The energy stocks had one of the better weeks in recent memory, outperforming both the broader market and commodities through Thursday. E&P stocks in particular are breaking into record high territory as the big cap leaders (APC, DVN, APA) all set strong growth targets and like the pull of the sun the quality mid and small caps will likely be drawn higher as their CFPS multiples become cheaper on a relative basis.
Commodity Watch
- Crude Oil jumped $2.74 to $90.23 as traders, having clearly talked oil lower finally said, "wait a moment! No OPEC production hike? A giant pull from storage? And now the president is saving the economy via get out of mortgage jail free passes? Rally, rally, rally. This morning crude is trading just slightly in the green.
- Natural Gas rose $0.14 to $7.33, supported by a bigger than expected draw on storage. Gas was actually up $0.22 on the day when the number came out and oil rallied from from up a buck to up a buck so the fact that gas fell $0.08 for the rest of the day is a pretty ho-hum reaction to the storage report. This morning gas is trading off almost 5 cents.
- Gas in Storage Fell A Bigger Than Expected 88 Bcf. The Street was looking for 80 Bcf, I was on the conservative (wrong) end of the Street range looking for a 40 Bcf draw.
- We shrank the YoY storage deficit from over 3% to 0.9% and its good to see the response to colder weather show up in the numbers.
click to expand gas graphsEstimate vs Strip Update Watch: Analysts are using pretty conservative numbers in their models right now, especially as it relates to oil.
click to expand view of oil and gas price Street estimates vs actuals for 2007 including quarter to date and the forward strip for 2008.
Key Points:
- Analysts are basing their 4Q estimates on a price deck for oil and gas that is $14.22 per barrel and $0.33 Mcf below quarter to date actuals. Although $0.33 sounds like a slim margin for error remember that the quarter is more than 2/3rds complete so it would take a pretty big fall to move the needle on the quarter's average price at this point
- 2008 estimates look pretty safe as well.
- Mean oil price estimate is $16 below the current 2008 strip. The crude strip is backwardated.
- For natural gas, analysts are currently $0.18 below the 2008 futures strip. The gas strip is in a pretty steep contango.
Holdings Watch: (an updated spreadsheet is available here)
CALLS:
- DO: Exited the December $120 Calls for $6.20, up 85% since Monday’s entry. Still hold the Dec $115 Calls.
- RIG: Exited the December $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.
PUTS: NO action
Stocks No action
Stocks We Care About Today:
- CHK for Tupp: This is the best starting place as to why I like them. The quick bullets are 92% gas, huge drilling inventory, no need for any equity offerings in the next 2 to 3 years, on target to become the largest producer of natural gas in the United States in 2008, size is giving them increasing leverage over costs, strong hedge position, and despite their size they are still exceeding growth targets (now laid out as mid teens % growth through 2009) while selling off high cost, low potential properties. And they're cheapest in the group trading at 4x 2008 cash flow while their peers are more commonly trading at 5x and up. Management is exceedingly strong and their assets are located in the core, long lived gas producing basins in the U.S.
- (PBR) another sizable discovery, this one primarily gas but with associated light oil in the Espirito Santo Basin. Stock is headed towards $110 this morning, up from the lower $90s just a few days ago and looks likely to test $120 in the near term.
Odds & Ends
Analyst Watch: (SPWR) raised to buy at Jefferies, (YGE) upped to buy at B of A.
morning Z – DRYS positive pre-market for once in the past week.
FF – barely
Oil tumbling below $90 all of a sudden trading off a $0.80. Still very volatile.
Broad market showing green, must not be economy fears.
8:33 am EST
Crude Oil Steady As Market Awaits Direction
DOW JONES NEWSWIRES
[Dow Jones] Nymex crude is steady in quiet trade, holding on to big gains made Thu. Jan crude -14c at $90.09/bbl after jumping nearly $3 Thu. “This week’s trade is likely providing a portent of things to come as reduced volume ahead of the holidays is apt to associate with huge daily price swings in both directions with little fundamental rationale behind the moves,” says Ritterbusch and Associates. (matt.chambers@dowjones.com)
Reported Earlier:
LONDON — Crude oil futures stabilized around $90 a barrel in London trade Friday morning, preserving Thursday’s gains but reluctant to make further substantial moves in the absence of fresh signs of market direction.
The mild easing of fears of U.S. economic slowdown and falls in the dollar that helped crude prices rebound Thursday prevailed Friday morning, while views that prices had perhaps fallen too far in recent days helped prices consolidate near their previous closes.
A fresh U.S. push for sanctions against Iran and an Iraqi pipeline fire also helped underpin prices.
“I think the market got a bit oversold yesterday (Thursday) and turned. We’re seeing a bit of a follow-through this morning,” said a trader in London. “I also think the market is beginning to take note of OPEC leaving output unchanged, the large draw in crude on Wednesday and, finally, hope that the U.S. won’t go into recession.”
At 1227 GMT, the front-month January ICE Brent crude contract was up 8 cents at $90.26 a barrel.
The front-month January light, sweet, crude contract on the New York Mercantile Exchange was trading $0.13 higher at $90.36 a barrel.
The ICE’s gasoil contract for December delivery was up $9.50 at $797 a metric ton, while Nymex gasoline for January delivery was up 37 points at 230.50 cents a gallon.
Traders’ concerns that a slowing U.S. economy could erode crude oil demand eased slightly on Thursday with news of a U.S. government proposal to assist homeowners troubled by the subprime crisis avoid foreclosure.
Expectations of a further interest rate cut announcement from the Federal Reserve when it meets next week also boosted crude prices.
“We are starting to see oil traders turn their attention to the economy and the Fed decision coming out on Tuesday,” said Peter Beutel at trading advisory firm Cameron Hanover. “Yesterday’s mortgage relief proposal seems to have helped oil prices rally into yesterday’s close.”
Closer to hand, the crude markets will be watching Friday’s latest non-farm payrolls numbers for the latest indications on the health of the U.S. economy.
Meanwhile, the U.S. dollar, whose fall against the euro Thursday was seen to spur gains in crude prices, was little changed against the single currency Friday morning.
Analysts also suggested that the rebound in crude prices Thursday, and the sideways moves Friday, reflected a reassessment of the steep falls in prices this week, particularly in light of OPEC’s decision Wednesday to keep production levels unchanged and a steep drop in U.S. crude inventories.
“I think the market over reacted and now we’re getting a correction back,” said Jim Rintoul of TheOilTrader.com.
But in the absence of any fresh news, it was possible that crude prices would continue to drift at current levels around $90 a barrel as the Christmas holidays approach.
“I think market has probably hit a bottom and we could stabilize around these prices, maybe just get back into the $90’s through to year end,” he said.
Reports that the U.S. is to continue to press for new sanctions against Iran, despite the publication of an intelligence report earlier this week that concluded Tehran had abandoned its nuclear weapons program in 2003, kept crude prices supported Friday.
Publication of the U.S. National Intelligence Estimate report Monday was seen to add downwards pressure on crude prices, tempering fears of an escalation in tensions that could have ramifications for Middle East oil supply.
But with NATO members agreeing to maintain pressure on OPEC-member Iran over its uranium enrichment program Thursday, the standoff continues to trouble the crude market.
A reminder of oil infrastructure vulnerability to insurgent activity in the region was also served Friday after Iraqi police reported that insurgents exploded a bomb under a key oil pipeline in northern Iraq.
But crude oil supply was not see to be impaired, and repairs at the site, 120 kilometers west of the oil city of Kirkuk, were expected to be completed within a day leaving crude exports unaffected, an Oil Ministry spokesman said.
—By Nick Heath; Dow Jones Newswires
Jefco target on SPWR is $170, stock looking to open up about $6 at $131, the YGE to open strong as well.
YGE might make a nice paired trade long with a FSLR short. I’d say SPWR but that looks a little pricey to me. Just thinking out loud for now.
Oil down $1.40 now, big sell at $90 and then again as we broker $89…purely technical selling from a $3 bounce yesterday. Another volatile day in story but I think more bottom fishes come in as they start to get long again.
On the solars, there is a chart of every one under the sun, cheesy lol, listed on the Odds& Ends tab at upper left. Note YGE with the forward multiple of 2x vs FSLR with the 50x+ multiple.
HAL eliminating COO role, streamlining management team.
Natural gas falling 12 cents now…warming pattern over next 15 days likely to keep a lid on gas prices.
Re #6 Holding APC Dec.$60 Time to exit?
Scoop, I might just do that roll to a longer contract
Once again, group action is very aggreeably green, not tracking oil lower as….see the analyst estimates vs strip and current pricing in the post. 4Q numbers are a long way off but people are realizing now just how big a beat the E&Ps are going to have.
Looks like a little bottom fishing going on in the refiners this morning. This is shaping up to be a slightly improved week for cracks.
Doom and gloom from yesterday
“Market is undervalued”, Goldilocks”, Etc., etc, and so on.
My take – MER lowers plastic to sell. Goldilock that.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7b0929815E-D464-4264-ACB4-0E6E8BDB3D85%7d&siteid=yhoo&dist=yhoo
Z PAIRED TRADE:
YGE Dec $35 Calls for average $0.97. Obviously high risk and smaller than the next piece.
YGE March $45 CALLs for $2.50
…nothing like a Chinese solar stock trading at 5x 2008 and 2x 2009 expected earnings.
FSLR Jan 160 PUTS for $4.50 (also high risk but the valuation is not compelling versus the group and I’m going smaller here)
9:55 am EST
Nymex Crude Slips As Traders Reasses Recent Gain
By MATT CHAMBERS
Of DOW JONES NEWSWIRES
NEW YORK — Crude oil prices fell Friday amid low volumes as traders reassessed big gains made the previous session.
Traders said the market could be settling into a range between $86 and $91 a barrel, as volumes slow at the end of the year and more information on the state of the U.S. economy and winter fuel demand, which will be dependent on Northern Hemisphere temperatures, will be the most likely drivers of prices.
Light, sweet crude for January delivery on the New York Mercantile Exchange was recently down $1.64, or 1.8%, at $88.59 a barrel. On Thursday, prices rose $2.74 to a one-week settlement high. Brent crude on the ICE futures exchange fell $1.34 to $88.84 a barrel.
“In the last month a lot of people have got out of the market and there is the possibility they might not come back in until next year — the question is, which side will they come in on?” said Gene McGillian, an analyst at TFS Energy Futures in Stamford, Conn. “Unless there is some major geopolitical event, the main focus is going to be the state of the U.S. economy and oil demand going into winter.”
In the month to Dec. 5, open interest in crude futures, or the number of bets on a price move still open, fell by 125,297 to 1,388,065.
Oil prices have been volatile in recent trading, falling Wednesday despite the Organization of Petroleum Exporting Countries refusing to raise output and a huge fall in U.S. stockpiles. Prices then shot higher Thursday, erasing the week’s losses in what some traders said was a reassessment of Wednesday’s news.
Other factors the gain was pinned on were a U.S. government proposal to assist homeowners hit by the subprime mortgage closure to avoid foreclosure and stronger growth forecasts for China.
“Providing a fundamental explanation behind yesterday’s strong advance is extremely difficult — 10 different analysts would likely provide 10 different reasons for the rally,” Jim Ritterbusch of trading advisory firm Ritterbusch and Assoc. said in a research note. “This week’s trade is likely providing a portent of things to come as reduced volume ahead of the holidays is apt to associate with huge daily price swings in both directions with little fundamental rationale behind the moves.”
Front-month January reformulated gasoline blendstock, or RBOB, fell 2.93 cents, or 1.3%, to $2.272 a gallon. January heating oil fell 4.96 cents, or 2%, to $2.4954 a gallon.
—By Matt Chambers, Dow Jones
Good point on plastic…huge exposure there …see Congress is getting involved in a “no consumer left unswaddled” fasion.
re the story above…so traders are reassessing the reassessment of oil prices…Ritterbusch is right. I wonder how I go about getting quoted by Matt everyone else does and that Rintoul character he sometimes quotes from the oil trader is a giant tool.
tankers and drybulks putting on big moves today. thinking about dipping a toe in tanker leaders TK, OSG, maybe TNP and NAT and VLCCF – lot of speculation that cartel members will ship over quota and that Saudi will turn a blind eye to cheating up here…VLCC rates are through the roof at $126kpd now
http://www.intertanko.com/templates/Page.aspx?id=18831
Good Morning,
Z -or anyone else-any thoughts on this bill about carbon sequestration? Cramer mentioning it last night-coal stocks selling off?
Thanks
Also I would like to thank Bill for all his help on the tankers/shipping
And Sambone-your timing was good!
Z – Here is Matt’s E-mail
matt.chambers@dowjones.com
my tk and fro calls are kicking butt! not to mention pbr, oii, and tsl puts.
D – I looked into the tech of it awhile back…didn’t see a public play that looked legit to my memory. I think Wiki has a good come up to speed on the concept fast page here:
http://en.wikipedia.org/wiki/Carbon_capture_and_storage
Check out the estimate increased cost to power plants for implementing (20 to 90%) with a 10 to 40% increase in the energy requirement for the plant to compress and or inject the gas. Won’t work everywhere as you don’t alway have a geological formation nearby to put it in…could build a pipe to the nearest one or an ocean but again, wow type costs.
I personally think it can technically work but the whole point is moot if China, India and others don’t buy in. Also, you’ve got to get all the volcanoes on the planet to stop errupting…big source and they aren’t talking. The bill will get vetoed and Boxer and Pelosi won’t be able to round up the votes.
Hey T – did a paired on solar today, long the cheapest, short the most expensive.
T – nice on the TK and FRO…should have put my own analysis to work earlier.
rfu is the rig/gsf combo right?
thats sometimes my problem…. analysis.
saw tat trade, nice work. i might go with puts on fslr soon too if we get a close below 210
so much easier just to trade DO and not worry about it, lol. Friday = brain dead.
energy group looking a little less red now with oil down $2.
HK looks like it’s going to put on another move here which is odd because I even got my dad in the other day. Usually this is a sure sign of doom for a stock although it does give him something to jab me about in front of the relatives over the holidays…maybe I should get him to buy some SU, lol.
Itchy trigger finger for the tankers.
ZTRADE: PBR Jan $115 Calls for average $4.75.
10:49 am EST
Nymex Crude Hovers Near $88/Bbl
DOW JONES NEWSWIRES
[Dow Jones] Nymex crude continues to slip in quiet trading, and is now down $2/bbl at $88.23 after briefly slipping as low as $87.97. Traders aren’t putting too much stock in the move after a close to $3 rise Thu that most are finding it hard to put a reason on. Most are saying to expect volatile trading heading amid low volumes as many funds step away until the new year.
(matt.chambers@dowjones.com)
Sam – I think Matt would want me to lose my pen name.
True, true
OSG just exploding…without me.
ZTRADE: TNP $37.50 Dec calls for $1.10.
Brian, if you’re around COP is making a valiant effort for you to get to $85.
Hey Z…Nuts as hell finishing up the semester…But I’ve been lurking…Hoping COP gets there, thought the HK, NFX, and CHK stuff was going to be dead…They are all showing signs of life…Almost pulled the trigger on more JAN NFXs when it was in the $48s, but everything I had was getting killed so I didn’t…Bad move there…
Forcasters are already predicting next years cane season. Talk about sticking your head out, especially after this years way off the mark performance.
http://www.reuters.com/article/homepageCrisis/idUSN07299266._CH_.2400
I had enough trouble taking notes, ogling chicks and at times staying awake in B school without the added distraction of trading options. You kids these days.
Energy getting greener. Including FSLR which has had a 11 point swing in the last hour 🙁
Thanks P – I put as much credibility in that forecast at this early date as I do in a Ouija board. I’m going to go out on a limb and say next summer will be warmer than this winter.
Z, haha…Kids…I appreciate it…I look like a kid, but my birth certificate would say otherwise!! Yeah I think that’s why my trading has been suffering…Too much work, too much job search, too much with the ladies…
B – Never a prob with “too much with the ladies”. Keep up the good work!
HAL – Executive team maneuvers before a possible major change? The shuffling seems odd right now.
Slow Friday, ZZZZZZzzzzzzzz.
Soulstation Manager: Mr. Phelps, I see you’ve listed “dabut” under your hobbies?
Leon Phelps: Yeah, that’s “da butt.”
HAL: I think its a message to the Street that they are on the financial efficiency case…probably been coming since the CEO went to live in the mid east.
Just saw there is a lot of activity on $80 puts on the February crude contract
FSLR – up $12 nice time z
vroom vroom vroom – mo mo stocks!
what is this news bit about FRO z?
don’t see any
ooooooooh, it’s a laaaday
BT group to buy entire issued share capital from FRO for $220 m
that’s an IT firm, Frontline Technologies
Freight Derivatives Surge After South Korea Oil Spill
http://www.bloomberg.com/apps/news?pid=20601072&sid=aOHos3lR30gU&refer=energy
i hate when they screw up news with wrong companies/ ticers
brian- where do you want to work when your done school?
Popeye – thanks for that…you’d think a stock like DHT (double hull tankers) would be up more on the day, especially given the groups action.
T re Brian: he’s trying to decide between the White House, Wall Street, or Ricks Cabaret in NOLA.
This report makes me want to own more RIG
http://www.deepwater.com/fw/main/Fleet_Update_Report-58.html
z- did you read that article?
Ricks Cabaret in NOLA. ??/
Sam – I have not yet looked it over but it is almost always good, no reaction today after yesterday’s big move, I too will get back in (again) next week.
T – which article, #49 or #53? #49 yes , #53 is their 8 page monthly fleet update and no, not yet.
Ricks is a great little club where part of my bachelor party took place…I thought it made sense under the ladies man part of his resume
what are your main takeaways from that article on forward rates? guys with double hulls will seem to benefit. i didnt know there were many single hulls still in comission….. pretty low tech- glorified pirate ships
there are plenty still in service, SFL is making a chunk of its dividend selling theirs off. Others are being converted to drybulk. Not sure about the big boys like FRO and TK but think their fleets are majority double hull now. DHT stock all double hull, hence the ticker
think i get some follow through on this rally with TK $ FRO? looks like momentum is just starting to build to me. drys is starting to ripen in my eyes.
fro looks to me that in the past after it has large open gaps, it builds higher slightly, than fills it.
T – that’s what I’m think, maybe another surge Monday or Tuesday. Difficult to judge of course but my TNP has tankers and dry bulks and is cheap to boot.
you were saying that CHK will become the biggest na ng player this year, who’s the biggest right now? XTO? i received a investors package from XTO the other day and its quite impressive. my mom was asking me for a nice 5-10 yr play energy stock, i was thinking chk has mre room to grow.
tnp has broken out of a trading range on decent volume, i think this might turn into a decent trade for you.
Oil giving back all of yesterday now, down $2.80, much bigger hit than the products are taking on a % basis which is helping the refiners stay green today. I’m impressed with names like APC holding up so well right now …not seeing the selloff you would expect especially in light of the moves they had yesterday. Think this is a buying opp on names like EOG.
T – its a major, then DVN, then CHK if memory serves. CHK definitely has the largest drilling inventory for gas lined up in the states.
spot vlcc day rates +$15,000 today!
do you have any idea what xto’s crazy rally was all about yesterday?
T – XTO is another good gassy E&P but yesterday it was just trading strong with group, no news I see.
STO missing numbers, getting clocked
NXY should be getting popped but its defying reason.
Again, this is not bad action on the group given oil and ng getting crunked. DO and RIG flat on day, APC flat…I’m a gutless punk for not taking some EOG calls here…that one just feels higher to me.
SD and CLR doing very nicely. SD might be another you want to look at for a long term stock hold. They said some massive numbers on the 3Q call that I need to go back and listen to again to make sure I got them right
FSLR probably not a bad entry on a short,$10 up barely moved the Jan puts I took and it looks like a fade could happen here.
Sam – they’re starting your favorite movie on Spike now
little bird telling me the’re running out of 1 on 1 meeting slots at the Johnson Rice conference in late January for PQ.
anybody follow WEL (Boots & Coots)? any news on what’s driving the price up? Who’s wells were torched?
A – those guys are more diversified now. I have another little bird who’s close to the story. Will get back to you over the weekend.
XOM going positive, group response to down $2 oil and down $0.18 ng is very good.
Yeah, I know they’re in the rental biz now.. I like them and have a position with them… enjoying this move! Looking forward to the news, thanks Z
Hey T, Re: #51…I want to trade, for whoever and wherever I can get the chance to…Tough in this market especially since I don’t have any “real world experience”…Had a few interviews but no takers…Had an interview with an energy trading firm that I just KILLED because of all the stuff I have learned on here…I don’t know what the hell they were looking for because I didn’t get final rounded…Unless I was up against a bunch of former energy traders there is NO way that I shouldn’t have been final rounded…I’ve learned so much here it’s nuts!
Z – #68, I don’t watch TV during the day. So “Glen or Glenda” is on?
re: WEL…probably because I sold my shares yesterday
sam – goodfellas, lot better than the tripe on CNBC on a Friday.
Sambone knows that one by heart.
You’re a funny guy!
apbd
Funny CNBC antecdote (sp?)…I have a professor that has appeared on CNBC before and let’s just his comments were that some of the anchors have NO clue what the hell is going on relative to business…Like not knowing the difference between liquid net worth and total assets that a person has…I thought this was hysterical as I just assumed that these anchors were either MBAs or had BS/BAs in business…
bought some rig jan 135 calls, i bought the old company i think lol. who knows what i bought, it was the 1.75 for an ATM call of a 135$ stock – the other one is $6.50, i thin it represents fractional shares though. im going to dig through occ sheets and get back with what i uncover. is their like an occ type site for dummies?
Z – Nah, ya got it wrong, my favorite all time movie is Battlefield Earth. With lines like this, how could you not love it? “You… Hungry, little fella? Want some rat? It’s good!” LOL
Brian – Remember, “Those that can’t do it, teach or go on CNBC” LOL
Sam, I have more respect for teachers than I do for the people on CNBC…Let’s just say Maria is lucky she is hot…Otherwise she sounds pretty dumb from what I hear…
5 minute to “Tini time”. Everybody have a good weekend. Z, hope eveything turns out OK.
B – Now you know why I don’t watch the “talking heads”. Waste of energy.
B – never let it be said there aren’t smart folks (Faber, Kernon) there and several guests but on the guest I don’t trust their motives and the energy chicks just regurgitate what they’re told…little “analysis” involved.
Sam – thanks
not a bad considering the commodities…good week for the stocks compared to other groups and oil and gas.
Beer Thirty…see ya on the weekend side and have a great one!
has anyine see what happens to FRO when the stock goes ex-dividend? drop…… ex-div date the stock falls by the same amount as the amount of the dividend. bri- hope they taught you thins in your intro to capital markets class….
Mr Bill, do you now when q4 dividend report date is? not to mention ex-div date- d-day.. from what i can see of the mess of div distributions and announcements march looks like the next likely intervention.
am i fretting for no reason? ive never played options on yield rich equities…. doses the option get punished for the dividend payout on ex-day?
such a weird industry, so fragmented, and volatile