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

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

1. 8:39 am EST

   Crude Keeps Falling As Weaker Demand Pondered

   DOW JONES NEWSWIRES

   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. Z…where were you in your former life?

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

4. 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. 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. 9:40 am EST

   Nymex Crude Down On Concern Over Weak Demand

   By GREGORY MEYER
   Of DOW JONES NEWSWIRES

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

10. expecting -80

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

12. and I was trying to be conservative….

    88 Bcf

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

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

20. big trade in my RIG $115 DEC calls

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

24. yes Z..they are covered

25. 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. i dont think your to late for oii z.

27. once bit twice shy like me from November?

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

33. 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. 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. MAJOR SNAKE BITES FROM AUGUST & NOVEMBER

36. Yes and Yes. When did you ZTRADE RIG?

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

38. XTO also breaking out

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

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

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

46. ‘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. ZTRADE:

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

48. Z Nice Trade on DO, Congrats.

49. Z.

    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.

    Q.

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

52. No prob

53. Part 1

    ENERGY MATTERS

    After OPEC, Fog, Crude Prices Slide Further

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

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

58. oii

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

    where’d Nicky go?

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

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.

    Q.

63. Thanks Q

    NFX at $54. wow.

    APC ripping to new all time high

    RIG up $5.50

64. #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. 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. Toto where are we? Are we back in October?
    apbd

67. A – I’d take September or October.

    APC making my week at least.

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

72. SKF in IRA’s. Options in taxable accounts.

73. Sam,

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

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

    everything else = woohoo!

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

79. Sam – trust me, I don’t want it.

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

    http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/

81. where are all my doom and gloomers?

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

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

87. Tini time

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

90. Bill, nice move on TOPT last two days.

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

92. Q – absolutely.

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