Thursday – Oil Says See Ya Later Despite OPEC No Grow & Big Crude Draw + The Gas Preview

Commodity Watch

  • Crude Oil: Fell $0.83 to close at $87.49. Somewhat confusing since OPEC ministers barely got out of their limos long enough to say Cartel output is sufficient and U.S. saw their biggest drop in recent memory. This morning oil is seeing a little technical selling with the January contract off about a buck to $86.50 at press time.  $86 should provide some support. OPEC has reiterated over night that it will stand firm on output until its next meeting in February and also noted that its members currently have 52 days of supply in inventory at present.
  • Natural Gas: Natural gas was led around by the nose all day by oil but finally managed to close up $0.03 at 7.185. While I don't think we will get a disappointing number today on the storage withdrawal it could happen and would likely be greeted by a test of $7. This morning gas is trading up $0.10 to $7.36.

Energy Bill Watch: U.S. House to vote today, Senate likely to see it next week. Includes increased efficiency standards for cars, increased taxes on big oil, a required 7 fold hike in ethanol production, and incentives for solar, wind, cellulosic ethanol etc. I smell a veto.

The EIA Inventory Report Review


Note: American Petroleum Institute numbers were essentially in line (for once) with the EIA's.


Z Comments: A strange report in many ways

  1. Crude stocks tumbled by nearly 10 times the expected amount due to a not so surprising slump in inventories.
  2. Stocks at Cushing, OK rose...which sent traders into a tizzy and scrambling for the exits.
  3. Gasoline inventories jumped despite only slightly higher production, higher imports and continued strong demand.
  4. In the end, not bearish for crude, especially when taken hand in hand with the OPEC news and not bullish for products. 

Crude Inventories Fell To 89.6% of Year Ago Levels and Are Now In Line With The Five Year Average


Cushing, OK ...third week in a row to rally...oh no (that's sarcasm in case you couldn't tell).


Of course Cushing is coming off extremely low levels and to base the price of crude on the amount of inventories in one area that represents a whopping 5% of total U.S. stocks while completely discounting the previous chart tells you something about the herd dynamic in the trading commodity. I got these charts within hours of the inventory report from one of Alaron's finest who was obviously hard at work delving through the numbers. I kid because I love these guys.

alaron-1-120507.jpgclick to expand "Sky is Falling"; alaron-2-120507.jpgclick to expand "Conspiracy


Imports Fell As Anticipated. Probably due to a combination of the supply disruption from the Enbridge pipeline explosion and from fog at the HSC. Like I commonly say, due to logistical constraints peakish import levels rarely come in twos. This week saw imports fall near 1 mm bopd to 9.374 mm bopd.


Long Term Graph Show U.S. Imports Are Near The Upper End Of All Time Record Volumes.



Crude Demand: Remained flat with the prior week at 15.45 mm bopd which is also in line with year ago levels.

Gasoline: Somewhat strange looking number here with the giant build in inventories of 4 million barrels.

  • Production ticked up slightly despite a 0.1% dip in refinery utilization. The week to week increase amounted to 72,000 extra barrels per day or about half a million barrels more than in the prior week. This level is slightly below year ago product make. 


  • Imports of finished gasoline have been very volatile of late and jumped 330,000 bopd or 2.3 million barrels on the week. Taken together with the week to week change in production that comes to a change of plus 2.8 million barrels. Hmmm, maybe demand fell off a cliff and that how we get to the 4 million number. 
  • Demand fell 90,000 bpd or 0.6 million barrels on the week. That gets you to about 3.4 and solves much but not all of the mystery. EIA guestimates could easily account for the remainder.


Distillate Inventory Build Slightly Bigger Than Anticipated. The build in distillates was bigger than expected and although oil-weighted degree days showed last week to be the coldest of the season to date, the relationship between heating oil and weather is not as linear as the one the between natural gas and cold weather. 

  • Total distillate stocks are in line with year ago levels. Heating oil stocks fell by 1.1 mm barrels from the prior week.

Natural Gas Preview

  • My Number: 40 Bcf...In the comparable week one year ago we pulled 14 Bcf from storage. At present we are 3% above year ago levels and until we get some real winter weather this storage overhang will weigh on gas prices. 
  • Weather: 172 gas weighted degree days versus 144 last week when we got that paltry 12 Bcf draw. Last year saw only 122 HDDs.
  • Imports: Piped and LNG imports flat with the prior week at a combined 8.1 Bcfgpd; near 2007 lows and 0.7 Bcfgpd below year ago levels.
  • Street Consensus:  ??? unknown at time of posting.

Holdings Watch:


  • (HAL) added another tranche of the $37.50 Decembers for $0.70.
  • (RIG) re-entered for the first time post deal following a two day drubbing that I (and apparently members of the analyst community) this is overdone. Added December $130 calls for $3.20 late in the day. Last bid $3.10. A e-blast of both these trades did not go out due to technological constraints.

PUTS: No Action

Stocks: No Action

Stocks We Care About Today:

  • Solar Stocks - still building the list and checking it twice. See the Odds & Ends Tab at upper left for a revised valuation table. More on (FSLR) coming on the weekend.
  • (NFX) - A friend of the blog sent me a piece on Raymond James' thoughts on Newfield's Monday PR regarding results the extend horizontal laterals in the Woodford and a few other items that were touched on during the 3Q call. Key points:
    • Raymond is saying the most recent of these longer lateral wells cost $7.1 mm with an EUR of 5.8 Bcf which with an 80%NRI get you a miserly $1.53 /Mcfe.
    • 3Q comments (for the Woodford as a whole) were focused on $2ish F&D. On Monday I said the extra money was well spent alluding to the increase in EUR being something close to proportionate to the increase we are seeing in IP's. $1.50 is a little better than even I expected.
    • RJ believes roughly half of NFX's 155,000 acre Woodford position could be prospective for long lateral development. We'll know more in 1Q08 when the last of 6 3D shoots is in house.
    • RJ also reminds everyone that results from the Cattleman 40 acre pilot results will likely be announced prior to year end. They said the 40 acre wells are coming on line and performing similar to the 640 acre spacing wells. This will push drilling locations and reserves towards the high end of estimates.
    • Near term I think the stock makes for $55 if gas holds $7. Need to add more January calls here. Also, need to get active selling OOTM near month calls against my long position until the Street wakes up a little more to this name.
  • Canadian Superior (SNG) reviewed for Doc. Good luck Doc, I'm taking a pass on this one. Greg Noval is colorful. He can build companies and I see he is taking a more active role now. But their core area in Canada is showing little growth YoY, costs are up on a per unit basis, and prices therr stink. The "high impact" (their quotes not mine) exploration they are doing offshore Trinidad is certainly in big gas country and results should be right around the corner according to their website. But as you know the old oil adage "a barrel is not a barrel is not a barrel" so too does that ring true for a Tcf off Trinidad is not the same as a Tcf in the states. Ask EOG, where the realized price for their Trinidad gas was $2.20/Mcf this past quarter. Also, when I see a picture of a giant gas flare on the cover of a company's website I generally move on. Beyond flattish production in Canada and 3 exploratory shots in Trinidad they are looking at opportunities in Nova Scotia, Libya, and Tunisia. Hmmmm. Again good luck with it.  I don't have the kind of analytical control here that I like when playing the little ones. By that I mean everything is on the come like a biotech. They just did a secondary to boost drilling activity in their core region. But the management has called the core Canadian operations good cash flowing assets so that's a head scratcher. Their balance sheet looks better than I would have expected but give that time and the share count just keeps mounting. Management here is experienced but the stock seems to be trading only an exploration.  Next week I'll have a piece out on an itty-bitty small cap with big potential (no options, just stock) where I've had extensive experience with half of management in my former life while the other half of management was definitely what you would call "smart money". Perhaps I'm being overly harsh but the language SNG employs in their presentation and press releases is "hypey" and I simply prefer a more under-promise and over-deliver style vs the "multi-Tcf" language I see repeated on just about every other page of a 30 something page power point presentation. If they hit in Trinidad, congrats, it probably tops $4 or even $5 and for a long term bet Noval may do it again but for now, I'm going to pass.
  • (NXY) missing 2007 production guidance, reducing 2008 capex to two-thirds of 2007 levels. Disappointments in the North Sea and Gomex are primarily to blame. Estimates for 2007 and 2008 will undoubtedly be trimmed. Chart looks vulnerable.

Odds & Ends

Analyst Watch: (CRK) raised to neutral at Lehman, (TLM) cut to neutral at BMO, (DHT) picked up at buy at Jefco, (BBG) picked up at neutral at Morgan Keegan.


92 Responses to “Thursday – Oil Says See Ya Later Despite OPEC No Grow & Big Crude Draw + The Gas Preview”

  1. 1
    Sambone Says:

    8:39 am EST

    Crude Keeps Falling As Weaker Demand Pondered


    1334 GMT [Dow Jones] Crude continues to head lower a day after OPEC chose to keep its oil output steady. Crude fell as low as $85.82 in electronic trading before regaining some. “We believe the markets may be concluding that despite OPEC’s intransigence on the supply front, there will be enough oil coming in to swing the supply/demand picture towards a more comfortable balance heading into the first quarter of next year,” says Edward Meir of MF Global. “Either weaker demand will start to manifest itself more forcibly, especially if the US economy starts to lurch back towards recession, or more supply may still find its way to the market despite OPEC’s quotas.” Nymex Jan crude -73c at $86.76/bbl. (GM)

  2. 2
    redjack Says:

    Z…where were you in your former life?

  3. 3
    zman Says:

    Most recently and as it relates to that reference for the small fry research coming soon Jefferies E&P research department.

  4. 4
    zman Says:

    it’s early and the stocks look like a Christmas tree (lots of red and green) but I like this action. Energy up across the board yesterday despite down oil and products with the up market. Instead of bottom fishing with the sub prime loser crowd (sub prime, what an apt name) it looks like money is flowing back into energy. We’re probably not going to peel off another $15 / barrel soon so people can relax a little as well. Valuations are for the most part low given price decks which are well below current oil prices.

    DO up nice, RIG thinking about it. E&P mostly waiting on the gas number now.

    APA notably week…anybody see any news there…seems out of line with the group early.

    Solars down across the board

    Drybulks flat to a little red after another no reason pullback the last couple of days

  5. 5
    zman Says:

    wow, nice reversal on APA…thought that looked odd. Very little red left on the screen now as crude has reversed and gone green, now up $0.25 to $87.73….people have got to be thinking downside is limited here. There, that statement should goad Nicky into responding.

    RIG and DO moving on up !

  6. 6
    Sambone Says:

    9:40 am EST

    Nymex Crude Down On Concern Over Weak Demand


    NEW YORK — Crude oil futures declined Thursday on worries that an economic slowdown could undercut petroleum demand.

    The move lower came in spite of the Organization of Petroleum Exporting Countries’ decision Wednesday to hold its output quota steady, and a report showing a big drop in U.S. crude stocks last week.

    Light, sweet crude for January delivery on the New York Mercantile Exchange was recently down 54 cents, or 0.6%, at $86.95 a barrel. The Nymex contract earlier fell as low as $85.82. Brent crude on the ICE futures exchange fell 83 cents to $87.66 a barrel.

    Oil prices are now at their lowest level in six weeks. They reflect concerns that OPEC’s decision to keep its output levels under control, while keeping a lid on supply, also signals that world oil demand may be cooling off in the months ahead.

    “Fears of a slowing economy appear to be outweighing the combination of the OPEC decision not to raise production and declining crude oil inventories to depress oil prices,” say analysts at TFS Energy Futures.

    Ali Naimi, the oil minister of Saudi Arabia, OPEC’s de facto leader, was quoted at OPEC’s meeting in Abu Dhabi saying he expects 2008 global oil demand to rise by 1 million to 1.1 million barrels a day. By contrast, the International Energy Agency sees demand growth of of 1.94 million barrels a day next year.

    OPEC’s rhetoric “really questioned the health and strength of demand in Western Europe and the U.S.,” said Stephen Schork, editor of energy market newsletter the Schork Report in Villanova, Pa. “The market took that as a sign that demand is on the wane.”

    The market also shook off a report by the U.S. Department of Energy revealed that crude oil stocks fell by 7.9 million barrels last week. The fall was largely due to fog that hemmed in tankers on the Gulf Coast, however, and traders instead focused on large builds in gasoline and distillates as a sign the market is well supplied.

    Front-month January reformulated gasoline blendstock, or RBOB, declined 26 points, or 0.1% to $2.2144 a gallon. January heating oil fell 1.77 cents, or 0.7%, to $2.4716 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  7. 7
    rseidman Says:

    COMDX Commodities Trader Cracks Analysis -Update-

    Jan heat cracks are up 0.29c to 17.34 and Jan gas cracks are up 0.70c to 6.34 (session highs in gas cracks) –could see refiners lift here–HOC, SUN, VLO, WNR, ALJ, TSO
    From briefing

  8. 8
    zman Says:

    Thanks RS. VLO tempting on the $65s and SUN as a heat play. I’d add FTO to their list and subtract WNR. FTO getting macked this morning.

    Gas number in 5, still don’t know what consensus is.

    Liking the DO / RIG action this am, want to shoot myself re OII missed trade.

  9. 9
    zman Says:

    I’d say bigger than 40 Bcf draw and buy SWN, CHK, APC, EOG and HAL, otherwise no joy.

  10. 10
    yona Says:

    expecting -80

  11. 11
    freeflow Says:

    Bought some SU puts this morning… Stock is unchanged so far with oil up a touch.

  12. 12
    zman Says:

    and I was trying to be conservative….

    88 Bcf

  13. 13
    zman Says:

    wow that’s a big number

    gas trading a little higher, now reaction from the stocks yet.

    DO up almost $4.

    Good luck with the SU

  14. 14
    yona Says:

    i have not noticed the NG# working for an equities play in a while- have i missed something? i see on the xng chart that it seems to be working today – but has it been working consistently?

  15. 15
    zman Says:

    yona, you are correct, not for the last several weeks.

    I think we are at or near an inflection point on gas (gotta hold $7 which today looks like no problem but there’s another warm spell expected this weekend and traders are all eyes on weather now).

    Should see a bigger draw next week and the gassy stocks should wake up a bit in between. Broad market has held sway but I think, and this is just a feeling, that gas price will be increasingly important to the stocks as we head towards the holidays. Fundamentally we are at a near term mini crossroads as well with rising an obvious rise in production being met by lower imports and colder than expected weather (see yesterday’s gas thoughts)

  16. 16
    zman Says:

    DO officially breaking out on a daily chart.

    Numbers there still show it as cheap at a little over 8.8x 2008 consensus which is low. More recent estimates put it closer to 8x the forward number.

    By comparison, RIG is trading at about 8x 2009 numbers and those numbers are low as well but the company has a greater degree of risk given both it newbuild backlog and greater exposure to the jack-up market.

  17. 17
    jiveyjr Says:

    sold some NFX Dec. 55 calls at .65…commentary this AM re that very helpful

  18. 18
    zman Says:

    J – covered calls?

    T – you are posting on Wednesday’s post but if you are referring to DO as a breakout then yes I agree.

  19. 19
    TTupp Says:

    hopped into rig this am- programs will fill this gap by wed.

  20. 20
    zman Says:

    big trade in my RIG $115 DEC calls

  21. 21
    zman Says:

    T – hear ya re RIG. I’d like to see them close it just a little over $130

    Brian if you are out their COP is starting to work again for you.

    HK moving back up a little

    APC inches away from breakout status…still second biggest position for me.

  22. 22
    TTupp Says:

    do i was referring to fslr, but nix that. there is a storm a brewing there though. might lighten my greed and settle for a strangle.

    although i do congratulate you on DO. i was shook out last Monday on the dip , and stupidly did not get back in since i was anticipation a RIG correction but it came to late. in hindsight i now think these guys don’t trade with one another (note to self).

  23. 23
    TTupp Says:

    all 6 of my trades are winning, this has never happened.

  24. 24
    jiveyjr Says:

    yes Z..they are covered

  25. 25
    zman Says:

    T – been through a bit of a down cycle on my trades so I’m a pretty happy camper after the last week or so…stock action much more to my liking.

  26. 26
    TTupp Says:

    i dont think your to late for oii z.

  27. 27
    TTupp Says:

    once bit twice shy like me from November?

  28. 28
    zman Says:

    J – thanks, just like to know people’s risk profile. Gunslinger or Sane. I see you checked Sane on your profile.

    T – I’m long APA for oil and RIG DO don’t hurt from a rally in it. Come to think of it NFX, HK and even CHK produce some oil, lol. So I’m exposed believe me. Plus I’m long CLR which isn’t playing today but what a name for oil.

    SU acting like the BP deal with Husky puts the kybosh on its potential as a takeout. Flat on this of all days.

    DO cresting 122.

  29. 29
    zman Says:

    I just can’t get over the fact that all the folks on CNBC have been talking of buying the financials and hedging oil…man have I got a subscription site for those guys.

  30. 30
    zman Says:

    HAL starting to work.

    SWN went from flat at the NG number to up $1.11, was chintzy and was bidding options instead of just trading. dooh!

    even CHK starting to wake up

    APC officially breaking out to new all time high closing level.

    Think APA runs soon to catch up with the moves going on in DVN, EOG, APC

  31. 31
    jiveyjr Says:

    I pretty much limit buying speculative calls with cash generated off my covered writes…when and if that runs out I usually write more covered utnil I have enough ammo to start shooting at spec calls again

  32. 32
    apbd Says:

    Haven’t seen this much green on a screen in a while. Merry Christmas!

  33. 33
    zman Says:

    J – smart to hammer your cost basis over time. They say 90% of all options expire worthless…the conservative trader would be on the writing end of that trade, lol.

    A – indeed but trying very hard not to kick myself in the head over OII and BTU

  34. 34
    zman Says:

    No comment from DOC and I wrote that whole piece on SNG…hmmphh

    APA coming to life as if on cue

    HK starting to reverse the recent slide. Holding calls and stock there. This is one I plan on writing calls on once its had a good run towards $20.

    The Johnson Rice note I was quoting from last night re NFX (sorry, game credit to RJ but it was Johnson) also pointed out that NFX’s results weren’t a bad thing for PQ either.

    Man it’s quiet around here. Everyone snake bit from November or are you all doing your Christmas shopping on AMZN?

  35. 35
    scoop006 Says:


  36. 36
    ram Says:

    Yes and Yes. When did you ZTRADE RIG?

  37. 37
    zman Says:

    yesterday about 20 minutes before the close. couldn’t do an eblast.

  38. 38
    redjack Says:

    XTO also breaking out

  39. 39
    benbobby Says:

    Z,is it worth doing anything i.e.(rolling) w/ the Dec VLO calls? tks

  40. 40
    zman Says:

    RJ – see that…may do some Jan’s there….like them a lot as per previous postings.

    SLB leading a charge in oil service, OIH back into the 180s.

    BB – re VLO, I’ve got $72.50s and I’m just going to hold for now. I’d like to see another week of data before I step up to the plate on the group. They will rise if oil does but the cracks are a bit pinched at this point, especially gulf coast. If I were to buy a refiner right now it would be them, TOS (which I hold the 50s on) and FTO which is interesting but getting punished today over a directors sale of stock.

    RIG up $4.50, DO up $5.70!!!

    Re November I feel your pain. Way to many scuds for me but I feel it was market and not energy sector specific. As oil has fallen the stocks have not. That mess was mostly subprime. Anyway, know that helps not one whit but it lets me carry on without too much regret.

  41. 41
    Sambone Says:

    Z – I still want to see you in those “Tights”. LOL

  42. 42
    zman Says:

    I called CNBC but the qualifications list went beyond lobotomy and tights to include a boob job and that’s where I draw the line.

  43. 43
    zman Says:

    I should be punt some DO here. This market has no idea how to do three days of green. I can always buy it back or sell the 115s and keep the 120s.

  44. 44
    Sambone Says:

    Here are the details on one of the RIG bonds currently selling in the 104 area;

    Symbol – Not listed
    Convert price – 100%
    Coupon – 1.50%
    Pay frenquency – semi annual
    1st put date – 12/15/11 @ 100%
    Maturity – 12/15/37 @ 100%
    Conversion ratio – 5.931 shares of RIG
    Callable – 12/15/11 @ 100%
    Rating BBB+/Baa2 (S&P/Moodys)

  45. 45
    Sambone Says:

    Parity at 131.87 is 782
    Premium over parity at 104 is 32.90%

  46. 46
    zman Says:

    ‘When the market was in full bullish bloom on its way to the 99.29 usd record, a news combination like this would have been the motivation for a substantial price advance,’ said Citigroup (NYSE:C) analyst Tim Evans.

    ‘The failure of the market to climb in a similar fashion now underscores the extent to which market sentiment has changed. The builds in DOE product inventories certainly played a role in dampening crude oil’s response, but we would say that crude oil’s failure to rally on clearly bullish news helps confirm that this is now a bear market.’

    He’s been a bear for a long time.

  47. 47
    zman Says:


    OUT DO Dec $120 Calls for $6.20. Up 85% since Monday’s entry. Still hold the Dec $115 Calls.

  48. 48
    scoop006 Says:

    Z Nice Trade on DO, Congrats.

  49. 49


    CHK looks to be perking up, maybe there is life yet in my Dec 40 calls.

    … please don’t forget to email me your questions and insights on VMC.


  50. 50
    zman Says:

    Q – yep although CHK acts like a dog compared to the group on days like today. I’d expect it to be over 40 now given where its peers are and given that gas is getting some support from winter like temps

    Will go find those ?s now.

  51. 51
    zman Says:

    Sam – thanks again for the Citi piece yesterday….gave me the guts to act.

  52. 52
    Sambone Says:

    No prob

  53. 53
    Sambone Says:

    Part 1


    After OPEC, Fog, Crude Prices Slide Further


    NEW YORK — When the fog cleared, the oil market gave a thumb’s down to the Organization of Petroleum Exporting Countries’ decision Wednesday to keep oil output quotas unchanged.

    After an initial push above $90 a barrel on the news, Nymex crude oil futures turned south later in the day, settling at $87.49 a barrel, the lowest level since Oct. 24. Dropping in seven of the past 10 trading days, since a Nov. 21 intraday record of $99.29, prices have skidded nearly 13%, or $12.39 a barrel, to Wednesday’s session low of $86.82.

    Much of the selloff in recent days came on anticipation that OPEC would boost output. But in the often bizarre spiraling logic of the oil market, the price drop put OPEC in a position where it couldn’t boost output, for fear of a further price drop.

    Had members of OPEC still agreed on an output increase in the face of the price fall, the move would have been seen as vote of concern that current prices are too high. Most OPEC members, unable to boost production by much, apparently don’t believe prices are too high.

    OPEC shutters over the memory of the Jakarta 1997 decision to boost output in the face of the Asian economic crisis and an exceptionally warm winter, which cut prices in half to as low as $11 a barrel. But ministers didn’t have to go back that far, remembering from the sharp selloff of last year that a runaway down bound train is hard to stop.

    Ali Naimi, Saudi Arabia’s oil minister, the de facto leader of OPEC, apparently couldn’t make headway on hopes for at least a token rise to take some of the froth from prices.

    Hours after ministers meeting in Abu Dhabi, the United Arab Emirates, agreed to keep output levels unchanged and meet again on Feb. 1, surprises in U.S. weekly oil inventory suggested they may have fumbled their reading of market fundamentals.

  54. 54
    Sambone Says:

    Part 2

    Despite Drop, Stocks Not So Low
    Against expectations of a dip of 700,000 barrels in crude oil inventories in the latest week, the U.S. Energy Information Administration reported stocks plunged by 7.9 million barrels.

    But a closer look showed that 75% of that drop resulted from a decline in the key U.S. Gulf Coast refining region, where crude oil imports were hampered by a two-day stretch of fog last week.

    Next week’s U.S. data could show similar aberrations, given the impact of the short-term supply cut in Canadian crude from Enbridge Inc.’s (ENB) pipeline problems.

    But the overall statistical data for the U.S., the world’s largest oil consumer, made a hard case for pushing prices up.

    The data showed November oil demand set a record for the month, the first year-on-year rise since May and a jump in demand for core petroleum of 3.1% compared with last year. But it also showed a fairly comfortable supply picture across the board.

    Even with the surprise crude stocks drop, inventories are still fractionally above their five-year average for this time of year, although the deficit to a year earlier widened to 8.8%, the most since late July 2003. Measured against current crude runs, stocks are at their lowest level since Aug. 26, 2005.

    Reviewing ‘All Options’
    Global politics and oil can’t be separated even with a crowbar. But it was striking this week that U.S. President George W. Bush and Saudi Oil Minister Naimi used similar language in keeping focus on their point of view, despite the tide going against them.

    Naimi, insisted “all options’ were open for OPEC ministers heading into the meeting and that a data review would lead them on the right policy path. That sounded a lot like a hint that the Saudis would try to rustle up support for a move to boost flows and temper prices.

    President Bush, meanwhile, continued to insist that all options were open for potentially punishing Iran for its nuclear ambitions, even as the U.S. government’s new intelligence assessment acknowledged that Tehran has halted nuclear weapons plans years ago.

    The Bush administration may find it hard going to pressure on Iran at the United Nations (although such pressure is responsible for halting the program). The hard line still seems to be the favored of all the available options.

    With the Saudis, the market will be watching closely for any sign of unilateral leakage of crude supplies to dampen prices, a potential, if not favored option for the kingdom. Pledges to supply the market what’s needed likely will take take precedent over the OPEC pact.

    By setting its next meeting on Feb 1, the market will scarcely have time to assess OPEC’s supplies in January. And the group will be hamstrung to take any official action that could affect supplies for the remainder of winter by waiting until Feb. 1.

  55. 55
    Sambone Says:

    Part 3

    Sluggish Demand Growth?
    Naimi, apparently without elaboration, cast a seemingly negative view on the prospects for global economic growth next year. The Saudi minister was quoted as saying he sees world oil demand growth rising by 1 million to 1.1 million barrels a day in 2008. That’s nearly half of the size of the rise projected by the International Energy Agency, of 1.94 million barrels a day, and even less than OPEC’s estimate of 1.31 million barrels a day.

    If Naimi meant to be sending a signal that he’s worried about cumulative high prices staunching demand group, he apparently didn’t hammer the issue hard.

    The near-term outlook for prices may have more to do with whether commodity fund investors (blamed again by OPEC for the price rise) decide to pull out and square their books soon for the year-end in a large scale speculative exodus (a spexodus?). Weather will be a key factor, with U.S. temperatures still expected above normal, on average for the winter. Had OPEC met this week at its Vienna Secretariat, rather than in the Gulf, it would have experienced temperatures above freezing, even for the days lows, and pushing up toward 50 degrees Fahrenheit on Thursday.

    While OPEC officially kept output quotas unchanged, and regardless of potential Saudi leakage if prices rise anew, OPEC’s actual output is expected to gain some 600,000 barrels a day or more in coming weeks, as U.A.E. fields return from maintenance.

    —By David Bird, Dow Jones Newswires

  56. 56
    zman Says:

    Q – these were my questions / thoughts from the a week ago Tuesday:

    Q – when you get a chance, questions re VMC:

    they start the conference by saying they are tied to job growth, household creation etc.

    then they talk about deliveries being flat but op earnings having doubled over the last 4 years.

    sorry but how is this not economically sensitive and how can they continue to grow op inc (or even sustain) if the build is based on pricing.

    It looks like a great company, most admired, last acquisition good and all that, lots of reserves (aggregates) in reserve constricted placed like Florida, California, and Texas. Demand appears set to go through the roof in those key states so maybe that is what keeps pricing high.

    Seeing biggest price increases ever…just reminds me of the bulks and they are cheaper (at least on a NTM basis). Not trying to be negative but I ask a lot of questions, especially about things I know little about. In energy we are happier when production grows at a good IRR than when the price of the commodity rises astronomically and you just hear all the “this time its different” arguments.

    From a technical perspective, and clearly I am not a wizard in that area, it looks like it’s basing at $80. But again, if the economy goes to crap how does this hold up…it seems much more leveraged to highways than housing which is good will public works $ grow faster than the loss on the housing side. I remember TEA21 from some gas demand work I did back early this decade… SAFETEA looks similar in aggregate demand growth generation, would that be a fair statement.

    Anyway…it looks like a great one to buy for the long term (again not sure on valuation for just a trade) but chart looks fine and to sell options against until the cows come home. Given the infrastructure need I’d put it in the same category with water desalination (stuff we are going to need more and more of and very healthy for the IRA)

    VMC 10 cent change in diesel costs them 6 mm pre tax.

    Higher natural gas prices hurt them as it is a component on their explosive side. I’m guessing ammonium nitrate.

    They said they have trouble predicting these costs. Man do I have a site for them to subscribe to, lol.

  57. 57
    TTupp Says:

    i typed oi not oil, you need your big monitors back mister.

  58. 58
    TTupp Says:


  59. 59
    zman Says:

    T – Oooohhhhhh. eh, don’t feel the need to chase, if I miss it this time around, I’ll get it on the next one. Great company. Long, long, long term play here.

  60. 60
    zman Says:

    wow oil up $1.75…just another bump in the road mentality starting to set in.

    where’d Nicky go?

  61. 61
    zman Says:

    oil up $2.20 and running, xoi, xng, oih really moving up now. APA should be up more here.

  62. 62

    Local pricing ability is a big factor for the aggregates industry. We’re not really a commodity because the value/weight ratio is too low to ship any distance. Therefore, the pricing is much more local than other business models. Combine this with the permitting difficulty in locales and this limits the number of players to well-managed, higher quality companies … that are not afraid to price to maintain investor expectations.

    Also, don’t forget cement. Aggregates are the major component of cement, and cement pricing has large hikes every year, this allows for strong pricing of the cement aggregates.

    Another hidden strength of aggregate companies over other mining companies is the hidden asset of real estate. A VMC has hundreds of quarries in hundreds of markets. Each one is 100+ acres of good stone within dump truck delivery distance of a growth market. These markets tend to grow out and surround quarries making the land value skyrocket. Land which is held on the books at cost + improvements.

    The TEA is not just in Texas and China. The government funding for major infrastructure always involves large quantities of aggregates, it has to because everything is built on or built out of aggregates. This sort of government funding is strong in good economies and strong in down economies.

    I’ve never touted VMC as a month or day trade, other than when it is irrationally oversold, it is an excellent long term hold.


  63. 63
    zman Says:

    Thanks Q

    NFX at $54. wow.

    APC ripping to new all time high

    RIG up $5.50

  64. 64
    Sambone Says:

    #55 – “The near-term outlook for prices may have more to do with whether commodity fund investors (blamed again by OPEC for the price rise) decide to pull out and square their books soon for the year-end in a large scale speculative exodus (a spexodus?)”.

    Maybe a “spbuy” instead?

  65. 65
    zman Says:

    Sam – You know I’m not a conspiracy guy but when Kilduff and Flynn and their ilk get bearish all it once on data and news that a week or two ago would have been their wet dream I mean, come on! They’re banging it down so they can get in. Watch it top 90 in the after market tonight, lol. Everybody cites Cushing and says bear market even as recently as a few hours ago and now we’re closing up $2.70 (and now we are through 90 before I could even post this)

  66. 66
    apbd Says:

    Toto where are we? Are we back in October?

  67. 67
    zman Says:

    A – I’d take September or October.

    APC making my week at least.

  68. 68
    Sambone Says:

    Z – I can’t find any news for this rally. I guess the “crowd” is fickle again. I believe this thing will rally back to 95 and then who knows. It did go from 99 to 86 in a short time.

  69. 69
    Sambone Says:

    What really has me perplexed is the Financials. I read the government stuff on subprime, and that isn’t the answer. The paper is still out there, and earnings will be down. I’m ready to go back into SKF. I’ll probably go back in when Ben lowers again next week.

  70. 70
    Sambone Says:

    Of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered by the freeze, according to an analysis made by investment bank Barclays Capital

  71. 71
    kiaora Says:

    S-Would you use options or just buy the skf?

  72. 72
    Sambone Says:

    SKF in IRA’s. Options in taxable accounts.

  73. 73
    sane Says:


    We shouldn’t be freezing anything. Am I going to get a rate discount on my fixed mortgage?….. no.

  74. 74
    zman Says:

    Sane – EXACTLY. If they get a freeze where’s my tax rebate? And if I get a rebate can I get a put option on the debt service these guys are strapping my kid with?

  75. 75
    zman Says:

    HK pushing 17…about time for a run on 20.

    everything else = woohoo!

  76. 76
    sane Says:

    I hate to say it, but when you go and get an adjustable rate mortgage and fail to understand what adjustable means, well then you deserve what you get. I know someone who is quaking in his boots about his ARM reseting. I asked him why he got an ARM and his reply was, “well it was the only way I could afford the house we wanted.” He bought more than he could afford, and now it is coming back to bite him in the ass. No pity here. LET THE MARKET CORRECT ITSELF.

  77. 77
    zman Says:

    Sane – that’s priceless. Some people are good at monopoly, some are good at chutes and ladders. I don’t think the Feds should be in the business of preventing the monopoly players from scooping up your guy’s house.

  78. 78
    Sambone Says:

    Z- No tax rebate for us. US borrowing 1 million a minute or 1.4 billion a day.

  79. 79
    zman Says:

    Sam – trust me, I don’t want it.

  80. 80
    Sambone Says:

    Pretty good article today on this mortgage mess. Worth a read.


  81. 81
    zman Says:

    where are all my doom and gloomers?

  82. 82
    Popeye Says:

    Nice move today by HK, a close above 17 would be nice.

  83. 83
    zman Says:

    ZTRADE: Out RIG $130 Calls for average $6.05 (up 89% in 24 hours)…it jumped more than I would have possibly expected the day after the trade. I can always buy it back on the coming dip.

    HK – about time.

  84. 84
    sane Says:

    Re 81
    Doom and Gloom is just around the corner. Why are the feds cutting rates every time we turn around when oil is at 90, other commodities are high, the dollar value is low, the GDP is above 3% and the stock market is generally moving up, because they know bad things are around the corner.

  85. 85
    zman Says:

    Sane – agreed…but I don’t think you’ll see a significant slow down in petro consumption unless we see real negative job growth. Cutting rates will continue to pound the dollar and support crude…of course inflation will then spiral but hey, at least today everything is ok, right? sadly lol.

  86. 86
    zman Says:

    wow, what a green day! see you guys after while, gotta hang some lights

  87. 87
    Sambone Says:

    Tini time

  88. 88
    TTupp Says:

    z isn’t CHK one of your favorite gassy north American NG producers? could you give me a rundown on what is going on with them lately such as news, guidance, the streets thoughts ect. it looks to be under performing, and might run from here. sorry for the long winded question.

  89. 89
    zman Says:

    T – I’ll run through it in the Friday post

  90. 90
    zman Says:

    Bill, nice move on TOPT last two days.

  91. 91

    Z, any chance, at all, that CHK breaks 40 before expiry?

  92. 92
    zman Says:

    Q – absolutely.

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