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Friday - 46 Bcf? Now That’s Pathetic

Posted by zmann on 29th December 2006

For the week ended December 22, 2006:

Expectations: 60 Bcf

Reality: 46 Bcf

That leaves us with 3,121 Bcf in storage (a new record high for this time of year):

  • 458 Bcf (18%!) above year ago levels.
  • 355 Bcf (13%) above the five year average.

The reporting period had 156 heating degree days in it but as Gunga adeptly pointed out in comments yesterday those degree days were in the wrong place to increase gas heating demand. The producing region actually witnessed a small build (pretty damn late in the season for that!)

Next week’s estimate for heating degree days rises a bit to 168 and they are a little more evenly spread out. From that, say we get a draw of 100 Bcf for the final week of 2006.

That leaves us with year end storage of over 3 Tcf. - also a record and not good for gas prices.

5 yr average trough storage (end of Marc): 1,216 Bcf. The five year average would have been 1025 without the inclusion of this year which was 1,695.

Coldest Jan-Mar period saw gas withdrawals of  1,635 Bcf (2002). This would yield trough storage of 1,386 Bcf.
Warmest Jan-Mar period had withdrawals of  873 Bcf (2000). This would yield trough storage of 2,148 Bcf. The current record high for trough storage is 1695 set in 2006.

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Thursday Morning - Oil Inventories

Posted by zmann on 28th December 2006

 I’m short on words today having lost the will to write…too many new toys to play with, too little real data out this week so far. Holiday trading is pretty useless anyway and I’m comfortably short at present.

Oil Inventories - Another Small Draw Expected ?! “Expectations” are for another ridiculously small draw in crude inventories despite the partial week shutdown of the Houston Ship Channel. Traders and analysts tried this last week and it didn’t support prices despite the huge withdrawal.

Natural Gas . Inventory report delayed until 10:30 est Friday due to the Christmas holiday. Gas got pummeled again yesterday fall $0.19 to $6.14 for the February contract which becomes the front month contract this morning. The $6 mark looks likely to fall this week as fresh weather reports continue to show mild(ish) temperatures in the northeast through at least January 10th. Gas is due a small rebound although what was support at $6.50 will likely be resistance as the next two withdrawals are likely to be disappointing from an historical perspective.

Analyst Watch:  Third day in a row…nothing. Despite the fact that natural gas has fallen 30% since the beginning of December and the stocks are up. Is everyone that well hedged or do the analysts just believe that gas will rebound and there’s no need to worry?

Energy Stocks Tracking The Global Euphoria. Who cares if the price of what you sell keeps going down? Who cares if the cost of getting it out of the ground keeps going up? Stock prices are rising in a year end blowout and the energy sector will not be left behind. I’m not adding new puts until the new year as this light volume trading is all but meaningless and I’d like to see the sector take on some direction.

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Posted by zmann on 27th December 2006

Wow. Commodities Did In A Day What I Thought Would Take A Week!

  • Natural Gas Gets KO’d - Gas fell $0.52 (7.8%!!!) to $6.11 yesterday and has touched $5.95 in overnight trading so far this morning. A test of and close below $6 is the last major psychological support before prices begin to really tumble. We’re overdue for bit of a bounce so I’d be careful making new bets on the put side while the contract hovers around the $6 mark. However, I am encouraged by the fact that the weakness is not only affecting the front month contract which is approaching expiration. The 12 month strip is within inches of falling into uncharted territory as well.
  • Oil Falls To $60.50 Before Clawing Back Over $61 in a late session effort to end the day down only 2%. Warm weather overrode the fear (or lack thereof) of a response from Iran over the UN sanctions passed last Saturday.
  • Tomorrow we get the oil inventory report and Analysts at Fimat USA are expecting  a decline of 600,000 barrels in crude supplies, along with distillates falling by 150,000 barrels and gasoline showing a drawdown of 100,000 barrels. I would find the small expected decline in crude laughable in light of the HSC being shut for 4 days of the reporting period and the giant 6 mm bls draw we saw last week but these guys are perma bulls and are deliberately setting the bar an inch off the floor. It didn’t work last week but they’ll keep trying.
  • Coal Eased Slightly. Yes I’m starting to watch the dirtiest of commodities a little closer. Coal futures are hanging on to weak support at $41 but could easily tumble 10% if gas soundly breaks $6. I’ll have more on coal in coming week’s as the EIA updates its database.

But Stocks Continue To Tread Water As The Street Continues To Suffer From Denial. The energy sector continues to be analysts’ and portfolio managers’ favorite sector for 2007 despite the fact that: 1) it has risen over 70% in the last 2 years 2) the crude oil markets are currently oversupplied by 2.5 to 3.0 mmbls/day, 3) the US and many industrialized nation economies are slated to see slower growth next year, 4) near record inventories of natural gas in the US, 5) unsustainable growth (in the words of the majors and E&P companies) in service costs, and 6) CFPS estimates are lower for 2007 than 2006 for most companies due not only to lower assumed commodity prices but also higher expenses (again) and anemic production growth on the part of Big Oil.

Crack Spreads Get Cracked - The continued warm weather combined with last week’s unexpected build in gasoline served to drive product prices much lower. Just looking at the week over week comparison (Tuesday this week to Tuesday last week) gasoline and heating oil prices fell $0.09 and $0.13 respectively. Oil fell $1.70 for the period leaving the 3-2-1 crack spread off a whopping 33% on the week (from $8.32 per barrel to $5.54). Ouch. Not good for the refiners. This is supposed to be the strongest seasonal period for heating oil prices but instead it looks like a black diamond run with no end.

Analyst Watch: All Quiet On The Analyst Front. Nothing yesterday but you have to admit that it was a good to just sleep in if you’re an energy bull! So far today…nada.

Tanker Rates Continue To Hold $61K/day. A strong indication that Opec is not increasing compliance to it’s already announced cuts. Several of these stocks fell as rates tumbled to $38K/day prior to Opec’s last meeting but failed to recover as rates nearly doubled in its wake. I’ll be doing some valuation work this week on this but will take my time buying as they continue to get caught up (down?) in sector downdrafts.

Iran Watch:

  • Iran is having difficulty financing oil infrastructure needed to maintain and/or increase production because foreign investors are increasingly reluctant to deal with the country’s harsh project terms (small working interests, not allowed to operate, good chance of them stealing it from you).
  • Iran’s parliament has voted to urge the government to “revise” ties with the UN nuclear agency in a move designed to reduce the country’s co-operation with the international atomic authority. Anywhere else the legislative body would be urging their president to act with some measure of caution towards the UN , but not in Iran, on no! You can almost here the Israelis warming up their afterburners.

Odds and Ends:

Toyota and Ford are rumored to be thinking about tying the knot. I applaud any effort that gets an American car company focused on fuel efficiency and not commercials set to country music appealing to some misguided sense of “buy American” nostalgia. Big 3 autos are largely made from parts in foreign countries so the idea that you’re buying an American car is less true than you are supporting inflation in the American health-care system but I digress. The battle to stretch our resources must be fought not only through improved recovery but also through conservation.

REP may lose half it’s Bolivian gas reserves due to recent government “restructuring” of oil and gas contracts.  Wide spreads, difficult to get put executed in between due to lack of liquidity.

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Turbulent Tuesday

Posted by zmann on 26th December 2006

What a great Christmas! We had four actually (ours, grandparents 1, great-grandparents, and grandparents 2) so I’m kind of spent, but alas, back to the lash.

Oil Is Soaring on Iran’s Defiance of Saturaday’s soft U.N. sanctions relating to the rogue nation’s nuclear program. The good news is that 1) consensus among oil traders is that Iran and the Nigerian rebels need to act on an almost daily basis to break oil out of the $60-65 band and 2) Iran needs cash badly to support both it’s neglected oil infrastructure and it’s overtaxed social welfare programs which keep Adinenejad in power making a real threat to the Strait of Hormuz suicidal for him. The lack of real winter weather only increases the downward pressure on crude prices. I don’t expect the February contract to close above $63 today and won’t really start to be concerned unless it breaks $64.50 this week which I very much doubt.

Natural Gas is getting smacked in overnight trading as the unseasonably warm weather is now seen continuing into early January. Gas is down $0.30 as I write this to $6.34 blowing through my level from last week of $6.50 and setting up a test of the $6 level. This could be a bad week for the OIH and XNG if we do test $6.

Weather forecasters never go on holiday: For the week ended December 23 the final number of heating degree days was 156, almost spot on with the week ago estimate. For the last week of December, the CPC is calling for a still balmy 168 (49 fewer than normal but 14 more than last year).

No, this isn’t a map of the mid-term elections. Red = Warmer Than Normal:


CFTC: Net Long Position Flips To Net Short! - Traders may be talking a bullish game in natural gas (at least the one’s CNBC finds to interview) but their wallets ran for the exits last week as the net contract position flipped back to the short side. The reversal came as both longs declined and shorts advanced and comes just after the net long position had reached near record highs. Selling pressure may intensify as traders reposition to the short side and the talk (even on CNBC) becomes decidedly more bearish. I hate to say I told you so but I said last month that when these speculative positions reach peak levels they often reverse drastically, and well, there you have it.

Speculators Flip To Net Short Natural Gas Position


Sentiment: Bearish. I remain bearish on natural gas, neutral early this week then bearish on oil as everybody comes to their senses about the very remote prospect of Iran actually doing anything to oil shipments, and bearish on the energy stocks. The stocks are likely to get a small, very short lived bounce Tuesday morning but are just as likely to lead the decline in oil by hours or even days. I remain comfortable with puts on APC, BTU, EEE, and LNG (the company) as gas and gas proxy short plays. CHK, SWN, and KWK all work as well but only for very short trades as they are too hedged and/or too well run for me to go short them for more than a few days at a time. COP also starts to look weak here over the prices paid for BR but it’s already so cheap on earnings I’m not playing. If we get an oil stock rally I’ll be looking to add to put positions among the refiners and MUR as well as any number of drillers and service (PTEN, GSF, BHI to name a few favorites).

Analyst Watch: They just got mega bonuses so you’d think they’d have some canned research to launch today but so far nada. I’ll post any buys, sells, or holds in comments later.

Odds and Ends:

Fimat Perma Bull Never Sleeps (or gives up) - Quotes from the holiday weekend:

  • If the weather turns colder than normal, “we can rip right through” the existing natural gas surplus, said Fimat USA analyst John Kilduff. - this guy was waving his pom poms and cheering gas higher when it was $9 a few weeks ago and seems to have Bloomberg and CNBC on his speed dial.
  • An oil analyst at Fimat USA (unnamed but we know who you are) said: “Don’t look for a major washout in prices any time soon. Trouble in the world’s most important oil-producing region is not going away.” - It’s Christmas time so at least try to sound like you’re not salivating at the prospect of unrest in the mid east.

Gee, I wonder if he’s long oil and gas?

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Christmas Eve & The Joys of Dog Ownership

Posted by zmann on 24th December 2006

It’s 2:30 in the morning on Christmas Eve.

Why am I awake?

  • Is it the fresh sanctions against Iran that are sure to produce fist shaking threats and higher oil on Tuesday?
  • Is it the doubling of natural gas bills for the poor Georgians in the dead of winter at the power hungry hands of Putin?
  • Am I just hungry?

Oh no, while these are valid concerns they wouldn’t have me up at 2:30 (actually I got up at 2:06) on Christmas Eve.

No, this morning I  was wrested from slumber by a fireworks show in my den. My bedroom is down the hall, around a corner and through the kitchen and my bed faces away from the door but nevertheless I could here popping and hissing noises coupled with yellow and white lightning-like flashes.

Given all the clatter, I arose yelling oh (expletive deleted), oh (expletive deleted), oh (expletive deleted) to see what was the matter.

It wasn’t Nigerian rebels. Nor Santa arriving a day early and lighting M80s before the hearth.

It was a den hung thick with acrid smoke just above the heads of my dogs who cowered sheepishly in the corner opposite a flaming electrical outlet. Not one of them admitted to having peed on the outlet but the telltale pool beneath it gave them away.

As my wife calmly handed me the fire extinguisher and urged me to use it on the wall and not the dogs my thoughts ranged from getting my family (except for the dogs) out of the house to how one goes about getting an electrician on the Sunday before Christmas. In the end, the old plank wood paneling never quite ignited and the only loss was the outlet itself and the child safety plugs within which were spat on the floor like some discarded works by Dali.

As I type this now I think about how I don’t have a smoke alarm in that part of the house, how my dogs are likely to be sleeping in the gararge until I can pay someone to take them off my hands but mostly how fortunate my family is tonight.

Good night and God bless. And have a Merry Christmas! We certainly will!

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Friday - Watching The Paint Dry

Posted by zmann on 22nd December 2006

Read the rest of this entry »

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Thursday - Gas Withdrawal Could Be Smaller Than Expected

Posted by zmann on 21st December 2006

First Things First. Wednesday Was A Pretty Good Day:

  • Oil inventory numbers cancelled each other out. The impact of a BIG draw in crude (6.3 mm bls vs “expectations” of 1.8 mm bls) which surprised no one but the analysts who get paid to track it was offset by truly unanticipated builds in gasoline and heating oil. February crude rose a meager $0.26 to $63.72 after bouncing off $64. No runaway crude price meant no activation of my emergency hedge policy outlined in yesterday’s note.
  • Crude oil inventories remain oversupplied:


  • Oil is down $0.43 in overnight trading. So much for the “very bullish inventory number” as reported by CNBC. The cheerleading continues despite the fundamentals.
  • Once the build in heating oil was reported natural gas fell a whopping $0.31 to $6.77, just a hair off my $6.80 prediction from this morning. Bet the CFTC shows another outflow on the part of the longs this Friday as this chart is becoming truly scary. Coal and specifically BTU traded off in sympathy.
  • The stocks had a bad day. XOI/XNG/OIH were down 1.1%, 1.4%, and 1.9% respectively giving up much of the 50% retracements made yesterday. As I said yesterday, these charts are starting to look a little hairy and a bad day for natural gas today could result in them falling below Monday’s lows (as long as no rebels or operational blunders on the part of a certain unnamed foreign oil major muck about with the price of crude).

Today is all about natural gas inventories: And for once I think the analysts are expecting too much of a withdrawal.

Disclaimer/Warning: I’m not taking new bets before the report because you just never know and this is a critical number since gas has fallen hard and fast in recent weeks. With that out of the way on to my thoughts:

  • It wasn’t very cold for this time of year last week: heating degree days fell to 135 from 215 in the prior week. This is almost a third below normal for this week of the year and 40% below last year’s levels. That’s downright tropical.
  • Last year the withdrawal was 168 Bcf but it’s not a good comp due to the hurricane related Gulf shut-ins and the much cooler weather then. The 5 yr average pull from storage (excluding 2005) is 109 Bcf (with a range of 43 to 159 Bcf).
  • I’m calling for a withdrawal of between 45 and 55 Bcf. However the draw could be even smaller. As shown in the table below we had much smaller withdrawals just 2 and 3 weeks ago with very similar degree day readings. That’s too recent for a change in supply or increased industrial demand to greatly swing the number.


  • The Street is calling for a withdrawal of 62-67 Bcf. Anything bigger and we could get a bounce over $7 . Smaller than 50 Bcf and we should test $6.50 on the February contract. Sub 30 Bcf and we could be looking $6 squarly in the face by Friday afternoon.
  • How To Kill A Gas Trader’s Eggnog Buzz: No White Christmas


  • The following graph shows degree days vs changes in storage. The increase on the red line is the 62 Bcf analysts expect, up from last week’s big withdrawal. I think the red line could spike higher here because if you trace back to those weeks with similar weather you’ll note the withdrawals average only about 20 Bcf. This situation is setting the analysts up for a miss with downside ramifications for gas prices.


  • Next week’s weather was originally forecast at 155 HDDs but forecasts appear to have warmed up a bit since then in most gas producing regions.

December Looks To Be A Bust For Gas Withdrawals. We’re through the first third of the month and withdrawals to date total about 170 Bcf. Say we get 62 tomorrow as the guys on the street think. That get’s us to 230 Bcf at mid month. The next week is a bit colder so say we get 100 Bcf for that followed by 143 for the last week of the month (that’s the five year average withdrawal for the 4th week of December). That totals roughly 470 Bcf for December and I think I’m being more than generous given the warm weather forecast from now until New Year’s.

  • The five year average for December is 510 Bcf - we’re running behind again.
  • Without the El Nino influenced 2001 December, which only saw a withdrawal of 265 Bcf, the December average climbs to 571 Bcf - oops, we’re really behind!
  • I actually think we’ll be closer to 425-450 Bcf for December based upon past weather and current forecasts. - really, really behind!!
  • The high end of my estimate leaves year end storage at 2,950 Bcf (only 2001 had higher year end storage levels)
  • From there, the coldest January through March period would yield trough storage close to 1,300 Bcf vs 5 year average trough storage of 1,025 Bcf. - That’s pretty high but not a complete disaster for gas.
  • The warmest Jan-Mar period would yield a new record for trough storage levels of 2,080 Bcf. The old record was set in March 2006 at 1,695 Bcf. This would send gas to $4.

If you made it through all that congratulations. In short, we’ve got quite a bit of gas on hand. The current price of just under $7 is ridiculous.

Want more evidence that it could get a smaller than Street Consensus withdrawal? Try the annual comparisons for the last five years of heating degree days with withdrawals from storage. It’s pretty compelling:


Sentiment: I’m happy with puts on MUR, EOG, APC, DVN, LNG, and especially BTU and ACI here. I won’t be adding to any positions because I don’t like to bet on a government sponsored survey. Given the still bullish sentiment towards energy stocks there’s no need to front run gas reports. If it’s bearish you can generally add to put positions after the number comes out without missing much of the fall. If I’m wrong and it’s bullish, it’ll be next to impossible to get out of puts unscathed and any new positions would be just a gamble.

3Q GDP revision is due out this morning. Anything less than the 2.2% forecast which is unchanged from the prior estimate will be bad for oil prices.

Analyst Watch: will publish in comments in the morning along with anything else that’s important.

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Which Way Wednesday

Posted by zmann on 20th December 2006

Energy Stocks: The XOI, XNG, and OIH each enjoyed almost perfect 50 retracements of Monday’s losses. Today is critical in establishing whether or not Monday was just flukish profit taking inspired by sector downgrades or the beginning of something more serious (and overdue).

Oil: “Expectations” call for a draw in crude of 1.7 mm bls. If inventories only fall that much I’m finding a hat to eat. With the Houston Ship Channel shut for 3 days during the reporting period (it was shut Monday night the 12th and the report runs through the 15th) and shipments from Opec are off a bit, not as much as they’d like you to have believed but still off (see below), the chances are good it will be bigger than 1.7. As I said on Monday, I think we will continue to trade in the $60 to $64 range through year end.

It’s hard to peg weekly numbers. In late February 2006 the HSC was closed for 2 days over fog and we got a 1.6 mm bls build. My point is a lot of things go into making these numbers up and the guys who get paid lots to do this often get it completely backwards and not always on purpose. Of course there’s always next week when we’ll have 3 days and counting of downtime for the HSC.

HOWEVER, huge numbers at 10:30 (a 3+ mm bls draw on crude or over 1.5 mm bls on distillate) could of course force that test of $65 that I think we need to have and fail before crude can really head lower. Right now we’re stuck here. If they break us out of the band to the upside of $65 (and not just a tick but I mean resoundingly) I won’t have to eat any hats but I will be taking on CALLS WITH TIGHT STOPS in popular, volatile, and highly liquid oil heavy names like CVX, XOM, MRO, SU, VLO, and BHI as a hedge against my belief in gravity and the law of supply and demand (although COP is cheap there’s a reason and it’s gas and it’ll be a drag on the stock if I’m right on that commodity so it’s out).

If we stay below $65, I sit tight on my puts and DD where necessary, mostly likely in MUR and MRO.

Highlights From Opec’s Report On November:

  • Opec delivered 0.65 mm bopd in November less than Oct. The plan called for a cut of 1.2 mm bopd.
  • Non Opec supplies grew 0.9 mm bopd in 2006 and are expected to grow 1.8 mm bopd in 2007 (the highest growth increase since 1994).
  • Chinese demand fell by 1.08 million bopd in October (no Nov # available) to 2.9 mm bopd (that’s what I call volatility!).
  • Venezuela failed to comply with the cuts it pushed for in October. Once a cheater, always a cheater and the news bodes poorly for other member country compliance after they somewhat reluctantly followed the lead of Venezuela and Nigeria.
  • Opec is very worried about demand in 2Q07. Demand naturally slips in 2Q and it coincides next year with several planned project startups of non-Opec fields. They have a cool graph of this on page six of the full report.
  • Opec expects global GDP to decline from 5.1 this year to 4.4% in 2007 with declines in the EU, US, Japan, and OECD.
  • Finally, from the “You Call Yourself An American?” File, I find it interesting that of the US, France, Germany, Italy, UK, the European 16, and Japan only the US saw refinery utilization fall from October to November. There are Cartels out in the public eye and there are cartels formed by the mutual consent of American refiners to slack off.

Natural Gas: What can I say? Gas fell below $7 but then rose on sympathy with the almost completely unrelated commodity of crude oil (which rose because of all those tankers floating about in the GOM). It’s hot and I think gas would have failed to at least $6.80 today were it not for the sugar plum dreams of oil traders. Still, short interest is on the rise, the longs have begun to throw in the towel, and the gas chart and any one of the next 3 weather forecast periods tell you all you need to know.

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Tuesday Morning - Please Play It Again Sam

Posted by zmann on 19th December 2006

What a beautiful day in the neighborhood. If you’re short that is. The energy indexes each pulled back significantly Monday. We’re no where near correction territory mind you as the following table indicates.


The charts looked pretty extended and now look in danger of minor breakdowns. I’m far from being a TA wizard but these charts look pretty hairy to me.

Analyst Watch: APC, DVN, and NBL from buy to hold at Citigroup. KBR picked up with it’s first rating since spinning out of HAL - a buy at Stiffel.

Oil: No surprises in terms of production problems or rebels and warm weather are letting oil continue to slide. 

Natural Gas: With the $7 mark less than a dime away as of yesterday’s close we should get a more deliberate test of it today (we’re down to $6.97 in electronic trading this morning). Any rally associated with the halo effect from heating oil and the ship channel problems (see below) should be fleeting if they materialize at all. December looks like a complete bust for gas demand. Yippee Skippee. This is a chart even the traders can’t love and they love almost everything these days.

Opec on Monday said fundamentals of the world oil market shows signs of weakening in 2007 as economic growth slows and supply from non-Opec countries rises faster than global demand. “Risks for oil demand appear to be more weighed to the downside, given the dangers to global economic growth emanating from a visibly weakening US economy,” the oil cartel said in its monthly report. Opec’s economists expect producers from outside the group to produce 1.8 million barrels per day (bpd) more crude in 2007. This is 100,000 bopd higher than in comments Opec made last week. Too bad they can’t get Russia and Brazil to join.

Houston Ship Channel has been shut in for 5 days with fog. 60 tankers await unloading. The region accounts for 12% of US refining capacity and I’ve seen one report of reduced throughput due to the delayed unloadings. This should set up some pretty sizable withdrawal expectations for this week and next for gasoline and heating oil.

Sentiment: I remain bearish on natural gas and oil and neutral with bearish leanings on the stocks. I’d be more bearish but until yesterday the street found nothing wrong with skyrocketing costs, flattening revenues, and a declining commodity price deck. Sadly, I will become less timid about shorting as the stocks come in (if they continue to which I feel is likely). The mantra among gas traders has become “if only we could get a normal winter”. My response is too bad. Prices are up five fold in five years and we’ve never, let me repeat, never had this much gas in storage this late in the game. How we’re over $7 is a complete mystery to met. Maybe it has something to do with the skyrocketing open interest at the CFTC.

Natural Gas Traders have become decided less bullish. As seen below the speculative component of natural gas trading has become decidedly more neutral (at least a lot less bullish) in the last few weeks. The net long position (longs - shorts) reached a peak this year of 49,716 contracts (almost an all time record) in early October. It has now fallen to 15,400 having been cut in half from the first week in December. As I stated in October and November, peaks like the one in October seldom last long and reversal can lead to a sharp reversal in the underlying commodity (nat gas).

And hear you have it:


New Positions: On the put side I took new positions in PBW, MUR, BTU, still like the EEE puts through year end but then plan to go long. As a hedge I took a starting call position in OMM. If I’m right and compliance is weak among Opec members VLCC rates should stabilize above the $50K/day mark. It’s a double play really for if true, we remain awash in oil hurting pricing for all the oil putter plays.

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Monday Morning - Analysts Are Buzzing

Posted by zmann on 18th December 2006

Natural Gas - Lookout below. Recent heat wave continues to take its toll on prices, now down $0.20 this morning to build upon the last two week’s route and heading for a test of $7.  Heating degree days fell to 135 from over 200 last week and the forecast is about the same this week. I’ll have more later on this as NOAA is having site problems this morning.

Oil - Looking Kind of Tired. Trading slightly lower now that Opec is out of the way and the North American winter once again takes center stage. I’d like to see a test and failure of $65 but we may be caught in a channel between $60 and $64 through year end.

Analyst Watch: Busy Day on Wall Street. Goldman ups BHI to buy after its recent run from $62 to $78, FST upped to buy, MUR downgraded to under-perform, while FBR took XOM, HES, TSO, MUR, and HOC to hold from buy in what I’d consider the boldest move since Lehman’s ill-fated sector downgrade a few months ago. SWN caught two substantial PT upgrades from Deutshe and Prudential (despite the failure going on in the gas market, SWN announced a massive capital program and bold production estimate for 2007 and I’ll be jumping in with both feet this week but only opportunistically given gas’ predicament). ECA was cut to sell at Goldman which is not really too late and will likely ruin their chart today after Friday’s Citigroup downgrade.

Odds and Ends:

Barron’s says COP is undervalued stating that it has the lowest P/E ratio among the largest 50 companies worldwide in terms of market cap. Not a bad point. At 7.7x forward PE it would make a nice long paired with XOM (12.5x) on the short side. This would work nicely except the group trades as a herd and XOM’s buyback program will bite you quickly on any puts held for more than 2 0r 3 days. A better pairing would be CVX (10x) or mini major MUR (14.3x).

VLCC rates are skyrocketing on 1) the Opec production cut delay and 2) the lack of strong language out of Opec regarding tightening up compliance on the last cut. In other words, this indicator shows that a lot of oil is still sloshing around. VLCC rates had fallen from the low $50K /day range to around $38K/day. They rebounded $4K on Friday but are jumping today by $15000 to $59K/day. Merry Christmas, Happy Hanukkah, Joyous Kwanzaa to FRO, OMM, NAT, TNP, and TK. FRO has been beaten to the curb of late but they did miss so I like the OMM 25 Jan Calls for a dime in here) .

Reiterate Dislike of EEE Through Year End. These guys should get nailed by all kinds of retail tax loss selling through December 31. Falling gas and coal prices help them none too much either so I think you have time to wade into a long position in late winter after the stock gets shot over the next few weeks.  I a nutshell as coal prices fall, the spreads between the cheap Powder River Basin coal they buy and the upgraded syn coal they sell get squeezed by the falling prices in the eastern US coals. While the lower gas prices help them a little, it’s not enough to offset the pain of signing long term contracts at lower than expected ASPs.

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