16
Jan

Less Frightening Friday

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Sharply higher open expected on B of A stabilization news. The IEA cut its numbers for demand for 2009 into the negative category but this was expected and at least so far, shares are holding above the $35 level giving energy stocks a chance to participate into options expiration. Not a lot going on in terms of energy company news today so I've included a look at rig activity vs natural gas production response and some other tidbits.

In Today's Post

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

Holdings Watch: No changes yesterday

Commodity Watch:

Crude oil fell $1.88 to $35.40 yesterday, again closing well of its early day low of $33.20 as the equity market sank. The front month crude contract looks like this and the 12 month strip looks like this:

Food For Thought Watch: This Is A Record Steep Contango And Steep Contango Often End In Rallies. This is not necessarily a causal relationship...

  • in that the events that give rise to a steep contango, such as near term glut conditions which are expected to resolve themselves when, oh, say, the economy gets off its keister, may in fact go on for longer than anyone thought leading to continuous pressure as the out months become the near months over time.
  • and, significant new supply can yield a depression in those out months. However at present many potential sources of significant new supply are being backburnered (although crude will struggle to get back to 2008's highs before the end of 2010 due to the large surplus capacity OPEC now has in place and which will likely grow by 2 to 2.5 mm additional bopd by 2012 as Saudi Arabia, Iran, and Angola increase their productivity via new fields.

... but historically large contangos have presaged sharp reversals in the crude markets after significant supply curtailment has been incurred and demand has returned due to prices. This one may take longer to resolve as prices, at least so far, don't seem to be inducing further purchases as the weak global economyand haywire financial situation has yield.  Just food for thought.

  • IEA Watch: France's oil watch dog cut their forecast for global demand by 940,000 bopd to 85.3 mm bopd, a 500,000 bopd drop from 2008 levels. IEA is using a global GDP figure of 1.2% with China seen growing at 6.5% (its lowest rate in 8 years).

Natural gas tumbled $0.13 to close at $4.84, its lowest close since a one month sell off in September 2006 (before that support was in 2004). Click here to go to the full Thursday night post. This morning gas is trading up a dime.

 Stuff We Care About Today

I get asked a lot about when the falling rig count will yield falling production numbers. My answer has been in the January or February data (which we see 60 days later from the EIA). That actually may be a bit conservative. Here a some things to consider:

  • Barnett Vs Haynesville. Before looking at the following graphs its probably worth noting that the big, high initial production wells of the Barnett Shale, which fueled much of the recent supply growth in the U.S. were 15 to 20 day wells. Rig counts are plummeting in Texas  (down 146 from year ago levels) and should continue to fall over the next few months. They are being somewhat offset by the Haynesville Shale wells which probably provide the highest IRR of all the shales at present. The Haynesville wells are much deeper and require something closer to 55 to 60 days spud to completion. So they may indeed be double, triple or even quadruple the initial production of a Barnett Shale well with the same decline profile (down 80% first year) you will get a lot less of them drilled per rig (6 or maybe 7 wells for H.S. vs 20 to 22 wells per rig in the Barnett) which itself will lead to a little bit lower gas production in aggregate. That's a little bit less gas if the rigs simply transitioned from Texas to Louisiana. Did I mention Texas is short 146 rigs? Louisiana is up 44 rigs from year ago levels. That's just not enough to offset the lower activity in Texas.  

 

  • The Steeper The Slide, The Quicker The Production Response. This intuitively makes since and it should be truer now than ever given the higher decline rate nature of where the production growth has been coming for but I won't beat that horse anymore.

 

Odds & Ends

Analyst Watch: Argus cuts (BHI) from $85 to $45, maintains Buy with the stock at $32. 

 

 

147 Responses to “Less Frightening Friday”

  1. 1
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude futures traded modestly higher Friday as market
    participants opted to take their lead from stronger equity markets ahead of
    another dismal prediction for global oil demand.
    European equity markets advanced after a bail-out deal for Bank of America
    assuaged fears of more disintegration in the financials sector, with the
    optimism it generated enough to offset a brace of ugly losses reported Friday
    by the bank and its peer Citigroup. Equity markets have been watched
    increasingly closely by the crude market, seen as leading indicators of
    economic health and associated oil demand.
    Meanwhile, a somewhat muted price response greeted the International Energy
    Agency’s 1 million barrel-a-day cut to its world oil demand forecast. Crude
    demand globally is now expected to average 85.3 million barrels a day this
    year, the IEA said, with economic recession in various parts of the world and
    increased weakness in China putting a further squeeze on energy consumption.
    “The price hasn’t been doing much but I think that may be more to do with
    equity markets up today, the optimism there balancing things a little bit,”
    said Simon Wardell, analyst at Global Insight. “Also, the IEA is always a
    little bit behind like any monthly publication, although I think the downward
    revision is significant,” he added.
    At 1228 GMT, the front-month March Brent contract on London’s ICE futures
    exchange was up 48 cents at $48.16 a barrel.
    The front-month February light, sweet, crude contract on the New York
    Mercantile Exchange was trading 31 cents higher at $35.71 a barrel. The more
    active March contract, which becomes the front-month product Jan. 20, was up 3
    cents at $43.57 a barrel.
    The ICE’s gasoil contract for February delivery was up $7.75 at $465.50 a
    metric ton, while Nymex gasoline for February delivery was down 104 points at
    116.38 cents a gallon.
    Despite the grim readings on offer from the IEA, the pessimism about demand,
    which is currently widespread in the crude markets, cushioned its impact, some
    said.
    “Given the current economic climate – although a 1 million barrel a day cut is
    large – it’s not a massive surprise,” said Tony Machacek, energy broker at
    Bache Commodities in London.
    Nonetheless, the weaker demand outlook limited crude’s advances Friday, as did
    indications that supply remains robust. A developing trend for storing oil in
    crude tankers has led to between 50 million and 80 million barrels currently
    being held in floating storage, the IEA said in its report.
    Further supply cuts from Organization of Petroleum Exporting Countries might
    be necessary to trim the buildup in worldwide crude stocks, some said Friday.
    Last month OPEC announced a 2.2 million barrels a day cut in output, effective
    Jan. 1.
    “With between one half and one day of global demand on the water in floating
    storage, OPEC would have to tighten the market by one half to 1 million barrels
    a day below current demand levels for an entire quarter to get rid of the
    surplus,” analysts at JP Morgan calculated Friday.
    “In addition, OECD stocks are probably around four days above normal. That
    could cap prices for the rest of this year at least.”
    -By Nick Heath, Dow Jones Newswires (Spencer Swartz in London contributed to this item)

    Dow Jones Newswires
    01-16-09 0744ET

  2. 2
    Sambone Says:

    LONDON (Dow Jones)–U.S. Henry Hub natural gas futures were seen lower for the
    sixth month running Friday as bearish demand and a weakening economic outlook
    continue to put pressure on prices, according to a Dow Jones Newswires survey
    of 13 financial institutions.
    A litany of weak economic data has put pressure on prices over the last month.
    On Wednesday, prices tumbled after government data showed that retail sales
    plummeted far more than expected in December due to the worst holiday shopping
    season since at least 1969.
    Last week, the U.S. unemployment rate for December rose to 7.2%, the highest
    level in 16 years, according to Labor Department data.
    Storage levels in the U.S. were 3.1% above the five-year average this week
    and, despite cold weather, withdrawals have been smaller than expected as
    industrial demand has waned.
    The price of natural gas for delivery in the first quarter was seen 4.8% lower
    than the previous month’s survey at $6.00 per million British thermal units.
    The price was down 8.8% in the second quarter to $5.70/MMBtu.
    However, the price for the fourth quarter was seen recovering by 5.8% to
    $6.98/MMBtu. The average prices for 2009 and 2010 were almost unchanged at
    $6.35/MMBtu and $7.50/MMBtu respectively.

    (Gas prices in dollars per million British thermal units)

    US NATURAL GAS

    Institution 1Q 2Q 3Q 4Q average
    2009 2009 2009 2009 2009 2010

    Barclays 6.30 6.25 6.50 6.40 6.36 7.16
    Cazenove 6.00 6.25 6.75 7.00 6.50 7.50
    Citigroup 7.50 7.50 7.50 7.50 7.50 8.25
    Commerzbank 6.00 6.00 7.00 8.00 6.80 8.50
    Deutsche Bank 5.50 5.50 6.00 7.00 6.00 8.25
    DZ Bank 6.00 5.75 6.50 7.15 6.35 7.26
    ING 5.51 5.65 5.65 6.24 5.76 6.32
    J.P. Morgan 6.00 5.50 6.00 6.50 6.00 6.50
    Merrill Lynch 6.20 5.50 5.70 6.60 6.00 —
    Natixis 6.16 6.10 6.45 6.95 6.40 —
    RBS 6.10 5.20 5.40 5.60 5.60 7.30
    UBS 5.25 4.75 5.00 7.00 5.50 7.75
    UniCredit — — — — 7.50 8.00

    MEDIAN 6.00 5.70 6.23 6.98 6.35 7.50
    previous month 6.30 6.25 6.50 6.60 6.36 7.47

    -By James Herron and Matthias Goldschmidt, Dow Jones Newswires
    Dow Jones Newswires
    01-16-09 0705ET

  3. 3
    zman Says:

    17 here now, which is pretty rare, not getting above freezing, also rare as I’m located pretty much in the middle of the U.S., very much natural gas heated country.

  4. 4
    BirdsofpreyRcool Says:

    CF Industries bid for TRA is too cheap, at just 3.8x 2009e EBITDA. I would expect it to trade up… CMP too, as people start to think about consolidation in the fertilizer industry. Cheap nat gas = good for TRA.

  5. 5
    BirdsofpreyRcool Says:

    Great article on WTI/Brent pricing (no link to the chart they refer to, but you get the picture):

    West Texas Oil Prices Risky as ‘Chocolate Gloves’: Chart of Day

    By Lee J. Miller and Minh Bui
    Jan. 16 (Bloomberg) — Oil traders using price indicators based on West Texas Intermediate contracts should instead benchmark against Brent, as the dynamics of the U.S. crude oil market “have become increasingly bizarre,” Barclays Plc said.
    A distortion is occurring because WTI prices are built around the inventory level at the crude storage facility in Cushing, Oklahoma, the Barclays report said. The delivery point for WTI has taken on an additional 18.1 million barrels the past three months, while all U.S. storage has grown by 18.4 million barrels over the same period, said the Jan. 14 report.
    “In other words, there would appear to be plenty of spare storage onshore in the U.S. outside of Cushing,” Barclays said.
    That means prices used in WTI contracts have “little relevance to the U.S. market outside Cushing.”
    The CHART OF THE DAY shows the increasing disparity between the March futures contracts for WTI and Brent crude. Notice how the spread, about $4.35 a barrel today, was less than $1 between Dec. 23 and Jan. 6.
    “The problem is that WTI prices are being used in a wider
    context: crude oil exporters link to them for the U.S. market, derivatives are based on them, investment returns are affected by their time spreads and policy makers in both consuming and producing countries use them as an indicator,” analysts including London-based Paul Horsnell and New York-based Costanza Jacazio wrote.
    “WTI has become about as useful as a chocolate oven- glove,” they wrote. “So if you want to take a position based on balances and fundamentals, it is perhaps better for the moment to stick to Brent or other non-WTI exposure.”

  6. 6
    zman Says:

    BOP – would you think good news for the likes of AGU and POT as well?

  7. 7
    Sambone Says:

    This makes me feel warm a fuzzy, ya know!

    http://vortex.plymouth.edu/uschill.gif

  8. 8
    zman Says:

    BOP – I agree with 5 as it goes for oil traders but for U.S. based companies, oil prices are keying off the lower Nymex price. You can see the rest of the world giving the nod to Brent here:

    http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm

  9. 9
    BirdsofpreyRcool Says:

    #6 – one would think so. I would have to look at the multiples there… but, if the mrkt is valuing those guys at less than 3.8x 2009e EBITDA, I would think they should move up too. Problem is, all the other ferts (than TRA) involve some sort of mining-type activity. TRA is the only public US company that I know of that converts natural gas to liquid fertilizer. It’s a different operation that CMT, POT, AGU. Same end mrkt, different product.

    I haven’t followed the other guys closely, as I used TRA as my go-to name when nat gas prices are cheap. Unfortunately, as TRA usually hits a seasonal low during late-Jan/early Feb, I’m currently sidelined on the name… may take a few tarding shares tho. The unsolicited offer is too low, IMHO.

  10. 10
    BirdsofpreyRcool Says:

    Good to see some M&A back in the mrkt… it’s a stock-for-stock bid, so doesn’t rely on the debt mrkts to get done. But, should shake up some valuations in the chemical kids.

  11. 11
    zman Says:

    Thanks BOP, the fert guys all used to hedge at the wrong time like airlines. Hopefully not the case this time around.

    Oil up $1.20, hmmmm.

  12. 12
    nifkin Says:

    BOP- any other potential suiters for TRA in ur opinion?

  13. 13
    BirdsofpreyRcool Says:

    TRA is pretty good about hedging… they don’t go that far out and don’t speculate. Only hedge a few months of production at a time and pass it through.

    But, hear ya on “hedging.” Haven’t seen anyone that is perfect at it, in the long run, even Aubry.

  14. 14
    BirdsofpreyRcool Says:

    rifkin – good question. As there is no one out there just like TRA… would think any of the fert guys might step up. It would diversify them away from mining operations. CF was the most natural bidder, but wouldn’t rule out the other guys. AGU bought UAP last year… TRA would be a fit with that, I would think.

  15. 15
    jy Says:

    Z – Looking at your graphs of rig count vs. production above. Hard to discern what is going on. Event A has rigs falling from a fairly low beginning # w/no discernible reduction in production, (looks like an increase). Event B count drops from a beginning rig count 63% higher w/an immediate production reduction effect. Time frame for event B looks to be prior to shale play activity ramp up although tight sand gas was fairly activity in that time frame.

    Your interpretation?

  16. 16
    sane Says:

    Z,
    Wish I had your 17 degrees. We are at -22 right now.

  17. 17
    zman Says:

    JY – note that A was very high rig count at the time and that the fall in rigs was over a longer period. The lack of decline was most likely a result of the character of the wells being drilled on short being almost entirely conventional and CBM. Those CBM don’t have the flush production profile or the high decline rate and do last for just about ever.

    The B period is more tight gas sand drilling which is somewhat comparable in decline rate to shale drilling (that was CHK’s doing in the Austin Chalk among others). Here you see the rigs come off and the production growth rate comes off quickly. More what I’d expect this time around given the fall we’ve had and the fall to come. It looks like we could see gas rigs fall by half before this is over, at least to 1,000.

  18. 18
    zman Says:

    Nice Sane, what to keep up the demand end!

    Gotta miss the open, back in 20 minutes.

  19. 19
    jy Says:

    Z #17 thanks. I’d guessed tight gas but wasn’t sure.

  20. 20
    BirdsofpreyRcool Says:

    IG 213 (opened tighter, widened a bit)

  21. 21
    BirdsofpreyRcool Says:

    IG 212 bonds liking the stock market

  22. 22
    1520sbroad Says:

    thanks z – great follow up to last night’s post.

    a balmy 10 degrees here in NJ when i got up to get the paper this morning.

  23. 23
    BirdsofpreyRcool Says:

    IG 211

  24. 24
    zman Says:

    wow, green.

  25. 25
    elduque Says:

    BDI -27 881
    TED +.047 1.03

    Not improving today!!

  26. 26
    zman Says:

    BOP – any sense from the trading desk on the staying power of the broad market “rally” this morning. Only use the quotes because we’re green across the board and it looks a bit tentative to me with a lot of names pulling well off their opening highs. Could be a few pin plays here like SWN which popped, is dropping but could feel the pull of $30 pretty easily.

  27. 27
    BirdsofpreyRcool Says:

    z – i’ll ask… on days when they don’t tell me first thing in the morning, it’s usually not a “strong conviction day.” and we both know that option expry day is the definition of “squirrely.”

  28. 28
    BirdsofpreyRcool Says:

    not a high conviction day, day-trading recommendation odds of 55/45… but, here goes:

    go short the morning rally, usually early, and any rally near 10:05 and 10:25 for a sell-off into lunch and the early afternoon. HOD at 9:35 est.

    also, he pointed out that the pits will thin out early, ahead of a long weekend.

  29. 29
    zman Says:

    WILDZ – $10KP

    Added 5 FSLR January, $150 Calls (HJQAJ) for $1.61 avg, mostly on the bid, with the stock up $6.50. Highly riskly, blink or get a cup of coffee and the market can kill these kind of trade. FSLR overly beat down and starting to bounce and I obviously won’t stay long here. Will add some for Feb as well as I’d like to be in for the inauguration.

  30. 30
    BirdsofpreyRcool Says:

    day trader program is out of the market, with a 7 point profit. done for the day. so, we’re on our own. option expry should produce some interesting volatility, tho… especially in the last 5 mins of the day.

  31. 31
    ram Says:

    Sort of tough being here at a balmy 78 today. It will get down to 55 overnite.

  32. 32
    zman Says:

    Try to use the air conditioning today Ram, lol.

  33. 33
    antrimshale74 Says:

    Regarding fertilizer production, CVI makes fertilizer without mining (part of their refining process) but you end up with an oil refiner too.

  34. 34
    BirdsofpreyRcool Says:

    antrim – thanks! did not know CVI.

  35. 35
    antrimshale74 Says:

    Last year CVI was looking to split into two companies but the financial disaster last year and the collapse in commodities prices pretty much ended that thought.

  36. 36
    zman Says:

    ZTRADE: Added another 5 of the FSLR $150s for $1.35.

  37. 37
    BirdsofpreyRcool Says:

    Jack Lipinski sounds familiar… is he one of those serial-entrepreneur types?

  38. 38
    zman Says:

    Oil and natural gas back to even on the day.

  39. 39
    zman Says:

    ZTRADE: $10KP

    FSLR – 1 February $175 Calls (HJQBO) for $7.30.

  40. 40
    zman Says:

    HK looks like pinning action setting in early.

  41. 41
    elduque Says:

    I listened to SD conference last night. It seems to me that all is well. Just have to wait about 6 months for the market to anticipate 2010 earnings jump. Agree or disagree?

  42. 42
    zman Says:

    ZTRADE: Tooking final set of 5 FSLR $150 Jan calls for $1.15.

  43. 43
    zman Says:

    Eld. I think it moves higher when gas prices do (and I mean something like back above $6, that may take 3 to 6 months. The one thing I didn’t really get was the need to raise capex in the wake of the offering. They had previously stated that their half billion budget was good enough to meet contractual obligations on the CO2 removal plant to OXY. They couched it as insuring growth for ’10 but it does give me a bit of pause. I’d like to see everyone be happy with lower growth and staying well within cash flow instead of skirting along the border of capex/cash flow neutral status. Paydown some bank debt and spend even less on leasehold as that will only allow those prices to drop further. I’m holding my stock but I’m not ready to add yet.

  44. 44
    zman Says:

    ZTRADE: Added 10 more of those on that dip for $75, last ones, for sure.Average cost now $1.12. Super fast trader today.

  45. 45
    pearl1301 Says:

    z- with HK possibly being pinned..are you looking to exit the next time it has a bounce?

  46. 46
    zman Says:

    Pearl, exactly so.

  47. 47
    BirdsofpreyRcool Says:

    IG 210… credit market continues to rally during the trading day.

  48. 48
    BirdsofpreyRcool Says:

    acqtn premium driven to zero in the proposed TRA/CF transaction. I still think the unsolicited bid gets pushed higher, but time will tell.

  49. 49
    zman Says:

    Oil off a buck now, time to put on rally cap, so far I’ve botched my expiration day day trade with FSLR.

  50. 50
    BirdsofpreyRcool Says:

    maybe this will help…

    http://www.rallymonkey.com/video/kenindex.swf

  51. 51
    zman Says:

    didn’t he get fired?

  52. 52
    BirdsofpreyRcool Says:

    he’s a Market Icon with the trading desk. you can’t fire a market icon!

  53. 53
    BirdsofpreyRcool Says:

    ha! someone tried, once. he came back.

  54. 54
    zman Says:

    well he’s overpaid then…

  55. 55
    BirdsofpreyRcool Says:

    financials sucking all the wind out of the rally right now.

    stupid financials.

  56. 56
    BirdsofpreyRcool Says:

    heard he works for peanuts….

  57. 57
    zman Says:

    BOP – gotta hand it to your trading desk’s call, spot on so far unfortunately.

  58. 58
    BirdsofpreyRcool Says:

    yeah… just thinking the same thing. was hoping they got this one wrong.

  59. 59
    BirdsofpreyRcool Says:

    they called for the usual sell-off into lunch. where it gets a little more interesting, tho, is what happens at the end of the day, with options expry and light volume ahead of the 3-day weekend. they thought the sell off would continue through the day, but there was less conviction about what would happen after lunch.

  60. 60
    elduque Says:

    re SD – The reason for the expansion as I understood it, was so that they could max out the plant rather than just meet their obligations.

  61. 61
    zman Says:

    I’m unclear on that, it sounded like when they originally whacked the budget I thought they were going to fill up the first stage. Maybe I remember wrong but I’ve now read others with the same thought. Also, they sounded like they are seeing more CO2 in some wells that previously we thought could be in a more sweet gas area. I think that’s part of whats holding the stock back now.

  62. 62
    zman Says:

    The optimistic view:

    http://www.cnbc.com/id/28691775

  63. 63
    Popeye Says:

    Th

  64. 64
    Popeye Says:

    They were a little more pessimistic on oil.

    http://www.cnbc.com/id/28691239

  65. 65
    zman Says:

    Thanks Popeye. That’s the second lowest one I’ve seen so far.

    Oil demand for 2009 is thought to be down between 200,000 and 1 mm bopd from 2008 levels. Non-opec supply seen slipping by a small amount, maybe 500,000 bopd and OPEC is looking like they will be off 3 to 4 mm bopd. Hmmm.

  66. 66
    md Says:

    EIA Oct. Electric Power Monthly release has a few interesting nuggets (FWIW)
    1. NG consumption revised downwards by 23 BCF. YOY DN 12.5%. The final figures were roughly in line with the Electric Flash monthly.

    2. Coal consumption DN 4% and days inventory is up by 8.4%.
    December production was up 6.6% YOY. I’m new to this but it would seem that production is increasing as demand is dropping.

  67. 67
    zman Says:

    md – how much was total generation down YoY? I am thinking only a 1% or 2 but that’s a guess.

    anyone know what Obama is set to speak on within the hour?

  68. 68
    md Says:

    DN 4.2% following the total ind. prod. as reported by Fed reserve which was DN 4.1% despite REDTI( res. energy demand) up by 4.3%

    Res DN 6.9% Arent more people home.
    Comm DN 1.9% Hank N Ben working rd. the clock paying off.
    Ind DN 4.9%

  69. 69
    zman Says:

    That’s a bigger percentage than EEI was reporting at the time. Re people home, I saw a story the other day that said utilities are seeing record late payment levels, and are starting to disconnect accounts.

  70. 70
    tater Says:

    FSLR – Saw that you were playing so I thought I’d take a peek. That one is very difficult and I don’t know that the charts are going to be of much service, lots of very necessary lines, but probably make it look like a mess. Sorry, don’t know any other way.
    If nothing else, get a feel for the 60 min look. Don’t like the rising wedge (if that comes to pass as the “right” interpretation).
    Good luck with Dante’s world.
    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882&cmd=show%5Bs159192183%5D&disp=P

  71. 71
    zman Says:

    What a disgusting looking day going into lunch. Maybe Obama’s economic stimulus speech can jumpstart the markets.

  72. 72
    BirdsofpreyRcool Says:

    FYI – bond mrkt has early close today at 2:00 pm EST.

    So far, credit is holding up better than stocks. Talk that this mornings run up in stocks was mainly short-covering. Bank earnings hideous, but not as bad as feared. That said, they were hideous. And that reality continues to weigh very heavily on the mrkt.

  73. 73
    ram Says:

    O.K., FSLR can start to move up now.

  74. 74
    BirdsofpreyRcool Says:

    Until financials and home values stablize, it will be impossible to sustain much of a general stock market rally.

    Are we 6 months away from that stabilization? That’s the question Mr. Market is asking himself.

  75. 75
    BirdsofpreyRcool Says:

    Refiners green on the day… any reason, z?

  76. 76
    zman Says:

    none that I see BOP

  77. 77
    BirdsofpreyRcool Says:

    hmmm…. thanks. Me neither.

  78. 78
    zman Says:

    I saw one of the minions at CNBC yesterday say the trade now is to buy the refiners. Reasoning? Because gasoline cracks were no longer negative. I’d tell him to take a look at distillates: inventories, demand, production. That is what supported 2008 such as it was, if those collapse and everyone has to go back to relying on gasoline margins its going to be tough. The driver has not come back with low prices and people gripe about $1.65 /gallon gas now with $4 a very distant memory.

  79. 79
    ram Says:

    What time does Obama’s economic stimulus speech start?

  80. 80
    zman Says:

    15 minutes

  81. 81
    zman Says:

    feeling like a Fox Mulder moment…”I want to believe”

  82. 82
    BirdsofpreyRcool Says:

    #78 – well said.

  83. 83
    ram Says:

    ZMAN – If Hk is being pinned just under 17.50, I wonder if you can get more than 0.10.

  84. 84
    zman Says:

    Ram – maybe, was waiting on an afternoon bounce to green.

  85. 85
    zman Says:

    Obama speech starting now

  86. 86
    zman Says:

    Obama speech, short, sweet, not a lot new. Market down 58 at end of speech, we will see which way they want to take it now.

  87. 87
    zman Says:

    I added more of that FSLR at $0.20 before the speech because I’m an optimist and glutton.

    Ram – you know the trades labeled risky are not for you.

  88. 88
    ram Says:

    By definition, none of the trades here are meant for me, it just so happens that I coincidently trade similar to what happens here, including the risky business stuff – blahhhhh.

  89. 89
    Nicky Says:

    Afternoon all.

    British Bank Barclays lost 24% of its value in the last half hour of trading today. It was actually down 40% on the week! This is due to the fact that it turned down the British equivalent of TARP funds earlier this year but is rumoured to now be asking for funds. Apparently the UK Government are meeting again this weekend to try and put the finishing touches to more emergency funds for the banking system which is now on the edge again!

    Broader market – preferred count says we are in 2 down (within wave 2 we are now in 5)due to complete shortly and the market move higher again.

  90. 90
    Nicky Says:

    Oil – still in wave iv and looks like another move to the upside needed.

  91. 91
    zman Says:

    Ram – I was kidding. You just seem to mention all of the risky(er) ones in addition to some of the others.

  92. 92
    zman Says:

    Nicky – in EW, do the closing prices matter more than the intra-day moves? It seems to want to close north of $35 for instance, yet we spiked quite a bit lower yesterday. Wondering if the spike lower to one of your key levels is satisfied by such a move or if it needs to close there too. Thanks as always for the EW education.

  93. 93
    choices Says:

    BOP-I’m curious as to the whether the problems Barclays is now having (see #89) will have any effect on JNK which was formed by Lehman’s and is now managed by Barclays. It seems that risk abounds buy that probably qualifies as the most obvious statement of the day.

    Thanks.

  94. 94
    zman Says:

    The HK $17.50 calls are bid $0.20 now.

  95. 95
    zman Says:

    Oil just went green.

  96. 96
    pearl1301 Says:

    yeah..those things have been everywhere..from .05 to .40 back down…

  97. 97
    md Says:

    Nov. Electric flash Report just released
    Total Gen. DN 0.6% YOY
    NG DN 2.4%
    Coal DN 1.8% Stocks UP 7.5%
    Retail Sales
    Res Up 0.3%
    Comm DN 0.3%
    IND DN 5.4%
    All Sectors DN 1.6%

    http://www.eia.doe.gov/cneaf/electricity/epm/flash/january2009.pdf

  98. 98
    Nicky Says:

    Z – closing prices are of no interest in EW. Its purely the wave pattern.

  99. 99
    zman Says:

    Thanks Nicky.

  100. 100
    ram Says:

    FSLR can’t get away from 145…

  101. 101
    zman Says:

    it will likely go back to 150 if the Dow can break back to morning levels. Big if but looking up now. This is why I don’t day trade: 1) I stink at it and 2) I get little else done while the trade is on.

    Ram – gave a PlumpJack 99 cab to my accountant, should be ready to drink, right?

  102. 102
    ram Says:

    Yes.

  103. 103
    zman Says:

    Thanks, going to tell him that so I can have half myself. Try to limit myself to one or two $100 bottles per year. Normally I’m a $15 to $20 guy so if you have any recent picks feel free to drop them on me.

  104. 104
    orion Says:

    HK pinned at 17.5?

  105. 105
    zman Says:

    Orion – yes, been waiting on an end of day rally to pull it higher. So far no joy.

  106. 106
    BirdsofpreyRcool Says:

    choices – #93… fair question, in today’s risk environment. I will give you what I think is the answer, then run off and do some more research on it. The JNK fund itself is an asset account, custodied at State Street. Barclay’s is the manager, but doesn’t own the assets. In the extreme, if Barclay’s goes BK, creditors would have no claim on the assets in the JNK fund. There might be a change in the manager (from Barclay’s to someone else), but that wouldn’t have to happen. Like when Lehman went under, but Neuberger Berman funds didn’t miss a beat.

    So, the assets in JNK would survive — and frankly, not be affected by — whatever happens at Barclay’s. But, as I said, good question.

  107. 107
    orion Says:

    I’m holding onto my Feb SU calls. What a depressing week.
    Wouldn’t be surprised to see us sell off or just drift into the close, plenty of traders have already left.

  108. 108
    ram Says:

    Market open on MLK day?

  109. 109
    nifkin Says:

    any thoughts REXX- getting hit pretty hard

  110. 110
    zman Says:

    Today is a weird one in crude, front month up slightly, out months all off $1+. The front month may be some short covering. The out months are probably a better reflection of sentiment as people try to take into account the lower demand numbers although this was well telegraphed by the IEA.

  111. 111
    zman Says:

    Ram – No.

    Nifkin – no, no news or broker comment I see. I don’t follow them but the recently revised targets are 400% higher than here.

  112. 112
    mahout Says:

    Z,

    Gold up 32 points today. Puts the gold oil ratio over 23. Over 20 is thot to indicate oil is cheap and will go up.

    Of course we knew that already, but one more straw in the wind saying stick with oil. Nevertheless, in this crazy time i think Cl could slip to 25 quite easily, but not stay there for long. What entry points we may have for the good ones if that happens!

  113. 113
    zman Says:

    This is a couple of days old but just thinking out loud. If Hugo Chavez is inviting foreign oil back into his borders, what does it tell you about decline rates and local expertise. Market does not care now but in the past he’s had trouble keeping production up with help. Must be bad now. He’s the #9 producer accounting for nearly 3% of global production.

  114. 114
    zman Says:

    mahout – I think next week will be rough for oil early on. I agree, it could go to $25 for a short amount of time. I think OPEC will act again and maybe that would get Russia off the sidelines. They seem to have no trouble cutting off natural gas supplies and removing 10% of their production (about 1 mm bopd) would reward them from a revenue standpoint.

  115. 115
    pearl1301 Says:

    hk is so pinned..market at its highest since am and that thing won’t get off of 17.51

  116. 116
    mahout Says:

    Z,

    Poor Hugo. Would any oil patch company be nuts enough to deal with him? Cash up front is the only way to deal with a guy like Hugo. And that is certainly not in the cards for a company expected to bring capital with them to develop something for Hugo. Down, down, down he goes i hope). It couldn’t happen to a sweeter guy. It will sure help to see his production steadily dwindle, which it will.

  117. 117
    zman Says:

    Re HK – only “hope” is a market rally. Same FSLR.

    Hugo. Yep, man of the down trodden American heating oil consumer no more, big bad capitalist basher no more. Hard to buy the next election when you have no petro dollars. Ahmed will be in the same boat.

  118. 118
    mahout Says:

    Z,

    I think with the Russians it’s all political power plays. They will sacrifice income and lie and deceive to bloody the noses of those they hate. And will attempt to gain new territory and political influence for themselves. They (the KGB cadre in charge now) really chafe with the loss of the old USSR and would like to get most or all of it back. Therefore, they regularly do things that don’t make good economic sense.

  119. 119
    Jay Reynolds Says:

    If I’m rememberins Simmons correctly (and this ties into the Chavez and other’s “smaller projects, greater reservoir complexity, etc” thesis) we’re looking at a loss of 9 MBOPD throughout 2009 just due to declines in already producing fields. Take away 1 MBPOD for reduced demand and we still need additions of 8 MBOPD to be able to produce at peak 2008 levels.

    That 8 MBOPD is nowhere that I can see but I can see how we have excess on hand with everyone going flat out and demand flying under supply – at least for a quarter or so. We won’t find out about incapacity to deliver supply against demand until those “lines” cross again and then its apt to be a rather rude awakening. That said, I’ll be backing up the truck on the next dip in crude.

    JR

  120. 120
    zman Says:

    Thin attempts at a broad market rally, not really helping yet.

  121. 121
    tater Says:

    Z,
    I see people who are much much smarter than you saying how they love the refiners (as per your posts as well).
    Sounds like a sell signal to me.
    Daily charts of some appear to have short term bullishness, but the weekly views look like hell in a couple of instances.
    I don’t like to short best in class if I can help it, so what’s a crap refiner?

  122. 122
    zman Says:

    WNR

  123. 123
    Dman Says:

    Hi Z,

    re the earlier points about WTI: how does it relate to the spot prices US producers actually receive? I.e. do they actually sell into local spot markets with their own prices or ???

  124. 124
    zman Says:

    Barclays to report better than expected profits, “well ahead”

  125. 125
    Jay Reynolds Says:

    RE 123: We producers sell at what our purchaser offers. We are discounted off of WTI based on API gravity that is lower than benchmark, hauling costs, and aside from API gravity, the desirability of the particular type of crude we are selling. (Asphaltene, paraffinic or napthenic).. We generally have the option for selling all our oil based on the closing for the day ON WHICH IT WAS physically trucked away or on the closing daily average over the month that is referenced.

    Example: If WTI averaged $40 for the prior month, we are discounted about $3/bbl, we have to have our oil qualified/tested by the 25th and we are paid for it on the 20th of the FOLLOWING month.

  126. 126
    Jay Reynolds Says:

    sorry, speaking when not called on there..

  127. 127
    zman Says:

    Dman – yes, differential varies from region to region, generally a small discount to WTI as that is a lighter oil than many produced.

  128. 128
    Dman Says:

    Z – you’ve mentioned SU as a proxy for crude & it does seem to trade that way. But they also have NG and refinery segments. Are those relatively small compared to their oils sands segment?

  129. 129
    zman Says:

    Jay – you said it much better than I did in 128.

  130. 130
    zman Says:

    I didn’t see your until I hit enter or I just would have said see 125.

    For modeling purposes, the analysts will have the oil production for each company broken out by region and each region will have its own discount and in a few cases premium to the benchmark price. They then try to tweak them from quarter to quarter and then you apply the hedges to come up with revenues. At least that’s what I did.

  131. 131
    zman Says:

    ZTRADE: out of the HK $17.50s for a dime, near total loss on that one.

  132. 132
    zman Says:

    Last 30 minutes should be pretty wild, unlike most options expiration days, just has that feel to it.

  133. 133
    tater Says:

    Thanks for WNR. Up 10% on options expiry day. Figure it’s worth a contrarian attempt.

  134. 134
    zman Says:

    Re SU – yes, its the oil sands part that really matters.

  135. 135
    zman Says:

    Word of caution, many firms (possibly all) now auto-executing calls if the close is a penny over the strike. Makes for a surprising Monday (Tuesday in this case given MLK).

  136. 136
    mahout Says:

    JR,

    I read the Simmons piece some time ago so i’m going on memory here, but as i recall he was quoting the IEA as saying
    9% decline (quite a big change for the IEA in getting more realistic he noted) and that was just for the large oil fields. The rate of decline being even greater than that for the smaller fields.
    If these high rates of decline are correct, and i have no reason to believe they are not, we may have a dramatic reversal in the trend for Cl coming during 2009. What has torpedoed Cl up to now is the very rapid shrinking of worldwide demand which has kind of masked this also dramatic decline rate of existing fields. I almost forgot, they also said that this decline rate is INCREASING. When worldwide demand stops shrinking so rapidly the fundamentals of world production will be starkly visible.

  137. 137
    Dman Says:

    Thanks Jay & Z

  138. 138
    zman Says:

    CC to liquidate, 30,000 jobs gone.

  139. 139
    Sambone Says:

    Early Tini time! Everybody have a good 3 day weekened. Talk at ya on Tuesday. Stay warm!

  140. 140
    Jay Reynolds Says:

    Mahout,

    That is my recollection as well. The decline rate may be 2 or 3X higher with wells/fields completed with multiple horizontal wellbores “bottlebrushed”.. so that when the inevitable water incursion occurs, it’s not a bell shaped curve, rather more like falling off a cliff. Cantarell is a perfect example and a harbinger of what we’ll see in the rear-view mirror when Ghawar has peaked.

    If the Saudis let it be known that Ghawar was on the backside of the depletion curve, there would at least be full-on mourning among the world’s geologists at the impending loss of the Grandest Oilfield The World Has Ever Known (8% of global supply…).

  141. 141
    Dman Says:

    I’ve just noticed that weekly charts of a lot of energy stocks show the MACD just now crossing positive. Eg. SU HK CHK ERF & also XLE. In fact I haven’t yet tried one that didn’t show this.

  142. 142
    zman Says:

    Ouch. Beer thirty. Have a better one.

  143. 143
    tater Says:

    Dman, remember that moving averages are just that, averages. You can have price come up to meet an average or you can wait until time makes the line come down to meet price. Some of both happening now, but seems like the time element plays very strong. Not discounting your observation. Many traders swear by the MACD as their measurement of trend. Seeing as it’s still Jan and the savior is ready for the coronation, you may see it push some numbers up.

  144. 144
    Dman Says:

    tater: I guess my thinking is: WTI and NG are now below the cost of new production. Same goes for certain other commodities… eg some base metals & grains. We know that prices and the credit crunch are knocking out production of all these commodities. Prices have fallen as contracting economies reduce demand (except for those grains of course. Hmmm … I’ve added some DBA this week).

    What I’m saying is that fundamentally we know these prices must turn up (and that’s without mentioning the race to see who can devalue their currency the fastest). So I’ve been looking for timing signals. The daily charts seem confused & waffly. But on the weekly scale, bingo: a very clear signal. I take your point about moving averages. But I would also point out that the last time the weekly MACD on the XLE crossed over was in July. Needless to say, that was crossing into -ve territory.

  145. 145
    Dman Says:

    Er, I just realized my maths abbreviation might not be obvious: “-ve = negative”.

  146. 146
    zman Says:

    oil rigs down 17, or 5%
    gas rigs down only 4 but its one week and I expect the trend to continue for the rest of 1Q at least.
    horizontal rigs down 4 as well

  147. 147
    tater Says:

    Absolutely agree with your assessment. MON was my playground of choice this week. Caught the bounce off the gap and now my wife likes me again. Funny how that works. Have a good weekend!

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