Wrap – Week Ended 12/28/07


Did You Know The Cost Of Subscribing To An Investment Newsletter May Be Tax Deductible For YOU? As always, I don't provide advice (especially not tax advice!) but I would suggest consulting with your tax professional as you may be able to write ZEB off.


Energy Sectors Continued To Outperform ... No matter how many talking heads spent the month saying, "buy the financials, avoid energy" they couldn't keep a cheap energy sector down. In case its hard to read on your screen: S&P 500 in yellow, XOI (the oily stocks) in blue and the gassy XNG in red. Note that were it not for Energy which is roughly 15% of the S&P that benchmark index would have been sorely in the red for the final month of 2007.


... Of course rising oil (yellow line) didn't hurt the XOI (blue line) and nobody paid attention to languishing natural gas (red line). Gas traded sub $7 briefly on two separate dates until the thought that a reversal to YoY storage deficit and a most trimming of the surplus to the 5 year storage average buoyed prices. Gas closed Friday at $7.34. Weather of course will remain key but we have another easy comp (49 Bcf) to close out the year on this coming week so I think we should be safe unless some forecaster says break out the Bermuda shorts in January. By the way, the degree day forecasts have been low to actuals for the past 3 weeks and I expect the same to happen when they release last week's readings Monday morning as the weather outside has been frightful.


Oil Hits 1 Month High. Suddenly the recently flipped are flopping (and saying they told you so all along!). While I'm not a fan of $100 oil I had thought:

  • that fundamental tightness (more global demand than supply) would drive oil inventories lower through 4Q (Check!)
  • and well into 1Q08 (we'll soon see)
  • and that this would keep oil above what I saw as a technical breakdown level at $86 (so far, so good)
As I've said fairly often of late, I'd like nothing more for oil prices than to see them settle back into the mid $80s. The E&P companies will do just fine there, the refiners and majors would benefit and oil service would be unaffected. A breach of $86 and you could get an exaggerated move that tests $80 which would cause us to consider taking some quick puts on some of the more high flying AND high multiple names both north of the U.S.-Canada border and in select parts of the oil service realm. We'll talk some more about "what if" plans next Wednesday. But I digress, please see Wednesday Post Watch below.

CFTC Shows Speculative Natural Gas Shorts Getting More Confident. Longs are dribbling away while shorts are apparently getting more sure of a move to the downside. 


At a net short count of 113,000 contracts we are only a stone's throw (8%) away from the record short interest at the end of July 2007. The covering of these shorts (upon cold weather, large withdrawals etc ) could keep gas prices north of $7 for months. 

Gas Storage Review. Since the government inventories were delayed until Friday, here is what you normal see in Friday's post.


Holdings Watch: Kind of a slow week for trades but good for performance as we were almost entirely long, click the ZEB Holdings tab for an updated list.

By the way, while on the subject of holdings, I've noticed some of the higher priced, generalist option trading investment sites say they don't show performance or track their trades publicly. Without naming names, these $400+ / month sites (like Option Monster, ok so I named one) will give you two picks a week and not tell you when they got out or the price they got in at or what the G/L was on the trade. They don't do this they say because that unless you entered and exited the trade at the exact same time as them that tracking the performance is useless. We do not take that position here. We had a great month in September, a better one in October, a lousy one in November and a pretty good one to date in December. You can see the good, the bad and the ugly on the holdings tab. Sure subscribers who take a few or all of the trades I do will have varying levels of performance to ZEB but it lets you know if I'm on my game. I guess I'd have to 1) be a talking head on CNBC and 2) grow a pony tail to understand what they are saying about not tracking performance. I have no desire to do either. 

Wednesday Post Watch: Prognostications in the Wednesday post for 1Q08 oil and gas price ranges with some what ifs for E&P and the refiners. Some thoughts on solars, tankers, and the dry bulks as well. Don't miss it! Not sold in stores, not seen on TV. Why only one quarter you ask? Because this options land pal. Ok, ok, I'll have some longer looks too as we do write those stock reports under the reports tab for the stocks as well.


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