Tuesday – OPEC’s D-Day + A Word About HO + Some Gassy Thoughts

OPEC Watch: Saudi calls for 500,000 bopd quota hike. Just about everyone else stands against them except Kuwait and the UAE. Oil trading is trading flat in the pre market around the $77.50 level (+/-10 cents). I tried to wait them out as the decision should be any minute now but the market is set to open so I'll have more on this in comments.

Technical Opinion Watch: I got into this habit of looking at the sector charts while Nicki was out and now I just can't stop myself.  

  • OIH - Nice Chart (not a double top). Nice comeback yesterday after an entire morning of BBP (bathwater, baby, porcelain) type selling. I won't even start to get concerned unless the index falls through 176 and subsequently fails to hold 165. There is an argument for sideways trading based on the fundamentals which could leave the OIH range-bound between 166 and 186 for the near future. This argument is related to a slow down in the US side of the N. American gas drilling. Permits don't yet bear this out in the greatest center of activity, Texas, nor do the recent comments of most of the large cap independents. Meanwhile international fundamentals remain strong and rig and other service utilization remains tight.
  • XOI - Critical Juncture. Big oil had the worst day by far yesterday closing down nearly 1% but again was well off its lows on the day. While OPEC's move today will likely determine the direction of the index this week I think we need to see it move back over 1,400 soon to maintain the recent momentum. As I see it, especially with the lousy broader market in mind, this index is  more vulnerable technically than the OIH
  • XNG - Troublesome But Strengthening. Closed flat yesterday which is pretty lousy considering gas rose 8% on the day and the broader market closed green (barely but it was up). We need natural gas to firm up and pick a direction and for more than just one day at a time. Given the extreme likelihood that we dip back into YoY gas storage deficit territory this week for the first time in 8 weeks now may be the time that gas decides to make a move back over $6. The XNG should go along for the ride unless general market conditions yield further liquidation selling. See more on the gassy stocks below in the Natural Gas Section.

Stocks We Care About Today Watch:

  • (PBR) -after the close they announced their deepwater heavy oil field Xerelete is commercial with estimated reserves of 1.4 billion barrels. They operate the field and have a 41% interest. As heavy oil look for lower recoverability than the headline number so don't think this is an XOM style Thunder Horse class discovery but it does highlight a string of continued exploratory successes. 


Crack Spreads Edged Slightly Lower Last Week As Crude's Advance Into OPEC Outpaced Product Prices. The slippage was in fact very minor and 2 out of 5 regions were essentially flat (West Coast were reformulated inventories took a dive and the Gulf Coast were production sagged due to the lingering effects of Dean). I'd expect cracks to maintain or slightly improve on current levels in the near term as I expect:

  • 1) refinery utilization to drop back this week with a commensurate reduction in product make as more refineries, especially in the Mid West and Gulf Coast regions go off-line for long overdue maintenance. Many of these refineries have not taken a normal seasonal maintenance turn since Katrina due to high demand. I've seen numerous comments that both September and especially October will be unusually encumbered with maintenance down time.
  • 2) heating oil to continue on its bullish move due to low inventories and production as evidenced in the following charts.

A Word Or Two On Distillates As We Approach Winter: Distillates Vs Heating Oil.


Heating oil (Fuel Oil #2) is a distillate but so is jet fuel, bunker fuel for ships, on road diesel etc. They all have different specs. Heating oil, used to heat homes falls into the dirty end of the spectrum or greater than 500 parts per million sulfur. Production of high sulfur distillate has been falling like a rock since the EPA mandated an increase in ULS (ultra low sulfur) last October.

Yesterday morning I spoke with the EIA information desk to make sure I wasn't off my nut about this concept. They confirmed that high sulfur stocks were indeed down by close to a third relative to year ago levels. As a majority of this oil is burned to heat homes and the other high sulfur uses (which were replaced with ULS) did not account for this much of the total I'm thinking supplies of high sulfur distillate are going to be tight this year...especially if it gets cold. When I pointed out how far below average we are the EIA representative seemed at a loss for words and said he was forwarding the point along to the STEO (short term energy outlook) team who is about a month away from producing their next look at the 2007/2008 winter outlook. He said it was true that people could burn ULS in their home boilers but that the cost would be "very high".  

...And this is making HO prices do the following despite the relatively comfortable levels of total distillates in inventory at present.


So what's the play Kaman asks? In my never ending quest to be useful I searched high and low for an alternative answer to the one you already know. Valero. Did I find a higher quality more impacted by high HO prices company in (SUN)? No, although they are cheap and they are the first ones that come to everyone's mind from having seen the opening of The Sopranos so many times. Sunoco has nearly 700,000 bopd of capacity in the Northeast vs VLO's ~ 400,000 and as such it has the highest concentration of barrels of capacity in the region among the independents. But net profit margins at (SUN) are weak relative to its peers and at 3% are less than half those of VLO (7%) so when you're talking about getting that volume advantage (in the northeast) think profits, not revenues and you'll see my point. There are also other fuel supplier and middle men plays that I will be looking into in coming weeks.

(intermission for second cup of coffee) 

Natural Gas Holding It's Own: Had a great day yesterday rising 8%. This morning it looks "Big Round Number" challenged by $6. That's OK in my book. Honestly there is no good reason for much of a breakout over $6 except short squeezes, the fear of twisting tropical formations, or that coming YoY Deficit gas storage headline I mentioned above. Does this mean I think the XNG is stuck here? No. Having gas not continue to Break Down is most of the battle. The gassy companies I'm long at present are to high degree hedged beyond much of an impact from gas prices for the remaining months of 2007 and in most cases for a large chunk of expected volumes in 2008. What I wouldn't want to see, if I were them is a sharply dropping front month contract which exerts a gravitational like pull on the 12 and 24 month strips (currently $7.373 and $7.766 respectively). They need these to remain high to continue to put on all those nice hedges.

According to Apache "Several Rockies producers have shut in production as gas prices remain depressed." I'm taking their word for this since I only saw (CHK) so far and then a lot of other companies saying they thought the weakness was temporary and that prices would rebound without the need for curtailment.

Natural Gas Imports Rallied Slightly Week to Week. Gross imports increased by a little over 0.5 Bcfgpd to nearly 12.4 Bcfgpd last week relative to the prior week.

  • At just under 2.1 Bcfgpd, LNG continues to hold well off summer peaks of as high as 3.8 Bcfgpd as low prices in the U.S. and higher demand in Asia send volumes to foreign shores.
  • Canada however continues to send what can only be called stout volumes south of the border. Canadian volumes hit a 7 month high of 10.3 Bcfgpd. That's still down from last year but barely and well above what most analysts would have expected earlier this year.  

Holdings Watch:

CALLS: No action.


  • XLE - picked up an opening (and hopefully final) position in the September 70s for $2.20 as insurance for my longs during the OPEC meeting. I think I top ticked the price here as it was the bottom on the energy market for the day. Last bid $1.40. That is expensive for piece of mind. 

Odds & Ends

Analyst Watch: Nada.

Tropics Watch: Whole lot of nothin' goin' on.

Colder Winter Watch?: At least according to the Farmer's Almanac.



128 Responses to “Tuesday – OPEC’s D-Day + A Word About HO + Some Gassy Thoughts”

  1. 1
    Sambone Says:

    Nymex Crude Steady Before OPEC Decision

    From Market Talk:
    [Dow Jones] Nymex crude is trading steady in early electronic trading, waiting for OPEC’s decision on whether to increase production. Oct crude -2c at $77.47/bbl after earlier trading as high as $78.32. Prices rose as high as $78.47 in late screen trade Monday, just 30c shy of the all time record $78.77. Saudi Arabia said to be pushing for a 500,000 to 700,000 bbl increase. OPEC is due to hold a press conference at 10 a.m. EDT. (matt.chambers@dowjones.com)

    Reported Earlier:Crude On Knife Edge Ahead Of OPEC Decision
    By David Elliott


    LONDON — Crude oil futures were trading slightly lower in London Tuesday morning as the market waited to hear whether the Organization of Petroleum Exporting Countries plans to alter its production quotas at its meeting in Vienna.

    Traders said the market is sitting on a knife edge with a decision by OPEC to keep output unchanged likely to send prices higher to test all-time highs, while a decision to increase oil production, which is looking more and more likely, will see prices fall sharply toward $70 a barrel.

    “The notion that OPEC aren’t going to do anything has been blown out of the water and we’re waiting to see if they’ll take a more cautious approach to protecting longer-term demand,” said a trader in London.

    At 1102 GMT, the front-month October Brent contract on London’s ICE futures exchange was down 29 cents at $75.19 a barrel.

    The front-month October contract on the New York Mercantile Exchange was trading $0.17 lower at $77.32 a barrel.

    ICE’s gasoil contract for September delivery was up $5.75 at $683 a metric ton, while Nymex gasoline futures for October delivery were down 36 points at 197.50 cents a gallon.

    Sowing the seeds of doubt over OPEC’s likely decision are suggestions from a senior OPEC official Tuesday that the organization will increase production by between 500,000 barrels a day to 700,000 barrels a day in an effort to quell the current oil price strength. Compounding this possibility is the Egyptian oil minister, speaking in Vienna after a meeting between OPEC producers and producers from non-OPEC countries, who said he has been told by OPEC they will raise quotas.

    This counters the premise adopted by the market earlier in the week that OPEC wouldn’t be tempted to tinker with output and has become more of a likely option following sharp gains across the oil complex late Monday which took WTI up to $78.47 a barrel, just shy of the all-time high of $78.77 a barrel.

    Some observers have said an output increase wouldn’t add much to oil supply as OPEC have already been producing over the agreed quota limits.

    “The OPEC countries have been stealthily raising output in recent months, and are now probably producing over 700,000 barrels a day more than officially agreed on,” said Eugin Weinberg of Commerzbank in Frankfurt.

    A production hike merely “legalizes the cheating” by those members who are currently producing above-quota in order to satisfy western governments, said senior broker Rob Laughlin at MF Global in London.

    He agreed a rise in production wouldn’t alter the market’s fundamentals significantly but felt the move could be delayed by “price hawks’ within the organization until OPEC meet again in December

    However, others felt there’s little room for OPEC to raise production.

    “I honestly believe that OPEC do not have the capacity to increase production,” said another trader based in London. “Not even from Saudi Arabia…I really think they are producing at maximum capacity now.”

    Despite the suggestions that OPEC might ramp up production, many within the organization, such as Iran’s acting oil minister, are insisting there is no proposal on the table to boost production.

    Some market observers agree. Weinberg concurred that OPEC is more likely to wait until the December meeting.

    “Even though the information about possible quota hikes seems to come directly from the OPEC, we do not see this becoming reality,” he said. “The organization is more likely to wait until the next extraordinary meeting in Abu Dhabi on December 5.”

    Aside from OPEC, news of an attack on a gas pipeline in Mexico belonging to Petroleos Mexicanos has buoyed prices.

    The impact on oil production has been limited but analysts said the move heightens the risk to supply from the region, especially if the saboteurs continue to target energy companies.

    —By David Elliott; Dow Jones Newswires

  2. 2
    zman Says:

    At last count it was 3 in favor (or at least supporting) the 500K bopd hike:
    SA, UAE, Kuwait,
    nigeria straddling fence,
    rest opposed

  3. 3
    Nicky Says:

    Morning Z – that move up last night looking somewhat spiky now.

    Down to Opec now I guess although any reaction i expect will only be a short term one. I guess the Saudis may appease the rest by saying they will hike production but maybe delay it until December when they can again re-assess the situation.

  4. 4
    Nicky Says:

    They had that David Beuchtal on CNBC very early this morning who was saying that oil price spikes like this one have preceded all the last recessions in the US. Once it kicks in he says he expects oil to trade back towards $20 – $30 – normal for the cycle.

  5. 5
    Nicky Says:

    sorry Z – thought I was on Tuesday – too busy flipping about!

  6. 6
    zman Says:

    Nicky – was paul saying a 20to $30 per barrel drop with a recession from current levels or a drop to 20 to 30 per barrel? Big difference and I think he’s nuts if he’s thinking the later. Plus are we going into a recession now?

  7. 7
    zman Says:

    With no OPEC decision out yet you need to be either clairvoyant or vegas minded to be buying energy this morning. Or just mad at your money. It could go either way and I’d bet a 500K bopd hike would trim $2 off oil pronto.

    PBR up nicely. CEO ditto. Majors rising but I wouldn’t act yet.

    If no hike SU is probably a no brain buy here.

  8. 8
    scoop006 Says:

    Z Peter Beutel said he saw oil GOING TO $20 -$30 per barrel if recession materializes.

  9. 9
    zman Says:

    Scoop – he’s off his nut.

  10. 10
    zman Says:

    PBR can’t make enough pr’s these days.

    To drill 2nd well off Iran in the Persian Gulf. This is unwelcome news for pension funds.

    Oil up $0.26 to nice round $77.75 … traders think they know something.

  11. 11
    Brian08 Says:

    Hello all..

    Quick question about an oldie but goodie in WNR…By my newbie TA it seems to have support at the $50 level…Am I off my rocker here that it might be worth a trade here for a quick pop?

  12. 12
    zman Says:

    Welcome Back Brian!

    It’ll play. I’m long TSO and VLO for a variety of reasons but if you can buy it right, yeah, I think it plays. It’s such a relatively thinly traded stock that it can really move on higher cracks out west.

    Oil REALLY thinks no quota hike is in the cards, touching on $78 now.

  13. 13
    Sambone Says:

    Z – $20 – $30 a barrel? As T Boone Picken said; “You’ll see $80 a barrel before you’ll see $50 a barrel.” Oil could go lower if a recession hits the world, which lowers demand, but it aint hitting $30.

  14. 14
    Nicky Says:

    Z – Scoop is right – that is what he said.

  15. 15
    zman Says:

    News Flash: OPEC said to be mulling 500 or 1 mm bopd . Should chill the oil market off pretty harshly.

  16. 16
    zman Says:

    Algeria minister elected as new OPEC president. That will help bring their country under the quota system. Currently Algeria and Iraq are excluded from quotas. One’s too new, the other for obvious reasons.

    New guy is Chakib Khelil and he’s said to be against Saudi’s proposed hike although that won’t matter today.

  17. 17
    zman Says:

    Re $20 to 30.

    I saw the impact of $12 oil in 1998. Thousands of unemployed workers marching down Congress avenue in Austin. Oil production in the US that never recovered.

    $20 to $30 is the same thing given the Service Co. inflation we’ve seen since then.

    And Global demand has risen the whole time.

    With all due respect to David, he’s out of his tree.

  18. 18
    zman Says:

    Nicky – what do you think?

    1 mm bopd quota hike = $2 off crude today?

  19. 19
    zman Says:

    delayed reaction to the 500 to 1 mm bpd quota hike rumor , oil now down $0.40

  20. 20
    Nicky Says:

    Hold on to your hats but further to #4 and in response to the reaction it generated I thought it may be interesting to get the long term view of an energy Elliotician that I have great respect for.

    He says that $20 – $30 is perfectly reasonable but that he would expand it to $10 – $41 which would be allowable under wave IV. Furthermore he says that if the intensity of recession/depression comes to pass that Bob Prechter is predicting then sub $10 would not be a surprise.

  21. 21
    Nicky Says:

    Will need to be a 1mm hike for a $2 drop I think.

  22. 22
    zman Says:

    Still nothing out of OPEC

    I’d bet on 500K at this point. Think the million leak was a trial balloon (there are no unintentional leaks and this one came from the assistant to the Iraqi minister who left early). Reaction to 500 K bopd hike probably pretty muted, $1 off sale maybe.

    My finger is on the sell trigger for those XLE puts.

    Shippers all moving higher today. That little OSG from yesterday that added the super-sized LNG tankers to it’s fleet of crude and dry bulk carriers is outperforming.

    Nat gas trading in line with oil, down $0.06. Just read an interesting piece by a broker I respect saying the sky is not and should not be falling for gas prices. By the way, my daughter picked out a hat for me to eat but since I won’t be eating it I’ll just let her wear it.

  23. 23
    zman Says:

    from Bloomberg:

    “A 500,000 barrel increase is already priced in,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd, the brokerage unit of Man Group Plc, in New York. “They will have to raise output by 1 million barrels to have any impact. If OPEC were to raise quotas that much, we would start hearing about the lack of spare capacity again.”

  24. 24
    zman Says:

    Mexico situation worse than I thought. 37 killed in one of the blasts:


  25. 25
    j Says:

    Just did a partial hedge on my HO for the season last month, so I’ve been giving the HO market a great deal of thought over the past month. I know a lot of people are concerned over the low levels of HO, but I think you really have to focus on the distillates market as a whole. (which looks to be in line with historical levels)

    The heating oil futures contract is also used to hedge diesel fuel and jet fuel. This can be done because there is a pretty stable price premium between the various products. This means for HO to spike in price, we would have to see a corresponding spike in diesel and jet fuel/kerosene. If HO spikes alone it will be very short lived as the producers will back off diesel and crank on HO to maximize profits. The middle distillates market is pretty self regulating which should keep the traditional price premiums in effect. So I guess what I’m saying is that I don’t believe HO can rally independent of the rest of the distillates market.

    The real question is, how much more does it cost to produce ULSD as opposed to the high sulfur distillates. If the cost is less the price spread between HO and ULSD wouldn’t it be wise to produce as much ULSD as possible? If a shortage of HO comes about and prices spike, producers would have the flexibility to sell ULSD as HO and maximize profits where appropriate.

    Looking at the current market, my guess is that the additional cost to produce ULSD is less that the current price premium between HO and ULSD, which is why you are seeing low HO inventory levels. As the price of HO starts to spike, that premium will shrink and make HO production more profitable bringing the market back into balance. I could be wrong, but this is just my analysis.

    Z – I don’t have buyers remorse yet on my subscription, so you must be doing a great job. Love your great analysis.

  26. 26
    Sambone Says:

    Nymex Crude Touches $78 Before OPEC Decision

    From Market Talk:
    [Dow Jones] Nymex crude, after rising above $78/bbl, falls again ahead of OPEC meeting, and Oct crude is now down 25c at $77.24. The cartel is discussing a 500,000-1 million b/d hike, an Iraq oil official said. While OPEC is already estimated to be producing at about 1 million b/d over its quotas, a boost could green light even more leakage above agreed amounts. (matt.chambers@dowjones.com)

  27. 27
    zman Says:

    J – Thanks and points taken. I’ll check on the spread between ULS and >500 ppm. The EIA indicated that the costs to consumers of consuming ULS relative to high sulfur HO would be “very high” but it may not be that big a deal when you boil it all down (and just more profit for the refiners). If the spread is small then what you say would work and it would seem to me that the current HO contract price is unjustified.

    I was thinking you also need to look at the HO issue geographically. Looking at New England, high sulfur HO stocks are down 22% YoY. Mid sulfur is identical to last year and while ULS inventories are up they don’t offset. As such, overall New England distillate stocks are off 11% relative to year ago levels which would alarm me if I lived there and heat my home/building with oil.

  28. 28
    fraser921 Says:

    >Shippers all moving higher today. That little OSG from yesterday that added the super-sized LNG tankers to it’s fleet of crude and dry bulk carriers is outperforming.

    In the tanker segment i like TNP and Topt but the q 3 earnings will be weak for Topt so you might want to wait until q3 earnings are out or a drop below 5.50. TNP will pay at least a 1.50 dividend in October and is worth 80 + per share and trading at 65. Topt is worth at least 8 and longer term i expect 10.

    In the dry segment, Drys has the most “spot” exposure and has the best prospects with NM my 2nd choice. I like exm but would stay away due to price

  29. 29
    zman Says:

    Thanks Bill. Do you think a million barrel output hike would send rates in a new direction or do you think that it just justifies the current level of shipping and leads to much ado about nothing.

    The perception is that the tankers jump on a big oil rally and while it might be worth a trade I don’t see a lasting financial benefit to them if the actual barrels and demand are no different pre/post meeting.

  30. 30
    zman Says:

    Analyst Watch: AXC.T – my favorite Swiss E&P with most of its ever growing production in Nigeria, then Gabon and someday in Iraq just picked up as a buy at Canaccord. No options but I love this company long term.

  31. 31
    zman Says:

    More on distillates:
    I take perception into my trading at least as much as I do charts.
    These are from last week’s EIA oil weekly so 8/31 prices:

    ULS: 287 (east coast price)
    LS (low sulfur): 286 (US price, they don’t break this out b/c it’s so small)
    No2 Heating oil (the dirty stuff): 205

    The perception will be there’s not enough heating oil to go around unless they start cranking production very soon and not just the ULS kind or people will be paying through the nose.

  32. 32
    fraser921 Says:

    In the short term, I ve noticed that the tankers tend to move with oil prices.

    Seasonally, the rates are weakest in q3 and better in q4 and q1. 1.0 m more barrel need to be shipped so it would help q 4 rates but thats expected.

    Suezmax rates are about 25 k per day now or lower in the winter they are 50 to 75 k per day.

    the supply of new ships have have caught up to the demand and rates are softer this year vs last.

    All the best price action, (this year) has been in the the dry sector as evidenced by the price action in exm,nm & drys,qmar,egle.

    Coal demand by china for power plants is driving demand. Can you imagine what would happen to ng prices if they switched to a cleaner fuel

  33. 33
    zman Says:

    Bill – to the moon! They have a ton of gas but it’s largely undeveloped. BR was on the hunt over there before being acquired by COP and they found some mongo pools of gas.

    You like DRYS here? It’s been on the watch list for some time.

  34. 34
    zman Says:

    RIG – one to watch as it’s down for now good reason this morning except it started lower and there are few energy buyers willing to rally it prior to OPEC. Stupid but it will jump if oil takes off.

    FBR says deepwater backlog of rigs stands at 110% for the next two years. New rigs coming into service over the next 2-3 years are also booked to a high degree (>70%).

    Oil up a dime, still no OPEC word.

  35. 35
    Nicky Says:

    opec better do something after all this delay or energy is going to fly.

  36. 36
    zman Says:

    …and why would we not want energy to fly?

  37. 37
    Nicky Says:

    lol – $80 may raise a few eyebrows!

  38. 38
    Nicky Says:

    raised by 500 a day

  39. 39
    zman Says:

    your boy PF says he sees a 500 K bopd hike and that it’s already priced in.

    I think the Mexico troubles aren’t yet priced in.

  40. 40
    Nicky Says:

    starting in November

  41. 41
    Nicky Says:

    we are going to rally short term on that

  42. 42
    Sambone Says:

    500,000 increase just announced.

  43. 43
    zman Says:

    Still waiting on the text before acting…also the headfake

  44. 44
    Sambone Says:

    Effective November 1

  45. 45
    zman Says:

    Nov 1 makes sense with what the Asian refiners were saying about designations prior to the meeting.

    RIG should probably rally here,
    SU pretty obvious to rally

  46. 46
    fraser921 Says:

    Yes i still like Drys

    Here is a presentation they just made.

    Please refer to page 21 615 ebitda in 2008 and is trading at 4.1X ev/ebitda using rate assumptions that are below current market. At 71, Drys is trading at 8.3 x on a trailing basis.

    At 7 x time 2008 Ebitda imply a value in excess of $ 100 per share.

    Caveat great run up and will the current rates hold up.

    Im going to get aggresive before next earnings release. Currently, Im long stock and hedged the position by writing calls against the position.


  47. 47
    zman Says:

    EIA headline: US Winter Distillate Build May Be Slowed By Gasoline Need.

    Looking at mor VLO and adding SUN as per today’s post (it’ll be the lemming’s choice)

  48. 48
    fraser921 Says:

    here is the presentation of last qtr earnings.


    note page 13 estimated ebitda of 126 m in q3 and actual rates are higher than the amounts assumed.

    Last year ebitda for q 3 was 18.4 or 40 m after adding back one time hedge losses.. So q3 will have extemly strong results just like q2 which took it up from 55 to 75. Pretty soon the IBD momentum players will be piling on

  49. 49
    zman Says:

    Thanks BF – will check out tonight!

    Gotta love scrolling headlines:

    EIA says winter retail HO to average $0.30 higher this season vs year ago.

  50. 50
    zman Says:

    I’m letting the headfake run it’s course as oil just went from up $0.50 to flat slightly down in 5 minutes.

  51. 51
    fraser921 Says:

    at the risk of beating a dead horse..

    check this chart out


    Please refer to the blue line of the bdi

    current capesize 140 to 150 per day..they assumed 100 k

    current panamax is about 75 k per day they used 55 k

    damn, I may buy more today, lol

  52. 52

    Hey Z,

    I’m trying to deal with all of my SEP contracts and don’t know what to do with the PTRII Sep 145s I’m behind on.

    Do you see 147 this week or should I roll them to OCT?

  53. 53
    zman Says:

    Nice: certainly looks a lot different than the tanker rate charts, lol.

    Oil is all over the map now+/- $0.20 around the $77.50 flat price.

    PTR – Can you tell me what oil is going to do? lol. PTR mostly depends on oil and you do have two weeks left on a stock that routinely moves $2 a day.

    Tomorrow’s oil report may be set up against you though as they are expecting another big draw in crude and I think the premise for it (Dean) may be waning. If we can get a rally started off the OPEC news (50/50) then I’d wait a bit and see if the stock pops once it crosses even today. I like these guys long term but those Septs are tough…

  54. 54
    zman Says:

    OPEC’s new target appears to be 1.4 mm bopd which includes the 500,000 announced today and the cheating that has already been going on.

    The official production target is being raised to 27.2 mm bopd from 25.8 mm bopd.

  55. 55
    rammastr Says:

    ZMAN – RIG near LOD. CLose to a buy?

  56. 56
    Nicky Says:

    A ‘real’ increase which could be a lot more bearish for prices.

  57. 57
    rammastr Says:

    O.K. RIG making new lows. Close to a buy?

  58. 58
    zman Says:

    RIG: Yeah, thinking about adding but I’m waiting on oil to pick a damn direction. Seems to be confused over the 0.5 vs 1.4 mm bopd hike as per #54.

    Refiners just keep getting worse as well…makes very little sense to me given that demand remains high, product stocks are low and oil is flat.

  59. 59
    zman Says:

    Ram – if at all on RIG I’d do it later to see how bad it gets. Long term it’s great but intraday it would be hard to pick a bottom on it. Could double the intraday loss so far without too many people raising an eyebrow.

  60. 60
    zman Says:

    they’re call it “500,000 bopd of fresh oil”

    oil down $0.50 now.

  61. 61
    zman Says:

    If you look at the XLE, XOI, XNG, OIH they are all off very slightly. Refiners taking the brunt of the beating which makes little sense but there you have it.

    Oil trying alternatively to rally and then sell off and both moves have been quickly dragged back to even. I’m watching and not adding longs or shorts for now.

  62. 62
    rammastr Says:

    Thanks ZMAN. Since RIG’s 50dma is around 105.60, I think I’ll take a shot. The momo guys I think still like RIG.

  63. 63
    zman Says:

    Ram undoubtedly they do and it’s a fantastic story and I do own it but I’m not adding today.

    Early negativity in stock was over the GSF newbuild but it’s just being stupidly exacerbated at this point (down $2.33)

  64. 64
    zman Says:

    RIG / GSF – that newbuild 12,000 water depth capable ship will cost $740 million (about $100 more than your average newbuild deepwater drillship). Combined with RIG, the new entity GSF/RIG will have the biggest construction inventory going valued at almost $4B. Guess that’s spooking some people. But I’d tell you the new ship will rate over $500,000 per day (probably well over it) when it comes into service in late 2010. If it drops more I’ll get back to my original full position here as I’m still playing with house projects. Thanks for keeping on me about it Ram…helps with perspective.

  65. 65
    calvino Says:

    Hi Z. Listening in on the Peter’s conference today – ten minute presentation making my head spin. Later.

  66. 66
    Nicky Says:

    CNBC saying the trader talk is now very bearish on crude. ‘$80 virtually insurmountable’

  67. 67
    Nicky Says:

    Distillates has support at 21400, 21315,21200. 10 dma is at 210.35.

  68. 68
    Nicky Says:

    Crude chart looks more bullish than bearish right now.

  69. 69
    zman Says:

    Can somebody translate this for me? I don’t speak whatever language this is:

    LONDON (Thomson Financial) – Oil prices climbed late afternoon after OPEC announced it is increasing its production quota by 500,000 barrels, a smaller hike than had been hoped for in some quarters of the market.

    ‘They were really forced into a corner by the high price of oil, and the world was going to gang up on them if they didn’t do something,’ said Alaron trader Phil Flynn.

    Hanging up on OPEC?

  70. 70
    zman Says:

    And here’s another good one from the same story:

    Oil ministers from Nigeria, Kuwait, the UAE, Qatar, and Libya all made comments suggesting there was no need for additional oil, while Venezuela and Iran were particularly opposed to any increase.

    On the opposing side, ministers from Saudi Arabia, Kuwait, Nigeria and the United Arab Emirates were believed to have been in favour of an increase, with Saudi Arabia’s viewpoint carrying the most weight as it is the cartel’s largest producer.

    Somebody should tell the reporter that the UAE and United Arab Emirates are the same thing.

  71. 71
    rammastr Says:

    It’s English English. Where’s NICKY?

  72. 72
    zman Says:

    Ram – Which RIGS are going after?

    This is another one of those days where what starts out weak gets weaker and mostly vice versa. HAL is up (barely) but why given the rest of the OIH slippage. COP was the worst of the majors early and is getting hurt worst now. RIG just keeps slipping etc.

  73. 73
    rammastr Says:

    Sept 110’s.

  74. 74
    rammastr Says:

    HK up 2%. CHK – dogsville.

  75. 75
    zman Says:

    Nicky – it’s funny how CNBC can only manage to find bulls or bears on the same day, rarely both

    woops, there goes crude going positive again.

    Ram – gunslinger! I’m thinking about the Oct $110s now b/c you made me argue myself into it.

  76. 76
    zman Says:

    HK got a new COO.

    CHK – long term play, not for quick trades.

  77. 77
    Nicky Says:

    All talking their book again Z. PF at it again! Considering they consider it very bearish the market is staying very strong! Looks like we will have to wait until tomorrow for the real reaction.

    The WTI does look in need of another move higher before we turn down with a bit more force.

  78. 78
    zman Says:

    strangely a lot of E&P land is moving towards green territory.

    PBR up $2 – looks like a break out on the chart.

    PTR bumping up over positive for Q man

    and EOG living up to the fact that it does not make sense for a gassy name, trading off a buck with oil fear.

  79. 79
    rammastr Says:

    Nicky – does “turn down with a bit more force” mean upper 60’s or so?

  80. 80
    scoop006 Says:

    Z- Re #75 jump on in; misery loves company. Bought them this AM @ 3.60 per. Maybe your presence will give RIG a $$$ boost.

  81. 81
    zman Says:

    I’m pretty surprised by the lack of concern on the part of crude traders (now up $0.15 again). They can say what they like about 500,000 being the number but they raised quotas by 1.4 million, make no mistake. It’s only 500,000 bopd of actual increase but what makes you think that now that countries are back in line with quotas they won’t feel just that much more free to cheat some more.

  82. 82
    zman Says:

    Scoop – I was just feeling a bit “day trady” at the moment plus see #81. It feels like they will rally this market, including the stocksw into the close but to me it seems like they shouldn’t.

    I’m not falling into Nicky’s “end of the world cars running on rainbows” camp but mid 70s would make me a little more comfortable. 😉

  83. 83
    zman Says:

    mid to low 70s

  84. 84
    calvino Says:

    re #70, lol, lmao, rofl

  85. 85
    Nicky Says:

    Ram – once we finally top out we should correct back to January lows if not below.

    Z – I was actually quoting someone else who was that bearish ie the 20 – 30 and then the sub 10 (!).

    That said I am very bearish down the line on the economy. Its taking quite a time for the other shoe to drop however!

  86. 86
    calvino Says:

    So if crude will slide on Opec and we are short heating oil and have scheduled maintenance.. will refiners become more interesting?

  87. 87
    zman Says:

    PTR – got that pop after crossing the even mark. $1.20 swing in the last hour.

    PBR up $2.50

    NFX – so tempting to buy a little 45 September call action.

    SWN clawing back towards $40

    PQ and HK (2 favorite shale + names) taking off

    OII back to positive

    RIG still off lows

    Refiners continuing to suck wind.

    N – just kidding

    Cal – that’s definitely my theory

  88. 88
    scoop006 Says:

    Z- CHK. Is Jan.’08 long enough?

  89. 89
    TTupp Says:

    anyone else see the coil patter i see in PTR? picture perfect

    took calls at LOD at noon Z

  90. 90
    rammastr Says:

    ZMAN – If Nicky is right, I will need that link for the different hat configurations.

  91. 91
    zman Says:

    Scoop – Not for a takeout but surely for a gas rally (sorry N)

    T – Nice.

  92. 92
    TTupp Says:

    Z you know of anything about ADR’s for Russian oil co’s? i read some great stories about them recently (Lukoil ect). would loke to get in there but interactive brokers has no trading there

  93. 93
    zman Says:

    If Nicky’s people are right on sub $10 oil I’ll be living in a cardboard box on her beach feeding cracks to seagulls and babbling to them about lousy crack spreads.

  94. 94
    zman Says:

    I thought of LUK before I finished reading your sentence. They are in a lot more NE retail sites now. That and I think their production growth has been and is expected to be pretty stout is about all I know unfortunately. Can you forward links to those stories, maybe I can read up a little.

  95. 95
    fraser921 Says:

    osg up 6 % … nice call z

  96. 96
    zman Says:

    F- thanks…wish I’d bought them.

  97. 97
    scoop006 Says:

    Z Phil Dodge on CNBC talking uo APC & XTO

  98. 98
    zman Says:

    F – what about GNK in the dry bulk arena?

    EPS 2007E: $2.96
    EPS 2008E: $5.04

    15 ships and down today. Stock looks like it’s one good trade away from a break out. Pricier on a forward PE than drys but its growing earnings faster and hasn’t had the 300+% move DRYS has had this year.

    Forgive me if they not really comparable, bit of a newb to the sector. Just wanted to see if you could short circuit the thought before I go down the path tonight. Thanks.

  99. 99
    zman Says:

    Thanks Scoop, did he say anything of value, my DVR is refusing to go back.

  100. 100
    TTupp Says:

    Z- heres the “stimulating” article i read on Russian oil:


  101. 101
    zman Says:

    That is what I was talking about in #82 when I wrote:

    “It feels like they will rally this market, including the stocksw into the close but to me it seems like they shouldn’t.”

    Crude closed up $0.76 to $78.25. They’ve going for the record and probably $80 and then what…the fall?

    Even COP has managed to reverse an $0.80 slide replacing it with a $0.50 gain.

  102. 102
    zman Says:

    Tupp – part of the discount is what you get for having Vlad have free access to pocket book anytime he wants. I’d have to get real comfortable that LUKOY is safe from harm in that way. Otherwise, he sure, it’s cheap on assets and to fwd P/E. I do recall seeing a story the other day that the Kremlin (or whatever it is now) was restricting production next year below previously targeted levels.

  103. 103
    calvino Says:

    I remember the 35 being bandied about last January on cnbc. Are nicky’s peeps trying to bump u off your longs to buy them?

  104. 104
    zman Says:

    Cal – my turn…roflmao

  105. 105
    Nicky Says:

    Z – we are so close now – $80 looks very on and maybe a touch higher. Then we should see a test of the mid 70’s before again going over $80 and then a decent fall. Or maybe we fail before we get to 80 tomorrow and then pullback to 75 before going above 80 on the final leg higher?

    Can you explain to me what you meant in #81? Your comment appeared bearish.

  106. 106
    Nicky Says:

    Okay guys woaaaaaa! We are talking a long long way down the line for those much lower oil prices – years in fact. And to put it into perspective I expect to see us go a lot higher before we go lower.

  107. 107
    rammastr Says:

    Thanks NICKY – I just took down the for sale sign on my first born.

  108. 108
    zman Says:

    Nicky – got any levels for us on the broad market? Though I’d ask with us sitting right on 13,300.

    Re 81: yeah, fundamentally I guess it is bearish. The headlines are reading 500,000 bopd of “fresh” production but the quota, which is what everyone was talking about was up 1.4 mm. The market does not seem to care but I think this “truing up” of the current production is 1) good b/c at least I can stop calling them cheaters as of this moment, but 2) bad for oil prices b/c it puts another 500,000 bopd on the market in November and I think encourages more cheating. If we get a mild winter that cheating will knock oil into the mid $60s.

    OEDC country inventories are due out tomorrow for I believe July. What do you bet they don’t look as dire as the IEA has been saying.

    So to sum up and avoid all confusion I would say I agree with your statement in 105 pretty much to a tee although I think this pop is purely technical and should really be in the opposite direction from the news out.

    Re 106 – hedge, hedge, hedge, sounds like there’s a hat bet in there somewhere!

  109. 109
    zman Says:

    Nice play on RIG Ram! You too Scoop.

    Oh what a difference an hour makes.

    Even the refiners making significant strides towards going positive.

    OII blazing to new heights

    HAL at $36 – woooohoooo!!!

    APA, COP PBR bottom fishes from Friday doing nicely now.

  110. 110
    Nicky Says:

    R – lol re #107!

    Z – yes agree re pop. That said methinks wti price is likely to be supported by backwardated price structure – higher front end prices do not support them storing inventory so look for draws to continue to be large and support the price. May also support distillate price.

    And re #106 – just don’t want you to think we are looking at $20 next month! Actually fwiw I certainly can’t see sub $10 although I respect this guy. 20 – 30 maybe if we see years of recession/depression. But we should go over 95 – 100 and maybe much higher before we turn down. Iran war maybe?

    However regarding hat eating – maybe if your daughter has picked out something tasty then I could eat that if you don’t have to!!!

  111. 111
    zman Says:

    ECA just slipped out a tidbit that their JV with COP in oilsands has done than expected . Could be behind a portion of the big jump at COP.

  112. 112
    zman Says:

    No brainer play of the day: XOM

  113. 113
    zman Says:

    errand, back in 20.

  114. 114
    zman Says:

    back in….should leave more often.

    Energy continues to spiral higher

  115. 115
    TTupp Says:

    Z- htought you might be interested, i just had an online interview with Suncor, and one with husky energy yesterday…. might be moving out west…. (insider hahah)

  116. 116
    TTupp Says:

    i mean on the phone interview

  117. 117
    rammastr Says:

    NICKY – you are correct again with regards to the S&P and heavy resistance in the 1467/1473 area. Where do you believe we are in the count??

  118. 118
    zman Says:

    T – is Sun saying they are shopping for western refineries.

  119. 119
    zman Says:

    Nicky is pretty spot on with the levels.

    Go COP Go! and PBR, APA etc…

    Happy my XLE put from yesterday was un needed. Will hold through inventories and then punt or add to tomorrow.

  120. 120
    Magadan Says:

    #102 well said, captures the essence of long-term Russian plays. Production cuts make sense too – at the current level Russia has only 15-20 yrs worth of proven reserves left, it would probably have to start importing oil in 10 yrs or so. A disaster for a country that is used to its own oil and is probably the world’s second (?) largest gasoline consumer (don’t have stats to back it up, but it surely looks that way.)

    Zman, you don’t remember where the article was from? I’d like to see it, couldn’t google anything close.

  121. 121
    Magadan Says:

    And as a follow-up on my first post here, thank you for bringing together such an intelligent community (which I knew had to be on out there somewhere) And, yes, I am in the green, that’s a separate thanks.

  122. 122
    zman Says:

    M – Your welcome!

    I couldn’t be happier with the crew around here. Broad swath of industries and experiences. I learn a lot from them every day.

    Here’s the story I was thinking of from mid June.


  123. 123
    Magadan Says:

    Thanks. Funny, they were making big deal of surpassing Saudis 6 months or so ago, making it sound like a beginning of a new era.

  124. 124
    Nicky Says:

    Ram – as ever I have a couple of different counts that could apply. I will update on here a little later but we should be able to eliminate one or other tomorrow.

  125. 125
    rammastr Says:

    Thank you NICKY.

  126. 126
    Nicky Says:

    Ram – as said earlier tomorrow should hopefully clear things up. I would expect a pullback tomorrow and lets watch to see how shallow or otherwise it is. If we only see a shallow pullback then chances are we will see a more complex B wave which will work steadily higher over the near term. Even with this count we could still see a pullback towards yesterdays lows before moving higher.
    Alternatively if we take out yesterdays lows with force we our likely to retest the August 16th lows.
    More on all this tomorrow. I am not sure if you agree but the upside off the 16th August lows still ‘looks’ corrective to me.

  127. 127
    coco Says:

    what about SII? getting taking to the woodshed in this tape?

  128. 128
    coco Says:

    SII downgraded on a valuation call at southcoast capital one

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