Wrap – Week Ended 07/27/07

That Was One Heck Of A Fun Week! For Energy Stocks Anyway. People playing the broader markets might tend to disagree. Oh well, they've certainly their day in the sun and we did well around here on our longs and shorts. The XOI and XNG took it on the chin in the last half of the week giving our refining puts a boost and we even took some CALLS on (VLO) near week's end as it's valuation stepped back closer to in line with historic norms.

• Refiners -DOWN, Down, down. Added VLO calls late week, but still holding the (FTO) $50 puts (now up 338% since 7/12) and like them and the other small-cap (pacity) high forward multiple names lower but will be quicker to release now as they're probably due a bounce soon. Runner up to Valero's title (TSO) will likely rally strongly once it hits the mid 40s and we'll be watching the play there.

• NFX. Beats earnings, rallied, had a great call, rallied more. Then got caught up in the market's antics giving us somewhere between 6 and 10 opportunities to make 50+% profits on Thursday and Friday.

Here's A Look At The Positions Closed This Week: (click on the chart below if your screen cuts off the right hand side)

CFTC Net Short Position Balloons 22%... The net short natural gas position ballooned to 113,384 on the combined futures and options report- by far the largest net short position ever.

...With Record Gas In Storage AND Three Weeks Of Easy Gas Storage Comps On The Horizon It's Not Difficult To Explain The Giant Short Interest....

...But Gas Failed To Fall. Part of that is attributable to the upward pull oil had on most things in the energy patch save gasoline which we are apparently NOT about to run short of this year. One good blow and all those shorts guys will be scrambling to cover. This fact along with what seems like a touch of summer in the air of late could be what's mooring gas to the $6 mark despite the new record storage level for this week of the year.

Here's what happened to gas the last time we went from very short to covering mode: Last Time Around Katrina Made Things Different

This is not how this normal works. Usually when prices spike on an event, short covering ensue and that covering drives the price to even greater excess. In the case of the hurricane season of 2005, no one believed the prices would stay aloft and in fact keep going up. By the time traders started to go long due to all the obvious infrastructure damage in the Gulf, prices had begun a steady decline. So in essence, last time "it was different."

This time, prices are depressed and the CFTC numbers show the short pendulum to have swung to the point of nearly snapping off! The last time we saw such a big swing from short to long (prior to Katrina) the following charts ensued and I think it is even more likely to occur with greater magnitude this go round. When does it start? I'd say it's in the process of starting now but I could be off and it won't materialize at all this year without tropical action, heat and/or curtailment announcements from some of the larger gas producers.

Have a great rest of the weekend everybody and I'll see you in comments on Monday!!!