  12. 12
    zman Says:

    Bill,

    I do my own gas modeling so I don’t know what Robry is saying and I’m not familiar with his methodology.

    I think its a little early to be wanting production rolls out of the states as activity remained high well into November. Midcontinent had some pricing issues in the Fall and you can see Oklahoma rolling in the EIA reports but Texas, the source of most L48 growth over the last 3 years hit a new high in October. Offshore, we went from 7.5 Bcfgpd in July to a low of 2.2 Bcfgpd in September and 4.2 in October and its still not back to full swing. There were also gulf coast and even rockies impacts to the hurricane season due to processing. I think you start to see the real roll (in aggregate) in Feb or March data (which means we won’t see this until the end of April or May) but that January may show a flattening of the “Other States” production wedge which has been growing a troublesome rate. Rigs there have fallen like a stone, Texas is not far behind that.

  13. 13
    zman Says:

    Got the S&P note for CHK. S&P had a short (1 paragraph) first call note out yesterday citing cut spending, canceled equity offering, and scaled back production growth leading to greater financial flexibility as the reasons for its $5 hike to $24 for CHK. Recall 1 month ago they cut their target by $5 to $19. No mention made of the prior cut.

  14. 14
    zman Says:

    Tater – question re CHK. Do you factor in market action when looking at things like “gapped lower”. It seems to have filled the gap and traded even in the last few minutes despite the broad mkt still down 1.7 to 2%. I’m long the stock and some way out of the money calls so I asking purely from a TA understanding point of view and not questioning your bearish outlook comment.

  15. 15
    sportlock Says:

    Thanks. Very helpful.

  16. 16
    BirdsofpreyRcool Says:

    IG 196 back to unch’d for the day. Credit indices starting to pay attention to stocks. For now.

  17. 17
    zman Says:

    Bill – I was just about to inquire if it was. I wasn’t sure. I was involved in a monumental quest to track every molecule from the supply (both domestic and imported) and demand side for 5 years. There are so many ways you can mess up a model that gets that complex on the supply side from having to adjust pressure bases for each state to modeling the fracs right so that you don’t take out too much or too little liquids from the gas stream to come up with a dry gas number. And demand is far worse as even the older historic data is a ballpark on the government’s part at best. Anyway, I keep it pretty simple and my time frames pretty short (last couple to 5 years of data). The EIA is a shifty beast and they will change things on you with little and sometimes no notice. One of my great joys of doing this site is that I no longer spend time with them on the phone trying to wrangle more accurate data out of a drone who does not really care about his work. Now, I just try to figure out how the EIA is doing their job and what that means for the gas numbers both near term (weekly) and longer term. I don’t always get it right but getting overly complex did not help, even when I had a staff. The guys who do this the best that I have seen, from the overly complex model side, work at Anadarko.

  18. 18
    zman Says:

    FYI, EIA reverts back to its normal time for energy releases as of this week, so 10:30 EST or 8 minutes from now.

  19. 19
    tater Says:

    Not island reversal due to move back up (hope “be careful” good enough disclaimer). Playing in gap now. Need to watch the volume on the current battle in the 15 or 5 min time frame to decide who is possibly going to win, but I don’t like the push and subsequent rejection at the 50 EMA yesterday (at top of gap as well). Almost done with charts.

  20. 20
    BirdsofpreyRcool Says:

    Deflation Watch: Tidketmaster, the world’s largest ticketing company, expects prices for live entertainment to reduce in 2009. Greater competition + people have less money in their pocket.

    There is always a silver lining, if you look for it.

  21. 21
    BirdsofpreyRcool Says:

    inventories out a little early…

  22. 22
    zman Says:

    crude up 6.7 mm barrels
    gaso up 3.3
    dis up 1.8

    pretty bearish

  23. 23
    Pete Says:

    tater,
    On short term trading what type of TA would you use?– like RSI @ 2 ?

  24. 24
    zman Says:

    Imports were up big at 10.5 mm bopd

    Gasoline demand ticked back off to just under 9 mm bpd.

  25. 25
    zman Says:

    Cushing surged to 32.2 mm barrels, all time high.

    This will steel OPEC’s resolve in cutting and to meet for another cut as imports are still making it to the U.S. and in near record amounts at a time when the U.S. simply does not need the barrels.

  26. 26
    tater Says:

    Sorry took so long, have a plateful of trades I’m managing today.

    CHK charts at link (use the “chart book” selection at upper right portion of page to toggle between the 3 charts)

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

  27. 27
    BirdsofpreyRcool Says:

    IG 198… +2bps ==> CDS traders are trying to buy back the credit protection they sold earlier.

    Still, we are seeing a 1-handle on the IG index… far cry from the 293 low in December.

  28. 28
    pearl1301 Says:

    Z – got Jan31 puts on USO..do you see anymore downside pressure events in the remaining days to see USO get lower? I am already assuming a peace treaty in Gaza would impact it somewhat and if Russia starts NG flow again, but anything to look at?

  29. 29
    BirdsofpreyRcool Says:

    Commodity Inflation Watch: Monsanto CEO on the tape saying they expect to maintain price increases.

  30. 30
    zman Says:

    We could see natural gas have a pretty bad storage number tomorrow which could pull oil a little lower. I think it will trade on technicals and renewed demand fear now so I would not be surprised to see it test $40 in coming days. The jobs report Friday may also put pressure on crude, kind of depends how much the ADP stole the thunder there.

  31. 31
    zman Says:

    BOP – he should run an airline, that’s chutzpa.

    Speaking of airlines, CAL is breaking out and you may see me play long for a quick trade here as an oil hedge.

  32. 32
    pearl1301 Says:

    what is the ticker for crude?

  33. 33
    BirdsofpreyRcool Says:

    z – i guess people gotta eat. people don’t gotta to fly, tho.

  34. 34
    zman Says:

    Pearl – most systems its CL/G9 (february contract) or CL1 for crude light front month.

  35. 35
    tater Says:

    Pete #23
    I use all sorts of different settings for my TA (pragmatic “what works is true” methodology) but I usually pay most attention to factory settings because that is what most traders (yes even the lazy asses in New York) use.
    I am likely going to have a blog going in a couple of weeks in order to post the comments that go along with the charts I make in a more understandable form. The charting program limits the number of words that I can use and sometimes I feel like I am not communicating very well. (Likely I’m using too many words!)
    Also I really don’t want to clutter up Z’s site with too much mundane TA methodology discussion. I figure we can do that off on the side someplace. If you have anything more in that direction you can just email me through the chart posting site.

  36. 36
    BirdsofpreyRcool Says:

    Nicky – my favorite cross-asset-class strategist is out with a note this morning, following the abysmal ADP report. Basically, he is saying that if we get a horrible, terrible Jobs Report on Friday and if the mrkt rallies (or, at the very least, doesn’t fall below SPX 850), then he thinks this stock mrkt rally will be good to go through “late winter.” He doesn’t define “late winter,” but I would take that to mean something like March. Does this square with what you are thinking?

  37. 37
    Pete Says:

    Thanks Tater will take you up on the offer.

  38. 38
    zman Says:

    Tater – Believe me, I don’t mind the clutter but I think that’s a great idea as a blog will give you increased flexibility. Let me know if you need any assistance, it’s pretty easy to set up but there are some shortcuts.

  39. 39
    zman Says:

    BOP – I know you didn’t ask me but I agree with that thought on the market if it can shrug off this kind of news as I was indicating with my opening line today.

  40. 40
    zman Says:

    Merrill has a piece out (couple days old now) saying not all land drillers are feeling the pain equally. NBR seeing least of problems which you would expect given their horsepower advantage over most others in aggregate and the types of shales still getting drilled (deep with long laterals), was a little surprised to see UDRL getting drilled (sorry for the pun) the worst with rigs off 30% there.

  41. 41
    nifkin Says:

    NBR selling 10 year benchmark notes.

  42. 42
    zman Says:

    HAL up now. OIH down with rest of energy group but still outperforming. Maybe too many people are expecting a rollover in this group but I’m with them, the estimates need to fall further.

  43. 43
    BirdsofpreyRcool Says:

    z – thanks for chiming in! I saw that your comments dovetailed with the thoughts of the strategist (who is perfect for this market as he looks across money markets, corporate bonds, eco-data and stock mrkt indices). I mentally filed that under the topic “Great Minds Who Think Alike.”

  44. 44
    tater Says:

    Thanks Z. I have to run out to see the new Nutrisystems display at Costco. I understand it’s the thing to do in January (at least my wife says its the thing for ME to do).

  45. 45
    BirdsofpreyRcool Says:

    Trading Desk says it’s a 50/50 shot at closing higher or lower today. Guess that’s the same as having “no opinion.”

  46. 46
    Dman Says:

    tater, what do you make of it when there is a gap each way (GDP)? Also, do you include extended hours trades when deciding if there is a gap?

  47. 47
    zman Says:

    Oil down 7%, stocks down a little under 3% now, no sense of panic.

  48. 48
    tater Says:

    D,
    Just stepping out the door, I will try to get a longer look at Goodrich for you later. Quick look though:
    Weekly chart, up into 20 wk MA (bearish) and didn’t do a Fib line but looks like it is likely up into that type of resistance as well.
    Daily, it just caught the support of the 20 and 50 EMA on the selloff today (bullish)
    Minute view, that is an island reversal if the gap down today is not closed (very bearish at least in the short term).

    Kind of a complicated chart but actually very worth looking at when I get back as it is apparently a very TA friendly trader.

  49. 49
    Wyoming Says:

    Headhunter still calling. Said OXY, EOG and HESS were looking for staff still. Was surprised, told me he just got an order in this morning …. they must be well hedged. Off to tell another vendor bad news for him, check to see if they have come off their pricing yet.

  50. 50
    ram Says:

    Wyoming – Take no prisoners with regards to vendors.

  51. 51
    ram Says:

    What is the type/grade of oil coming out of the Bakken?

  52. 52
    zman Says:

    What goes up fast, comes down fast.

    The little names are getting a pretty harsh pull back today.

    Reef, TXCO in here?

  53. 53
    zman Says:

    high API, light sweet.

  54. 54
    mahout Says:

    Z and all,

    Sold IOC today @ 15.69. Had bot it @ 11.85 on 12-18-08. Up 32.4% in 20 days.

    It may go higher when they report full results on the new gas well they are still drilling. In fact i think it probably will, but i didn’t want to get too “greedy” with the current euphoria starting to fade and IOC up today with every other energy name i have dropping.

    As to the euphoria: We have inauguration day euphoria, stimulus package euphoria,
    commodity price increase euphoria(not only Cl but others such as copper rising off their bottoms, end of tax-loss selling euphoria, presumed end of hedge fund liquidations euphoria, and perception euphoria that recessions only last so many months and we are long into that process so recovery is right around the corner. I distrust this accumulated euphoria.

    While i am not pessimistic and am long on quite a few of our favorite names i think we are in for a long haul on the repair of our economy as well as the repair of the other economies of the world and i want to be fairly cautious at this time. I think there will be some rough bumps in the road such as the ADP payrolls this morning.

    I agree it should be a heck of a year for trading in and out and up and down.
    Hope i can get it right. Thanks again for all the great info and comments.

  55. 55
    zman Says:

    CNBC doing a little round table on oil right now, pretty interesting.

  56. 56
    Dman Says:

    Z – in #11, tater mentions near-term bearish fundamentals for CHK.

    Is that your view? Given the hedges, it seems to me that the main negative for CHK is the debt & from BOP we see improvement in the credit backdrop. Also, with rig count dropping, we know NG must turn (OK, so we don’t know when).

    But enough of me putting my thumb on the scales… what’s your take on the fundies?

  57. 57
    zman Says:

    Dman – No. Fundamentally, the company is better position via prospect inventory and hedges than its big cap peers. You can say low gas prices near term translate to weak fundamentals but given their hedge I’d argue with you on that one. Spending and getting asset deals done were the rub here and they have taken care of both in the last 4 weeks.

    Carbone on CNBC called recent move in oil a bear trap and said that the low volume move to the downside was a signal that oil would rise, now says we’ve apparently failed $50 and could go back to the lows but he sees $150 to $200 oil in 2010.

  58. 58
    BirdsofpreyRcool Says:

    Jamangar Refinery Explosion

    ** Bloomberg is reporting this morning an explosion at Reliance Industries’ new 580 mb/d refinery at Jamnagar (India). The explosion occurred in a hydrogen plant, killing two people. No other details are currently available.

    Tristone is out there saying this may hurt a short trade vs VLO and SUN as they have high leverage to gasoline export markets.

  59. 59
    zman Says:

    Dman – were you looking for something more indepth re CHK? Other than the high debt load which is high on a debt to total cap basis and not as to coverage and not in any pressing need for rolling over (5 years) I don’t see the negative side to fundamentals, at least near term due to the hedges. If you look at the E&P tab on the Large Cap E&P table you can see that they show a smaller denigration to their forward CFPS numbers (or EBITDA) than their peers. The negative I see is having their peers looking more expensive in the future. Puts a cap on what the shares can do. The real unlocking mechanism will be when deals start happening again and people start talking about NAV.

  60. 60
    Dman Says:

    Z – #57 thanx

    – the “low volume” drop in crude: can you quantify “low” (assuming he’s talking front month).

  61. 61
    zman Says:

    Dman – All he means is that price fell in a holiday volume light vacuum. For a couple of days there, the front month contract traded 50K shares when it is usually 3x this close to its expiry.

  62. 62
    1520sbroad Says:

    Gil Yang at Citi out with a piece this morning titled “Natural Gas Producers: 2009 Outlook, Time to Buy”

    cites falling rig count, beginning of change in nat gas with E&P’s already having seen bottom
    KWK is top choice
    decent charts and info about industrial demand, LNG

    Z- i can get a copy to you if you like

  63. 63
    zman Says:

    1520 – thanks, somebody was good enough to have already sent me a copy. I agree with the basic premise in 62 as you know although I’d usually rather not be in his company as the guy has been a wonderful contra-indicator for as long as I can remember. I have not read it yet but plan to tonight.

  64. 64
    1520sbroad Says:

    #63 – no problem. Agree on sentence #2. There is one really good chart in this report – see figure #2 on the second page – a good look back at 2001-2002 when the rig count fell off and what happened to the E&P stocks. Provides some degree of comfort that we are on the right side of this idea.

  65. 65
    zman Says:

    1520 – If KWK is his favorite name he must think oil is going higher. They live by the liquids taken from their gas in the Barnett. That’s the real juice in the story at least. If he’s all about gas then he really should be jumping up and down about a SWN or a GMXR which are going to show huge gassy growth again this year.

  66. 66
    zman Says:

    1520 – thanks much, will check it out. Smart of gil to include pix like that. I should have made my own to illustrate that point and may do so with my next thought piece on natural gas.

    I plan to add more stock (not just option) thoughts on E&Ps soon. Getting more and repeated requests for a look at E&P from a longer term, stock owning perspective.

  67. 67
    1520sbroad Says:

    i don’t know kwk that well. i do know SWN and they remain my pick for a variety of reasons.

  68. 68
    Dman Says:

    At least I now know why KWK is green today.

  69. 69
    BirdsofpreyRcool Says:

    Inflation Watch – Fed’s Hoenig says “inflation in U.S. is currently receding.”

    I want his job. He gets paid a lot to make those sort of BLINDINGLY OBVIOUS statements.

  70. 70
    Dman Says:

    Z – I wasn’t looking for more depth but always happy to take more for an answer (#59). I’ve been wondering why NAV never gets mentioned anymore. I guess it’s a bit abstract unless someone can actually be a buyer.

  71. 71
    zman Says:

    D – Exactly

  72. 72
    Wyoming Says:

    Back from lunch/meeting. Prices down a little over 10%, going to get a quote from a past job to compare the market today. Told him he should be coming off at least 40-50% from December.

    Said his brother quit last month, CHK Barnett, miserable lot to work for. Said DFW airport is down to 2 rigs. Few indies still drilling, mainly not trying to lose leases.

    FWIW. Have a good PM, time for meetings.

  73. 73
    zman Says:

    Thanks for the color Wyo.

  74. 74
    zman Says:

    Street thinks NG storage falls 79 Bcf tomorrow. This is in line with the 5 year average of 78 Bcf.

  75. 75
    Dman Says:

    #72 not sure I’m reading that right: you’re asking for for 50% off, but where does the 10% come in … is that what they were offering?

  76. 76
    zman Says:

    Crude down $6 (12+%) and falling through the $43 level. Profit taking, bad numbers, and bad day in the equity market. The stocks are actually taking it not too terribly bad.

  77. 77
    mnt Says:

    Just thought I would post this regarding the rebalancing of the GSCI. Difficult to tell whether this is now factored into the commodity prices.

    http://www.ritholtz.com/blog/2009/01/here-comes-the-commodity-index-rebalancing/

  78. 78
    zman Says:

    Getting ready to buy SU back with Feb strikes, may wait for the open in crude tomorrow, feels like they will want to test $40 in the morning.

  79. 79
    zman Says:

    Thanks MNT. I remember writing at the time in the 2006 re-weighting that it was politically motivated for the mid term elections to dip gasoline prices. Did dip prices, didn’t help congressional jobs up for grabs at the time though. There are a few of these mechanisms that I suspect come into play around elections including Saudi actions before the last election where they boosted production after repeatedly claiming that excess stocks were building. One has to wonder what they got for that. Anyway, not to be all Mel Gibson about it but it does happen. Looks like the new balance is crude bullish… thanks for bringing it to my attention.

  80. 80
    Pete Says:

    2x short oil DTO up 30% yikes!!

  81. 81
    md Says:

    I was more concerned about product supplied numbers than inventory.
    When you consider that we consume 20M+- A 7M pop can easily be gone in a couple of weeks or less.
    Product supplied has gone back up to 19.8 _ 20M. Not exactly bearish.

    I’m going to adopt the new SPR strategy. Buy low.

    Thanks for the colour and drilldowns.
    On DXO- Tater notwithstanding it’s imperfections it’s a turbocharged USO although not at 2X

  82. 82
    zman Says:

    md – I agree with your assessment that the product supplied numbers are not exactly bearish and I should take greater care in choosing my language. I meant this will be seen as bearish near term for oil. I’ve been digging through the numbers and distillate demand up is a bit heart warming but I think its all weather and that the dip we saw there 4 weeks ago was due to lack of export demand and that if January is warm, distillate demand will fall off again and then stocks will really rally. Maybe I’ll take the other side of DXO now that its up so much. Or I’ll just add the SU calls back. Probably in the morning. Trying to wrangle something out of HK at the moment.

  83. 83
    reefguy Says:

    52- Out of office. TXCO makes no free cash flow below 40 oil. Pullback is justified if oil stays down for long.

  84. 84
    reefguy Says:

    52- Out of office. TXCO makes no free cash flow below 40 oil. Pullback is justified if oil stays down for long.

  85. 85
    md Says:

    My comment was strictly a reflection of the market reaction. I guess I need to be more Mo MO Mo

  86. 86
    BirdsofpreyRcool Says:

    KOG – hearing that the drilling crew is “giddy with happiness” about this first Bakken well. Maybe a couple of them hit the bar over the weekend… would explain the run-up on Mon-Tues. Anyway, since we have no idea what the productivity of the well will be (until mid-March)… what makes drillers do the Happy Dance? Is not “porpoising” (thanks Wyoming) out of the formation enough? Or, are they sniffing hydrocarbons in the shale shaker…?

    Any general comments?

  87. 87
    zman Says:

    BOP – I would just add that everything in the sub $ E&P market place exploded higher over the last week.

  88. 88
    BirdsofpreyRcool Says:

    z – so, those drilling guys must of been on a real rampage, eh?

    😉

  89. 89
    Nicky Says:

    BOP re #36. Yes his timing coincides perfectly – Feb/March. Also like his 850 level.

  90. 90
    BirdsofpreyRcool Says:

    (minor attempt at humor… in an otherwise humorless mrkt)

  91. 91
    BirdsofpreyRcool Says:

    Nicky – thanks for taking a look at that. It’s great when fundamental and technical analysis confirm each other. I thought you guys were circling around the same levels and time periods. Very helpful, thanks.

  92. 92
    zman Says:

    BOP – like the guys were indicating yesterday, I’d presume they’d know if they were where they wanted to be prior to completion.

  93. 93
    zman Says:

    Wonder if we stay in fear land tomorrow awaiting Friday’s jobs data.

    Don’t recall if I mentioned it earlier but number for tomorrow is 79 with the 5 year average at 78 Bcf.

  94. 94
    BirdsofpreyRcool Says:

    z – so, just happy to TD in the right zip code?

  95. 95
    zman Says:

    May double down on the GDP in the morning. Also add back the SU in the morning. Will wait for that open to get out of the way, not a rush rush rush market, unlike the feeling just yesterday morning.

  96. 96
    zman Says:

    They should know where they are at, yep. I have to bust one of my rules in taking this on board (if I do) and that is to avoid companies who announce spuds and TDs and not just completed wells. Its promotional and its rookie.

  97. 97
    zman Says:

    From an old post regarding things I avoid in the micro cap E&P stock world:

    (the spuds and TDs comment is not in here but it should be)

    Subscriber Request: Hemi Energy Group (HMGP) – pink sheet listed, very hard to find information on except from the company website and they appears to be the hypey style I run screaming from. They PR’d Hillary Clinton coming for a campaign visit to Fort Worth! Oooohh, aaahhhh. Let me share some of the rules I paid quite a bit to learn when I was younger:

    * 1) avoid the pinks like the plague.
    * 2) avoid penny stocks ” “.
    * 3) avoid situations were management of a “development stage” anywhere on their website mentions the word “billions”.
    * 4) avoid stocks where there is an almost daily string of press releases (these guys are not too bad in this respect) AND the language sounds like its written by someone who doesn’t read about or belong to the industry.
    * 5) avoid companies that don’t report on time or simply don’t report results at all.
    * 6) avoid companies that show you a picture of their HQ but don’t mention their people, which are often as important as the assets under the ground.
    * 6) avoid the pinks like the plague (can’t stress that enough).

    From what I can tell of this 6 cent stock, they are operating stripper wells (wells with < 10 bopd of production) in Kansas and buying leases in the Barnett Shale in Texas, attempting to get in the way of larger oil companies as the play expands. I'm not saying this won't work but the stock action will be dominated by: * 1) the price of oil, * 2) stock hypsters/manipulators, * 3) the dream of someone like CHK wanting to drill on one of their bits of acreage in Texas, which may or may not ever happen. On a reserves per share basis they have no where near the underlying assets (2.15 mm BOE as of a semi-annual report? ) to carry the number of shares (51 mm, I think) they have outstanding. According to the company they were cash flow positive in December and January on production of 461 and 669 barrels (that's the whole month folks, not per day) so I guess they don't pay themselves much which is admirable but also makes you wonder why their talent doesn't go somewhere where it can get paid more. Not the head guy, he's obviously got a dream and he's sticking to it, but the rest of their team you gotta wonder about. There are so many high quality, high return names to get to know and play that I just have to pass. Can it go back to 17 cents from whence it came last Fall? Sure but it can also easily go to $0.03 and no one anywhere will say "holy smokes, that's not right, that shouldn't be".

  98. 98
    occam Says:

    If tomorrow’s number is light (say -57), who gets hit?

  99. 99
    Wyoming Says:

    BOP, probably had some good shows on the mud log (not necessarily cuttings). If they hit drill breaks thru faults, they may have got a kick or maybe some background gas. They could have some MWD info. Gyro might show them running to plan. A lot of things tell you it is a winner.

    Generalities are sometimes nice as it saves time. Here are 2 in regards to wells:

    It is really hard to screw up a good well, real easy to lose a marginal one.

    Oil wells are more forgiving than gas wells.

  100. 100
    BirdsofpreyRcool Says:

    z – totally agree with the amateur hour stuff. But, some of KOG’s largest shareholders are pressing for PRs at major milestones. Since those guys really bungled the timing on everything for the last year, shareholders want to know if KOG can operate in the real world.

    Hence, the rookie PRs.

  101. 101
    zman Says:

    Occam – all of the gassy names, highest p/cf more than lower so SWN and GMXR.

  102. 102
    ram Says:

    Would it stand to reason that shipments of LNG might be diverted to Europe vs. US delivery with the Russian dispute? Short term supply issue?

  103. 103
    zman Says:

    and once upon a time Wyoming was quoted as saying “and you can’t screw up a cotton valley well”

  104. 104
    BirdsofpreyRcool Says:

    Wyoming – good heuristics. thanks!

  105. 105
    zman Says:

    Ram – yes. Their underground storage has nothing like the capacity of the U.S. Russia supplies much of western Europe with about 20% of its gas, and much of eastern Europe with all of its gas. They will be cold and looking to buy gas. This one seems to be dragging on longer than the last ones. Possible that its more to do with Ukraine wanting to join NATO than with the money.

  106. 106
    zman Says:

    BOP – ok, that gives them the out I need to not shout them down. Its the no expiry call option to a new area of the Bakken then.

  107. 107
    BirdsofpreyRcool Says:

    z – thanks. I hate defending them… as they have been so exceptionally pathetic. But, they are nice, honest people who really want to do good by their shareholders. They just can’t operate the kiddie ride at the kmart carnival.

    38,000 acres in the heart of the Bakken is pretty attractive stuff. If they do manage to prove up the area, i think there were be a lot of pressure to sell out to a real operator.

  108. 108
    BirdsofpreyRcool Says:

    make that “36,000 net acres” in the heart of the Bakken

  109. 109
    ram Says:

    Seems a mini recovery in E&P’s even though the S&P is near LOD. Still a need to own energy even in a bad economic time?

  110. 110
    ram Says:

    How do you detect a neighbor from taking oil under you?

  111. 111
    zman Says:

    BOP – re 107. All you can do is the background work and try not to become a “believer” and be willingly lied to. I’ve made plenty of money investing in good plays run by gangs that couldn’t shoot straight … but I’ve made more investing along side guys like Hackett who bring the A game to the table every day.

  112. 112
    zman Says:

    109 – its pretty smallish and probably just owing to the nymex close and no further fall in oil seen today. I’d bottom fish on a day like today too but we have had a big run and I’m a patient guy and I think they want to test $40 (barring some big geopolitical upheaval I think we do).

    re 110 – here’s probably a good answer:
    http://en.wikipedia.org/wiki/Oil_and_gas_law_in_the_United_States

  113. 113
    Wyoming Says:

    If I can design a CV well and it “comes in”, then so to could a drunk monkey.

    Good wrap up today, I’m short (financially) and I am going home.

    Bear Flag.

  114. 114
    BirdsofpreyRcool Says:

    rats. i’ll bite… i probably should know… and i’m gonna be embarrassed… but, who’s Hackett?

  115. 115
    zman Says:

    Jim Hackett – APC’s CEO.

  116. 116
    BirdsofpreyRcool Says:

    phew. i should know that, but i don’t. APC is too high-grade and big-cap for the universe of junk bond, micro-caps i follow. thx

    IG 204 +8 for the day. too bad, was liking the return of the 1-handle…

  117. 117
    ram Says:

    Oh, I was thinking Buddy Hackett all this time!

  118. 118
    zman Says:

    All you can say about today, the first test of the new market order (bear market rally in stock parlance) was that it could have been worse. Beer thirty.

  119. 119
    kyleandy Says:

    ram good one !!!

  120. 120
    orion Says:

    Got my eye on the SU Feb 25 calls tomorrow AM..

  121. 121
    Hoss Says:

    BOP

    You might get a kick out of this.

    Fort Berthold Reservation – Atlas of Oil & Gas Plays
    http://www1.eere.energy.gov/tribalenergy/guide/pdfs/fort_berthold.pdf

  122. 122
    BirdsofpreyRcool Says:

    Hoss – is it gonna be bad news? ’cause, i don’t want any more slaps upside the head today… i’ll go look…

  123. 123
    BirdsofpreyRcool Says:

    Hoss – great find!! where do you come up with this stuff?? who knew the Indians were running a website on this. thanks!

  124. 124
    ram Says:

    So is KOG on the dark green or the light green side of the Bakken?

  125. 125
    elduque Says:

    what’s your take on Aubrey’s new employment contract? see new 8-k

  126. 126
    BirdsofpreyRcool Says:

    ram – should be in the dark green… just south of the Sanish and Parshall fields, in northern Dunn County.

  127. 127
    BirdsofpreyRcool Says:

    make that, about 15 miles south of EOG’s activity in the Parshall Field, to be more precise.

    And, just to put the drill schedule management into context, KOG was supposed to commence drilling their first well on the Rez during the 2nd quarter of 2008. This is the well that finally spud in November. That’s why the public wants to know the current schedule.

  128. 128
    ram Says:

    Thanks BOP. Should think about KOG for the 401K.

  129. 129
    BirdsofpreyRcool Says:

    ram – if you buy it, wait until z does… i don’t mean to talk anyone into it. it’s just one i happen to follow…. and own… at higher levels.

    Anyway, since the results from the first well aren’t going to be in until mid-March (assuming they keep to the sched), there will probably be lots of opportunities to buy it right. Oil can go anywhere between now and then, it seems like.

  130. 130
    tater Says:

    Dman,
    Just got in. I will have GDP charted by probably late evening so please check the post later.

    md,
    Agree that DXO DTO USO all are valid vehicles for trading. I do not believe that any of them are suited for investing (anything longer than 2 or 3 month time frame).

    Z, Dman, #56 and #57
    I guess I should know better than to use the word “fundamental” 🙂 In the heat of the moment I slipped. I was thinking that NatGas may drop a bit and in that universe CHK may be hurt. In regards to you guys knowing about CHK’s hedges, I really wonder if Wall St. knows. Seems like they are more content treating/trading CHK as a proxy for Natgas, much the way SLB has been proxy for crude.

  131. 131
    zman Says:

    El -d

    Just read it, looks ok. The $75 mm headline number for the one time payment to Aubrey will probably raise some eyebrows and who knows, might even cause the S&P analyst to trim his price target (just kidding). Its not a bad deal or out of line with other CEO compensation around the energy sector, especially since most of his comp comes in the form of payments of working interest expense, in other words they have to play (drill wells) for him to get this. Stock off a little in the aftermarket but volume was almost entirely retail (100 shares here and there). If some analyst cries fowl in the morning it will provide me with a good excuse to get back in with a strike closer to the current price.

  132. 132
    zman Says:

    El -d , they also changed how much stock he must hold in relation to his compensation which is set at just under $1mm in 2009. So, you can draw a couple of conclusions. They want him buying stock again and he’s not got liquid net worth to pay for the drilling costs (or at least not enough to have a comfortable cushion besides). He does own half of Ok real estate but given the present market… Anyway, the headlines are already reading “Chesapeake Awards CEO $75 Million, Lowers Stock Mandate” which on the surface sounds bad.

    Venezuela on the tape cutting deliveries to U.S. refiners by 189,000 bopd as part of its OPEC quota compliance.

  133. 133
    Wyoming Says:

    Birds do it, Bees do it ….

    http://bit.ly/uHup

  134. 134
    zman Says:

    Guess it had to happen.

  135. 135
    PackMan Says:

    Haven’t had time to follow during the day here; pretty much catching up at night. Good stuff by a bunch of folks here to augment Z, particularly BOP, Nicky, Tater, others. Appreciate it.

    Was daytrading EOG today, they really moved that all over the place on what seemed like low volume. Worked well, but missed out on EOD spike … what was up w/ that ?

    Anyway, Z, if you can give a brief chat on the highlights for EOG as a refresher, I would appreciate; I was pretty much just trading the intraday chart figuring it was a decent buy in 67 range during the selloff.

  136. 136
    Wyoming Says:

    Suhwheeeeet. I have a man crush for Uncle Larry. Don’t really care much for his rags but I do love the messages. But lets not get political again, may ruffle some more feathers.

  137. 137
    zman Says:

    Pack – will drop it in the morning post.

    Wyoming – I have made donations to him in the past as well.

  138. 138
    Wyoming Says:

    I work for SLB… and I can tell you firsthand, it sucks… we’re hurting bigtime. We just went through another round of layoffs today. And I’m sure it won’t be the last.

    A message on a Blog I read sometimes, tonight.

  139. 139
    Wyoming Says:

    Why not?

    Texas Judge gives 7 year old right to decide custody.*

    Dallas, TX, December 31, 2008

    A seven year old boy was at the center of a county courtroom drama yesterday when he challenged a court ruling over who should have custody of him. The boy had a history of being beaten by his parents and the judge initially awarded custody to his aunt, in keeping with child custody law and regulation requiring that family unity be maintained to the highest degree possible. The boy surprised the court when he proclaimed that his aunt beat him more than his parents and he adamantly refused to live with her. When the judge then suggested that he live with his grandparents, the boy cried and said that they also beat him. After considering the remainder of the immediate family and learning that domestic violence was apparently a way of life among them, the judge took the unprecedented step of allowing the boy to propose who should have custody of him. After two recesses to check legal references and confer with the child welfare officials, the judge granted temporary custody to the Dallas Cowboys, whom the boy firmly believes are not capable of beating anyone.

  140. 140
    nifkin Says:

    Thomas Weisel downgrades Oil & Gas names, Quicksilver Resources (KWK), St. Mary Land & Exploration (SM), others
    KWK (target reduced to $9 from $21) downgraded to market weight from overweight
    SM ($33 PT) downgraded to market weight from overweight
    SWN (target reduced to $39 from $42) downgraded to market weight from overweight
    TEC (target reduced to $2 from $8) downgraded to market weight from overweight
    UPL (target reduced to $38 from $55) downgraded to market weight from overweight

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