Monday Morning

If you missed the weekend edition, check it out here. In it I run through last week's numbers including yet another build in the now near record speculative natural gas shrot position.

Oil Probably Trades Sideways To Up Today. After last week's advance, the result of a foiled terrorist plot in Saudi Arabia, I 'd look for oil to try and hold the $65 level. This June crude is trading flat to down but I wouldn't expect it to last as gasoline is once again being bouyed by refinery snafu. This time lightning set fire to two storage tanks at a small (50,000 bpd) refinery in Oklahoma.

CFTC shows more traders are betting on a drop

cftc-043007.JPGclick to enlarge

Gastar and Chesapeake Snuggle Up. (CHK) took a litte undeveloped east Texas acreage off (GST)'s hands for $92 million. This amount also includes the purchase of another 10 million shares of (GST) bringing Chesapeake's ownership in Gastar to ~20.5%.

  • For GST this means no secondary is needed to fund the '07 capital program in east Texas and Australia.
  • For CHK it's a great deal as the acquired acreage is ontrend and in close proximity to a couple on monster (ECA) wells (100 Mmcfgpd combined rate) in the deep Bossier.
  • Back on April 2 I wrote: Gastar (GST). I’ve got a thing for minnows lately. This little E&P is gassy with high potential exploration in the tight gas sand Bossier play of E. Texas and CBM development in the PRB and Australia. Near term catalyst abound in the form of multiple tests in the Bossier with partner (CHK) who also owns 17% of the company. I’m taking an entry postion here ($2.25ish) and will continue to do a little more work to decide if this is a trade or something more interesting. Comment: It's something more interesting.
  • CHK reports 1Q07 results Thursday.

Odds & Ends

Analyst Watch: Citigroup cut all the fertilizer companies to hold (TRA), (AGU), (POT) - I'd assume the higher than expected price of natural gas played a big part in the downgrade.


  • 4/30: (APC), (COG)
  • 5/1: (EOG),(SWN), (RAIL), (OII)
  • 5/2: (DVN), (GW)
  • 5/3: (CNQ), (CHK), (TSO), (WNR)
  • 5/4: (WRES)

Chavez Watch:  Chavez takes control of operations in the Orinoco River area from (BP), (XOM), (CVX), (TOT) and Statoil tomorrow.  The Venezuelan state oil company, PDVSA, will end up owning a minimum of 60% in each their "joint ventures".  All three of the U.S. companies have essentially stated that how they're treated well in the negotiation process (slated to run through the end of June) will determine future investments in the country. Comment: The action here could be as supportive to oil prices as rebels in Nigeria or Mahmoud's weekly rantings over the atom.

27 Responses to “Monday Morning”

  1. 1
    zman Says:

    Morning fells,

    Tupp – any VLO/gasoline thoughts to pass along this am?

  2. 2
    T-Tupp Says:

    expect another draw in conjunction with decreased utilization Wed.. i doubled down frin late AM.

    people seen to just love the TSO name more than VLO for some reason… my assumption is that vlo will be trading at ~75-76 by fri is the above come to fruition.

    what do you think?

  3. 3
    T-Tupp Says:

    were setting ourselves up for big supply problems with the current situation with inventories and util.

    i think if things keep going like this we will see VLO at the century mark– who knows

  4. 4
    zman Says:

    I hear ya on VLO 75 -76, still got my calls from Thursday..down a little there, and tripled by my position in the 75 calls at $0.85 today.

    TSO gets a lot of respect for being the big deal on the west coast and cracks rose more there first, however, gulf coast cracks have caught up an passed them greatly in the last 4 weeks.

  5. 5
    zman Says:

    Nicky – good point. The commercials are long contracts for reasons of covering a portion of their production to insure their capital programs.

    With that said, you’ve got more players in the market on the commercial and speculative sides combined than ever before. In other words, just about all the E&P companies have gotten on board with hedging (except MCF!) and why wouldn’t they with regard to the 12 and 24 month strips. On the speculative side, well, interest in trading contracts has bloomed.

    The speculators were right last year shorting from the post Katrina peak down to about $5 gas (and covering the whole time) but I think this large current short position could really bite them in the butt if we get a hurricane or heat. The covering of this piece could give you a $1 to $2 rally.

    I’m used to looking at the spec position from a contrarian perspective so despite the fact that got it right last year (except for Amaranth!) I’m thinking we may only get a small dip and then a fear rally in mid May – mid June.

  6. 6
    Big H Says:

    I let emotion get the best of me, and just tickles TSO MAY 120’s Put!

  7. 7
    zman Says:

    Nicky it’s been backwardated for awhile now…always is this time of year and it (RBOB) probably doesn’t significantly sort itself out with this week’s drawdown.

    Big H – been there done that 🙁

    Could be a big sell the news day Wednesday…or it could add another $10. Truely unreal valuation here but the analysts have been wrong and the companies are telling everyone to get used to higher prices. Meanwhile, they spend more $ on buybacks than they do on upgrades. Sweet.

  8. 8
    zman Says:

    Took some May $120 P’s at $3 and $3.20. Insanity to be sure.

  9. 9
    Big H Says:

    Zman , Are those TSO puts your talking about?

  10. 10
    Big H Says:

    if so…whats your profit objective? and stratagy , super short term or build a postion?

  11. 11
    Kevin Says:

    Man,..I’ve been buying little by little into this drop,..I gotta believe that in July oil/gas will be higher. Buy as others fear here?

  12. 12
    Kevin Says:

    Z,..are you buying more VLO calls?

  13. 13
    zman Says:

    Big H – yes puts,
    Strategy: stop losing my $ (or at least reduce the basis of my now miniscule put position) – pretty short term, maybe a DT.

    Kevin – I’ve been taking nibbles at E&Ps like SWN and NFX on the call side.

  14. 14
    zman Says:

    Kevin, I did this morning: I’m with Tupp there: It hasn’t had near the run yet Gulf Coast cracks have far outpaced west coast and pac nw coast cracks. So far, I’be been dead wrong. In fact, the minute I got today’s call was the peak on VLO’s chart. :-0 ##%&^%*%@!!!

  15. 15
    Big H Says:

    I missed the last 2 hours, I was busy trying to configure a PC from chinese to US English. then I came back and saw the oih and xle down , what happened after? why the selling? was their some news , someone say something bearish on the sector? thanks!

  16. 16
    lawdymama Says:

    Had to step away for a couple of hours. When I left, VLO, TSO, et. al. were on fire. Came back and everyone’s had a pullback. RBOB is still up strong….What did I miss?

  17. 17
    Big H Says:

    Z. Thanks for the reply and, my postion is super shprt term, I’ll see how I feel in the morning, I really as you don’t like buying puts ow, not untill I see some downside in gas and some fundie reason… but hey~

  18. 18
    T-Tupp Says:

    wt is goning on with vlo????

  19. 19
    Big H Says:

    T-tupp, I’m not as sharp a knife as z or bright a bulb as he either. VLO: refiners are not comming back on line fast enough to meet demand, imports are not brimming enough to foe demand,again refiners and fires or breakdowns and just not up tp decent run rates, making less(?) but getting more $ for the barrel! More bang for their oil buck! crackliey!

  20. 20
    Big H Says:

    O i would like to add to the above that, everybody in America owns a hummer or smaller SUV 4×4 and/or the like! and those that own Hondas or toyotas drive 3 times more then anyone and fill their tank 5 times a week!…..

  21. 21
    zman Says:

    I think I’m detecting some sarcasm there. Bright bulb eh? I probably deserve it.

    Tupp – I suspect just profit taking. I bought VLO calls so that probably quenched today’s fire and then I bought TSO puts putting an end to the slide. I sold those TSO for $3.70 I see.

  22. 22
    T-Tupp Says:

    vlo get is pulled around with the broad market since its a decent part if the S&P 500, nice buy dip.

    i was in the middle of a construction site when i got the quote from my cel, but didnt see that the markets took a small hit in the after-noon. no worries. buy more.

  23. 23
    Run Rate Says:

    Glad to see someone is staying on top of things.

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