Thursday – Even Weaker Markets, Hurricane Dean, and Gas Inventories.

Host migration complete! We had some issues including post formatting which is halfway offline at this time so please bear with us as we work out the kinks. Today's post will be fairly plain text, short and sweet.

Where are the bulls? Just three week ago, the TV and print business media avenues were jammed with smiling faces, the sounds of clinking champagne glasses, and comments like “14,000, that’s easy, I’m looking for 15,500 baby! Housing bubble, schmouzing bubble” As always, what sounds too good to be true probably is. Market looks like it wants to try on 12,500 to 12,600 on the Dow for size. Dow futures were called down 100 points at post time. Makes you want to punch that Ditech add guy. I'll bottom fish in September and October calls next week but not now.

Tropics Watch:

  • Hurricane Dean: Max winds near 75 mph, a fairly compact storm, Dean is moving almost due West at a quick 24 mph. The track takes the storm south of Cuba and straight towards Cozumel when sustained winds are expected to reach 135 mph.

  • Tropical Storm Erin: Coming ashore this morning in south Texas with a little wind and a lot of rain. A non-event for producers. Not so good for water logged Texas.

    Natural Gas

  • My estimate: 25 to 30 Bcf injection. More heat combined with about a 1 Bcfgpd rebound in imports, primarily LNG.

  • Consensus: 19 Bcf.

  • Either way, it seems we should put a small dent in the recently created YoY storage surplus as we come up against last year's injection of 30 Bcf.

    Oil Falling Back Again.
    The worm has definitely turned here. For months all we heard from the perma bulls was, "yes storage may be high in the U.S. but it's low everywhere else and demand is about to rally." Now crude is trading off with the declines in global stock markets despite sharply declining U.S. inventories.


    Quick notes on yesterday's oil inventory report:

    Crude: despite another big decline inventories still remain well above the average range for this time of year.

    Gasoline: Inventories should be falling this time of year and are now just below the average range for this time of year. Refinery utilization may remain lower than what many analysts and traders think is normal for this time of year at 91.8% but gasoline production increased to 9.271 mm bpd which is a RECORD for this week of the year (and 30,000 bpd ahead of the comparable week's gasoline make a year ago). You probably won't see or here that anywhere else but it was a record. Imports continued to run high at 1.2 mm bpd while demand started to succumb to seasonality.

    I'd bet that in the future, utilization continues to remain lower than historic levels as the refineries consume higher percentages of sour and heavy crudes which leads to greater downtime not to mention the aging infrastructure. That being said, the mother of invention is necessity and through blending and other means the refiners have done an admirable job meeting demand this fall

    Distillate: Smaller than expect rise and we remain in the middle of the average range of inventory levels for this time of year. At 4.1 mm bpd distillate production ran 200,000 bpd over last year's levels

    Odds & Ends

    Hugo's The Boss Watch: Chavez proposed "legislation" that would include natural gas in the list of resources being "reclaimed" by the Venezuelan state. In other news, Chavez proposed scrapping term limits (gee, I wonder why) and reducing the maximum work day from 8 hours to 6. That last one reminds me of high school where one guy running for student body president promised everyone free coke machines in the lunch room. Talk about a landslide. Decades later and we still haven't gotten our cokes.

    Analyst Watch: yada

    Housekeeping: I'll be out pocket Friday through Monday as far as posting goes but will check in occasionally.

    130 Responses to “Thursday – Even Weaker Markets, Hurricane Dean, and Gas Inventories.”

    1. 1
      codydog Says:

      fed does 14 day repo an hour early – major message there, and canada banks agree to re-start their cp operations , so beginning of major liquidity injections — this has gone from a inter0bank solution to a politically driven solution as we look ahead to an election cycle. Thank goodness taxpayers are cool with bailing out banks and hedge funds!

    2. 2
      zman Says:

      Cody – lol,

      Analyst Watch Continued:

      PTR upped to Bear Stearns

      TRA – fertilizer – uppped to strong buy from hold at Matrix

      HAHAHHAHHHA – Ditech, (DITC) price target cut from 9.00 to 5.75 at Lehman

    3. 3
      zman Says:

      Soros added positions in XOM, COP, and CVX during the second quarter.

    4. 4
      codydog Says:

      z–still hearing loud rumors of commodity fund liquidations going on…

    5. 5
      zman Says:

      UAE to shut in 630,000 bopd for 2 to 3 weeks in late October as part of planned maintenance.

    6. 6
      Nicky Says:

      Morning all. Wow all these rumours! Cody hearing the same one about a commodity hedge fund in trouble and liquidating….
      cnbc saying Dean looks like it could miss the Gulf – I am not seeing that at all – plenty of models showing it going straight in at Texas!

    7. 7
      zman Says:

      Trade: Last half OII August calls sold for BE.

      VLO reports Corpus Chisti refinery missed by Erin as it came ashore.

    8. 8
      Lije Says:

      Z – since noone seems to be around yet I am going to ask you a stupid question. BQI put out a press release 7-12 saying it’s Axe Lake Discovery had 1.4 to 1.5 billion and another .7 to 1.3 of potential. They are in the process of determining the economic feasibility of mining. They only have 387 mill of C/E and 30 mill of L-t debt on bal sheet to finance with and last year they spent about 77 mill (note they still dont have production infrastructure in place). To me that seems like a lot of oil without much funding and a little too much spending. So whats going on: a) are they fine on financing and I am just looking at this all wrong b)if their find is that great and it turns out to be economically feaseable does a big name help them out c) are they going to issue a tone of C/E

    9. 9
      rammastr Says:

      Is this “possibly” the last short term leg down? 13600 to 13700??

    10. 10
      zman Says:

      Morning Nicky,

      With the Dow well through it’s 200 day sma, ya think next stock is that little bit of support in April at the 12,525 level?

      Natural gas trying to rally again, somebody must believe in those tx storm tracks…. or a smaller than consensus injection.

    11. 11
      mdinh Says:

      Awfully quiet.

      Is this the calm before the storm?

    12. 12
      mdinh Says:

      From http://knighttrader.blogspot.com/

      Dow Support Levels (DJIA)
      A 10% Correction from 14,000 is


      MA Support Levels:

      200 EMA is 12,855

      200 DMA is 12,830

      Lower Bollinger Band Support:


      Fib Retracement Support Levels:

      Fib 50% Retracement is 12,980

      Fib 62% Retracement is 12,735

      Fib 100% Retracement is 11, 933

    13. 13
      Nicky Says:

      Z – I would love to see some short term capitulation. Until we get that I can’t see a bottom. We need a huge spike down and reversal and we just ain’t getting it! I can see a spike to 12500 and then a sharp reversal for a week. I would be surprised if it goes much lower on this leg down.

    14. 14
      Nicky Says:

      Energy complex is going to have to go its own way tomorrow I think and cover ahead of the weekend and the hurricane uncertainty.

    15. 15
      zman Says:

      Lije – don’t know what they’re planning as it’s not one of the names I active follow. I’d bet a combo of b and c are are in their not too distant future or perhaps they just get scooped up. All pure speculation on my part.

      servers continue to be repointed to the new host, some people can still only see yesterday’s post.

    16. 16
      zman Says:

      ty mdinh

      Nicky – I agree, we need capitulation…too orderly…smacks of complacency which is the sure road to more pain further ahead. btw, did the Brits use “ain’t” before the Americans came along?

    17. 17
      Nicky Says:

      SPX has support at 1387.

    18. 18
      Nicky Says:

      I am not sure Z – sounds cockney to me.

    19. 19
      codydog Says:

      z– as the distressed sellers hopefully start to run out of selling, I’d appreciate if todays discussion can focus on high quality names that are way oversold and would represent real values, not sure if etfs or specific names are my best bet

    20. 20
      codydog Says:

      Moody’s sees possibility of major hedge fund collapse, says big hedge fund collapse could disrupt markets – DJ

    21. 21
      Nicky Says:

      What kind of comment is that Cody – #19???

    22. 22
      jimbo Says:

      Re: Cody #19. Not sure if this is what you were “wishing for” 😉

      BDV a quality dividend CEF at 13% discount http://www.etfconnect.com/select/fundpages/us.asp?MFID=122044

    23. 23
      zman Says:

      Cody – Not sure what you’re after. There’s plenty of high quality names, like all the ones that just beat 2Q in the last three weeks, and have since seen gas prices rally, that are what I’d call “undeservedly sold off” at present. We can go over those stories if you like.

      Oversold is a TA term and I’m not it applies to those names in what seems to a continually falling market driven by ex-Energy, ex-company factors.

      That being said I wrote today, yesterday, etc that I’m not ready to bottom fish this market yet. I don’t want to give the impression that I’m buying when I’m not. I tried dipping a toe in three or so days ago and had it torn off in short order.

      The market still holds as much or more sway over the energy names as it did then so I don’t see any reason to rush in buying.

      If the question, what will go up if “Nicky’s Big Bounce Theory” comes into play then I’d say probably very safe stuff first, like majors and VLO, big cap service SLB and maybe HAL (and RIG b/c it’s gotten truly and undeservedly walloped), and in E&P names like APC. Is that last paragraph more what your after b/c I really don’t do TA and that’s the hypothetical for a big market bounce? Obviously, everything will bounce and I like my quality names list from, especially NFX and even little HK but I don’t see a bottom yet.

    24. 24
      zman Says:

      anybody got the gas number. can’t get through to their site.

    25. 25
      zman Says:

      gas getting whacked, guessing it was late and big.

    26. 26
      zman Says:

      OK, got in – not yet update, 22 minutes late, hear what CNBC had to say about that?

    27. 27
      zman Says:

      EIA says DOE is having a problem with the website and that the numbers will be out when they (DOE) gets it fixed

    28. 28
      zman Says:

      Cody : Here’s one that probably falls in the oversold category. CEO / PTR getting whacked daily with oil but also with the Warren Buffet/Sudan story. Both off 5 bucks today. This on the heels of several days of selling and inspite of the fact that PTR’s 3B barrel plus Nanpu discovery is bigger than previously thought.

    29. 29
      aaa test Says:


    30. 30
      El Diablo Says:

      Z- did you cover the group in 1997-1999?

      As oil prices fell, was the group’s price performance closely correlated with crude prices or did some of the ‘high quality’ names go up in price? (meaning you actually made money if you were long as opposed to outperforming–losing less than the benchmark)

    31. 31
      Stephen Says:

      MDR and the rest of the OIH getting hit 3%, I just feel some of these stocks are really quite cheap now. Stocks like GSF, MDR, RIG, DO. Although I still think FTI, WHQ, DRQ are a little expensive. I also think MDR is being dragged down by the infrastrucutre plays, FWLT, JEC, SGR, FLR, when it is mainly oil service.

    32. 32
      zman Says:

      El D – it was closely correlated. what is your point?

    33. 33
      Nicky Says:

      SPX – first resistance is 1402 – 1406. Nice bounce.

    34. 34
      zman Says:

      things stunk, and crude was $12 a barrel. Is that what you’re suggesting. Kern county was $8 / barrel.

    35. 35
      El Diablo Says:

      No point per se, somebody was asking about high quality names, I was wondering if they held up when the group tanks (for whatever reason), that was just a time when the group tanked. No implication that it is going back there this week.

    36. 36
      zman Says:

      21 Bcf – pretty much as expected. Energy could care less…it’s watching the dow

    37. 37
      KL Says:

      Bloomberg piece on Fed in effect having already temporarily eased rates:


    38. 38
      zman Says:

      KL – can you repost link. That one sent me to an add. Thanks.

    39. 39
      KL Says:

      I checked out the link immediately after putting it up, and it worked. Now they’ve taken the story down, but here is what it said:

      Fed Has Already Introduced `Temporary’ Easing: Chart of the Day

      By Mark Gilbert

      Aug. 16 (Bloomberg) — The U.S. Federal Reserve has already introduced a “temporary” reduction in interest rates by driving the four-week Treasury bill below the Fed funds target, says Charles Diebel, a strategist at Nomura International in London.

      “It is clear that a `temporary’ easing has been put in place by the Fed,” Diebel wrote in a research note today. “This is what has really spooked markets overnight.”

      The chart of the day shows the four-week bill rate has declined to 4 percent, below the Fed target of 5.25 percent and the actual rate, which dropped to as low as 1 percent last week and rebounded to 5.25 percent yesterday from 5 percent the day before.

      “If this artificial suppression of short-term rates has to be maintained, which we suspect it will, then the Fed will eventually formalize the de facto ease with a move lower in the official target,” Diebel wrote. “It is likely to be at least a 50 basis-point move if and when it comes.”

      William Poole, president of the St. Louis Federal Reserve Bank, said yesterday that the subprime mortgage rout doesn’t threaten U.S. economic growth, and only a “calamity” would justify an interest-rate cut now. The Fed’s next scheduled meeting is on Sept. 18.

    40. 40
      KL Says:

      That was a front-page story for a few minutes.

    41. 41
      codydog Says:

      z–re #19, if you’re prepared to accept the premise that neither the Fed or thw white house will accept an economic collapse so close to the election, or that banks will not evict millions of over-extended families, then credit will be extended in some form and the hedgies will be back in business as the cost of not supporting them is too great. Hence, looking at well run corps, low debt, good growth….keep in mind the 2.8 trillion in money mkts, is only a few mouse clicks away from buying stocks as well…

    42. 42
      codydog Says:

      and secondly, the us economy is the one single largest economy that can take major flows in/out with major disruption or political interference

    43. 43
      KL Says:

      It’s a front page story once more.

      Cody, why the Fed brinksmanship do you think?

    44. 44
      Stephen Says:

      The thing is, financials and the XLF are flat today, it is mainly energy, basic materials, and transportation getting hit. That ties in quite well with the Yen carry trade and people taking money off the table in the sectors that have run up a lot.

      I agree with cody in that there will be a some bargains out there. Financials are cheap as many may actually lose money 3Q, 4Q, but you can’t say the same of the better oil service names.

    45. 45
      zman Says:

      Oh I agree with Cody on the bargain statement as well. I’m just not sure whether we’re in blue light special land or in fire sale land. I thought several names trading at under 5.0x-6.0x NTM CFPS were cheap a week ago…they’re cheaper now. They may be cheap next week. The market is in charge and I’d like to say the daily triple digit drop choked off before I leap, that’s all.

    46. 46
      codydog Says:

      kl-fed is run by academics, who cant say they’re wrong …..remember cramer screaming the fed doesnt get it and how he was ridiculed weeks ago? He was right, but the fed also knows it cant allow stocks to go into a freefall or have a major bank collapse – its a tightrope for them

    47. 47
      zman Says:

      KL – thanks for the repost.

      Cody – I didn’t get that from #19 but yes I see your point now. Ya want to talk about the fed and rumors or stocks? I’m unhappy talking about the first but happy to talk about stocks.

    48. 48
      codydog Says:

      but keep in mind major fund holders, like fidelity compare returns versus 10 yr bonds and as the margins shift in favor of stocks, you’ll see capital shifts..hopefully

    49. 49
      El Diablo Says:

      I finally ‘get it’:

      When I raise macro factors such as money flows, credit, carry trades, etc. as driving oil prices and oil stocks, I get shouted down as an arrogant and annoying SOB-

      August 14th, 2007 at 1:00 pm :

      “z–Can you ask that the macro-econ folks take their discussions elsewhere? I have zero interest in reading what happened 5 years ago or what someone thinks leads/lags the mkt in a multi-year timeframe.”

      Less than two days later, those same people can discuss macro factors like money supply, credit markets, etc. and add value, because it is now a front page story.

      Can’t we all just get along?

    50. 50
      zman Says:

      …and by that I don’t mean you guys shouldn’t talk about it. By all means please do, it’s just not my bag.

      I never want to stifle the free exchange of ideas around here.

      In that spirit. El D – I don’t recall getting your email on what would make this a better site. Or did you just give up on me ;->?

    51. 51
      zman Says:

      Re 49 – EXACTLY – I have seen that and if you feel I am guilty of same I apologize. It was not my intent. Love to hear your thoughts on energy …right now I’m re examining that days supply issue on gas you brought up long ago. As I said, I tried to come up with a good methodology there long ago but shelved it over lack of current or anything close to current demand data. Would welcome your thoughts on that.

    52. 52
      Nicky Says:

      Cody – he is right. You are pretty big on telling everyone what they can and cannot discuss on here and then just doing the opposite when it suits. Just an observation.

      I personally don’t see why anything should be off limits and people can comment or ignore as they wish.

    53. 53
      zman Says:

      From this moment forward I’m declaring peace on ZEB.

    54. 54
      El Diablo Says:

      No offense, z-, I just changed my mind, I want to hold it to myself. Kind of unusual for me to keep my opinions to myself, huh?

    55. 55
      codydog Says:

      el d –i wasnt shouting you down at all – if you recall I asked what your net psoiton was, which you refuse to disclose although you were happy to discuss macro issues – intellectually dishonest

      my comments were looking for high quality energy names for getting long on as this bloodletting/margin call selling goes on.

      major difference

    56. 56
      El Diablo Says:

      I’m all (not net) short energy commodities, I’m not a hedge fund, I make large directional bets on markets, I am a speculator in that sense, but my bets are well-thought out bets, sometimes I’m wrong, sometimes I’m right, but I always have good reasons. Those reasons stand on their own merit, regardless of the size of my position.

      As I pointed out before, this is an anonymous and unverifiable discussion board. I could tell you anything about my size and you couldn’t verify it, so why would you believe it or let it influence your thinking?

      Please just try to objectively evaluate my opinions as you would Goldman Sachs’ opinion–you don’t know their position either. (and I would argue that you should be more suspect of them).

    57. 57
      El Diablo Says:

      USD/JPY just broke 144 and dropped to 113.50

      Beware, if this keeps unravelling, all are going to be ugly.

    58. 58
      zman Says:

      Sweet El D – package it, sell it, make big dough off of it! Of course last week talked you said it was b/c you were too busy, not that you didn’t want to handle over the goose. I gotta know, was it nat gas releated? I’m done.

      DJIA – they just keep selling.

      XLE $65 puts almost in the black from $0 bid two days ago.

    59. 59
      El Diablo Says:

      should read: “just broke 114”

    60. 60
      rammastr Says:

      O.K., is this still an orderly decline? Is there mayhem in the streets yet?

    61. 61
      zman Says:

      agree with the Goldman comment and I’d amplify on it. Remember that’s two calls in recent history for super spike oil followed directly by a short rally and then a selloff. The conspiracy side of me says they had big bets on the table, get the pump and then the dump.

    62. 62
      El Diablo Says:

      No, Z, it was to get at the heart of my last response to Cody. I get a lot of value from others comments besides yours. With a large enough audience, there could be great value there. Problem is that I have the same problem as Cody–anonymous posts have to be heavily discounted. Crack that nut and I think you change the way all these ‘forums’ work.

    63. 63
      zman Says:

      your solution was to circumvent the anonymity here?

    64. 64
      Pete Says:

      Does anyone know why DVN price is dropping twice as much as the rest of this sector of oil companies?

    65. 65
      andy Says:

      re 55 doesnt sound like peace
      nicky right on gal w #52
      el d i like your comments why arent u going to be a paid member? i think its always good to hear from someone who disagrees.

    66. 66
      zman Says:


      I don’t think it’s company specific. I show it down 5.5% but APA is down 4%, XTO down 6%, while APC is off a mere 2%. I’d say its just technical. The many of the big cap E&P haven’t cut their 200 day mov avg yet, DVN looks to have opened below it and now the sellers are just running for the exits.I see no news, and while they have a big chunk of the gas onshore, their economics are better than most in the shale since they own the founding father position in the Barnett.

    67. 67
      Nicky Says:

      CNBC weather saying Dean looks like it could be very nasty. These markets could all snapback at the same time.

    68. 68
      Nicky Says:

      Need to get above 1392 on spx for signs this move is done.

    69. 69
      Pete Says:

      thanks Z

    70. 70
      KL Says:

      Thanks Nicky

    71. 71
      sane Says:

      Phily fed looks bad.
      Trucking is not looking good either. Just saw some stuff that frieight tonnage is dropping and has been for the last 11 out of 12 months. 3.4% drop in June alone.


    72. 72
      zman Says:

      Nicky – any thoughts on the OIH chart – 5% haircut today. Another 3% and hit its 200 day and looks like you’re back to some support in April. Business is pretty solid for much of the index. Man did I cover my BJS and NBR puts early.

      RIG, SLB etc getting taken out and shot. NOV down 8%
      KBR down 10%
      will look at some multiples in a piece tonight.

    73. 73
      zman Says:

      OK, the KBR is pretty tempting down 10% and flat lining. Could be a good quickie long and low and behold it has options now.

      Sane – thanks for the cheery news. lol.

      Anybody have trouble seeing the site early today? Still haven’t seen Sambone other than saw he posted some storm stuff that hit the database on the old server.

    74. 74
      Nicky Says:

      Z – imo fall in energy is probably overdone short term and with the fundamental support of Dean i am expecting a bounce. That said intermediate term we would probably agree that energy is way overpriced and i am expecting it to fall substantially.
      The selling is right across the board and everything is getting wacked and as many have commented on here – the good along with the bad.

    75. 75
      El Diablo Says:

      z- yes, anonymity is the issue.

      USD/JPY at 113, watch for break.

    76. 76
      zman Says:

      Nicky – hear ya, baby, bathwater, rubber ducky all tossed.

      Take issue with the “energy is way overpriced” statement since wind and solar are free on the commodity end, water for power is close to free and natural gas, well, let’s just say I’m not eating any hats soon. Oil – maybe, uranium – definitely, or at least it was not long ago, haven’t checked.

      Just tell me when to cover these XLE puts. I’m thinking end of day but when is the next Dean report due?

      I’m with you, a little turn on the charts and a few more comments from Joe Bastardi (who by the way said Erin could be a Hurricane late last night so he’s not perfect but he’s pretty good) and people could really get worried.

    77. 77
      zman Says:

      Says a guy who goes by El Diablo to a guy who goes by Zman.

    78. 78
      El Diablo Says:


      USD/JPY 112.37 falling precipitously

    79. 79
      El Diablo Says:

      USD/JPY at 112

    80. 80
      rammastr Says:

      O.K., I’ll bite. The USD/JPY is important. Is a specific number in mind to declare a near term bottom?

    81. 81
      ndog Says:

      damn who dropped the dishes in the kitchen, that was one hell of a crash!

      z – if GS drops below 150 where I think I called the low you can officially kick me again. still not in the short since the brokers were doing well earlier in the morning. at this point i’m just in watch mode

    82. 82
      nomad4x Says:

      I think he’s looking at the carry trade unwinding.

    83. 83
      El Diablo Says:

      Not only do I have no idea where the bottom is, I would argue that no one is in a position to make an intelligent deduction on that because there is an unknown amount of capital in the carry trade and an unknown amount of leverage. Just have to let it play out. I just point out the fact that it is unwinding and that has implications for all asset classes.

    84. 84
      sane Says:

      Bloomberg article on carry trade unwind


    85. 85
      KL Says:


      “There is one puzzle in the TIC data though that has nothing to do with central banks: the absence of large Japanese purchases of US debt. Japanese housewives may be playing the markets, but they don’t seem to be buying US securities – or if they are doing so, they do so in ways that don’t register in the US data. Japan bought $13.9b of US securities in q2, but sold $11.3b in q1 – for a net inflow in the first half of the year of $2.6b.

      “Nothing, in other words. $2.6 is less than China likely purchases in a single week …”

    86. 86
      Nicky Says:

      Sorry Z – I should have been specific but I think wti over 70 is way overpriced. And if the US heads into a recession/depression then it will go way lower.

    87. 87
      zman Says:

      N – I should have put lol after all that. How about the tech on the OIH and XLE, as cody says, I’ve got skin in the game on the later on the put side and at some point I’d like to be long the former.

    88. 88
      Sambone Says:

      Afetr 2 PM today, I think it will get worst in the market. Tommorow with the options expiring will also be down in my opinion. We should then see some type of rally early next week. What I’m watching is if the dow breaks 12,000, then it will have broken it’s 5 year up trend.

      Also watching this spin off the Bahamas.

    89. 89
      Nicky Says:

      Samborne – that looks big. Looks like energy market may be about to start taking notice of it.

    90. 90
      Nicky Says:

      XLE – looks like we are around the 200 dma. We are in v down. Could extend but looks ripe for countertrend rally.

    91. 91
      Stephen Says:

      Maximum sustained winds are 90 mph in the 1100 AM DEAN public advisory, there will be one at 200 PM and 95 mph is required for Cat 2, so I’m no expert, but I think it is safe to assume that DEAN will be Cat 2 at 200 PM.

    92. 92
      Nicky Says:

      Same with OIH.

    93. 93
      Nicky Says:

      Nat gas – showing some strength. Next resistance is intraday high at 6999 and then 7070.

    94. 94
      Sambone Says:

      Nymex Crude Down $3; Stock-Led Selloff Quickens

      By Matt Chambers

      NEW YORK — Crude oil futures headed lower toward $70 a barrel Thursday as a sell-off accelerated amid concerns credit market turmoil will cut demand and as storms looked less likely to affect U.S. Gulf of Mexico production.

      The front-month September light, sweet crude contract on the New York Mercantile Exchange was down $3.09, or 4.2%, at $70.24 a barrel. Prices are now down more than 10% from their intraday record $78.77 reached Aug. 1. Brent crude on the ICE futures exchange fell $2.69 to $68.95 a barrel.

      The Dow Jones Industrial Average was recently 2% lower, down for the fourth straight session after steep losses in Asian and European markets.

      Also weighing on prices, Tropical Storm Erin made landfall on the Texas coast and was downgraded to a tropical depression, leaving the refining hub of Corpus Christi with just a little drizzle. U.S. National Hurricane Center charts show Hurricane Dean making landfall Tuesday morning on Mexico’s Yucatan Peninsula.

      “The market is continuing to head lower, beleaguered by softness in equities,” said Peter Donovan, vice president at Vantage Trading in New York. “As the weather looks less likely to hit production we’re also seeing selling by speculative storm watchers.”

      Front-month September reformulated gasoline blendstock, or RBOB, fell 8.38 cents, or 4.2%, to $1.9250 a gallon. September heating oil fell 7.75 cents, or 3.8% to $1.9494 a gallon.

      Tropical Storm Erin made landfall 25 miles northeast of the Corpus Christi refining hub in Texas and weakened to a tropical depression. Refined product futures had been boosted Wednesday on concern that Erin would hit Corpus Christi, bringing heavy rain and flooding.

      Hurricane Dean, now a Category 1 hurricane in the open Atlantic, is expected to strengthen before making landfall.

      Further declines could be in order if Dean continues on its forecast path away from major oil production centers.

      “If the stock market continues to weaken, oil’s going to have a tough time standing up on its own,” said Phil Flynn, an analyst at Alaron Trading Corp. “Once Dean passes, we could be in for more of a correction downward if stocks continue to look shaky, but the storm is still far out and you can’t be to certain of the direction of these things,”, he said.

      -By Matt Chambers, Dow Jones Newswires

    95. 95
      El Diablo Says:

      On the carry trade, my guess is that significant damage has already been done today, meaning a bounce this afternoon may not help, margin calls would already be in. Just as lenders are tightening guidelines for individual and prime borrowers, so too would they be tightening guidelines (and interest rates) for margin loans. If banks are hesitant to buy GE’s 30-day paper in these markets, I can’t see them being comfortable providing even 3-to-1 leverage for a hedge fund in this market. I really expect to see some headlines tonight or over the weekend of some funds that got in too deep.

    96. 96
      Sambone Says:

      I guess you folks have already seen this, so it may be a dupe.


    97. 97
      MMarkkk Says:

      I’m astonished at the comments related to the storm and it being “too far south” to impact oil/gas facilities. First, “that far south” puts it in the path of Mexican facitilities, a key issue since we import from there. Second, I’ve been watching storms all my life, being a Cajun from South Louisiana, and the one thing we know is that once a storm cuts into the GOM, it can do almost anything. Yes the models have gotten better, but remember Rita in 2005? It was supposed to hit Corpus Christi, then Lake Charles, then Houston, then Corpus, then it finally hit between Lake Charles and Beaumont. These things are pretty amazing and sometimes defy our puny human brains.

      I think the oil sell off is really related to evidence that our economy may be slowing, which will have a pretty big impact on the energy markets. Anyone notice that WalMart had a bad quarter? When WalMart has a bad quarter, people have stopped buying even the cheap stuff…the essentials.

      Raining like all get up here in Houston; flooding all around. Hopefully the 20-mile long, 4 lane wide Katy Parking Lot (otherwise known to some as a freeway) will be open. May need to go buy an air boat to get home!

    98. 98
      zman Says:

      thanks for the responses guys and gal. had to step off for a few there.

      XLE cracking again, this may be the one I cover on prior to that weather report.

      VQ getting flushed – newish names circling the bowl in general.

    99. 99
      Stephen Says:

      Whoops, I was wrong, still 90 mph sustained winds at 200 PM.

    100. 100
      rammastr Says:

      Nicky, does the bust through the 1392 on the S&P look convincing?

    101. 101
      zman Says:

      Who said it was too far south? Didn’t see any talk like that around here, was it on TV or something? Please, it’s going to hit the Yucatan at with 140 mph wind and then it’ll slip into the GOMEX still a category 1 and regroup. That’s the track now. Could easily bend due north from there, could also go straight across to Mexico. Seen it all before but too far south, that’s just silly.

      I’ll be slogging around down there with you tomorrow Mark…hopefully Erin will be gone by then.

      Sorely tempted to bottom fish the likes CRK CHK, SWN, NFX, OII, HK and even some bigger boys in here but I’m in agreement with El D and the guys at Moody’s: there’s more news to drop soon.

      I constantly remind myself that I’m not losing money if I watch the table and other people seem to start “winning”. Only if I sit down and bet wrong (again, with the same use of the word “bet” as El D characterized it above). Still, I may nibble in the morning if we get another big swing into the close.

    102. 102
      Nicky Says:

      R – I am liking the look of the reversal. In truth we would need to take out yesterdays highs for confirmation which are a long way away.

    103. 103
      Nicky Says:

      Mark – ditto your comments and Dean. Market is way underestimating it imo. I think they will cover big tomorrow.

    104. 104
      Nicky Says:

      R- further to #102 – either that or the next low needs to come on lower volume.

    105. 105
      zman Says:

      Tried to cover my XLE put by hitting the bid and they wouldn’t take it. It just sat the for a full minute and then they dropped the bid. Nice.

    106. 106
      rammastr Says:

      Thanks Nicky. Just trying to fish in the shark infested waters.

    107. 107
      zman Says:

      Looking at taking a little OII september as a replacement for the augusts into the close.

    108. 108
      zman Says:

      RIG pulling non-essential support workers off rig working near La coast.

    109. 109
      Sambone Says:

      Spanking CHK now

    110. 110
      zman Says:

      TRADE: XLE puts closed for a small loss. OII 60 calls taken.

    111. 111
      Sambone Says:

      On the market, loved this quote:

      “You get a couple of things like that and the crisis of confidence can turn on a dime,” said Pete McCorry, senior equity trader at Keefe Bruyette & Woods. “Everybody in the world is short right now, and you get these knee-jerk reactions.”

      “Its like you’re pinned down in a battle and all of a sudden, the crazy lieutenant charges the wrong way and — Boom! — everyone’s going after him,” he added.

    112. 112
      zman Says:

      EOG and APC going positive. Flight to size in E&P land. Could the Nicky effect, as in “the poser of Dean is being underestimated”

    113. 113
      KL Says:

      jeez, the spx is green…

    114. 114
      zman Says:

      KL – yep…crisis solved.

    115. 115
      Brian08 Says:

      Z, I’m guessing you are still staying with NFX and HAL for SEPT and taking the pain?

    116. 116
      Nicky Says:

      Incredible turn around in 30 minutes. I am not surprised – there was going to be a day for this. Energy market can hopefully now concentrate tomorrow!

    117. 117
      Nicky Says:

      RBOB up over 200 since the close, distillates up 123.

    118. 118
      KL Says:

      For what it’s worth, a meteorologist friend says the models aren’t taking into account Dean’s speed as well as other factors. His models point it toward Houston.

      He says the models will show it in a day or two.

    119. 119
      KL Says:

      “Lots of talk on the evolution of the high, the Cut off low, and other features that may affect Dean. In looking at the current models, I also share concern that the models may be making the overall atmosheric dynamics too straight forward. With respect to the GFDL, this is one the most reliable hurricane forecasting models and this model always gets very heavy weigh in on forcast tracks. With that said, I think last nights GFDL was weakening Dean during the forecast period as it was seeing a system that would head into the Cutoff low and experience shear. As for todays model runs so far, the GFDL seems to have recognized that Dean is more formidable than the weaker tropical counterparts. As a result, the GFDL now sees an interaction with the cutoff low that moves it NWward, versus lasts nights representation that moved Dean under the cutoff and into a sheared environment.”

    120. 120
      zman Says:

      B – yes.

      KL – thanks that’s good stuff.

      Nicky & gang – I’ll post a short piece late tonight for comments to start fresh from.

    121. 121
      Nicky Says:

      Wowwwwww! RBOB now up 369 and distillates 217. WTI up 63.

    122. 122
      rammastr Says:

      Nicky, would you consider this a first wave up?

    123. 123
      zman Says:


    124. 124
      rammastr Says:

      It’s back!

    125. 125



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