Tuesday – Cyclone Mania Fades A Little

Posted on by zman

The Cyclone That Drowned The Desert 2007 Watch: If there's nothing going on of interest in your own hemisphere, hype a disturbance somewhere else. The fact that it was blamed for the rally in natural gas yesterday is bizarre. A rally in oil is to be expected. It's now a category 5 storm and 40 foot waves tend to cause problems with just about everything including shipping. Here's a very well written article outlining the potential impact on the regions production. The obvious plays here are the majors and I like (APA) and new comer (CLR) as quality names among the oily independents. If there's actual damage or pix of wrecked tankers on CNBC you should be able to throw a dart at the energy complex and win a daily prize of 2 to 3% (on the common).  Even no damage will result in a small impact to U.S. imports (in about 6 weeks). One last word on hurricane plays. I don't get attached as selling into to these big up commodity moves is often the right move.


Call The Ball Watch: (PQ). At 2:34 EST on the PSW site I wrote (and pardon my  grammar):

PQ up 8% to ATH. No news on the well I thought we’d know about 2 weeks ago. I’m be out of that name shortly and not just b/c I’m selling my positions. They’ve run so hard so fast they have to make the well to stay up here. Comment: that was the top to within 5 minutes. The stock sold off completely and ended down 1%.

After The Close (PQ) Watch: After the close PQ provide an operations update. Probably a net downer.

  • The company led with good results at it's third Woodford Shale well, although they're not of the caliber (NFX) has been seeing in the play they are respectable.
  • Other wells listed as about to commence production in the PR were old news.
  • They then mentioned a dryhole at the Pelican 2 prospect - (20,000 foot, 61 Bcfe gross unrisked reserve test for which they held 25% - it was their biggest test of the year)
  • finally they mentioned that the drilling still continues at the Atchafalaya prospect (also 61 Bcfe and 23% working interest).
  • Now, as of the last conference call five weeks ago Atchafalaya was a week from TD and Pelican 2 was five weeks out. Hmmm. Sounds like mechanical problems at Atchafalaya as they said it won't be logged this quarter. That's a very lengthy, very costly over run on one and other is dry. Yep, sounds like the stock could come under pressure early today.

Tankers In The GOM Watch: Shell, Vitol, and Koch have hired tankers to store oil in the Gulf. Some sources say the move is to give Gulf Coast refineries an alternate supply in case a storm comes ashore and cuts lines to the facilities. Maybe but the facilities are likely to be damaged in that scenario so demand would be unlikely to be very high from those facilities that are underwater. Other sources indicate the purpose is give oil a place to go since the facilities onshore are nearly full. That sounds pretty plausible.

Early Read On Oil Inventories (from the Bloomberg survey)

  • Crude - estimated up 250,000 barrels. Doesn't really match up with the higher expectation for gasoline production implicit in the next paragraph.
  • Gasoline - estimated up 1.6 million barrels. It's hard to get a handle with what's on line and what's going down right now. It appears that utilization will be up slightly in this week's report. The real wildcard will be demand and I think it may be less wild than some are hoping for. More on that tomorrow.

Natural Gas Rallied Close To It's 2007 Highs. Gonu madness.

  • Imports - Gross imports 1.4 Bcfgpd vs the prior week
    • LNG dipped a bit to 2.8 Bcfgpd, down 0.5 from the prior week's 3.3 Bcfgpd. Obviously the drop has nothing to do with price but almost certainly logistical in nature. Maybe the harbors were too crowed with pushy gasoline tankers. On a year over year basis, LNG still ran 0.6 Bcfgpd high.
    • Canadian pipeline imports declined as well falling 0.9 Bcfgpd from the prior week to 8.0 bcfgpd. Despite occasional fits of rising imports like the last two reports, this situation is only going to get worse.
  • Weather - Heating Up

    • Cooling Degree Days hit the high of the year at 44. Still nothing compared to summer but it made many more AC units come on for the first time this year.
    • Heating Degree Days fell to 6 from 20 in the prior week.  Note to Al, this is far warmer than normal.
  • My estimate for the week: 90-95 Bcf.  As such, it's more than likely that the YoY storage deficit falls from 8% to 7%. 

List of Gassy Stocks I Think Will Rise In The Near Term Watch: I was asked last night to provide a list of gassy stocks that I think are headed higher. Pretty straight forward question. However, understand that I'm liquidating positions right now for the trip so I won't be putting new money to work personally at this time. With that said let me also say that yesterday's $0.31 move in natural gas which was ostensibly the result of the Gonu spinner in the Persian Gulf is no, I repeat, no reason for a rally in natural gas. Most of our LNG arrives from Trinidad, followed by Egyptian gas which started showing up en mass in late 2005, thirdly from Algeria and then dribs and drabs from a half dozen other scenic locales. Egypt and Algeria get their gas here via the Mediterranean, not the Gulf of Oman or Persian Gulf. I've included a small map of the region for those not familiar with the territory.

map-n-africa-and-middle-east.jpgclick to enlarge. This means you CNBC when you want to comment on natural gas!

Anyway, here's the list of gassy stocks I like but again I'm not buying now (I hope they'll come in a bit by the time I get back):

(APC) - probably has a little room to run as analysts warm up to the reinvigorated "asset sale/debt reduction via non producing assets" story.

(CHK) - likely to trade in lockstep with gas on a big move, premier management with massive gas production and reserve potential and shining MLP potential to boot.

(CRK) - this one has some room left to run right now and if I

(CRZO) - 89% gas player (based on 1Q production). It's been on fire lately, without me. I'd still chase it for a quick trade though if doesn't run immediately this morning.

(EOG) - trades with oil, probably because it is one of those providers of Trinidadan gas, long reserves life, huge low risk prospect inventory,

(KWK) - as gassy as they come but it's run hard lately
(SWN) - ditto,

(XTO) - just MLP'd itself. Probably runs a little more now

(HK) - very gassy little E&P in all the sexy onshore plays!

There are many more that I like but that should give you a few for the moment.

Gassy stocks I wouldn't bet on right now. Anyone in the Rockies where gas prices at some points have fallen below $2! (BBG), (SJT), (PINN), (UPL) to name a few.

Holdings Watch:

  • Calls: No action. Should have taken my own advice and punted PQ at the peak. Alas, I won't be slow to listen to myself next time.
  • Puts: No action.
  • Stocks: No action.

Odds & Ends

Analyst Watch: (CRZO) raised to buy at SunTrust, (PXP) cut to hold at Matrix, FBR raises price targets for the independent refiners.

AFRICOM Standup Watch: The U.S. Africa Command is preparing for stand up in sub-Saharan Africa in October 2007. It's old news but many will say it's another recent chapter in the story of the U.S. going toe to toe with the Russians (Ruskies?) and Chinese for "strategic resources". Just another source of geopol tension supporting crude prices. A host country is still up in the air as Algeria said no but neighboring Morocco has offered itself up.

59 thoughts on “Tuesday – Cyclone Mania Fades A Little”

  1. Nice move on the NG short Bill F!

    Karm, I responded to your comment on the Monday one but I’ll do it again b/c it’s a good read and those interested in refiners shouldn’t miss it.

  2. where is everyone! retracement from yesterdays gun has every one gun shy …..

  4. re:ng Todays profits covered yesterday losses, lol.

    Anyways, im out for the moment but will short again if july runs to 8.15 to 8.20

  5. T

    “where is everyone! retracement from yesterdays gun has every one gun shy …..””

    They were in waiting, aiming to shot any dips and buy them…..which will contiune, buy any dip, and kill any shorts.

  6. WHT – good well results from the Barnett. Still drilling in Hill County, Tx in the area where analysts love FST’s assets. Anyway, stock keeps moving up. I took a small piece of this after a friend pointed it out a few week’s back.

    Bill – hear ya NG. Wait for the next hurricane, over here, and you’ll make a killing with that action unless it actually hits.

  7. Refiners moving up today despite Karms report. LOL. I think it will be short lived. I agree with that report and think that refiners are topping. I won’t get the least bit excited unless old 52 week highs are taken out in the group. Tomorrows report,..once again,..like last week could cause the trend to change for awhile. I dunno,..I say that every week though,..LOL!

  9. MRO off $1.50 is giving me a chance to salvage something like an 85% loss. Glad that was a 1x position.

  12. Zman…I look foward to the radio show tommorow ! You getting prepared? and can you post the station name again, / link ? TIA.

  13. RBOB looks particularly weak this morning. However, as much as I think the refiners have seen their best days, the last 3 seemingly bullish reports (not overwhelmingly so but at least not bearish) have resulted in rallies to save a falling gasoline price. Consensus calls for a 1.6 mm barrel build which is a pretty highly set bar since this report will actually have the driving season in it.

    I think, barring any trouble with imports, that we’ll be at or within a stones throw of that number as refining should be up. Do we get a fourth dip buying rally on good news for inventories? Tough to say. My gut says no. That this time gas’ll sell off tomorrow if we get inline or better numbers.

    I’d wait for the headfake (or two) before committing capital.

  14. Thanks for the votes everybody. 4 overnight takes us to 8th place. Only 10 more and we jump to 5th?

    H – constantly prepared, lol. That tanker story in the Gulf of Mexico only makes the crude situation over here that much more toppy on stocks. However, I still think that world prices and refining demand for oil in onshore inventories will hold oil above $62.50 through H-season.

    Gasoline is probably going to fall. Man, how many times have I written that?

    Hey, what just happened to oil? Shooting the moon all of a sudden.

  16. Anyone have any explanation for the sudden reversal and strenght in the OIH?

    AS far as PSW comment, A lot of postions are buying protection? Cheep- But the exit door is near, and small- ( LOL )

  17. and lets not foget the economy may have hit a low, money is cheep, companies are flush with cash, looking for expansion, growth and bargins,and 2H comparesions are gonna be low compareing 06/07~( well )

  18. Nicky – Wow. Feel free to go OT anytime!

    In the immortal words of Hudson in the movie Aliens, “Put Her In Charge!”

    I completely agree regarding fundies. As to oil, I should mention dollar weakness more often I suppose but I’d have to say it every day.

    I spoke with the PSW technical analysis guy yesterday and he seemed pretty cautious. I don’t want to speak for him but he seemed to agree with you that some venting is also due but that the timing could be delayed by the M&A induced strength.

    I’d add to your list of woes that there’s a lot of non core, stealth inflation going on. I believe inflation numbers are getting more skewed from reality on a daily basis as the government gets to upgrade the utility of items and thereby reduce their effective costs even though in reality prices are higher, much higher. Nice trick eh?

  20. H – MN1.com. Should start around 9:25 cst. You’ll be able to see the host, Andrew Coffey and he’ll have charts ready to go for us. Phil and I will be the disembodied voices on the phone.

  21. Nicky, I agree with the core points you made. and what happening to it – Thats A big deal !

  23. Distillates – people are citing a big recent increase in diesel demand for the strength. I’ll see if I can find anything more.

    Love how they (CNBC) tells you that the Nigerian BOMU station is back on line. Shell said so yesterday but I guess Gonu ruled the day and it got left out. Then they follow with “but traders don’t know what to believe in Nigeria” and they follow that with Dan Pickering, who owns an energy investment bank to tell you how bad it really is. Conflict of interest? The company tells you it’s back up but you cast doubt on that?

  24. H – it’s timed with the rally in crude which came on the heels of CNBC casting doubt on Nigerian volumes.

  25. I think if you take the declining housing market ( hence diminishing ATM machine ) and couple it with increases in “non-core inflation”, it is only a matter of time. We are running on borrowed time already.

    Sane

  26. Distiliates rally whilst rbob and oil weaken. Doesnt make sense to me. Shorting distiliates

  28. Whats the heck is happeneing with the oil service stks today, their down, then their up to even , now their going south again…

  29. Nicky,
    As far as housing is concerned you need to wait for the Time magazine headline that reads “will housing ever be a good investment again”. That will be the buy signal !.

  30. Funny to see the big name indie refiners (VLO, TSO, SUN) reacting to down RBOB and flattish oil while the little, more expensive plays like ALJ and FTO continue higher.

    H – overlay OIH with USO on a one minute.

  31. out of APC August $1.60s – I’d wait for a better day to sell as I’m giving back half of yesterday’s gains but I’m pressed for time and I like my 71% gains in this one.

  32. yea Zman I can see it I already know, just was looking for any new news of the day which I guess is the news of yesterday !

  34. Simply put, we got a little excited a little to fast, so now we see some profit taking and dipping to contain it..

  35. MRO breaking down? I don’t believe it. Much more of this and I’ll get out with only a 75% loss.

    Natural Gas: anybody read or hear a consensus for Thursday’s number yet? Looks like the contract is doing a good job of holding onto $8.

  36. All this off-topic talk is rather enjoyable, I like to look at the GDP deflator, which is at 3.6% for Q1, which is not based on a basket of goods, but based on the whole GDP.

    The Fed say they look at the PCE (personal consumption expenditure) deflator, which is 2% for Q1.

  38. If you haven’t voted please vote on this stormless (over here) lazy early summer day. It’s painless, it’s free, it’ll make me stop asking! You guys from TSO that come by the site but never comment are obviously given pass on this one.

  41. You know who I saw this morning, on my way to breakfast at the diner?

    Ok I’ll tell you since its a super boar of a day-

    I was the oil guy driving around in his shinny tanker truck making delivers, and his buddy was not too far in another area, it was 72 F ! and he said hes got a busy week—I said I wann go eat now, TU~

  46. na I new them all very well, I’M CALLED A LAZY WRITER AND SPELLER> I EVEN HAVE A SPELL CHECK I DON”T USE>>>ITS ME .BUT I DON’t CARE >>SEE!

  47. END trying a break out on a day like today. Figures. Their big well will have results before mid month…I got that straight from the company. So you have about a week left if you want to play roulette. lol.

    Thanks N for the RBOB comment. That’s what I was thinking.

    If we get the 1.6 mm bbs build in gaso stocks tomorrow that shrinks the YoY deficit slightly.

  49. Mass grave discovered in Ukraine. 5,000 jews killed by the nazis. Put that one in your file and smoke it Ahmed!

  50. Is it time to sell my June 50 calls on RAIL or should I hold on for a few more days?

  51. Nigerian unions call for June 14th general strike after new government rejects calls to reverse a 15% gasoline price hike enacted by the exiting president on May 28th.

    SLM – I’ve been out for quite some time. We got in when Buffet started his liking of the railroad companies as I thought this was a nice ancillary play and I got out when it got really volatile. I assume it’s up with coal and demand for coal cars (which has been falling). As Phil say, when in doubt sell half. I trust you did ok on it?

  52. Ron Weydon D, Or grandstanding about taking RIK (royalty in kind) oil to refill the SPR barrels borrowed after katrina. Talks a lot about supply and demand and how filling the SPR with RIK oil will increase tightness and keep gasoline prices high. Instead of grandstanding about concepts he clearly doesn’t understand why not pass legislation making it easier to build additional refining capacity or raising fuel economy standards?

  53. CHK acting very nicely in here. Well, it’s up anyway. Unless things just get sliced and diced on oil tomorrow I’m going to hold this one through the gas report on Thursday. I have a feeling n gas will do well with a sub triple digit number then.

  54. On RAIL I sold the June 45 Puts and bought the 50 calls. The price was closer to 45 so I collected $20 per spread. Now that RAIL is over 50 the puts are almost worthless so I’m trying to figure where to take profits. Selling half is probably smart.

  55. Zman and board, I am sorry for my poor englisg and spelling I respect that you guys have to read my stuff, so I’ll try to do better, because I do value your opines and inputs…

    Well I been buying some XLE calls for tommorow, in the xle jun70 calls….lets see, those numbers roll in may I say!

  56. SLM – Gotchya – smart move!

    H – I could care less that you can’t spell. Good luck with those calls!

    I can’t believe how resilient PQ is. That was a pretty mixed bag of news in which they buried the a big dryhole. The fact that it’s acting this well makes me like it all the more as the investors are in it primarily for the sustainable growth story and not betting on the exploration wedge so much. Still, I think Atchafalaya needs to hit!

    Nicky – 43 foot waves at last I saw. US Navy predicting rough seas in the Straits of Hormuz. That could shut it down for a day or two. Of course, the US could stand to have a couple of days off from receiving oil and its, what a 6 week voyage so it’s not like there’d be two straight days of no offloading.

  57. HK, PQ, END nice day.

    CLR trying to top $15 at the close. No options there but if you want oil exposure and that’s a good new name for it.

    They should start getting some buy recommendations on Jun 15th.

  58. if end finds oil how high does it go?

    If its is a dry hole , how far does it drop?

  59. funny, I was just writing about that. My best guess is:

    $1.75 miss
    $2.50 initial on success. It’s a 57 mmboe target and they have 45%. Put that up against year end 3p reserves of 29 mmboe or 1P (SEC) of 10 million and you can see why it matters so much to them.

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