Weekly Wrap – Week Ended 5/04/07 – A Good Week For Trading

The week in a nutshell:

Comments:

• Gasoline - Refinery utilization inched back up but production fell slightly. The June RBOB contract registered it's second down week since the week ended 1/15/07

• You Can't Have Your Cake And Eat It Too Watch. Or so (TSO) shareholders found out as the company reported earnings that, although nearly tripling year ago levels, were a disappoint versus consensus. High prices begotten by low utilization.  Hmmm, if I sell widgets and my widget factory breaks down I am consoled by the knowledge that widget prices rise. However, the widget analysts, euphoric over the prospect of higher and higher widget prices failed to take into accurate that the root cuase of higher widget prices is that I'm not making as many widgets. Silly widget analysts.

• Paired Trade: TSO vs VLO. Around here we could have been happier with the results as we had a double helping of the TSO 120 May 120s PUTS witha $3.10 cost paired with a quadruple helping of the VLO 75 May Calls at $1.04. We were able to close out the TSO at $7.00 the day of Tesoro's report and subsequent $9 tumble and the VLO's the next day at $1.40. as refining sector money flowed from the former to the latter. I'm still holding quite a few busted May puts in TSO at strikes between $100 and $110 and will be liquidating them this week.

• Kudos to T-Tupp who has been long the refining sector as long as he's been around the site, chiding me about my shorts there.

• • "E&P Land" Calls:
    • (EOG) - I sold the first half of our 1x call position the day after earnings (up 71%) and, after a two strong days followed by a weaker Friday our remaining call position is now up 93% in 4 days.
    • (SWN) - drifting higher. The 2x position of June 45 Calls is up a solid 30%, following yet another strong quarterly report.
    • (NFX) - drifting higher. After getting everything we wanted out of the company as far as earnigs and operations in the prior week our May calls are still languishing, down 9%. That's just bad trading on my part as the stock and options headed in opposite directions. I'll be entering Junes and exiting these Mays early next week.
    • (CHK) - sold off a little on earnings but the conference call went very well (See Friday's post for details). Aubrey touted the many virtues of CHK's increasing size and the strength of the natural gas market (hardly an unbiased source there but he makes some very good points as always). Look for them to almost certainly raise guidance later this year. I'm very happy with my June 35 calls and will likely add to them on any futher near term weakness isolated to the stock.
    • (HK) - Our 3x position is up 35% as the stock benefits from strong gas prices and a generally rising tide for anyone even remoted related to shale plays (they've got Fayeeteville and Woodford).  On May 2 I wrote: (HK) - this has pulled back slightly and I like it more than ever. No change in positions just yet. In late April they boosted production guidance above the top end of the range but their numbers have not yet come up. Earnings due out next Thursday, May 10.
    • PQ - Talk about delayed reactions. Petroquest raised guidance in early April but it took actual results to lift the stock. I'd been eyeing the stock for some time for a longer report and the operations update pushed me into a 2x call position back on April 11 with an average cost of $0.43. It's been down ever since but Thursday's strong numbers were more than enough to drive the stock up 9% on Friday and to drive the May $12.50 calls from $0.30 to $1.10.
      • I'm looking to milk any additional strength from the shares early in the coming week before punting the Mays, praying for a little profit taking and rolling to June or July.
      • I may also take some cheap June $15s as a long shot on the company's Atchafalaya prospect, which is expect to reach TD late this week (62 BCFE gross unrisked with a 25% WI vs totalco reserves of 135 Bcfe).
      • Look for that long report soon but for now suffice it say I still like them a lot as the stock remains extremely cheap on a forward P/CF basis and they have 3 or 4 near term catalysts at hand.

• Stocks:

• • (END) is bagging their production estimates but it seems everyone believes them as the stock is having trouble holding onto $2. Potential catalysts include a small (5%) interest in the Conoco operated well North Sea Acer test that's is currently driling and wells at EMU and Balgownie a bit later on. I'd doubt they have any exploratory updates by the time of the 1Q report on May 9th.
  • (GST) - Nice rate from 2 zones in a Bossier well announced on Friday. CHK is now in for 20% of the company.
  • (SCU) - nothing new here other than the stock continues to perform well.  A date for earnings remains a mystery.

• Gasoline - Refinery utilization inched back up but production fell slightly. The June RBOB contract registered it's second down week since the week ended 1/15/07 . This seems to correspond directly to refiner utilization despite the fact that gasoline production actually fell last week. We've entered the time when gasoline stocks begin rising. Demand is holding just under 2% over year ago levels and imports have picked (they're paying how much over there? Diver the tankers!).  I continue to think wholesale gasoline will peak prior to the advent of the driving season for the year meaing I'm still negative on the refiners, especially (HOC) which reports May 8th and is trading at a hefty premium both to the group and to historic averages and has suffered some downtime during the quater which may lead to a miss ala (SUN) and (TSO). I'm not betting the farm on it however and currently have no position here.

• Natural gas: 87Bcf Injection met with buying. June natural gas traded as high as $8.10 following what CNBC termed a slightly bearish number. Week to week numbers aren't bullish or bearish when they're less than 2% off consensus but that's OK, the lights are bright, you're staring into the camera like a deer in the path of a tanker truck near Midland and you've got to say something.

• Finally, the CFTC indicated speculators mainained their short bet on natural gas prices.