Market Sentiment Watch: Market still in cautious mode before Bernanke confirmation, State of the Union speech and fourth-quarter GDP revision. President Obama will reportedly call for a 3 year partial budget freeze which may also move the market depending on which things are frozen but if you read the story in this link you’ll see we are talking peanuts in terms of savings.
Side Bar Watch: Just taking a time out to say take a look at that link above. Note that the story is talking about a three year program but they quote a 10 year number for savings of $250B. Laughable in my book since the deficit is set to be $1.5 Trillion with a "T" this year alone. This plan saves a whopping $10 to $15 Billion with a "B" starting in 2011. Also note which departments are likely to get hit: agriculture and energy and transportation. But wait, the administration just raised royalty rates to give the EIA a budget boost. Hmmm, I guess that money is going elsewhere.
Meanwhile, back in the opening paragraph… Apple beat after the close last night along with Texas Instruments setting a positive tone for earnings at least in tech land today. But the market should remain cautious until the S are out. Energy saw its first rise in four days along with the broad market but gains were muted late today as the S&P sank. Still cold weather is returning and we have four weeks left in this expiration cycle so all is not as glum as it appears.
- Cash-Shiller home prices,
- consumer confidence (F 53.5),
- FHFA home prices
Medium Term Things To Look Out For:
A guy on CNBC (sorry, didn’t catch the name but he was scruffy if that helps, calling for a 20 to 25% correction in the markets by March/April time frame.
We feel that the overall the oil market is headed down to the$40 a barrel handle over the next few months but at the same time you have to be careful and respect the wide daily trading ranges. ~ I think this one comes from Phil Flynn.
- My sense is that after a few days pull back in either equity or commodity markets, guys come out of the woodwork, claiming the fall is at hand, that the end is near. Mind you, these same blokes have likely been calling for the same fall from a much lower level so even if they are they are unlikely to get back to even. But at least we can take two of them at their word, and if right, listen more closely in the future, and if wrong, discount whatever it is they might mutter to a very high degree.
- As to Flynn, I remember when he called a top on crude the last time. At $90. On its way to $148. Eventually he was right. I see his arguments as one sided depending on his stance. When he’s bullish, he presents stories about China, domestic demand, or rebel acts that impact supply. When he is bearish he presents stories about spare capacity, domestic demand, and the impacts of fuel switching on gasoline or whatever is the pc comment of the week. I try to present both sides. I see weakness, I tell you about weakness, I see see strength or cause for it, I try to tell you about that too.
- Could oil go to $40 in "the next few months"? Sure, but not without the markets melting down, and China’s rapidly growth contracting. These are things I just don’t see happening. Gasoline demand is actually rolling along fairly well given unemployment and with no alternative fuel sources for transportation on the 3 month time horizon I just don’t see oil taking a near 50% hair cut.
- Why should oil be $75 and not $100, and not $40? Good question. The easy answer is that OPEC wills it. Like it or not, the guys with the swing capacity can rule the price, learned that in Freshman economics and it stuck. Budgets for the OPEC states for the most part work north of $60 per barrel world price with Saudi probably workable at half that and UAE, Qatar, and Algeria coming at the $60 price point, and loud mouth countries Venezuela and Iran probably higher (although Iran said yesterday it could live with $60 oil). With between 4 and 6 mm bopd of spare capacity, these guys largely determine price and at the present time, they’ve opted to go ahead and say they (OPEC) won’t be upping production in 2010.
- Will They Lower Production If Prices Start Really Falling, Even In The Weak Economic Environment? You betcha. Last time oil fell from on high, from that $148 level back into the $30s, they acted hesitantly, harvesting as many high priced barrels as they could for too long. Many thought the Cartel was on the endangered species list. Since then, their ability to boost prices however while cheating enough to keep them from spiking up too soon and kill a fragile global recovery has been a masterpiece.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Crack Spread Update
- Stuff We Care About Today – VNR, RRC, BHI, RRC
- Odds & Ends
- $10KP II:
- 49% Cash
- Yesterday’s Trades:
- MMR – Sold 1/2 (10) of the MMR $15 Feb calls for $1.60, up 161%. I continue to own the other half of these plus the $17.50s.
- The quick view on the holdings tab has been updated.
Crude oil rose $0.72 to close at $75.26 yesterday; blame coming cold and continued refinery outages and somewhat stronger equity market. Note below that once again the bar is set pretty low for this week’s inventory report and a bullish report would be likely to catapult crude back into the upper $70s. Tonight’s API report should get more than the usual amount of shoulder shrugging as the survey has at least directionally been a pretty accurate forecast of what EIA will ultimately report mid week. This morning crude is trading off 60 cents on a weak looking equity futures picture.
- Early Read On Oil Inventories:
- Crude: UP 2.0 mm barrels
- Gasoline: UP 1.5 mm barrels
- Distillates: DOWN 2.0 mm barrels
- Crude: UP 2.0 mm barrels
Natural gas fell a dime to close at $5.72 yesterday. The front month contract expires Wednesday so expect some more volatility before it is done. Note also that we should get supply data from the EIA on Friday. This morning gas is trading lower by 15 cents.
- Imports Watch: Unavailable this week from my usual source, working on it.
- Industrial Demand Watch: Chemical production as measured by rail car rebounded in the middle of 2009 but has since evened out, waiting on this another sign of industrial demand recovery.
Crack Spread Update
Key Takeaways: Actually starting to pay a little more attention as product inventories get back into line with historic levels. This plays into one of my themes for 2010 which was that refiners are likely to outperform in the early part of the year as demand is expected to rise above last year’s late Spring levels. VLO reports later this week to kick off the refining reporting season and it would be hard not to be more upbeat on a conference call than the last two. Always a good listen, this time I may actually play.
Stuff We Care About Today
VNR To Increase Distribution
- Quarterly distribution increased 5%, or 2.5 cents per unit to $0.525 per unit per quarter.
- Bumps the yield up to 9.4% from the current 8.4%.
- Leaves room for further increases later this year.
RRC Comments on Production / Hedges
- Pre announcing 4Q09 production, as is typical for them before company results at 457 MMcfepd, up 13% YoY.
- Hedges: 2010: they 69% of expected production, hedged with floors at $5.53 and ceilings of $7.33, so no change here since their last update.
- RRC still has not given official guidance on 2010 volumes yet, but looking at their Marcellus projections, one easily gets to higher total company growth than 2009′s 13%.
BHI Reports Better Revenue; Weaker Than Expected Bottom Line
The 4Q09 Numbers:
- Revenue of $2.43B vs $2.33B expected
- down 24% YoY; up 9% seq.
- EPS of $0.27 vs $0.35 expected
- "The sequential improvement in our fourth quarter earnings was the result of increased revenue in every region, as well as the aggressive cost cutting measures we took throughout the year.
- Incremental margins were particularly strong in North America driven by increased horizontal drilling in the US Land geomarket and improved rig mix in the Gulf of Mexico geomarket.
- They see improvement in international activity in 2010 …
- …but also see continued margin pressure.
- They see the increase in U.S. rig count continuing.
Conference Call: Today, 10 am EST
HAL Wrap Thoughts:
- Quarterly numbers were ok, not a problem for the stock, international margins were weaker than expected
- Q1 EPS probably going to drift a few pennies lower on one time costs
- 1H10 stronger for NAM implying pricing power in the shales.
- 2H10 stronger for International as big projects start to move.
Odds & Ends
- HAL – Jefferies raises target from $42 to $49, rating Buy.
- HAL – Citi raises target from $34 to $40, rating Buy.
- HAL – Barclays raises target by $2 to $31, rating Equal-weight.
- CXPO – started at Barclays with Overweight rating, target of of $8.
- CXPO – started at Morgan Keegan with an Outperform.
- CLR – UBS raised it to Buy with a $46 target
- STP – Upped to Hold at Jefferies with a $12 target
- SPWRA – Upped to Buy with a $29 target
- Macquarie Raises Targets on the coals:
- MEE from $40 to $55
- BTU from $53 to $60
- ACI from $16 to $23
- CNX from $50 to $55
- PCX from $11 to $16
- ANR from $47 to $65
- MEE from $40 to $55
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