Wednesday’s Sub Prime Cha Cha, Much Ado About Things Not Energy

So I'm into my groove, thinking about crack spreads, the inevitable decline in gasoline imports, the widening of the differential between sour and light grades ... you know, the usual Tuesday morning stuff. Valero had beat earnings and after a shaky start which saw them trade off a buck, my comments regarding the end of their conference were as follows:

VLO Call Wrap: My sense is that the analysts get off the conference call, get on the squawk box and say something like: “Ok, we know it was a great quarter. That’s history. Looking ahead, they’re going to be running at good rates in the back half of the year and spending is in check as are operating costs. 2008 looks good as well as they’re planning some major capex and refurb projects in 2009-10. So we feel a little better about 2008 estimates in terms of making product. As far as margins, they’re in a better position as seasonal margins decline than their peers and they’re easily the cheapest of the group. We’d be inclined to sell the more expensive, little names and husband more investment dollars at VLO.” At least, that’s what I would have said having been on that call.

Seeing the wisdom of my words they promptly rebounded and the rest of the energy sector was alive with promise. Other stocks ((CHK,HK, HAL, OII)) were singing along with (APC) already having had great numbers and an even better conference call and even though I'm not currently invested there I planned to be on weakness.

But I got a little more weakness than I wanted. It seems that the nation's 10th largest mortgage lender had made too many interest only loans to people who should be living under bridges, and probably will be again. The market panicked and everything sold off...hard. Later in the day Cramer blamed the selloff on oil's rally to fresh highs. I guess that's why the guys who sell the stuff sold off. Energy stocks have greatly reduced their debt, are generally flush with cash, and would never be stupid enough to make an interest only loan. How can the market be at all surprised given the housing market's lack of pulse and the sub price debacle?

Welcome To The Danger Zone Watch: Finally, a weather map even I can read. Thanks Fred!


EIA Watch: May U.S. Crude & Petroleum Products Demand Lower Than Previously Thought. It seems demand for oil was 340,000 barrels per day lower than previously  thought during the month. But hey, what's a 10.5 million barrel shortfall in demand between the weekly and monthly reports of the same government agency?! Gasoline demand turned out to be lower by about 0.5 million barrels and distillate was lower by about 3/4 of a million barrels. Jet fuel saw the biggest of the reductions of demand falling 2 million barrels and further highlighting a trend that shows the big air carriers continuing to reduce route miles as they cram more of us into fewer jets. Probably a play there soon.

From Upstream ~ The monthly report reflects information on petroleum products supplied from all US energy companies, while the weekly report surveys the biggest companies which represent about 90% of the market. Comment: those 10% sure did wag the dog!

You Can Spot The Difference Quickly:

For Example, Here Is What The EIA's Gasoline Stocks Chart Looked Like Back In May (pre revsions).


See how the monthly solid line dovetails so nicely into the dotted weekly line?
Well NOT ANYMORE! (I bet they hate it when people keep hard copies around.)


Your tax dollars at work.

Crude Oil Within Spitting Distance of All Time High. September crude hit 78.28 yesterday, just pennies away from the much vaunted $78.40. My suspicion is that it has to take out the high and perhaps $80 before falling back into the lower $70. Since the guys who've been telling you there's not enough around just managed to find 10 million barrels in the past you've got to wonder about their forecasts.

Popular Expectations Wednesday’s Inventory Reuters and Bloomberg:



1) Like last week you can drive a tanker through those different survey expecations.

2) anything but a build in crude (unlikely) will be seen as bullish, either at the time of the report, five minutes later or five minutes after that. They're buying dips until they get the magic number.

3) the gasoline estimates were looking for bigger numbers earlier in the week. I think you get a good sized pullback, say to 1.3 to 1.4 mm bpd on imports which still probably puts you over the 500,000 barrel build the Reuters survey is calling for.

4) gasoline should be drawing down a bit this time of year so a build here brings us that much closer to getting back into the "normal" range shown in the gasoline stocks graph above (that is if we're really not there already).

5) listen live at 10:25 est on MN1.com.

Earnings We Care About:

  • (SWN) reported $0.28 vs consensus of $0.29. Revenues were light as well but production was above the midpoint of guidance. So first we have a slight top line miss based on price. Second, cash operating costs were better than expected but the DD&A rate was just over the top end of guidance. This means the slight bottom line miss is at least a high quality one based on price and is more importantly, non cash in nature, which is a lot easier to forgive for an analysts than a miss based on volumes.
    • 2Q07 Production: 284,000 Mcfepd, towards the upper end of prior guidance of 274,700 to 285,700.
    • Fayetteville Shale gross production hit ~ 200,000 Mcfgpd as of July 28, up from 155,000 at the end of April.
    • Guidance unchanged from prior at 107 to 110 Bcfe (293 to 301 Mmcfepd) which equates to about 50% YoY growth.
    • Please see last night's (SWN) note for further details regarding the quarter.
    • Conference call at 10 est.
  • (OIS) well service and oil field tubular company reports$0.86 2Q EPS beating consensus of $0.85. Guides 3Q to $0.95 to $1.01 vs Street current of $0.97.
  • (RIG) reported $1.84 (up 145% YoY!) vs expectations of $1.71. CC at 10 est.
  • (DVN) reported $1.87 vs $1.46 expected. Volumes are now thought to come in close to the high end of the previously stated range. CC @ 11 est.
  • (OII) reports after the close.

Stocks We Care About Today:

  • (IOC) - Merrill Lynch Commodities division hooked up with IOC and Pacific LNG Operations Ltd to develop a LNG facility in Papua New Guinea.
    • Each will have one-third of the new holding company.
    • Project started is "hoped" for in 2012.
    • The way relase is worded Merrill will pay for engineering and design,
    • Pacific LNG will pay the $2 billion plus price tag this will cost (at a minimum) and
    • IOC "will be the preferred natural gas supplier to the project".
    • That's a bit fishy. There's still no news on ELK2 and that's the news I play ball on.
    • IOC is chunneling through cash. To sign and announce this deal before definitive results from the delineation well seems like a play designed to pump the stock prior to doing a secondary. They seem to be saying see, Merrill liked it but there are other players in the regions who may be able to supply enough gas for an LNG facility and they'll source from them if they and Pac LNG really want to build one here.
    • This move is similiar to getting a one month extension on the favor
    • I'm not saying the well is bad or that the stock won't run on this but I won't play into this game of taking ov

Stocks of Reader Interest:Gran Tierra Energy (GTRE.OB). 

  • The first warning sign  is of course the suffix on the ticker.
  • The second is an apparent lack of regulatory controls (they got into with the SEC over registration issues regarding a private placement. They got out of trouble buying off the holders by sweetening the terms of their units.
  • I'd say the third is the sub $2 price tag but I don't like to pick on people.
  • They do hold producing and prospective properties in Colombia, Argentina, and Peru.: Total 1Q production was 663 bopd.
  • They had a nice looking recent well in Colombia which in multiple drill stem tests produced several encouraging looking amounts of oil. Another Colombian well tested at over 300 bopd.
  • But...they have a diluted share count of 131.5 million. That yields a market cap of $245 mm. Thankfully they have no debt. Hmmm.... $245 million vs 663 bopd.
  • They may have huge things on the horizon but the 10 minute look says I'll take a passer.

Holdings Watch: Just holding. No action yesterday as the broader market overrode my temptation to bottom fish.Odds & Ends

Analyst Watch: RBC ups its price target from $50 to $55 for (SWN) and for (CAM) from $86 10 $106.

If You Need A Laugh Later Today Click Here Watch:  It seems that we can produce zero CO2 emissions in the U.S. within 30 to 50 years while getting rid of all nuclear power (strangely nuclear weapons were mentioned too which I wasn't aware emitted CO2), and while completely halting oil imports. Solar, photovoltaic algae, and hybrids will all be employeed in the road map towards zero emissions. I think we need to add unicorns, lepracauns, rainbows, and world peas for good measure. Interesting how you can read the summary now but have to wait until fall to buy the book. Hey, I seem to remember that books are made of trees and trees consume Co2 so maybe one of the steps toward zero CO2 emissions would be not to ...

Newletter Watch: Get your complimentary copy of the third edition of Alwaysanoption here!  This week's energy topic: "What If Something Wicked Gulf Way Comes?"

Subscription Watch: 10 days and counting until the discount window is closed. See rates here. If you like what you see here everyday reserve your spot here.  If you’ve already reserved your spot you have my thanks. If you have questions about subscribing contact me at zmanalpha@gmail.com.

129 Responses to “Wednesday’s Sub Prime Cha Cha, Much Ado About Things Not Energy”

  1. 1
    zman Says:


    Regarding how the energy market will hold up this market fear. From last Thursday, Friday, and yesterday I’d say not all that well in general. Names with good news got thrown out the window with everything else. Deep value performed a little better than growth but after the runs the energy sub sectors have had which has won the hearts of many non energy types (fast money) you’ve got a lot of interested parties with quick profits and little desire to lose them.

  2. 2
    zman Says:

    BMO ups APC from underperform to market perform. Gutsy move Mav! lol.

  3. 3
    zman Says:

    UNS shaves VLO price target from $95 to $91. Stock’s at $67.

  4. 4
    Stephen Says:

    I’m getting out of RIG today and into CRK, yesterday morning’s 4% rise in CRK got wiped out by subprime, I hope it gets cheaper today.

    With refernce to SWN and their LOE/Mbfe of approx. $1, off the top of your head, what number do you remember for CRK.

  5. 5
    zman Says:

    Morning Stephen,

    SWN’s was $0.73 this quarter which is flat with 1Q but up from I think $0.54 a year ago.

    CRK’s was $1.35 in the last quarter (they have offshore as well which knocks it up a bit) but the impressive thing is the YoY improvement from $1.67.

    99% of E&Ps have seen this number jump quarter after quarter after quarter as inflation hits them on all fronts.

  6. 6
    redjack Says:

    Stephen….why the move out of RIG?

  7. 7
    bill fraser Says:

    Apolgize if this is off topic.Tanker rates currently are lower for q3 which means lower demand for shipping of oil.
    I wouldnt be long any tanker stocks at this juncture

  8. 8
    jimbo Says:

    bill….LNG shippers moving in sympathy to tankers?

  9. 9
    bill fraser Says:

    There was a takeover in the gas sector MCX last week which caused some strength. Current weakness might be to overall market conditions. The only shipping sector i like is drybulk but at the moment, it is overheated and fully priced.

  10. 10
    zman Says:

    Bill, is it a seasonal thing or are they lower year over year? Got any plays you’d like to do puts on after this run in the LNG tanker stocks. Long term they’re probably good bet but near term they’ve had a big move.

  11. 11
    Sambone Says:

    Nymex Crude Slips From Record Close

    [Dow Jones] Nymex crude off slightly from record settlement in early electronic trading on a slide in US equities after oil trading closed Monday and as global markets followed Tuesday. Sep crude -32c, or 0.4%, at $77.89/bbl. Traders eyeing DOE inventory data due at 10:30 a.m. EDT, expected to show a draw in crude oil stockpiles as refineries boosted production of gasoline and distillates.(matt.chambers@dowjones.com)

    Reported earlier:
    LONDON — Crude oil futures were lower Wednesday morning in London as a dip in global equity markets reignited concerns over oil demand.

    While denting sentiment slightly, WTI still looks on course to breach its all-time high of $78.40 a barrel if the weekly U.S. inventory report, due 1430 GMT, shows a further erosion of crude in storage, traders said. The contract posted its highest ever close Tuesday at $78.21 a barrel.

    “If crude stocks have fallen as expected, we envisage oil testing the $80 hurdle in the next few days,” said Eugen Weinberg, a senior analyst at Commerzbank in Frankfurt.

    At 1111 GMT, the front-month September Brent contract on London’s ICE futures exchange was down 51c at $77.70 a barrel.

    The front-month September contract on the New York Mercantile Exchange was trading $0.50 lower at $77.71 a barrel.

    ICE’s gasoil contract for August delivery was down $1.75 at $653 a metric ton, while Nymex RBOB gasoline for September delivery was down 64 points at 209.90 cents a gallon.

    European bourses, following on from a similar slide in the U.S. late Tuesday and Asian markets overnight, were firmly in negative territory Wednesday morning in London on concerns over a U.S. mortgage lender and losses at some of Macquarie Bank’s hedge funds.

    As occurred after a similar show of nerves in equity markets late last week, the oil market’s march higher has been checked but consensus suggests the upward momentum has not been lost.

    Indeed there are suggestions the energy market may be insulated from much of the effect of a slowdown in the growth of the U.S. economy.

    Analysts at Goldman Sachs said a stall in the U.S. economic recovery would have a relatively limited impact on commodities as a whole as emerging market demand is now the main driver while stocks are declining and demand is strong.

    Also, commodity and subprime investments rarely go hand-in-hand.

    “Investors are unlikely to be in both the subprime and commodities space in significant size, and thus an investor in subprime assets looking for cash would be unlikely to have large commodity investments to sell, which reduces the likelihood of contagion to the commodity markets.”

    If this proves to be the case then there’s little in the way of higher oil prices but for now inventory data will be key to direction.

    Analysts surveyed by Dow Jones Newswires expect crude inventories to fall by 690,000 barrels, gasoline stocks are seen rising by 1.1 million barrels, distillates by 1.4 million barrels while refinery utilization is expected to climb by 0.7 percentage points.

    Offering further support for WTI will be another slide in inventory levels at the delivery point of Cushing, Oklahoma.

    While sliding inventory levels have been a feature of the oil market’s recent rally the latest revisions by the Department of Energy to U.S. stocks muddy the picture.

    The DOE revised up U.S. May oil inventory levels by 21 million barrels, Olivier Jakob, head of Petromatrix in Switzerland said, adding: “It is mind-blowing to see the DOE miss out on so much stock, but the trading reality is that a 1 million barrel draw in today’s weekly statistics release will have a greater market impact.”

    A factor having less of an impact on the market is Tropical Storm Chantal in the Atlantic which is losing its “tropical characteristics,” according to the National Hurricane Center.

  12. 12
    bill fraser Says:

    First 6 months its about even but q3 rates are down 20 % from last year and looking out in the FFA (futures) they are softer by 10 %

    No puts at the moment…

  13. 13
    Denise Says:

    Textbook head and shoulders bottom in Eog
    long eog

  14. 14
    zman Says:

    Sambone – agree with Goldman re impact on oil.

    SWN working so far. I’m going to have to miss the Q&A on the call

    WNR finally falling back but VLO getting popped again with the market.

  15. 15
    zman Says:

    Nicky – I was thinking of the sub prime effect. If we really slow down (but not go negative) I’d think oil is supported in the mid $60s by other world demand. Jeeze this market is sucking wind now.

  16. 16
    zman Says:

    Move VLO = insane compared to the others. Total capitulation as the fast money runs for the exits. Stops should be in place here.

  17. 17
    zman Says:

    SWN, VLO, NFX big bargains here…and I’m just watching. These sub prime jitters are in charge. Taking a look at the daily on DJIA, SPX, Nasdaq…not pretty. How excited are the CNBC folks right now?

  18. 18
    p.wilmington Says:

    Z –

    Had a different take on the VLO cc. I don’t think it is bullish for VLO that they will have no planned outages next year and will be deferring maintenance to 09 and 10. Crack spreads seemed to be so high this year in reaction to the low utilization numbers. In 08, VLO will be helping to increase utilization, and consequently lowering crack spreads. Also, while crack spreads have been historically high, they are coming back much closer to normal, while the VLO share price is still way over historical levels.

    JUst a different take.

  19. 19
    Stephen Says:

    Thanks z.

    Redjack, I am not too hopeful for GSF’s earnings this afternoon.

    I’ve seen estimates of $1.50 for 2Q, compared to $1.25 for 1Q, but using their own estimates based on their SCORE rating, they seem to be pretty flat for 1Q and 2Q. Plus RIG were pretty much flat from 1Q to 2Q.

  20. 20
    zman Says:

    I hear ya P and that may be the angle people are taking.

    My thoughts are that gasoline supply/demand is going to be tight next year pretty much no matter what. Little expansion capacity on line to meet the 1-2% normal gasoline demand growth.

    VLO may have started the rally in cracks this year with it’s McKee outage in mid January but it certainly wasn’t alone. It being up more next year should be partially offset by the others being down a bit more. VLO has the newest fleet of refiners in the business.

    So I’m thinking they’ll make more product at higher than current crack spread estimates this time next year.

    As to valuation, it’s below 8x that next year number which I think will come up which is not cheap but not expensive for them either.

    Finally, $ managers need to have refining exposure. When things settle down they collapse back into the stalwarts like XOM and VLO and when things get sexy they go for the TSOs and then the smaller guys. At least they have in the past.

    That’s just my 2 cents and I could be completely early (and wrong) on this.

  21. 21
    zman Says:

    IOC up less than a buck. Me no play.

  22. 22
    Sambone Says:

    99L about to hit Barbados

  23. 23
    Brian08 Says:

    EOG and NFX starting to rally…

    Wow was that VLO tank job brutal!!! Not as much fun when you are on the wrong side of a tank job!! LOL…

  24. 24
    El Diablo Says:

    An oldie but goodie, gotta look at this chart midway down in the article:


    The article correctly notes that the ratio hasn’t changed dramatically, but THIS IS THE LIQUIDITY WAVE. corresponds nicely to the run up in crude (and real estate, and copper, and stocks, and etc…) GS: commodity players may not be actually the same as the subprime players, but they’re the same species!

  25. 25
    zman Says:





  26. 26
    sane Says:

    distallates 2.8M BUILD

  27. 27
    sane Says:

    The American Petroleum Institute reported a fall of 3.8 million barrels in crude supplies for the week ended July 27. The Energy Department had reported a decline of 6.5 million barrels for the latest week. Motor gasoline supplies were up 2.3 million barrels, the API said. The government reported that supplies were up 600,000 barrels. Distillate supplies fell 582,000 barrels, the API said. The government posted a 2.8 million-barrel increase.

  28. 28
    zman Says:

    Wow – major rally in favorite names save VLO which is getting no love.

    gasoline imports down to 1.2 from record 1.7 last week.

    that’s a huge draw in crude…probably not real.

  29. 29
    dorian Says:

    OIH just went down hard!
    interesting to see if it holds 174 55 ema

  30. 30
    zman Says:

    Thanks Sane – at least the govt got 2 of 3 directionally right!

    Dorian – OIH trading in lockstep with DJIA. DJIA and broader still very disturbed.

    Refiners taking it on the chin again with higher oil.

    SWN and NFX up slightly but feeling the pull of the market’s gravity.

  31. 31
    T-Tupp Says:

    Z- whats with the bid up of the IV on SWN… was that on the earnings anticipation or is their another potential driver here?

  32. 32
    zman Says:

    Tupp – I don’t know, did it occur today?

    Nicky – make or break time.

    Re market. Somebody wake me it starts to fly right!

    DVN CC now.

  33. 33
    sane Says:

    Z, that 6.5M crude draw looks kinda suspicious, but even with that draw we are still 3.2% up yoy on crude stocks.


  34. 34
    T-Tupp Says:

    Z- no it went from 40-55% in the month of july

  35. 35
    T-Tupp Says:

    huge beat for DVN

  36. 36
    zman Says:

    Tupp – must just be the SWN earnings. They’re unlikely to announce anything bigger than last night’s earnings and ops news.

  37. 37
    zman Says:

    Yeah, I really like APC and DVN and EOG but the market is keeping me from chasing.

    DVN really helped by Barnett, which is good news given all the bad weather there. Bodes well for EOG’s 2Q activities there.

  38. 38
    zman Says:

    DVN CC

    DVN 1 Bcfgpd by 2009 in Barnett.

    Woodford: 5 rigs running. Seeing some IP at 4 mm/d, gross 35 mm/d , plan to double net, now 16 by year end.

    Building a 200mm/d process plant for May 2008


    UBS and BMO reiterate VLO at buy.

  39. 39
    zman Says:

    XOM dragging the DOW up.

  40. 40
    codydog Says:

    z–with the spectacle of housing default looming a la BZH, who is the weakest credit-wise energy name? Or, if energy follows the dow down, who gets hurt the most by falling energy prices?

  41. 41
    zman Says:

    Cody – SU

  42. 42
    T-Tupp Says:

    vlo and xom on sale here… watch option prices though…. spread tradesssss

  43. 43
    zman Says:

    Cody – SU, from a falling perspective, not a credit perspective. Most companies are in good to very good shape financially.

    I don’t know of the top of my head who’s really debted it up.

  44. 44
    codydog Says:

    haha…z answers my question and a bid shows up in sun’s aug 90 put….

  45. 45
    zman Says:

    too funny

  46. 46
    codydog Says:

    hearing some Minyanville writer/gossiper is out saying he heard a top 10 hedgie is having trouble.

    Caxton was named 2 days ago as having rumors of drawdowns – sometimes re-packaging rumors does more damage than the origianl rumor

  47. 47
    zman Says:

    SWN pullback – unreal. Listening to replay of call from earlier.

  48. 48
    Brian08 Says:

    NFX is making its THIRD push over 49 today…It’s like the “Little Engine That Could”…Now if only it can get a little help from “Mr. Broad Market”…

  49. 49
    Sambone Says:

    99L-Hurricane Hunters going in today. They may name it TD4 or “Dean” depending on data. We’ve got convection. Water is 83 degrees, low shear, and now out of the dry air.

  50. 50
    zman Says:

    SWN should pop nicely if broad market makes up its mind.

    SWN CC – adequate pipeline capacity – question I had. that’s very good.

    more in a minute

  51. 51
    zman Says:

    SWN CC notes:

    Moorefield shale (below Fayetteville, think area is prospective, still evaluationg 2 or 3 drilled, one water, other 2 being completed.

    Arkoma conventional. Ranger anticline. 140 potential wells here.

    Midway declared new gas field. more on this later.


    Re Mr Market…I’d like to punch that guy in the head.

  52. 52
    zman Says:

    SWN CC

    E Tx: things looking up there after multiple quarters of production slip.

    My god, VLO rolling up.

  53. 53
    zman Says:

    SWN CC:

    Man I hate it when the financial guy reads the press release. I did that last night. If I hadn’t I wouldn’t be here.

  54. 54
    Stephen Says:

    What does everyone think about NG for tomorrow, ther is 99L to think about, but are they also expecting another record build?

    Thanks in advance.

  55. 55
    zman Says:

    Stephen – this is from Monday’s post:

    * Imports and continued mild weather probably put us in line for a 60 to 65 Bcf injection this Thursday.

    * And that would push storage to 2% over record levels as the year ago period was experiencing serious egg frying temps.

    last year saw a 12 Bcf DRAW. It was very hot then.

  56. 56
    zman Says:

    Mr Market trying to go to HOD.

    NFX acting well,
    SWN should wake up soon.

    Still on the SWN call replay and I haven’t heard a single bad thing.

  57. 57
    zman Says:

    also HAL should pop if the market holds this as service news has been overwhelmingly positive but people are scare of the OIH’s prior perf.

  58. 58
    zman Says:

    Thanks Sambone, that thing IS spinning. hmmmm.

    SWN Q&A:

    why the better the results on F Shale wells:
    3D and better practices with longer laterals and slick water fracs. Focus on the sweet spots is key.

    Reaper Well was 4.6mmd IP, why it was so good with a shorter lateral (2,000′) is unclear, but it could be a combination of a very good frac there combined with a very sweet spot (natural fracturing)

    3D – 30 to 40% of area will be covered by year end. Also, potential to acquire competitors seismic.

  59. 59
    zman Says:


    that motion map just updated, looks tighter, spinnier.

  60. 60
    Larry H Says:

    just noticed GSX back down near 2 level. Do you think this is a decent spec at these levels? thanks.

  61. 61
    zman Says:

    SWN CC

    Fayetteville optimum spacing still up in the area. Remember still very early here, not even in what you’d call a development mode yet. Which is good if you think about it b/c the continually honed focus will serve them well when they go after the 11 Tcf that’s in the ground here.

    Slickwater frac on the last 10 wells. They were drilled in 8 different pilots, not just one sweet spot. The company called that encouraging. I call that an understatement with the proviso that it may not be a perfect cross sample of the acreage but it’s better than one tight pool.

  62. 62
    zman Says:


    on cc, give me another 10 minutes.

  63. 63
    zman Says:

    With the caveat that the market must not fall apart, SWN great opportunity for long here. Great call, things accelerating in more than just their shale play.

  64. 64
    Sambone Says:


  65. 65
    El Diablo Says:

    Pure speculation, but I think we’re seeing our piece of the liquidity squeeze. Some big fund getting margin calls? Can’t see otherwise.

  66. 66
    zman Says:

    are the talking heads call this pull back in oil profit taking?

  67. 67
    Sambone Says:

    99L-Hurricane Hunters will be on station about 1:30 PM EST. Should be getting reports shortly there after.

  68. 68
    zman Says:

    SWN CC

    they’re liking the handful of conventional wells drilled in the Fayetteville area. They’re cheap, not complex for completions and production is holding up nicely. They’d like to get to a point where they keep one rig busy on this play later in 2007.

  69. 69
    zman Says:


    Thanks, that’s helpful. Accuweather has a map showing 4 areas listed as August breeding grounds for tropical storms. 99 L is in one that points right to the GOM whic hhas got to be boosting gas.

  70. 70
    zman Says:


    Did you mean GST or GSX.

    How GST is not a buy down here is beyond me. GST I don’t know much about.

  71. 71
    El Diablo Says:


  72. 72
    zman Says:

    El D -?

  73. 73
    zman Says:

    At least puts on FTO and WNR working today.

    VLO is a big over-reaction…in my estimation and in that of the three firms who reiterated buys this morning but none of that changes the fact that it’s down another 4% today.

    If RBOB trades sub $2 the fast money finds a new home.

  74. 74
    El Diablo Says:


    Credit issues spreading

    Even if mandatory margin calls are not in, everybody seems to be reducing leverage, across the board

    Means much more selling to come

  75. 75
    El Diablo Says:

    And, I might add, that if you have a margin call or just the desire to reduce leverage, you couldn’t really care less about the weekly draw….

  76. 76
    zman Says:

    TSO now falling off a cliff as well. WNR , HOC, FTO should follow.

  77. 77
    sane Says:

    rollercoaster market today 😛

  78. 78
    Sambone Says:

    This caught my eye. Water temp is Bathtub (86 degrees). No convection, but what a build.

  79. 79
    zman Says:

    Sambone, I was just looking at that…NOAA saying it could develop into something as it is nearly stationary.

  80. 80
    zman Says:

    SWN and NFX a bargain here but I’m not inclined to play as the broader market continues to sell the rallies.

  81. 81
    Sambone Says:

    Low shear, bathtub water, others have formed here in the past in years past Like Rita), BUT usally later in the season. Cane Hunters will go out tommorow on this one.

  82. 82
    Larry H Says:

    it was me asking about GSX.. now it has bounced off the low 2 area.

  83. 83
    zman Says:

    Larry, Sorry don’t know them.

  84. 84
    zman Says:

    Tis to laugh:

    gas futures fell on word that refiners ramped up their operations much quicker than expected. As the slide in gas futures prices accelerated, oil prices had little choice but to follow, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

    “The refineries have finally gotten their act together,” Flynn said. “They’re back to normal, almost.”

    EIA reported production rose from 9.3 to 9.4 mm bpd, that’s getting your act together?

  85. 85
    codydog Says:

    z– If you can hit the stops from the longs and the shorts on the same day – thats getting your act together , for a third tier broker !!!

  86. 86
    codydog Says:


    so much easier than trading energy

  87. 87
    Larry H Says:

    on Monday you posted:
    “Earnings We Care About This Week: I have positions CALL option positions in (SWN), (VLO), (OII) and long GSX shares as of the time of this posting. Be advised that the (GSX) is a long term hold and has nothing to do with this earnings report.

  88. 88
    zman Says:


    My bad. Ticker confusion. Thought it was GST, not GSX.

  89. 89
    Sambone Says:

    Nymex Crude Falls From Record As Gasoline Slumps


    NEW YORK — Crude oil futures were down more than $1 Wednesday, falling from an intraday record as a slump in gasoline prices offset a bigger-than-expected plunge in U.S. crude oil stockpiles.

    Oil Inventories Fall Beyond Expectations

    Crude stockpiles fell by 6.5 million barrels to 344.5 million barrels, the Department of Energy said in its weekly inventory report. That smashed analysts’ expectations of a 690,000-barrel fall recorded in an earlier Dow Jones Newswires survey of analysts. While crude prices surged instantly after the report was released, an increase in gasoline and distillate stockpiles and growing refinery use weighed on refined product prices.

    The front-month September light, sweet crude contract on the New York Mercantile Exchange was down $1.22, or 1.6%, at $76.99 a barrel, after surging as high as $78.77 after the data was released. Prices had been trading near $77.80 before the release. Brent crude on the ICE futures exchange fell $1.29 to $75.76 a barrel.

    “The initial reaction was to the crude oil number, but it wasn’t as bullish as it first seemed — the fact there is plenty of refined product getting made is good supply-wise” and weighed on gasoline and heating oil futures, said Peter Beutel, president of trading advisory firm Cameron Hanover in Stamford, Conn.

    Refinery use rose 1.9 percentage point to to 93.6%, more than doubling analysts’ estimates of a 0.7 percentage point gain. Gasoline stockpiles rose 600,000 barrels to 204.7 million barrels, less than the 1.1 million-barrels expected, and distillates rose 2.8 million barrels to 126.5 million barrels. That’s double the 1.4 million-barrel gain forecast.

    Inventories at Cushing, Okla., the delivery point for Nymex crude, fell by 500,000 barrels to 20.7 million barrels.

    Crude prices have risen more than 20% in the past two months on a host of factors, including Nigerian production problems, refinery outages going into the summer driving season and forecasts for a supply crunch at the end of the year. Prices have been supported by a slew of fund money placing further bets on price gains.

    While crude prices followed soaring gasoline prices higher over spring amid low refinery production, traders didn’t follow gasoline lower in summer when refiners started to ramp up production, citing increased demand for crude. Still, daily moves down in gasoline have weighed on crude since, though the move has been short-lived.

    “The DOE’s headline numbers are supportive for the crude market and bearish for the products,” said Eric Wittenauer, an analyst at A.G. Edwards in St. Louis.

    Front-month September reformulated gasoline blendstock, or RBOB, fell 7.58 cents, or 3.6%, to $2.301 a gallon. September heating oil fell 4.89 cents, or 2.3%, to $2.0743 a gallon.

    —By Matt Chambers, Dow Jones Newswires

  90. 90
    zman Says:

    Re GSX/GST I’ll post an errata in tomorrow’s post.

  91. 91
    zman Says:


    Thanks but I think his last line should read 2.031, not 2.301 for gasoline lol.

  92. 92
    zman Says:

    September RBOB traded as low as 2.0015 today.

  93. 93
    Sambone Says:

    Copy and paste, baby, copy and paste. I guess since Murdock is the new owner, things change. LOL

  94. 94
    zman Says:

    Refiners being taken to the woodshed. MY FTO and WNR puts making up for the drubbing VLO is taking.

    BJS falling apart but puts there are not offsetting my pain in HAL

    SWN and NFX just sad. EOG up barely, HK giving back good.

  95. 95
    zman Says:

    TRADE: Took small $42.50 put position for $0.55 in TSO just in case things get completely out of hand

  96. 96
    El Diablo Says:

    Don’t confuse the symptom with the disease. Subprime is just a symptom. The disease is a classic run on the bank (or, run on the fund). Cutting off/restricting lending and loans start getting called in. Doesn’t matter if they’re margin loans or mortgages. In order to repay those loans, you must sell the asset. Perhaps someone should explain this to the brilliant, “confined to subprime” secretary of the treasury. Get Skilling on the line, he knows how it works.

  97. 97
    codydog Says:

    a lot of the selling is from midsize hedgies hoping to scoop up smaller hedgies if they get fatally wounded by a margin call. Unless you want a financial calamity, seeing a Tudor or caxton go down or take a $5 billion hit, and I mean cash loss, not mark to mkt is like seeing GS or JPM take that size hit, it simply cannot happen for political reasons. Too big to fail still rules, although Fed/politicos would probably like to see some of the outrageous salaries chopped down a bit.

  98. 98
    Sambone Says:

    Something interesting here. Maybe I’m getting old, but it looks like sometype of circulation.

  99. 99
    zman Says:

    very funny Sambone.

    VLO down 6%! TSO and co racing to catch up.

  100. 100
    Sambone Says:

    I’m red across the board except DVN, APC, EAC, FST.

  101. 101
    Sambone Says:

    Buoy 42003 wind gusts at 40 mph, Wind sped 35 mph

  102. 102
    zman Says:


    out BJS puts for a 197% gain since 7/24 which is little solace given my E&P longs. Stock just won’t break below current levels.

  103. 103
    zman Says:

    Sambone, any text regarding development potential, haven’t seen that HH report but it should be available by now, eh?

  104. 104
    zman Says:

    Wooo- hoooo

    WNR suddenly giving back 7%. $51.25 would be almost a 2 month closing low.

    FTO down 7% now as well

    VLO too!

  105. 105
    zman Says:

    XOI violated support primarily on refiner weakness. Looks to me like support is another 1.5% below today’s 3% drop.

  106. 106
    Sambone Says:

    99L- Cane Hunters still onsite. Navy has 30 mph winds and 1009 mb. I don’t expect anything from NHC or Navy until after 5 PM.
    Invest – GOMEX. Nothing yet, but I expect a Cane Hunter to be onsite tommorow. Everybody is watching it currently. This thing continues to build each hour. New loop. http://www.ssd.noaa.gov/goes/east/gmex/loop-rb.html

  107. 107
    zman Says:

    HAL – massive put buying in the $35s. Wonder when the company calls their broker to kickstart the buyback.

  108. 108
    zman Says:


    re GOMEX, does that look like its drawing energy off of a system moving down from TX/La to you? That actually looks kind of ominous.

  109. 109
    codydog Says:

    what happens if they throw a hurricane and the NG mkt doesnt move?

  110. 110
    Brian08 Says:

    Another rally in place…Wonder if this one will have any staying power, if not hand me the dramamine…

  111. 111
    zman Says:


    That’s the billion dollar question. I think that if it develops but misses the gulf you get a very short live spike.

    A lot of the short position has been accumulated very recently so it may or may not be underwater right now. If the storm gets into the GOMEX I think you get a cascade cover effect and with the environment pretty conducive for development and a line of waves approaching gas could stair step higher during August and September. Of course, the first TS will cause a spike if it’s generally pointed at LA or TX and that’s probably a rally to sell calls on / against.

  112. 112
    zman Says:

    …unless it develops into something material.

  113. 113
    Sambone Says:

    Yes – What is interesting is that it is drawing in the moisture from that front AND it is stationary. Some is fluffing off to Florida, but the main bloom is staying put. Tonight into morning after the sun sets is when we’ll watch for convection. If this thing turns into a spinner, watch out. TX, LA, FL, anywhere. It could go anywhere, because their is no big front (Low or high) to force it at this time.
    The buoys are showing increases in wind also. Go here.
    Here is a map of the fronts.

  114. 114
    zman Says:

    Re #125: careful with the shorts boys!

  115. 115
    codydog Says:

    still long small HK, thinking UNG is the better hurricane play than an equity name, crude is such BS lately, trading high beta names is easier

  116. 116
    Sambone Says:

    One other thing to watch is the wave off of Africa. Looks like it’s already spinning.

  117. 117
    codydog Says:

    PSW site down for maintenacne it seems now

  118. 118
    zman Says:

    SWN, NFX, EOG, CHK, OII all closed positive on that DJI reversal. Need a shot of something.

    HAL only off 3o something cents.

    VLO dow about 5%.

    PSW looks up now. High volume over there.

  119. 119
    zman Says:


    Do you have any broad market thoughts? You said something a while back about having access to some technicians. tia

  120. 120
    zman Says:

    OII Beat!!! $0.86 vs $0.71 expected. Take that MN1.com. Raised FY07 guidance.

  121. 121
    codydog Says:

    z–did you know that around 12noon or a little later, lehman came out and said they thought refiners would drop another 10-20%?

  122. 122
    zman Says:

    Cody – missed that. figures. piling on while they’re down. that’s some real useful analysis Lehman.

  123. 123
    Fred Says:

    Bolling touted EP as his final pick today on Fast Money.

  124. 124
    zman Says:

    He also said FSLR is going to $75. Solar has been too hot with oil and I think the BP move of doubling capacity will hurt all these hot shots.

    What did he like about EP?

  125. 125
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