Melee Monday

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Commodity Watch: Higher.

  • Crude Oil: After springing to but not maintaining all time highs of just over $84 last week on a combination of Turkish/Kurd hostilities and an unexpected draw down in crude inventories November crude is trading up $1.00 to 1.25 this morning, well into record territory of as high as $85.19. A Bloomberg survey released over the weekend called for falling prices this week. I think we will take out $85 for a closing level and failing to close above that level we are likely to trade slightly lower. The bulls appear to be in charge however and I expect downside to be contained above $80 for the next couple of weeks.
  • Ecuador To Rejoin OPEC. Now that Correa has learned to steal from the best of them, big brother Hugo, he is seeking to make good on a campaign promise to get his country back into the welcoming arms of OPEC which Ecuador left in 1992. At the risk of spreading my persona non grata status to yet another Latin American country, allow me to suggest that OPEC collect the $5.3 billion Ecuador owes them from the last time it was hanging out in the clubhouse, up front with interest. Let's see, 15 years at 10% should come to a tidy sum of $22 billion or about double Quito's annual budget.
  • Natural Gas: After trading off just 1% last week natural gas is putting on a bit of a show this morning rising $0.20 (or 2.8%) to $7.16. I find the move somewhat puzzling given the latest forecasts that show a return to warmer than normal for the eastern two thirds of the U.S. for the coming week. Simply put, it is up with oil.
  • Fall-Like Weather Expected to Abate Yet Again. The near term outlook from Accuweather. If this keeps up much longer gas will be in for some near term pressure back into the mid to lower $6s.
  • Tropics Watch: Nada. The NHC says a low pressure system near the Yucatan is unlikely to develop into storm.
  • La Nina Watch: slight strengthening is seen although predictable relevance there is still pretty iffy. Here's a page for learning about La Nina.  The long term temperature maps are due to be revised in at the end of this week which could provide an inflection point for gas prices if they stay or get any warmer than normal. 

Weekly Wrap: If you missed the weekly wrap click here. It contained an under the covers look at the XOI which shows that although the index is approaching its all time high it is by no means near it's highest valuation and is still relatively cheap to the S&P500.

Stocks We Care About Watch:

A Few Words On Coming October Expirations: 

  • (ESV) Puts - The number of rigs contracted in the U.S. GOMex fell another 3 to 89 to yield regional utilization of just 69% according to ODS-Petrodata Group.  While Baker Hughes does not provide a breakout of Shelf versus Deepwater rig activity it's a pretty safe bet that the weakness continues to come from the shallow water segment. The following chart shows the number of rigs actually turning to the right in the GOMex. It just gets weaker and weaker.


Despite this continual punishment and a penny after penny reduction in 3Q earnings estimates my $50 strike puts will undoubtedly be on the scud list at month's end. For the $55s I still hold out some small hope for but am not looking to "get back to even" as that logic is as always impractical. The market doesn't care what I paid for a stock or option so why should I? I should just make the best sale possible, especially given the short amount of life these have left.

  • (CAM) $110 Calls - This was labeled a "hate your money trade" from the beginning and that title has proved more than apt. Still, the stock is incredibly volatile and a good day in the energy market could reignite the options value allowing me to salvage the position.  
  • (COP) Calls - I've already rolled into the Novembers and will be coming out of the October 85s on the first glimmer of real strength (probably this morning if this oil move is sustained into the open).
  • (RIG) October $115 Calls- I've pre rolled into the November $115s and will look to exit the October $115s at earliest convenience this week. 
  • (NBR) $30 Puts - I still think this one suffers into earnings but will need to roll to Novembers to capture the move. The stock rebounded as the market's recent "bad news is good news" sentiment took hold of it.

Other Stocks We Care About Today Watch

  • (PTR) - Shanghai IPO may debut around Halloween. PTR is now up 53% in the last 5 weeks having leapfrogged TOT in the last month in terms of market cap. It now trades at 11.2x 2008 consensus CFPS of $19.35, a premium to all of its major oil company peers save (CEO), the closest of which is (XOM) at 10x 2008 numbers. 


Note: since I made the table above over the weekend PTR surged 10% in Asian trading on news it increased oil and gas production by 2.6% and 17.3% respectively for the 3Q period (up 5.6% on a BOE basis which puts it on track to make the company's 5.3% 2007 target). It's market cap is now roughly equivalent to that of (GE) and at $420 billion is only $100 billion away from being the biggest publicly traded firm on the planet. Two months ago PTR was the fourth largest big oil and less than half XOM's size. Of course, if XOM had the desire ability to grow it's domestic production they wouldn't be looking over their shoulder now. Of course, given their cash flow generation they're probably not concerned as they will just keep buying themselves back.

  • (APC) - moving forward with its plans to spin out the mid-stream assets of Western Gas in a MLP. Comment: smart move for them, continues to pay down debt by monetizing assets that otherwise would go largely unnoticed in NAV calculations.
  • (DRYS) announced this morning it is offering 6 million shares in a secondary. Buy low, sell high.
Current Option Holdings:
October Closings:
Earnings Watch: not really rolling yet for the energy complex
  • Thursday: solar player (SPWR); trucker (USAK)
  •  Friday: (ACI) and (SLB) 


Odds & Ends

Analyst Watch: (E) cut to neutral at Credit Suisse. I'll add any additions in comments.



156 Responses to “Melee Monday”

  1. 1
    Sambone Says:

    7:45 am EST

    Crude At New Highs on Turkey, Buying

    By Nick Heath

    LONDON — Crude oil futures traded to new record highs in London Monday morning, driven by a combination of technical buying and concerns over any Turkish decision to undertake military action in Northern Iraq.

    “The only real supportive element over the weekend is coming from Turkey,” says Olivier Jakob of Petromatrix.

    And attempts to break out of recent trading ranges added technically-inspired buying pressure, he said.

    At 1131 GMT, the front-month November Brent contract on London’s ICE futures exchange was up $1.27 at $81.82 a barrel, just below the new record high of $81.93 a barrel set earlier in the day.

    The front-month November contract on the New York Mercantile Exchange was trading $1.19 higher at $84.88 a barrel, after hitting a fresh record high of $85.19 a barrel earlier in the morning.

    The ICE’s gasoil contract for November delivery was up $9 at $707.75 a metric ton, while Nymex gasoline for November delivery was up 249 points at 211 cents a gallon.

    Monday’s early assault on historical highs marked a continuation of last week’s momentum, traders suggested. With Brent and WTI both having brushed aside previous traded highs, further gains were likely, with fund buying activity predicted to be key.

    “We didn’t see heavy profit-taking on Friday and we’re still trading upwards today,” said a trader. “The funds seem to have control of it and there’s no reason to come in and sell. We could hit $85 a barrel on pure speculation alone.”

    Last week’s data from the U.S. Department of Energy and the International Energy Agency, which both pointed to a possible supply squeeze during the final quarter of the year, have added a pillar of support to crude prices. And with tensions over potential conflict between Turkey and rebels in Northern Iraq rising, current fundamentals have taken a distinctly more bullish tone, luring fresh buying interest.

    Latest data from the U.S Commodity Futures Trading Commission published Friday revealed speculators had already increased their net long positions in Nymex WTI futures by 12,720 contracts to 69,190 contracts over the seven day period ending Oct. 9.

    Open interest has continued to rise since, analysts said, fueling crude’s gains.

    “Open interest increased by a startling 75,285 contracts on Tuesday, Wednesday and Thursday, during which prices gained $4.06 a barrel,” said Peter Beutel of Cameron Hanover. “We don’t know yet whom it was that was buying, but we can say it was new buying driving prices higher.”

    Anticipation of a Turkish military assault on Kurdish rebels in Northern Iraq remained firmly at the top of the geopolitical agenda Monday, traders said.

    News reports over the weekend cited Turkey’s Prime Minister Recep Tayyip Erdogan as saying preparations had begun for a Turkish cross-border operation into Northern Iraq. A vote in the Turkish Parliament approving any action is expected to be held this week, with legislators expected to voice strong support for a military campaign.

    While no crude oil production has yet been lost amid the escalating tensions, the perception it could be cut is adding pressure to crude prices.

    In addition to destabilizing the region, any incursion poses a threat for physical crude oil flows, analysts suggested, with the Kirkuk-Ceyhan pipeline transporting Iraqi crude to Turkey one possible target.

    However, the larger Baku-Tbilisi-Ceyhan pipeline could also be susceptible to Kurdish rebel attacks, analysts said, and potentially affect a considerable volume of crude.

    “The amount of oil at risk (between 1-1.3 millions barrels a day) is not negligible and, being short-haul crude oil, a Turkish intervention in Northern Iraq will keep an additional risk premium on the price of crude oil,” said Petromatrix’s Jakob.

    —By Nick Heath, Dow Jones Newswires

  2. 2
    Sambone Says:

    Weather – Should be a slow week.

  3. 3
    Nicky Says:

    They can say what they like but this is pure spin. It may well add to the instablity in Iraq but it is not going to have any effect on oil output from that region which has been negligible in the past four years.

  4. 4
    Nicky Says:

    OMG even PF says he is surprised at the strength in oil this morning! He is citing a weaker dollar – hello the dollar is stronger this morning???

  5. 5
    Sambone Says:

    Wow, PTR up 10% premarket

  6. 6
    Nicky Says:

    First leg up in wti looks close to being done – maybe another pop. Resistance above the 85.17 high is at 85.40.

    A move below 83.50 confirms wave ii in progress.

  7. 7
    bill Says:

    drys 6 m shares is not quite an offering but more than a shelf filing. They can call up cantor and say sell 500 k at the market and do this up to 6 m shares.

    They call it a controlled equity offering. If drys likes the price they sell shares up to the 6 m limit.

    I fully expect them to issue these shares and you can say this is the pause that refreshes.

    Earnings will be fabulous and rates are still getting better. The push higher will continue to 150 and perhaps more, imho

  8. 8
    TTupp Says:

    bil- what does imho mean?

  9. 9
    aitrader Says:

    IMHO – In My Humble Opinion

  10. 10
    Nicky Says:

    I am wondering when the broader market is going to wake up to $85 oil.

  11. 11

    Whoa: Turned the wrong way down a one way street with those PTR puts!

  12. 12
    Sambone Says:

    Nicky – It will take a 2×4 upside the head before the “Crowd” wakes up.

  13. 13

    Not that PTR puts are a bad idea, I just have the wrong month and wrong strike.

    Re: #10

  14. 14

    Hey Z.

    What do you think of SLB Oct 115 Calls at 1.75? SDBJC

    Hoping for upbeat earnings pop.


  15. 15
    zman Says:

    Q – I prefer HAL to SLB. SLB trading at 22x 2008 vs Hal down at just under 14x. Expect that gap to narrow.

  16. 16
    zman Says:

    Citi takes SNP from SEll to Buy – and the stock jumps another 12%. Talk about asleep at the wheel.

    TLM upped from neutral to buy at credit suisse.

    Wedbush takes its SPWR PT from 87 to 100. (they announce Wednesday)

  17. 17
    Sambone Says:

    Z – That tells me we’re near the top, when the gurus jump on the band wagon.

  18. 18
    zman Says:

    Hope the guys at PSW got out of that BTU short.

    President and COO of NFX – David Schaible dies of cancer at 46. David was a great guy and a smart smart oil man. He will be missed.

  19. 19

    My SLB play is up 18% in 30 minutes.

  20. 20
    zman Says:

    Q – Nice. Longer term they should both do well but with the changes HAL has been making look for them to slowly narrow that valuation gap.

  21. 21
    zman Says:

    Q – did you ever do the CAM 105s?

  22. 22


    Got distracted, haven’t looked since.

    How’re they doing?

  23. 23
    TTupp Says:

    Z – any thoughts on cnq?

  24. 24
    zman Says:

    Q – 105s ok, the 110s still hurting but tipping up a bit

    CNQ – Tupp, sorry don’t actively follow, saw a downgrade there this morning at credit S.

  25. 25
    TTupp Says:

    i think them and all the other candian majors have been wallowing since that royalty issue

  26. 26
    zman Says:

    FBR shaving prices targets for BRNC, NBR by a couple of bucks apiece. That’s what’s holding NBR back today.

    Tupp – that reminds me, saw an article on coming wave of distribution reductions out of the gassier CanRoy’s:


  27. 27
    Nicky Says:

    New highs were made on light volume.

  28. 28
    TTupp Says:

    thanks for the link, you read alot eh lol? now your dipping into the canuc papers when do you sleep?

  29. 29
    TTupp Says:

    drys oct iv’s back up into the 100’s from 75 on friday.. come on 130 hold off till friday! lol short 100 $130’s, this could be stressful.

  30. 30
    TTupp Says:

    did you see the cnbc report today on dry bulk shippers?

  31. 31
    zman Says:

    sleep is for analysts and/or those who play them on TV ;-> Just kidding, I’m actually asleep right now.

    sorry I missed that, who’d they interview?

  32. 32
    TTupp Says:

    i dont know- switched back the cooking channel- eppersons ugly voice was making my ears bleed. all they kept chirping about was that this stock was up 600% yoy

  33. 33
    zman Says:

    TRADE: RIG NOV 115 Calls. for $5.20.

  34. 34
    Nicky Says:

    Sam – you reckon the market has been hit with that piece of 2 x 4 now?

  35. 35
    zman Says:

    Drillers week again. Maybe ESV / NBR will good enough to fall off and give me an exit. Energy decidedly less positive than the open…well we’ve got $85 and now we have to wait for the gurus at Goldman to tell us our next move, lol.

  36. 36
    Sambone Says:

    N – Nope, remember it’s Goldilocks/Parting like it’s 1999/Alfred E. Newman “What me worry”! My question is, wasn’t the story about Goldilocks and the three BEARS? Lol

  37. 37
    zman Says:

    Nicky – I just want you to be prepared for when your boy PF does an about face and tells you this move is justified.

    Broad market bear trap in its nacency.

  38. 38
    Sambone Says:

    9:52 am EST

    Crude Makes New High Above $85 On Turkey, Supply


    NEW YORK — Crude oil futures pushed further into record territory Monday, rising above $85 a barrel as tensions between Turkey and Iraq mounted and concerns about a tight supply situation continued.

    The front-month November light, sweet crude contract on the New York Mercantile Exchange was recently up $1.51 at $85.20 a barrel after rising as high as $85.30, the highest ever price for a front-month contract. Brent crude on the ICE futures was up $1.19 to $81.74 a barrel, after earlier reaching a new record of $81.93.

    Turkey has been considering an assault on the bases of the Kurdistan Workers’ Party, a group that has been fighting the Turkish government since 1984, in northern Iraq. Preparations for a cross-border operation into northern Iraq have begun, Turkey’s Prime Minister Recep Tayyip Erdogan said, according to news reports from the weekend.

    The fate of the Kirkuk-Ceyhan pipeline, which carries Iraqi crude to Turkey, as well as the potential for general instability in the region, is supporting crude prices, analysts say.

    “There’s concern that the gains that were made in the recent (U.S.-led) surge in Iraq may be set back” by Turkey, says Phil Flynn, senior market analyst for Alaron Trading Corp. in Chicago.

    But heavy buying, especially on the part of funds, could have more to do with higher crude prices than the Turkey conflict, said Addison Armstrong of TFS Energy Futures.

    “It’s hard to say that Iraq-Turkey is priced into the market sufficiently because we don’t know what’s going to happen,” he said. “The military hasn’t crossed over yet.”

    The Organization of Petroleum Exporting Countries said Monday that it cut its fourth-quarter estimate of non-OPEC supply by 110,000 barrels a day from its September report to 51.04 million barrels a day, citing declines in output in Mexico, the United Kingdom, Brazil and Sudan.

    The announcement is “just another factor that’s underpinning the perception of tight markets,” Armstrong said.

    Futures edged toward new highs last week on tightness reflected in reports from the Department of Energy and the International Energy Agency on Thursday. The DOE’s weekly U.S. inventories report posted an unexpected 1.7 million-barrel draw in crude oil stockpiles. The International Energy Agency report said that crude oil inventories held by industrialized countries covered fewer days of demand at the end of August compared to a month earlier, and suggested a general third-quarter stock decrease contrary to seasonal expectations.

    Analysts also cite the weak dollar, which makes crude cheaper for traders using other currencies, as a factor in higher commodity prices generally. Economic indicators will also play a meaningful role in oil prices, Ritterbusch & Associates in Galena, Ill., said in a research note.

    “A continued strong stock market will continue to conjure up images of strong fourth-quarter oil demand, while any further weakening in the U.S. dollar will remain suggestive of a continued immunity to high oil prices overseas,” the note said.

    Front-month November reformulated-gasoline blendstock, or RBOB, was up 2.82 cents, or 1.4%, to $2.1133 a gallon. November heating oil rose 2.55 cents, or 1.1%, to $2.2719 a gallon, rising as high as $2.2905, an all-time record for the front-month contract.

    —By Elizabeth Landau, Dow Jones Newswires

  39. 39
    Sambone Says:

    Nicky’s fellow trader


  40. 40
    TTupp Says:

    did anyone else see that swiss guy on cnbc this am?

  41. 41
    zman Says:

    Sambone – he’s such a promoter. Mostly last week’s new as well. He’s a poster child alright, a poster child for the short bus.

  42. 42
    Sambone Says:

    Z – So your going to open an account with him, right?

  43. 43
    Nicky Says:

    #38 Jeepers surely that bull Addison Armstrong is not admitting that it is speculative buying on the part of the funds driving this up. His normal BS is that this is fully justified.

    Okay we have had our little iv this morning and this looks like v.

  44. 44
    Nicky Says:

    Z #37 – what do you mean by the last sentence?

  45. 45
    zman Says:

    CAM trying to make a move here. Still holding the 110s.

    N – that was just for you. I think some bears are getting confident the market will collapse hard here as people point to everything from financial quarterly earnings (which we knew were going to be down) and the price of crude, which has been high for awhile now. The resiliency of the market justifiable or not is pretty amazing.

  46. 46
    Nicky Says:

    Z – I didn’t realise PF had ever turned bear for more than 5 minutes anyway. He is rushing about covering every comment he makes obviously hoping to come out bathed in a glow of glory!

  47. 47
    Nicky Says:

    Z – broader market rally is not yet done.

  48. 48
    zman Says:

    N – I agree, that’s what I was trying to say.

    The bad thing about trading energy stocks the way you have to with options is that you’re caught weighing every little move. Now the stocks “need” oil to hold increasingly higher levels which are going to be pretty hard to maintain. They are not discounting $85 oil by any means (historical relationship between avg CF multiple or NAV (deep discount there) but once oil takes out a new level, it has to hold near it or the stocks will suffer an option smashing move.

    If oil were to retreat to the mid $70s I could still make a pretty strong argument that they (the E&Ps, majors and oil service) should hold current levels fine (with what would amount to a $10 drop in oil) but you know that in reality, they won’t.

    The strip falls $10 between now and Jan 2010 but half of that drop is accomplished by June 08 which should tell you these prices are pretty bubbly front month but that there is demand growth backing, not tightness, but what I’d call a firm market, next year.

  49. 49
    rammastr Says:

    QUARRY – Still hanging on to those PTR puts?

  50. 50
    zman Says:

    Q – The $110s on CAM or the $65s on FTI might be your play for expiration. Since I won’t be here on Friday my $110s will be long off the table.

  51. 51
    Nicky Says:

    I would have more ‘belief’ in this oil rally if it really was supported by fundamentals. The fact that it is clearly speculation (the fundamental reasons being given are just not there) means we are very susceptible to a pretty big pullback in prices.

    A rally built on fundamentals is probably away down the line.

  52. 52
    zman Says:

    N – so a 1.8 mm bopd delta from demand vs supply is not a fundy reason? You mean you’re not buying the EIA/IEA’s 4Q dem numbers? For shame. Of course, even if they don’t make there, production is lower QoQ so it will get tighter. If you ask me if we should be $30 higher than the same time last year based on the foreseen levels of tightness I’d have to be on TV to tell you yes.

  53. 53
    Nicky Says:

    Interesting that there is not a word coming out of OPEC.

  54. 54
    Nicky Says:

    Next resistance after 85.44 is 86.25

  55. 55
    TTupp Says:

    N- how is 86 resistance if it hasen’t trded there before?

  56. 56

    RAM, Re: #49

    Yeah, why not, when a stock gap trades up 23 PTS! at the opening, why not just hold them four more days til expiry.

    Maybe the Chinese will read today’s Barrons cover.

  57. 57
    TTupp Says:

    Z- do you think the dow jones newswire is worth the subscription fee? and before you said there was a good site (free) for eps consensus’ what is the best one/?

  58. 58
    zman Says:

    T – yeah, I think it worth the fee but then again, I’m on constantly and have a monitor just for the M/ENE scroll (energy mkt news).

    Free estimate: yahoo finance or google finance both work pretty well for EPS and Revenue. I prefer yhoo but that’s just b/c I’m used to it. The Goog stuff is good and a bit more advanced in some ways.

  59. 59
    Sambone Says:

    N – What are the “talking heads” saying on the tube today about this Goldilock market?

  60. 60
    zman Says:

    Sam – earlier they were saying “its the oil stupid” but that makes little sense to me.

  61. 61
    zman Says:

    PF on $90 oil. Middle left side of page


  62. 62
    TTupp Says:

    who saw that swiss ex-pat rip apart the us asset markets today? that chunk morning call reporter didnt even know what to say to him….

  63. 63
    TTupp Says:

    doesn’t look like integrateds and E&P’s are too convinced of te crude rally….

    Z- do you know why cvx seems to be under performing it’s peers recently?

  64. 64
    zman Says:

    T – just a guess but their warning over margins showed particularly lousy results in Europe margins, down upstream volumes and a lack of support from the chemical division. Probably hard to get excited about it prior to earnings. They did come out and say early this morning that they expect long term margins to be “robust”. I think that’s more than a fair statement for the domestic market given the dearth of capacity growth relative to demand for gasoline.

  65. 65
    zman Says:

    Thanks again to Jimbo for pointing out and re pointing out TLM a couple of weeks ago. Nice steady move up underway.

  66. 66
    TTupp Says:

    how bout this hail mary– cvx oct 95 calls , lol kidding

  67. 67
    zman Says:

    TRADE: Entering CHK NOV $37.50 calls for average $1.50.

  68. 68
    Nicky Says:

    TT re #55 – resistance due to a wave relationship without getting too complicated.

    Samborne – haven’t had the tv on much today.

  69. 69
    Sambone Says:

    12:19 pm EST

    Reading The Texas Tea Leaves


    NEW YORK — Quite a few people dismiss technical analysis as divination, likening it to entrail reading or some such. Of course, I disagree, but I understand. Technicians, with their cookbooks of curious patterns, can be head and shoulders above the rest of most of us when it comes to wacky-sounding pronouncements.

    I’ll try a light and sweet take on the crude oil market, and see if I can keep it straightforward.

    Nymex November crude oil rose earlier to $85.28, which is the high for the uptrend from the second-quarter 1998 low of $10.35. Long-term charts suggest that futures may be set up for a significant correction when $85.82 resistance is tested, and a downtrend to $72.09 would in that case be a reasonable consideration.

    You now have a serviceable mnemonic. The $85.82 target is a trivial arithmetical anagram of the current record high of $85.28. I swear I’m not making this up, and I recall running into this sort of numerical relation several times in the past — frequently enough, at least, to make me think that it might a reliable indicator. But perhaps I shouldn’t say such things.

    Although I’m not making this up, I may be dead wrong. And if that’s the case, then Nymex crude will be going for initial long-term resistance at $88.48 initially.

    And, by the way, I think that so many technicians don’t give the theory of chart analysis its proper due for the simple and understandable reason that they’re too busy trading off the charts. A good excuse, that.

    S&P 500 Correction Shaping Up, Or Down, That Is
    The S&P, near 1550.50, if it takes out support at Thursday’s low of 1546.72, would be trending lower the daily chart, and so would be pointed down to a potential bottom at 1544.85 at least. Even lower trading might be going for 1483.29, however.

  70. 70
    zman Says:

    Oil up $2 to a high of 85.74.

  71. 71
    Nicky Says:

    wti is starting to go parabolic on the chart.

  72. 72
    zman Says:

    CAM – this would be a all time closing high for the stock.

    NG is getting three times the move oil is. Did someone say “cold winter” earlier? NOAA, CPC , anyone?

    WTI – next 7 months up $1.40 plus. Any geopol news. Surely this can’t all be weather!

    Stocks showing lack of confidence in the both the CL and NG moves.

  73. 73
    Nicky Says:

    Just made it to his 85.82…

  74. 74
    Nicky Says:

    and beyond

  75. 75
    Sambone Says:

    PF reminds of Prissy in Gone with the wind; “Lawzy, we got to have a doctor. I don’t know nothin’ ’bout birthin’ babies”.

  76. 76
    bill Says:

    ttup re 30

    cnbc had the ceo of dryships on (drys)

    yes they are up 600 % from yoy

    more to come

  77. 77
    TTupp Says:

    Z- whats the thesis behind the chk trade?

  78. 78
    Nicky Says:

    Well last i heard Z was warmer winter than average but colder than last year.

    This move is starting to look somewhat crazy….

  79. 79
    Nicky Says:

    Sam – is PF gonna suggest we buy crude up here?

  80. 80
    zman Says:

    T – Re CHK: 92% gas, highly hedged, great management, no need to issue equity, great management (yes, again), strong production growth and going to be the #1 producer of gas in the U.S. next year ahead of all of the majors, breaking out of a 2 year long base, tons of drilling locations (11,000 plus), steep discount to a reasonable NAV, oh yes, and great management.

  81. 81
    Sambone Says:

    N – Probably, then next week it’s sell, or buy, or sell, or buy ………

  82. 82
    Nicky Says:

    Well if we can count on him to ramp it to 100 its probably a good move!

    This has to be having an impact on the broader market now….

  83. 83
    Nicky Says:

    spx has support here at 1542.

  84. 84
    Brian08 Says:

    Z I think you forgot great management (when they aren’t issuing converts to torpedo any great moves in the stock)!!! 🙂

    Question: Do you actually think any of the majors would take them over? I mean COP got MURDERED for that Burlington acquisition a few years back…

  85. 85
    zman Says:

    Funny even SU isn’t buying the move in crude.

  86. 86
    zman Says:


    Re DRYS: Is the use of proceeds earmarked for new deliveries already announced or for completely new ships. That’s $750 less fees, could get you another 4 or even 5 Panamax’s if they act quick.

  87. 87
    scoop006 Says:

    Z= Do you think Aubrey McClendon is a good manager?

  88. 88
    zman Says:

    Scoop – very much so.

  89. 89
    Sambone Says:

    Scoop – I think Aubrey is a very smart operator IMO.

  90. 90
    scoop006 Says:

    Do you know how he finances his CHK stock holdings?ie is the co. lending him $$$

  91. 91
    Brian08 Says:

    My 2 cents on Aubrey (not that it means much)…He built CHK from scratch when gas was at like $1-2 to what it is now…I think he’s done a great job of acquiring the “safe” assets that are almost all inland and not in the Gulf and are pretty free of weather risk…And I believe that CHK’s cost of acquisition is low enough so that when gas gets low, they can still produce down at lower levels of gas, but they choose to shut it in to realize higher prices…

    I think his only “fault” was killing stock price moves almost every time with his issuing of converts…

  92. 92
    Nicky Says:

    Exon Mobile shutting down a gas production unit in Texas for 3 weeks.

  93. 93
    Brian08 Says:

    Doesn’t he get proceeds of some of the wells they drill (ie, he’s a partial owner of the wells)???

  94. 94
    Nicky Says:

    Ah we now have them on CNBC (which I have finally turned on!) talking $100 crude in 3 months time.

  95. 95
    zman Says:

    Oil bounced off $86, HO not quite keeping up, gasoline more than keeping up so cracks will be up today.

    Scoop – no loans but for years Aubrey had one of the sweetest deals in the oil business. Don’t know if he still does but he used to have a small working interest in EVERY well they drilled as part of his contract with the company. This afforded him enormous cash flow so he has routinely been able to make stock purchases in increments of $10 to $25mm sometimes on a monthly basis over the last several years.

  96. 96
    zman Says:

    How wrong was Cramer on his HAL will never move call back at $33-34. Pretty much nothing but up since then to $41.60 now. fooolyahhh

  97. 97
    zman Says:

    Crude lances out to close at 86.20.

  98. 98
    Nicky Says:

    Distillates certainly not underperforming into the close!

  99. 99
    scoop006 Says:

    $8 a share wrong=VERY WRONG

  100. 100
    zman Says:

    N – true enough, heat almost caught crude on the close, CL up 3%, HO up 2.75%, RBOB up 3.4%

  101. 101
    Nicky Says:

    The move in the energy market ought to be enough on its own to completely tank the broader market – it has to impact the consumer in the end.

  102. 102
    zman Says:

    Wow, natural gas up $0.46 (6.6%) at $7.435. My hats will have all turned to dust before I get the chance to eat one. 😎

  103. 103
    sane Says:


    It is if you look at consumer spending. It was up on gasoline sales almost alone. Even Chinese refiners are like “Uhhh..” when it comes to oil prices.

  104. 104
    zman Says:

    S – good points. PTR and CEO already said they were losing their heads on refining in China at $75 oil. $86 is a disaster but the gasoline prices are controlled by the state…as are the subsidies they receive for operating their facilities at a loss. This pretty much gives them a free hand to outbid other oil companies as their govt is in favor of them growing, unlike our Congress.

  105. 105
    Sambone Says:

    N – Energy should effect the market, BUT it won’t until a gallon of gas hits $4.00+ a gallon. Gasoline is like the frog in a pot on the stove. If you throw the frog in with the water boiling, he’ll jump out. If you put the frog in cold water and then gradually heat the pot, the frog will boil to death. We have a pot of cold water and a frog at the minute. Alfred E. Newman “What me worry”.

  106. 106
    sane Says:

    I love the winter weather reason,

    Colder than last year, but warmer than average == OMG it’s ICED EARTH!!!!!! Shortages Shortages Shortages…

    I am anxiously waiting for a day all of the doom and gloom profiteering settles down ( probably not in my lifetime ).

  107. 107
    Sambone Says:

    2:32 pm EST

    Nymex Crude Oil Hits Record-High $86/Barrel


    NEW YORK — Crude oil futures hit an all-time intraday high of $86 a barrel Monday as concerns escalated about a Turkish incursion into northern Iraq and as a weakening dollar made crude futures more attractive to non-U.S. investors.

    Light, sweet crude oil for November delivery was recently up $2.45, or nearly 3%, higher at $86.14 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange hit a record intraday high of $82.54 and was recently trading up $1.77 to $82.32.

    Growing tensions between Turkey and Kurdish rebels in Iraq are “probably what’s giving us the impetus for this strong move-up today,” said Brad Samples, an analyst at Summit Energy Services in Louisville, Ky.

    The Turkish Parliament is scheduled to vote Wednesday on approval of a military operation against the Kurdistan Workers’ Party in northern Iraq, local news stations reported. Turkey has been considering an assault on the bases of the Kurdish group, which has been fighting the Turkish government since 1984, in northern Iraq.

    Analysts also say the weakening dollar, which makes crude oil cheaper to buy for traders using other currencies, as a factor in higher crude and other commodity prices in general.

    “We’re seeing traders continue to invest in commodities such as energy, looking for a higher return than may be available in the equity markets,” said Andy Lebow, an analyst with MF Global in New York.

    Nymex November crude futures had been trading in a narrow band between $78.25 and $83.90 a barrel for about a month before pushing to new records Friday. Monday’s run-up in crude prices has been driven in large part by momentum from last week’s rally, analysts say.

    “What we have seen is a technical break-out on last-week’s close reaching new records,” said Eric Wittenauer, an analyst at A.G. Edwards in St. Louis. “It brings more people into the market.”

    Front-month November reformulated-gasoline blendstock, or RBOB, was up 6.9c, or 3.3%, to $2.1541 a gallon. November heating oil rose 5.116c, or 2.3%, to $2.2975 a gallon. Heating oil hit a record intraday high of $2.3027.

    —By Elizabeth Landau, Dow Jones Newswires

  108. 108
    sane Says:


    China knows that if they remove the price caps, it could start eating away at their economy.

  109. 109
    jy Says:

    Re #95 Does anyone else get a little nervous when the CEO has a working interest in the wells drilled by his public company?? Guess it depends on when he gets his interest. From spud of well? At casing point? Gee, THAT would certainly lower his personal risk. After 28 years in the E&P business I could see some conflicts arising out of a working interest arrangement. Of course, far fewer conflicts w/a working interest than an OVERRIDE!!

  110. 110
    Nicky Says:

    Well I expect some sort of reversal tomorrow even if its only short term!
    Samborne – you are quite re re #105. And we are nowhere near the highs RBOB hit earlier in the year.

    Sane- its quite ridiculous – people will get burned in this.

  111. 111
    Nicky Says:

    Hmmm re # 107 – more people into the market eh? Late length…

    Anyone try that new Fox station today?

  112. 112
    zman Says:

    Sambone – if you know anyone who still smokes that makes a pretty good analogy as to how the rest of us feel about driving. I can’t tell you the number of times I’ve heard “I going to quit when the price of pack hits $2…then 2.50…$3…now its $5 in a lot areas and $10 in others. Those who have quit are addicted to the gum now which is your ethanol in this story.

    We should call this the Pelosi Parabolic Oil Rally – your tax dollars at work branding a 90 year old event genocide when the situation over there is this tense. She said “there’s never a good time for passage of a bill like this”…well I can tell you there are worse times and this is one of them .

    Sane – re China – very true.

    FOX B News – I checked out their website…whos who of former Street.com writers.

    JY – I believe, and I’m going on old memory that it was all wells prior to spud. But you make a good point. I think that deal is over now but the guy is worth a little of $2B so he probably doesn’t mind and he’s still got all the working interest from the inception of CHK forward.

    Gas too crimps us for a bit, a neighbor buys a Prius, then we all just sit back and pay it.

    Sane – yeah, like when was the last time we had a normal winter? We bought my daughter a flexible flyer two years ago and the thing is pristine. Somebody ought to invent some snap on wheels for the runners to convert them for dry pavement. Of course, you’d have to do away with all the bloody lawyers first.

  113. 113
    Sambone Says:

    N – #107 – makes sense to me since the US$ continues to fall. Petro Countries are getting fried.

  114. 114
    sane Says:


    We can thank Bernake an Co. for the accelerated dollar fall. I am truly intrigued by the “print your way out of trouble” theory.

  115. 115
    rammastr Says:

    ZMAN – Remember, I am relatively new to the energy world – Does the spread on the “raw” material vs. finished product for gasoline, HO, and nat gas change with the seasons?

  116. 116
    Nicky Says:

    CNBC now spinning that oil is actually cheap when adjusted for inflation. Really starting to push $100.

    Now they are talking to Greenspan about oil and he seems to think that the price is fine.

  117. 117
    Brian08 Says:

    Shouldn’t he shut up and move into an old age home? Market is screwed up enough without him spouting off…

  118. 118
    Sambone Says:

    Z – I live in a city where people commute. If Gasoline hits $3.50 a gal at the pump, they will gnash their teeth, whine, and moan, but they won’t stop driving. Been there, done that. They will slow their spending elsewhere such as WMT to buy underwear, etc. At $4.00+ they will somewhat slow their driving but not stop and take public transport. It will take a 2×4 upside the head for Americans to slow their demand for gas to make it count. When it hits, which it will $4+, then it will effect the market, IMO
    By the way, I liked your pack of cigs example.

  119. 119
    Nicky Says:

    Lol Brian. they will love him for saying that we have yet to see the worst in the housing market!

  120. 120
    sane Says:


    I kinda wish they would just ramp oil up to $100 and get it overwith.

  121. 121
    Sambone Says:

    Sane – See Germany in the 1930’s, pre Hitler.

  122. 122
    Nicky Says:

    OMG I wish I hadn’t turned it on – now they are going to wheel out the Chairman of Exon and ask him about $100 oil!

  123. 123
    sane Says:


    I think I am going to wallpaper my son’s room with dollar bills.

  124. 124
    Nicky Says:

    Good idea Sane. Let’s get it over and done with.

  125. 125
    Brian08 Says:

    Nicky, I like my markets semi-screwed up and going down with my November positioning…I don’t need him screwing with things and getting into Uncle Ben’s head for another friggin’ rate cut…

    We haven’t seen the worse, guess we’ll all be living in cardboard boxes shortly…

  126. 126
    Sambone Says:

    Sane – That was a little harsh. See Venezuela Bolívar today.

  127. 127
    zman Says:

    Ram – margins move seasonally yes, take a look at the chart on the Refiners & Cracks page. Those peaks on the left hand side of the regional crack spread chart generally occur in the summer as the demand for gasoline drives gas prices up more than crude lifting the 3-2-1 crack. They generally but not alway fade in 3Q and bottom in 4Q.

    Natural gas is a more complicated question. The price of oil comes into play as it influences the value of the wet components in the gas stream. Gas producers will strip out more or less of the natural gas liquids from the stream before selling it into the gas pipelines which impacts the amount of NG available for injection or withdrawal.

  128. 128
    sane Says:

    Naa just kidding about the $100 oil action, because then all we will hear about is $150 and then $200 and on and on and on. farce

  129. 129
    sane Says:


    You brought up the Post WWI german inflation action 😛

  130. 130
    zman Says:

    Just musing but higher oil from here and the ethanol companies might start to look attractive again prices have crashed with the corn glut and it’ll be in high demand for blending.

  131. 131
    sane Says:

    Isn’t Zimbabwe on the track for a couple hundred percent inflation this year. Now that is what I am talking about….. Yeee Haaawwww.

  132. 132

    Watching one’s p’s and QQQQs.

    Over at PSW there’s a lot of chatter about ‘watching the Qs’, the QQQQs.

    The XLF index is declining after C’s earnings and the regional banks will show their deep financial wounds more quickly than the money center banks.

    Rock, Paper, Scissors / Wooly Worms / Coin Flip: PTR puts or calls?

    Oil’s in its own world right now.

  133. 133
    sane Says:

    Z, I think oil at this price even cellulosic ethanol is starting to look good price wise.

  134. 134
    zman Says:

    Q – they have any thoughts on BTU?

  135. 135
    zman Says:

    RAM – did they make sense?

  136. 136
    Sambone Says:

    3:38 pm EST

    Nymex Crude Settles At Record $86.13, Up $2.44


    NEW YORK — Crude oil futures soared nearly 3% Monday to trade over $86 a barrel, as tensions mounted between Turkey and Iraq and traders continued a rally from Friday. A weakening dollar and signs of a tight supply situation ahead also helped boost prices to new records.

    Crude oil prices hit an all-time intraday high of $86.22 a barrel, more than $2 higher than the previous record $84.05 achieved Friday.

    Light, sweet crude oil for November delivery settled $2.44, or 2.9%, higher at $86.13 a barrel on the New York Mercantile Exchange, the highest settlement price ever for a front-month contract. Brent crude on the ICE futures exchange rose $2.20 to $82.75 a barrel, and hit an all-time intraday high of $82.90.

    News of a possible Turkish assault on Kurdish rebels in Iraq gives the “image of troops waiting to go into northern Iraq, inflating expectations,” said Brad Samples, an analyst at Summit Energy Services in Louisville, Ky. The conflict is “probably what’s giving us the impetus for this strong move-up today,” he said.

    Preparations for a cross-border operation into northern Iraq have begun, Turkey’s Prime Minister Recep Tayyip Erdogan said, according to news reports from the weekend.

    The Turkish Parliament will vote on Wednesday on the approval of a military operation against Kurdish rebels in northern Iraq, local news stations reported. Turkey has been considering an assault on the bases of the Kurdistan Workers’ Party, a group that has been fighting the Turkish government since 1984, in northern Iraq.

    Some market watchers said the effect of the attack on oil production would be minimal, and instead attributed Monday’s rally to strong buying from funds, boosted in part by a weaker dollar, and renewed upward momentum from last week. Futures had been trading in a narrow band between $78.25 a barrel and $83.90 for about a month before pushing to new records Friday and Monday.

    “What we have seen is a technical break-out on last-week’s close reaching new records,” said Eric Wittenauer, analyst at AG Edwards in St. Louis. “It brings more people into the market.”

    Funds have been pouring money into the market, said Tony Rosado of IAG Energy Brokers in Ft. Lauderdale, Fla.

    “Whether or not the commercial side of the market wants to adjust itself to high prices, the funds are more in control,” he said. “The bulls are in control, there’s no question about it.”

    Analysts also cited the weak dollar, which makes crude cheaper for traders using other currencies, as a factor in higher commodity prices generally. The dollar lost ground Monday to its main rivals. The euro was recently trading at $1.4202 from $1.4176 late Friday. The dollar was at Y117.29 from Y117.62 Friday.

    “We’re seeing traders continue to invest in commodities such as energy, looking for a higher return than may be available in the equity markets,” said Andy Lebow, analyst at MF Global in New York.

    Also cited as a factor supporting prices was a report Monday by the Organization of Petroleum Exporting Countries in which the cartel cut its fourth-quarter estimate of non-OPEC supply by 110,000 barrels a day from its September report to 51.04 million barrels a day. OPEC cited declines in output in Mexico, the United Kingdom, Brazil and Sudan for the adjustment.

    General concerns about supply tightness have been supporting prices in recent sessions, reflected last week in reports from the U.S. Department of Energy and the International Energy Agency. The DOE’s weekly U.S. inventories report posted an unexpected 1.7 million-barrel draw in crude oil stockpiles. The International Energy Agency report said that crude-oil inventories held by industrialized countries covered fewer days of demand at the end of August compared to a month earlier, and suggested a general third-quarter stock decrease contrary to seasonal expectations.

    This week’s DOE U.S. inventories report, scheduled for release Wednesday at 10:30 a.m. EDT, could play a key role in the next move for crude. Analysts expect crude inventories to grow by 1 million barrels, according to a Dow Jones Newswires survey.

    “If we don’t see another build (in crude) this week, it could get ugly,” Samples said. “We could put a strong challenge at $90.”

    Front-month November reformulated-gasoline blendstock, or RBOB, settled up 7.24c, or 3.5%, to $2.1575 a gallon. November heating oil rose 6.08c, or 2.7%, to $2.3072 a gallon, a new record.

    —By Elizabeth Landau, Dow Jones Newswires

  137. 137
    zman Says:

    Notice how oil can only trade in $5 increments all of the sudden. At $80 the price to beat was $85. Now it’s $90. Soon it starts moving in $10s


  138. 138
    Nicky Says:

    In case anyone needs a reality check wti was at $79 exactly a week ago.

  139. 139
    Nicky Says:

    and also now up 5 days in a row.

  140. 140
    TTupp Says:

    re #112, smokes are like 11$ ($15 usd) on ontario….. glad i dont smoke those cancer sticks

  141. 141
    Nicky Says:

    the latest flip flop:

    John Kilduff who a week ago was calling for a correction in oil now says $100 crude is a certainty by year end!

  142. 142
    zman Says:

    thanks for the laugh Nicky

    Sam – is that bloom in the GOMEX anything?

  143. 143
    Nicky Says:

    Distillates and rbob well up since the close

  144. 144
    rammastr Says:

    ZMAN – YES. How come we are not paying $4 per gallon for gas?

  145. 145
    zman Says:

    RAM – good question. Let me try to answer in the morning post.

  146. 146
    Wyoming Says:

    Out HALAV bought 1.1 on 9/28 sold 2.35. Bought small SLBWS Nov 95 puts to hedge. SLB getting ahead of itself, may be punished if they don’t beat. HAL may go in sympathy. Will flip back around once a direction is clear.

  147. 147
    zman Says:

    Wyo – Nice! I’ve been caught out of the move since last expiry. At this point I have to agree that good earnings from SLB won’t likely be good enough to keep the stock up …at 22x 08 #s they need a beat to keep the momentum going or catalytic news.

    At 14x I like HAL better and they are making changes. Still, if SLB takes a brief hit on earnings it will provide an op to buy HAL cheaper. If SLB beats big and runs I’ll be looking to buy HAL before their 3Q date.

  148. 148


    Whaddaya think: Oct HAL 42.5s for .25?

    Can the old girl chug up hill another point and we hit a lick?

    I’m gonna be at a conference in L.V. Wed-Fri and don’t want to have to dog this trade in the airport.

    I’d rather not have to settle on 4000 shares of HAL if it closes at 42.51 while I’m in the air on Friday.

    — the ORNERY side of me wants to own HAL for a two-bagger because PSW and Happy’s 100 portfolio started out with IBM.


    P.S.- Kiddies: this is for money you hate… unpublished trade…

  149. 149
    zman Says:

    It’s had a heck of a run but at least its cheap and a name I like. I won’t be around much Thursday or Friday so I’m certainly not doing it.

    As far as PSW comment I don’t follow you. Hope they got out of the BTU put trade before it reversed.

  150. 150
    zman Says:

    Q – also, if you’re going to be out of the office why do you want to place a highly volatile OOTM call with 3 days to expiry? That’s like playing a hand of blackjack, not looking at your cards and saying hit me.

    The Refiners and Cracks tab is updated for crack spreads through October 12. Continued margin improvement in the West and Pacific NW regions. Very good for TSO and a big reason as to why I continue to hold my November calls there.

  151. 151
    texana Says:

    lg options activity on hk dec 15& jan 15&20’s. lg call position put on nov 50 nfx ,from the price it looks like they sold these calls. Any sites were u can check to see if these went off @ bid or ask. thx tex

  152. 152
    zman Says:

    Tex – Its a great thought and I noted the call volume today despite the stock being down on a very green energy day. I’d say that makes it likely they’re saying, going ahead, take my stock if you dare on the HK

    On the NFX, not certain but I’d bet more than a buck those are longs.

    Sorry, don’t know of such a site or how you’d be able to tell if its writing or just inventory.

  153. 153
    texana Says:

    z not sure about the comment on hk in ref to options action is it bullish or not, thx tex

  154. 154
    zman Says:

    Texana – I think from a stockholders perspective those guys are thinking, hey, oil has run up a lot, why not write options and when oil falls cover them. I’m very bullish on HK at present, see Tuesday’s post.

  155. 155
    texana Says:

    z thx as always for infor on hk, i noticed that the open interest on the jan 15s was reduced by about 1800 contracts from yesterday THEY HAVE ALREADY TRADED 1250 MOST IN 2 BIG BLOCKS

  156. 156
    drdavis124 Says:

    WNR-Been doing DD. Lowest PE in group. With adding Giant ENR is 4th Largest Refiner.
    Why the Low Price??????????????

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