Tuesday Morning – Refiners Set To Bounce On Valero Beat

Commodity Watch:

  • Crude Oil rallied $0.28 to $90.99 reversing a big, broad market related decline early in the morning. OPEC meets on Thursday-- and they appear to be dead set against increasing production levels. Analysts and traders came out of the woodwork early in the day pointing to lower crude but by about noon it was clear their tea leaves were burned. This morning crude is trading up slightly this morning
  • Natural Gas jumped 11 cents to $8.095 as traders took note of the colder than expected weather last week and the "season high" gas storage withdrawal that weather will bring this Thursday. Last week saw a sharp reversal in the net short position and traders have got to be saying things like,"warmer than normal my butt." Natural gas is trading off a little this morning but is holding $8.
  • Imports continued to run light to last year. Last week both LNG and piped volumes from Canada chalked up lower totals versus year levels.
    • LNG was down 1.0 Bcfgpd from year ago levels to 0.7 Bcfgpd
    • Canadian volumes rose sequentially but were still down 0.7 Bcfgpd YoY coming in at 8.9 Bcfgpd

Coal Stocks Running Extremely Low In China. According to Apache, China's largest power plant has less than one week of coal stocks remaining. This fact is part of what's behind the past week's rally in U.S. coal, rail, and dry bulk stocks. By the way, China's economy grew at 11.4% in 2007, the highest rate since 1996 and is showing few signs of significant slowing despite all the talk to the contrary.  

Refiners begin reporting today so when better to update cracks. Margins are still languishing but may be turning up a bit as seasonal factors and maintenance season come into play.




Earnings We Care About Today:

VLO Reports A Blowout Compared To Estimates. Reported 4Q07 EPS of $1.02 vs expectations of $0.64.It's clear that refining analysts have no clue how to model companies in this industry. Falling cracks have led to falling estimates without regard for the expanding sour and heavy crude discounts during the quarter. Just abysmal modeling and I'm glad to be out of the names as they report. (FTO) should benefit from this increase in the sour crude discount and I may nibble there. Conference call at 11:00 am today. 

IOC Watch: I'll have a report out here during the day today.

Odds & Ends

Analyst Watch: nada.

Apologies for the short post. I have whatever plague is floating around and am barely here.  

68 Responses to “Tuesday Morning – Refiners Set To Bounce On Valero Beat”

  1. 1
    zman Says:

    VLO up $5 which looks like too much of a bounce … yes they beat earnings by a lot but the performance was still pretty shabby and there’s nothing in the press release that says we’ll see anything like 2007’s margins any time soon.

    DRYS up $4.60 – woo hoo

    SII getting pounded on lackluster guidance

  2. 2
    zman Says:

    In drybulk news:

    EXM to buy QMAR for a 20%ish premium

  3. 3
    zman Says:

    knock, knock, this thing on?

  4. 4
    redjack Says:

    good morning…

  5. 5
    zman Says:

    I suppose it would be better if I’d have gotten back long the refiners…will listen to the conf call for VLO at 11 est….guess some other people thought FTO would benefit out of those wide heavy sour spreads too.

  6. 6
    Nicky Says:

    Morning all. Still waiting for energy to finish playing out this little correction before turning back down in v of A – it may be showing signs of doing so this morning. Something more bullish could be going on ie A may be done and we are in the process of B in which case we could go quite a lot higher.

  7. 7
    Nicky Says:

    Broader markets also tracing out a wave 4 correction which I expect to go on for a week or two more. Short term we should top out today or tomorrow and probably move back to somewhere between 11800 and 12000 on the Dow before attempting another corrective wave higher.

  8. 8
    Nicky Says:

    SPX has resistance at 1370 region.

  9. 9
    kaman Says:

    Ah Valero, the prodigal stock…where the h*** have you been?

  10. 10
    Nicky Says:

    Sorry to hear you are ill Z – I was hit with something ten days ago which knocked me for six for about 5 days so know how you feel.

  11. 11
    zman Says:

    Nicky – where do you see resistance on oil.

    EXM/QMAR to make largest U.S. listed drybulker. Bill- any thoughts here. I’m staying long DRYS for now but getting tempted to take profits.

  12. 12
    zman Says:

    K – check out FTO, you’d have thought they reported that beat, not VLO, lol.

  13. 13
    zman Says:


    IOC March 20 calls for $2.90. I’ll have a piece on this out shortly.

  14. 14
    Nicky Says:

    Z resistance above the overnight high of 91.94 is at 92.20 and then near 93.

  15. 15
    zman Says:

    IOC report out if you refresh your browser

  16. 16
    freeflow Says:

    Nicky – do you still think we’re on track to hit Dow 12600 then back down to 11,000?

  17. 17
    zman Says:

    Thanks Nicky on the resistance, where do you see support? And I second freeflow’s question.

  18. 18
    zman Says:

    IOC trade in a nutshell.

    I posted a piece on these guys just a minute ago but in a nutshell.

    They drilled a very big well in the fall of 2006 and the stock shot up. The well was gas in Papua New Guinea which tells you it needs to be big because there’s no local market so its LNG or nothing. They drilled a second well last year to try and prove up the aerial extent of the find, it came in wet but with high porosity. They’re drilling a third well now. There should be some news out here in the next few days as the well should be nearing or in the pay zone at this point. The outcome of this well will probably send the stock to either 10 or 30 from its current 19. By mid to late February they should be able to test the well at which point success would yield another leg up. I’m long the calls but asked Phil of Philstockworld to come up with some more complex plays which I’ve included in comments at the bottom of the IOC post.

  19. 19
    kaman Says:

    IOC interesting story….alternately just go long (small position?) in common and marry with a March put? Premium for latter looking abit expensive though.

  20. 20
    zman Says:

    K – I’d say yes except the premiums are a bit expensive. Did you check out phil’s plays? They take advantage of those steep premiums.

  21. 21
    zman Says:

    Ram – Aubrey buys another 90,000 shares of CHK

  22. 22
    zman Says:

    HAL starting to work

    VLO call uneventful so far

    see higher margins soon

    continue to see wide heavy sour crude discounts —this is what is launching FTO this morning. I’ll be in on a pullback there.

    go DRYS go

  23. 23
    kaman Says:

    Z- I followed you on HAL calls, do you have an exit point in mind?

    Similarly for DRYS, what’s your re-entry criteria?

  24. 24
    Nicky Says:

    WTI – support is at 89.95 and then 88.78.

    Freeflow – we are tracing out an abc correction for a wave 4. Its difficult to know at this stage what shape 4 is taking. It is possible that we have done a and b and we are now in c straight up which could in fact go up to about 13200 or only as far as 12600 – 700 (not helpful I know!)and 1434 on spx. Alternatively we are still in the b part which itself is 3 waves and we need to see the (c) wave down before we see C up.
    If it plays out like that then we could see a correction starting anytime now which would take us back towards 12000or lower before we make the final corrective move higher towards the levels stated before.
    A move above 1371 spx would confirm we are in C up.

  25. 25
    zman Says:

    ased on what I’m hearing on the VLO call, California market shaping up to be very interesting this Spring. May take a little TSO on a pullback. I’m here if any body has questions but otherwise since the site is pretty dead today I’m going to catch up on some reading.

  26. 26
    kaman Says:

    Sorry Z, one more…OXY call today? Any plays?

  27. 27
    scoop006 Says:

    ZMAN- Any thoughts on FSLR $170P’s?

  28. 28
    zman Says:

    K – re HAL – its just starting to work…despite the beat on the quarter. Exit depends on price and time but I’m thinking of selling closer to 35 this week or 34.50 next.

    DRYS – I’m long now and would be getting long here if I weren’t…Chinese New Year approaching, the anecdotal comments re China coal stocks very interesting…demand for shipping about to pop. I may take profits soon and add longer , higher soon.

  29. 29
    dmh Says:


    Alternative count for DJ-30. We may have completed the first leg down, an ABC from Oct high. A move above 12724, (11/26 low) would tend to confirm, I think. Otherwise your count is correct with a 5th wave down to come from Oct high.

  30. 30
    Nicky Says:

    WTI just seems to be following the DOW – feels like it should be a lot lower.

  31. 31
    zman Says:

    K – RE OXY I’m not close enough to that one for my thoughts to be very valuable.

    Scoop – I’m waiting…not sure if this is a over-reaction to the earnings of others or a broker comment or what but what a rally. I was thinking of letting it run higher, lets see if it can get through 200 and if that, then through 220 before taking a put. If you are very fast you might me able to score on a day trade but that’s pretty vegassy, lol.

    Nicky re WTI vs Dow – agreed, this is pre rate cut trading. Last I saw, most are still expected a 25 bps cut tomorrow, right?

  32. 32
    Dman Says:

    Q4 earnings after close on Feb 13
    Call scheduled for Feb 14 8:30 am

  33. 33
    kaman Says:

    Stepping out with you on DRYS, technically (for last three months anyway), its pulled back everytime its approached middle BB….lets hope China coal situation and iron ore contract neg.s are a catalyst. Go read and recuperate. (Rx: Old GrandDad will scare the hell out of most cooties.)

  34. 34
    zman Says:

    K – ok, I’ve got to know what Old GrandDad is, lol.

    Dman – thanks will add to the list.

    I am so kicking myself for not scooping FTO this morning, had in the post and everything as a beneficiary of the trends that helped VLO to a beat. aaaarrrrgggg.

    IOC drifting higher.

    RE DRYS – I show it just through its sma (mid way between the bolli bands) which you are quite right in point out have been the top for it since October.

  35. 35
    kaman Says:

    EDT Frontier Oil-FTO upgraded to Buy from Neutral, target $52@GSCO :theflyonthewall —-today

  36. 36
    Nicky Says:

    DMH – you saying the first leg is done and we are now in 2 up? Not quite sure why a move above 12724 would negate the other count?

  37. 37
    kaman Says:

    HAL moving up nicely

  38. 38
    kaman Says:

    You’ll find OldGrandDad on a much lower shelf than Wild Turkey and Makers Mark…within easy reach from my usual position. LMAO

  39. 39
    zman Says:

    Note On the IOC Post: I posted an early draft by mistake. The updated version is on the site now. My apologies for any confusion this may have caused.

    K – right next to the Mad Dog 20/20?

  40. 40
    zman Says:

    gas failed 8, warm weather in the south at least, plus warm forecast for the northeast. whole market looks to be deflating a bit.

  41. 41
    freeflow Says:

    IOC calls have deflated – stock basically unchanged

  42. 42
    Nicky Says:

    Z – re #31 – market seems to have priced in a .50 cut. Not quite sure how it is going to react if we only get 0.25.

  43. 43
    zman Says:

    FF – Re 41. So much the better for those who haven’t bought it yet and for those who have, if the news is positive, this won’t matter at all.

  44. 44
    Nicky Says:

    wti seems to be pricing in a 0.50 cut too!

  45. 45
    freeflow Says:

    What I have found from my past 24 months of trading is that once the Fed does whatever it decides to do – the market reverses the gain – or loss – the next day.

  46. 46
    freeflow Says:

    RIG down $3 today – any thoughts Z?

  47. 47
    Nicky Says:

    Market is way too optimistic about a 0.50 cut tomorrow…

  48. 48
    zman Says:

    Rig off $3 or $2.50 is just noise in this market pre earnings. Weakness in all the offshore deepwater drillers today…don’t see any reason for it. A rumor is going around about another acquisition in the group but it won’t involve RIG. Most likely DO for ATW.

  49. 49
    zman Says:

    Nicky – the market has a very short memory. Oil is just following it around by the nose too.

  50. 50
    zman Says:

    Did anyone see if Goldman raised any other refiners besides FTO today?

  51. 51
    zman Says:


    BTU FEB $60 Calls for $1.75 on $2.50 pullback in the common today. Earnings Thursday.

  52. 52
    zman Says:

    IOC – seeing some nice pick up on bid side volumes in the feb and march calls.

  53. 53
    Nicky Says:

    Line in the sand tomorrow is 1371 for spx. If we should take this out then any subsequent pullback is going to be shallow until this correction has played out in the next week or so. If we hold 1371 then we could see a very steep move to the downside….

  54. 54
    dmh Says:

    Re DJ-30 count. If the move from Oct high is panning out as a 5 wave move:
    i ended at 12724 on 11/26
    iii ended at 11634 on 1/22
    if iv is in progress it cannot overlap the end of i at 12724. If it does then the whole move from Oct-Jan 22 counts as a probable completed 3 wave ABC, not a 5 wave move.

  55. 55
    Nicky Says:

    I was wondering what was causing the big rise in energy since the close and found this:

    Weather condiions have caused the shut-in of some 350kbd of oil from tar sands production, in Canada.
    It is not yet known how long the outage will last.

  56. 56
    zman Says:

    Nicky – just saw that. Given the push of this arctic system quickly across the mid west and into the south I’d also say that the CPC has yet again underestimated HDDs for this week. Notice you don’t see Al Gore much when its this cold, lol.

  57. 57
    Nicky Says:

    dmh – you are quite right regarding that count. However last weeks low could be (i)(first wave of lesser degree) placing us now in (ii) which would likely rally higher than the wave 4 target, say towards 12900.
    Same old problems with Elliott wave – too many counts!
    That said as lower cycles are still expected into March I do not think we have seen the bottom yet.

  58. 58
    Nicky Says:

    Z –

    Whilst this is a significant shut in of short haul imports to the US it is likely of no longer term impact than the Enbridge pipeline closure of a few weeks ago. Therefore it seems to me it will cause a temporary spike in prices. Shows how keen the bulls are to take control again though doesn’t it?

  59. 59
    zman Says:

    N –

    Market is looking for anything concrete, no matter how thin, to hold on to. The completely unpredictable “recession, no recession” trading is getting pretty annoying.

  60. 60
    Nicky Says:

    Agree Z – the swings are so wild its absolutely crazy.

  61. 61
    zman Says:

    So its 25 or 50 bips for tomorrow as of the latest opinion polls? I don’t see 25 making anyone happy and the Fed seems to want to make people happy these days. But then again, didn’t they just get fooled into the 75 bip cut making 25 more likely tomorrow?

  62. 62
    Nicky Says:

    0.50 is absolutely priced in by the fed funds futures and everybody is saying they must do .50 as the market is expecting it.
    Thing is surely one could argue how the heck bad are things if they need to cut another .50. These are the same people who only went 0.25 in December – so what has changed so drastically that we don’t all know about? This is more drastic than the cuts around 9/11.
    So if they do .25 the market could fall hard UNLESS the language infers they are ready to cut again. But remember they don’t meet for another two months.
    That said the funniest thing I heard today was Jeff Mackie on Fast Money who when asked said they would do 0.25 tomorrow and another 0.25 on Thursday when the market starts to fall apart!

    If the following is the real story – then I hate to think where this is all going to end:


  63. 63
    Nicky Says:

    Does he dare disappoint the market too? He must know the expectations and what the result will be. Funny thing is even if he cuts by 0.50 isn’t that priced in now anyway. ie too many expectations for a huge rally? economic data really isn’nt supporting a .50 cut either.

  64. 64
    zman Says:

    The silver lining is if you are quick you can get a nice refi rate this week.

  65. 65
    Nicky Says:

    well chances are rates are going to go even lower yet. he will keep going until there are no bullets left!

  66. 66
    zman Says:

    Today may be a good day to take on the APA for earnings.

    What is up with service?! SLB just dragging everything lower. Anybody see a sector downgrade today. I’m reading a lot of positive stuff on the deepwater obviously and HAL’s call went swimmingly to no avail and I’ll bail soon if this doesn’t correct in the afternoon…stinks to be right and have the stocks go against anyway… RIG bleeding off as well….I must be missing something.

  67. 67
    zman Says:

    Like I said, Ben is our pimp and unless he keeps upping the dosage this market is going into the dry heaves.

  68. 68
    zman Says:

    Do you think this stuck down 40 dow is just worry that he’ll do the 25 bips and not the 50?

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