Wednesday – EIA Oil Preview

The Fed cut the Fed funds rate by 75 basis points yesterday to 2.25%, in what should have been disappointing news for this rate cut addicted market (a full 1% had been widely expected). Read the Fed press release here. The market soared to another one of its best days on record following the release. The energy sector paced the broad market's gain. This morning the market is trying to digest yesterday's gain and more bank earnings news.  

Commodity Watch:

  • Crude Oil: recouped a majority of the profit taking losses seen in Monday's session with crude April crude rising $3.74 to $109.42 in its next to last session before May becomes the front month. This morning crude is trading back off 2.25.
  • Walk Softly And Sell A Lot of Oil Watch: Have you noticed how quiet the Nigerian Delta, Caracas, and Tehran have been of late?
    • In the case of Nigeria it is especially odd to hear little out of MEND as one of its leaders still remains jailed.
    • Hugo Chavez made nice with Columbia just after threatening war on March 3 having branded Columbia the Israel of Latin America and President Uribe a criminal and the leader of a terrorist state (but that was 2 weeks ago when oil was flirting with falling back below $100), (note to Chavez, whatever you are on, increase the dosage)
    • In Iran, Ahmadinejad suffered a third round of UN sanctions with barely a reference to the annihilation of Israel (that's actually kind of scary as it makes me think his nuke program is gaining traction but it could be that Iran is just busy taking care of business).
    • Interesting what motivates these folks to be peaceful.
    • Oil Price Deck Assumptions On The Rise. Analysts are taking up their full year 2008 oil price forecast on an almost daily basis (Merrill, Citi, Goldman all in recent days). The result is that energy producing stocks that are trading near 52 week and all time highs are not as expensive as the broad market on a forward PE basis. Estimates on the whole are still well discounted to the strip:
      • Crude 12 month strip: $104.44
      • 24 month strip: $102.60
      • Analyst Estimates:
        • 2008: $82.34
        • 2009: $78.97
  • Mexico Oil Reserves Watch: Down by HALF in 6 years. Reserves fell for the 6th consecutive year, reaching an estimated 14.7 billion barrels in 2007, down from 30.8 billion barrels in 2001.  This should prompt further cries for bringing in foreign investment to accelerate/facilitate development of Mexico's deepwater Gomex reserves, but I wouldn't hold my breath. President Calderon backs reform but the Mexican Congress in large part continues to be vehemently opposed to outside investment in its oil industry despite years of decline.
  • Reserve replacement is running 50% meaning that for each barrel Mexico produces, it only finds 1 barrel to replace it.
  • There is no conceivable way that Mexico can continue along it's current course and remain the number 3 supplier of crude to the U.S. In fact, given the country's continued per capita domestic consumption growth I believe forecasts calling for Mexico to shift to net importer status within five years may be generous on timing.
  • On the brighter side, this is continued good news for the offshore drillers, especially (RIG), (DO), and (ESV).

EIA Inventory Forecast (from the Dow Jones survey)


ZComment: Gasoline inventories have risen for 18 straight weeks. Gasoline demand is starting to pick up seasonally and a growing number of analysts and traders expect inventories to peak this week or very soon. A few are expecting a drawdown on gasoline stocks today and if that occurs you may see a second day in a row (I know, I know, hold me back) of gasoline outperforming crude, yesterday being the first day in quite some time that has happened in any significant fashion. The consensus opinion also expects a modest rise in refining utilization. If we see a draw on gasoline I may play (TSO) and / or (VLO )for a quick (very quick) speculative long trade. The important numbers to keep in mind, the numbers that will keep that trade from having any real duration, are 110%, 112%, and 15 years. Respectively these are gasoline in storage compared to last year, the five year average, and the number of years since we last had this much gasoline in storage.  

  • Natural Gas: Rebounded with rallying crude climbing $0.31 to $9.41, not quite erasing half of the prior day's drubbing. I added some April (UNG) puts - see below. This morning gas is trading of 0.15.
    • Natural Gas 12 Month Strip: $9.96
    • Average Analyst Estimates:
      • 2008: $7.71
      • 2009: $7.90

Stocks We Care About Today Watch:

PetroChina (PTR) Takes Refining & Windfall Tax Hit. 2H07 profits of 63.8 billion yuan trailed consensus of 68.8 billion (they report on the half year, not the quarter).  The disappoint reflects:

  • losses in their refining segment attributable to Beijing's policy of capping gasoline and diesel prices while demanding the company continue to make product. Beijing will occasionally subsidize refiners but the process seems to be arbitrary.
    • on 1/10/08 the state run newspaper China Daily reported: "Prices of gasoline, natural gas and electricity shall not be adjusted in the near future, and charges for gas, water, heating , public transport in cities, and school tuition fees shall not be raised," as the government tries to reign in double digit inflation. 
  • the effects of China's version of a windfall profits tax (PTR paid > $6 billion in "special taxes" in the period). These taxes ratchet up on a percentage basis when world oil prices climb.
  • Analysts are likely to adjust forward numbers here downwards to reflect the recent uptick in prices.

China's largest refiner, China Petroleum and Chemical Corporation, commonly called Sinopec and also NYSE listed (SNP) suffers from the same set of problems. The have not yet reported 2H07 results. The government tells you that you must make product but limits the price you can sell it for and increases the tax burden on you as oil prices rise. Sounds familiar... 

Definitions Watch:  

"Pinning". There are many definitions on the internet so I will add one more, based on my own bought and paid for experience. When I refer to "Pinning Action" or say the stock is getting pinned at $xx I mean the following:

  • 1) Simple Definition. A gravitation towards the nearest strike with subsequent dampening in volatility in the next to last or last day before option expiry. Telltale signs that pinning is setting in:
    • an easy, low volume glide in the direction of the strike
    • followed by back and forth trading around it in tightening standard deviation (think of a metronome running out of momentum or something circling the drain and you've got the right idea).
  • 2) In my experience this occurs more readily when:
    • the stock is near the strike with the highest or next to highest open interest in puts and /or calls,
    • and in underlying issues that have more liquid options trading.
  • 3) It can run contrary to an otherwise sector driven day (as in when the peer group is up 3 to 4% and the stock of the call you are pinned in is flat, slightly up, or slightly down.
  • 4) Pinning occurs in some names with more regularity than others which can yield some nice returns via naked call writing for instance. However, one late trade on the wrong side of the strike can result in you buying and delivering stock to your caller on Monday morning (talk about a case of the Mondays).
  • 5) the cause of this action may not necessarily be as malevolent as some option investors feel it it, especially in issue with high put and call volumes near the strike...here the action may just be traders on both sides the trade unwinding their stocks positions that were hedged with or otherwise linked to options.
  • 6) What to do if you are pinned? Don't panic but sell as soon as you see that volatility ebbing. I have known many a trader (myself included) to try the last day buy for dime and sell for a quarter move only to get pinned, stare unblinkingly at the screen for the rest of the day, finally taking a nickel for their trouble if they are lucky.
  • 7) Pinning = the death of volatility which = the death of premium. When implied volatility collapses all you are left with is the time to expiration and the distance to the strike to determine value (As we're talking about pinning, both of those items are going to be small). This is not advice because as you know I don't do that but be kind to your capital when playing end of expiry games like this.

This entry has also been added to the dictionary. 

Holdings Watch:


  • HK - Out March $15 Calls for $3.40, up 28%.


  • UNG April $45 added for average $2.50.

Odds & Ends

Analyst Watch: Wachovia ups (BBG) to outperform, FBR reducing price targets on the refining group but the stocks remain well below the new levels (seems a little out of touch to take VLO down from $88 to $83 with the stock at $50). 

102 Responses to “Wednesday – EIA Oil Preview”

  1. 1

    Hi Z.

    Boy, DUG or USO puts sure smell good to me.

    I’ve never in my three decades of buying diesel tankers seen a bubble sustain itself like this in fuel pricing.

  2. 2
    zman Says:

    BZP prices 2mm shares.

    Q – Agreed. Diesel over $4/gal. I’d be closer to giving a nod to USO than DUG. Haven’t seen a component list of DUG.

  3. 3

    It’s a double the down side of USO creature. A wild ride indeed, but it’s thinly traded and, about now, near expiry, you can have broad bid and ask gaps.

  4. 4
    zman Says:

    So are DIG and DUG just the 2x exposure to oil itself or do they contain exposure to energy stocks themselves?

    Looks like Visa (V) opening at $65, priced at $44.

  5. 5
    Sambone Says:

    5:39 am EST

    Crude Lower, Market Pauses Ahead Of Stock Data

    Dow Jones Newswires
    From Market Talk
    0938 GMT [Dow Jones] Crude oil prices hold steady around a dollar below Tuesday’s close, the oil markets pause after two days of volatility and as traders await weekly US oil inventory data (1430 GMT). “Under the circumstances, it is difficult to assess where energy markets are going next,” says Edward Meir at MF Global. “However, we believe that prices will have trouble sustaining current levels if they are hit with another set of negative (DOE) numbers out later today.” Nymex April crude -87c at $108.55/bbl, ICE May Brent -98c at $104.58/bbl. (NHE

  6. 6
    Sambone Says:

    V – fast market action, only 1000 shares traded on my screen

  7. 7
    Sambone Says:

    Ask is 250 at the moment on V

  8. 8
    Sambone Says:

    $100 Oil Irrational? Think Again


    LONDON — Consumer complaints about greedy and irrational speculators pushing oil prices above $100 a barrel might be registering with some policy makers but a different view is gaining ground among some oil analysts: Maybe speculators are on to something quite rational.

    Today’s record prices appear to be part of another recalibration higher of oil prices to reflect the rising costs of pumping crude in non-Organization of Petroleum Exporting Countries amid an industry effort to tap more costly non-conventional oil and gas, analysts say.

    Other longer-term factors, such as an expectation that OPEC will seek to defend higher prices to maintain financial stability in member states, are also supporting the move higher in prices.

    “Without a doubt we are seeing an increase in the price base for oil. Things have changed. No one’s quite sure what the new base is. Prices will remain volatile…but we have a duty to understand what is driving these prices,” said Lawrence Eagles, who oversees the oil market division at the International Energy Agency, the Paris-based energy watchdog.

    Speculators have long exploited supply and demand imbalances in the global oil market, often pocketing big profits in the process and getting blamed, as in the current oil price boom, by consumers and politicians for accentuating price movements.

    But speculators — dealers who typically place big bets trying to anticipate prices of financial products such as crude futures — have put their noses on long-term oil trends from time to time ahead of other market players. A recent case was earlier this decade, when crude futures jumped from a norm of around $20 a barrel to well above $30 a barrel.

    The move through that then-record level was initially seen as speculative and irrational. Not long after, $30 a barrel become accepted as reflecting the cost of pumping oil, the IEA said in a recent report. “If (that period) was a speculative push in prices, the speculators were right,” the IEA said.

    The more than tripling of oil prices in the past few years to a record of almost $112 a barrel Monday is delivering heady profits to speculators, OPEC and many energy companies. It’s supported by several factors, including a weaker U.S. dollar and an inflow of equity investment into commodities, but underpinned by a spreading belief that rising drilling costs are here to stay.

    Energy companies such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) among others are increasingly being forced to hunt for non-conventional resources — such as heavy oil in Canada and natural gas two miles beneath the ocean’s surface — to boost their asset bases because they’re largely shut out from developing low-cost reserves in OPEC countries.

    Non-conventional resources like heavy crude oil can require an oil price of around $60 a barrel to be profitably exploited because of the various technical and geological challenges versus around $15 to $20 a barrel needed in the 1990s to crank out more prevalent conventional resources.

    Chevron recently announced that record prices for raw materials, equipment and labor have boosted costs for several projects by an additional $4 billion and delayed a handful of projects, including a giant offshore gas project in Australia, by more than a year.

    While rising costs are likely to level off in the next couple of years, some analysts say speculators and other oil traders are factoring the added costs, along with a tight supply-and-demand balance going forward, into their assessment for crude prices.

    “The rally we’re seeing is not purely about fundamentals…but longer-term costs of finding and producing oil are a key driver,” said Antoine Halff, an oil analyst at Newedge in New York, adding that proof of this development was seen in the regular trade of longer-dated oil futures contracts. “A lot of activity can now be seen on a daily basis at the back end of the curve,” he said.

    Another longer-term concern underpinning higher prices is the waning ability of non-OPEC production to keep up with strong oil demand in fast-growing emerging markets and oil-producing countries themselves.

    Most analysts expect non-OPEC production, which currently accounts for about 58% of the world’s daily oil output, to plateau in the next decade as output falls from aging fields in countries such as the U.K.

    This uncertainty over non-OPEC supply — which also gets built into higher oil prices — is heightened by brisk demand in China and other emerging markets, which are expected to make up most of the growth in world oil demand over the next two decades.

    Big government fuel subsidies in many of these nations to ease the burden of high prices smother price signals that would otherwise give consumers reason to use fuel more efficiently and act as a brake on prices.

    Meanwhile, new oil output capacity in producer countries like Saudi Arabia is often being effectively offset by strong demand in some of those nations.

    U.S. investment bank Goldman Sachs said crude export volumes from the six-nation Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, have been flat since 2000 because of strong internal oil consumption that has neutralized a 34% rise in the region’s oil production capacity.

    A growing conviction is also taking root that members of OPEC, which supplies about 40% of the 87 million barrels consumed each day globally, will have common cause in defending much higher oil prices.

    In a report last week, industry consultant PFC Energy said all 13 of the producer group’s members — not just traditional price hawks like Venezuela — need a much higher oil price than in past years to combat higher inflation, a weakening U.S. dollar and the effects of high levels of government spending.

    The report, based on an assessment of OPEC member states’ macroeconomic conditions, said Venezuela needs a U.S. oil price of $97 a barrel in 2009 versus $94 a barrel in 2008 and $34 a barrel in 2000 to maintain financial stability. The United Arab Emirates requires an oil price of $51 a barrel in 2009 versus $42 a barrel in 2008 and just $5 a barrel in 2000, according to the report.

    Some officials, including Saudi Oil Minister Ali Naimi, say a new floor price for oil may be around $60 a barrel because of the high costs of drilling in more remote areas and developing alternative energy sources like biofuels.

    Other analysts are keeping their forecasts open. “We would go back to our core hypothesis that prices will continue to rise until the market is comfortable about the prospects for longer-term equilibrium,” Barclays Capital said in a recent research note.

    —By Spencer Swartz, Dow Jones Newswires

  9. 9
    Sambone Says:

    V 176

  10. 10
    ram Says:

    Is it too early to get a direction on energy stocks. Does it look like pinning in action?

  11. 11
    zman Says:

    Energy stocks starting red, trying to bounce but it probably means little before the numbers.

    Re #8. That’s a good story and worth everyone reading. I try to present both sides of the current environment (see Mexico above today) without taking on a bullish or bearish caste to my thoughts. Right now, I think oil is a very little bit ahead of itself but that it will likely range between 85 and 120 this year, with the lower levels being briefer and briefer periods. I think a trip below $100 will occur in the next month or so and it if lasts any length of time OPEC will act.

    Ram – no, this is pre number water treading.

  12. 12
    zman Says:

    EOG looking to go green. If it runs well early I will sell March’s pre numbers. I may take the hit on the $125s pre numbers either way.

  13. 13
    zman Says:

    Sam – any thoughts on far underpriced V is coming to market. Where does it value out on an equivalent basis to mastercard or another better comp?

  14. 14
    Denise Says:

    Good Morning-
    Z-if we do go below 100 the refiners should bounce a bit- correct?-yours and others thoughts? bought a little VLO this am

    My T/A lady says she thinks rally should last 3 to 6 wks
    Mr K short term market neutral this am
    “too far too fast” was suprised
    went to a 6-7
    Also thinks hot money leaving commodities
    will have a fast drop

  15. 15
    dmh Says:

    Z. Re DUG

    FUND SUMMARY The investment seeks daily investment results, before fees and expenses, which correspond to the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index. The fund normally invests 80% of assets to financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified. Even though the net asset values of the products closely track spot oil prices, their share prices don’t.

  16. 16



    Here’s a snapshot:

    UltraShort Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM


  17. 17

    Wow DMH,

    Great minds think alike, you got there first! 🙂

  18. 18
    Dman Says:

    Well, hot money is certainly exiting *some* commodity stocks: AUY down 6% after a similar effort yesterday.

  19. 19
    zman Says:

    Wow – E&P coming off fast now, very low volume panic selling in the big cap E&P names.

    D – only if gasoline doesn’t fall % wise as much or more. It would likely help them fundamentally but for the stocks it may be tricky as energy in general may track oil and drag them lower.

    Thanks DMH, Q, so we still can’t tell what’s in it…but if they do their job right and the premiums don’t kill you, why not take DUG over USO on a negative crude bet? If that is your bet. I’m not writing it off just yet.

    Energy stocks ugly early. Need a nice big fat import number to give us another big build in crude to lift this. They usually don’t come in two’s though and last week was record setting for this time of year.

    I detest this red light, green light trading. Market needs prozac.

  20. 20
    Denise Says:

    Lot of chatter about gold being down after Fed cut
    Another way to play is XLB but no shares available to short

  21. 21
    Denise Says:

    So does UNG look like a head and shoulders top?

  22. 22
    zman Says:

    Likely to take a little DVN on weakness after the number (see more detail in comments on last weekend’s wrap piece). This relates to the Chuck well drilling in the deepwater GOMex. No, I don’t know anything other than they are 4 for 6 in this particular trend, the well could be announced any week no, and the target is of significant size.

    Denise – not to me but I’m no chartist.

  23. 23
    zman Says:

    D – you said UNG and I was thinking USO, sorry. Yea, maybe starting to look that way.

  24. 24
    zman Says:

    re UNG. Of course, if oil reverses it will take NG back up with it ya know.

    Ram – I betting pinning action starts after lunch today.

    V – still not actively trading, indications are $55 by 60. Any thoughts here Sam? I was thinking fire and forget for the kid’s college fund (she’s got 14 years so no pressure but let’s keep here out of juco, lol)

  25. 25
    zman Says:

    time to buy the refiners for a trade, big draw in gasoline, first in 19 weeks.

    oil imports fell way off, knew it couldn’t repeat.

    utilization fell from 85 to 83.8% – smart refiners

  26. 26
    Sambone Says:

    9:56 am EST

    Nymex Crude Pulls Back Ahead Of Stockpile Data

    By Gregory Meyer

    NEW YORK — Crude oil futures shed more than $2 a barrel Wednesday ahead of weekly government data expected to show a repeat rise in petroleum stockpiles.

    The contract for light, sweet crude for April delivery, which expires Wednesday, was recently down $2.52, or 2.3%, at $106.90 a barrel on the New York Mercantile Exchange. The more actively traded May Nymex contract was $2.70 lower at $105.80 a barrel.

    May Brent crude on the ICE futures exchange fell $2.49 to $103.07 a barrel.

    Analysts surveyed by Dow Jones Newswires on average expect U.S. data will show domestic crude stockpiles rose last week by 2.1 million barrels, marking the second straight week of increases. Gasoline stockpiles are seen rising for the nineteenth straight week, by 300,000 barrels.

    Distillate inventories are expected to have fallen by 1.4 million barrels, while the rate of U.S. refinery use is seen rising by 0.3 percentage point to 85.3%.

    The data, from the Energy Information Administration, are due at 10:30 a.m. EDT.

    While crude stockpiles have risen every week but one this year, oil futures have rocketed to new records, including an all-time Nymex intraday high of $111.80 a barrel reached Monday.

    “We’re in a funny market now, where the fundamentals seem to have taken a back seat to what’s going on in the wider financial markets,” said Rick Mueller, director of the oil practice at Energy Security Analysis Inc. in Wakefield, Mass. “We’ve had several pretty bearish DOE reports in the last few weeks…and at the same time you’ve seen prices go up.”

    The dollar was weaker against the euro and yen early Wednesday, losing ground after a rally following the Federal Reserve’s smaller-than-expected interest rate cut announced Tuesday. The greenback’s weakness has served as a major factor behind crude’s rise as it softens the blow of high oil prices for consumers paying in other currencies and draws investment funds into commodities as they seek to protect their purchasing power.

    The market seemed to shifting focus away from the dollar in early trading, but analysts said it will keep exerting influence on prices.

    “While today’s EIA stats could force a brief price response, we feel that the Fed decision and associated weakening trend in the U.S. dollar will maintain upside risk to this week’s high of almost $112,” said Jim Ritterbusch, president of energy trading advisory service Ritterbusch and Associates, in a note to clients.

    Front-month April reformulated gasoline blendstock, or RBOB, dropped 6.69 cents, or 2.5% to $2.5931 a gallon. April heating oil fell 8.89 cents, or 2.8%, to $3.0490 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  27. 27
    Sambone Says:

    I’m back – V, Ok let’s talk. What do they do? They don’t lend money, but move the transactions from Merchant to bank for unsecured loans. The risk on the loans is the banks. Visa makes, what 3% per transaction? American consumers are using more and more plastic transactions as time goes on. Look at Debit cards, etc. The risk is that the American consumer will slow down on purchasing over all and that will slow earnings. As time goes on, will Visa transactions stay the same, go down or go up. I think long term (More than 1 year) they will be up. I wouldn’t mind putting my foot in the pool here, but I wouldn’t jump in the pool. I don’t think this would be bad for a college account that has time on their side, but remember it may get cheaper, but who knows. Hope that helps.

  28. 28
    zman Says:

    Sane, any API yet?

    Crude tried to rally on the numbers but is failing back now. Imports fell 1 mm bopd between the two weeks so traders may be thinking that’s pretty anomalous.

    SPR saw 100,000 bopd added over the past week. not smart.

    Its going to take a broad market rally now to save some of my remaining calls.

  29. 29
    sane Says:


    Crude Up 2.5M
    Distillate Down 1.5
    Gasoline Down 768K

  30. 30
    sane Says:

    Gasoline demand remains sluggish.

  31. 31
    zman Says:

    Thanks Sane, those look a little more reasonable…that gasoline draw looks like a typical EIA overestimate, maybe they are overestimating demand again.

    missed my quick trades on the refiners. Not going to chase.

    Thanks Sam

  32. 32
    zman Says:

    NG break through yesterday’s lows of 9.12. Next important level is 9.05 and then 9.

    Stocks decent is slowing as the broad market tries to go green.

    oil at LOD off $3.90

  33. 33
    zman Says:

    nice call Denise on the refiner trader, they are obviously not tracking crude.

  34. 34
    sane Says:

    A buddy of mine who works at a refinery here outside of Chicago said they have been scaling back gasoline production because they can’t get rid of it.

  35. 35
    ram Says:

    Z – Any thoughts on the March’s prior to after lunch hour?

  36. 36
    Denise Says:

    Look at the corrections in the ag space
    DBA DBC mon ect…
    Took my vlo and booked it

    My voodoo man says thinks we will pullback after expiration- and then have a big move in April of up to 10% on the SPY
    Also says he would not buy if we dip to 1315-1320ish-would then probably go to 1280ish

  37. 37
    zman Says:

    crowd piling into the refiners. should have been less cheap on that trade.

    ZTRADE: High risk. APA $115 MARCH calls for $1.20.

  38. 38
    zman Says:

    Ram – we need a broad market rally to save them. I will punt EOG $125s for 0.25 or worse booking a 90%ish hit there. Same NFX which were only slightly unprofitable until this morning.

    Right now I’m watching for a turn higher in the S&P and oil (as you probably guessed from the APA trade)

  39. 39
    ram Says:

    Easter rally time? We should all get our bunny ears on.

  40. 40
    Denise Says:

    Does anyone think the oil tankers might be ripe for a trade?

  41. 41
    zman Says:

    D – haven’t given the tanks a lot of thought lately. Saw a negative piece on one of the industry leaders (FRO) the other day but don’t know if it was industry or company specific. Rates have been all over the place.

    This is the exact opposite of the day I was looking for today…at least so far.

  42. 42
    ram Says:

    Big energy guys getting beat up on relatively light volume. Since it is a short week, does it appear some traders might be gone already?

  43. 43
    zman Says:

    Ram – from experience I would say they stick around today and many some don’t come to work tomorrow or leave work early.

  44. 44
    zman Says:

    crude off $5 now.

  45. 45
    Sambone Says:

    Anybody have a recommendation on EGLE? I don’t follow the bulks

  46. 46
    Denise Says:

    Mr K lowers his market rating 5-7
    thinks market will be unsettled by commodities sudden exiting-he is shorting
    (already did I presume)

  47. 47
    zman Says:

    March Scud Report and 2 ZTRADES

    Scud: ZEB options that expire worthless. I obviously try to limit the number of occurrences of this each month. Some are caused by rapid, even overnight declines in the group while others are more avoidable. February had 2 which is low to my usual 3 to 5 per month. March will likely have 6 to 10 of them with the jury still being out on a couple.

    ZTRADE: Out DSX $25 calls for average $0.30, down 93%.

    At this point the other dry bulk position held in QMAR and DRYS calls will expire worthless. I have no April or beyond exposure to this group.

    OII – both positions will expire worthless.

    EOG – I’m holding March $120 and $125s. The $120s are a toss up given the time to expiration. The $125s I will hold through the open but expect to lose all $ there.

    NFX went from good to bad in 2 days and will be a scud.

    VLO has been for some time and will be a scud.

    ZTRADE: Out CHK March $45 for $0.90, down 53%.

  48. 48
    zman Says:

    Sam – I’m not real familiar with their ops, but I can tell you the drybulks continue to act poorly and are likely to mark the broad market and sentiment on the global economy. Not even high rates and strong earnings could boost them.

  49. 49
    Denise Says:

    This puts things in perspective-a must read

    Gone egg coloring –
    Have a great Easter Holiday!

  50. 50
    uop Says:


    all morning the website did again not load using Windows Explorer,
    now I switched to Firefox: no problem.

    sold half of my USO puts, will continue to short oil with DUG, USO puts, XLE puts.

    if gasoline inventories decline, why are refiners more attractive, because of seasonal changes ?

    which refiner is most attractive, why VLO?
    how far in time to go out with calls ? you always seem to go to next month.

  51. 51
    zman Says:

    Have a good one D!

    Uop – does it work in IE for you now? It does for me.

    Refiners were a trade idea only that I did not take. They generally will bounce a bit when you see something like today where an expected build in products met with a draw instead (gasoline). After 18 straight weeks of builds, to get a draw is somewhat bullish. Gasoline inventories are still very high and margins are still very weak so I’m not going back into the group yet.

    Why VLO? Biggest name, first to come back up. Probably the best run of the independent refiners and they can use a higher % of heavier crudes than their peers, most modern facilities etc. Like FTO from that respect as well but it is tiny in comparison and it’s options have fat spreads. VLO options trade like water.

  52. 52
    zman Says:

    Uop – are you there. Did that answer your question on the refining thing and are you still having trouble with the site? of course, if he is, I guess he can’t see this.

  53. 53
    uop Says:

    tried again with IE, does not work so I will use Firefox.

    Refiners: good comment, agree, am glad I sold APC,APA,COP yesterday.

  54. 54
    uop Says:


    maybe time to sell 1/2 of UNG APR PUTS?? what do you think ?

  55. 55
    zman Says:

    “when in doubt, sell half” is rarely a bad thought.

    I’m holding out for that 9.06 and 9 test, gas is holding up uncharacteristically better than oil today but that won’t last if oil keeps test lows. If it trades through 9 I would expect some heavy selling.

  56. 56
    zman Says:


    and there goes $9.06, let’s see about $9.

    on the internet explorer did you clear your cache?

  57. 57
    uop Says:

    give me a hint how i can watch the price devolpment of NG

  58. 58
    zman Says:

    uop – If you don’t have live Nymex quotes the next best thing is CNBC which scrolls it once a minute across the top. UNG is directionally close in movement although it under and over performs the the front months at any point in time by as much as a percent. This website offers delay quotes and charts on many commodities:


    Just click the contract like April and then click chart at left.

    Did that help?

  59. 59
    uop Says:

    txs , it worked.

  60. 60
    zman Says:

    “The commodity bubble is bursting and the party is over,” said Phil Flynn, vice president of futures brokerage Alaron Trading. “People are starting to get out of commodities as a hedge against this financial crisis.”

    “If it wasn’t for the inventories report, oil prices will be down even more than they are,” Flynn added.

  61. 61
    Sambone Says:

    1:01 pm EST

    Nymex May Crude Dn $5/Bbl As Funds Flee


    [Dow Jones] Nymex May crude falls $5/bbl despite EIA data that showed US crude stockpiles rose by 133,000 bbls last week, far less than the 2.1 million-bbl growth expected. While the report depicted weak US oil demand, some analysts say oil is plunging as part of a general flight from commodities among hedge funds. “What we’re seeing is a complete shift of funds out of the commodity markets right now,” says analyst Mike Zarembski at optionsXpress. Nymex Apr crude, which expires Wed, -$4.86 at $104.56/bbl; more active Nymex May crude -$5.00 at $103.50/bbl. (greg.meyer@dowjones.com)

  62. 62
    Sambone Says:

    New acronyms –
    CEO = Cash Equivalent Oxymoron
    SIV = Screw investors viciously

  63. 63
    zman Says:

    Sam – I wonder if they are right this time. It seems like every time crude is off $2+ and gold is down the “safe haven trade is over” … but volume in the May crude contract is only half of what it was yesterday (on a big up day) and the day before that (also a big up day). Also, if the money is coming out of commodities, why aren’t the equities running…oh yes, because the S&P is 15% energy now and can’t run without it.

  64. 64
    scoop006 Says:

    Z Where will the capital from the commodity sales be deployed?

  65. 65
    zman Says:


    If you think this market is fun now, wait until they start having to raise rates. Remember 1994? one step forward, one step back all year long.

  66. 66
    zman Says:

    Scoop, why real estate of course. Just kidding? Not sure I buy the headlines as anything more than a convenient excuse to explain the oddness of a triple witching day.

    Common on $9 gas…15 minutes to go.

  67. 67
    Sambone Says:

    Z – My read on Oil/commodities is that it has had such a big run AND the Crowd is currently having to raise cash that yes they are coming out. In regards to Oil, let’s say the talking heads are correct that demand is and will continue to go down. So that would mean that prices would and are coming down. In the overall commodities markets, it’s the long term, not the short term. I believed that we would hit 100 a barrel by 2010. Well guess what, we hit it sooner. Will it pull back? probably, BUT the party aint over. I’m now looking for Oil to be at 150 by 2010. Gold should hit 1100 this year. So pull backs are natural in the overall trends, but in regards to oil, I’ll be adding to my names as they go down. Look at RIG. As time goes on, their earnings will increase. look at COP. At 100 oil, they are printing $. If oil goes to let’s say 90 or even 80, they are printing $. If I’m right and oil hits 150, then they will be printing even more money.

  68. 68
    Sambone Says:

    S – #64, margin calls

  69. 69
    Sambone Says:

    Z – raise rates? Huh? But that would kill the overall market and that’s not the objective, remember. Nah, after B52 Ben lowers another 225 bhps, The US Government will take on the Toxic paper onto their books like the S&L mess. That’s all he’ll have left to do to save this economy. After that it won’t matter.

  70. 70
    zman Says:

    Sam – re 67. As long as oil stays mid 80s and below $100 I’m happy. Up here it makes me nervous due to the propensity for days like today. In the scheme of things the run to 112 has been too sudden and will look like a bump on the upward sloping line that is crude prices towards your 2010 number. The trouble with oil being up here is that when it has a day like this it all baby and bathwater action. There is no looking at valuation and although that creates opportunities it stinks if you are already long.

    re 69: yes, when inflation hits 5% they probably will need to…maybe they can put it off until the election. did you read the bear stearns economist’s piece this morning? ouch.

    NG hit 9.01 and they managed to close it at 9.06, spot on the Monday low.

  71. 71
    uop Says:


    what now with NG and UNG ?

  72. 72
    zman Says:

    traditional trading day is closed so I wouldn’t expect much change from the close today. These are April puts we’re talking about and I think gas is coming down. I’m generally not a daytrader unless specifically mark a trade as such. As to my remain UNG March puts I’ll punt what I can in the morning.

    yona, if you are around, have you seen consensus for the withdrawal tomorrow? or anyone for that matter?

  73. 73
    zman Says:

    wow, DNR off 8%, talk about a company making a mint at current prices, or at 90 or 80. That’s just not right.

  74. 74
    Sambone Says:

    Z #70 Part I, Agreed
    Part II – Inflation in my reserach shows more like 5.5 to 6% currently. The only way the fed can protect the US$ is buying (Intervention) or raising rates. They have already proven that they don’t care about inflation or the US$. It’s about protecting the bankers and the overall markets. When they realize that they stepped in dog doo, it will be after the election and they will have to raise, otherwise, game over. See Paul Volcker 75-79 and what he had to do. Not pretty.

  75. 75
    ram Says:

    ZMAN –

  76. 76
    zman Says:

    Sam – I think inflation is higher than that. Utility function keeps it down on consumer durables but health care (and other services), energy, and food….through the roof. For people living on a fixed income this scenario is a nightmare. These individuals are facing a choice of “treating” health concerns (that’s the first to go), “heating” their homes, and “eating” the last two of which are a tie but are being cut back as higher prices escalate. I think it speaks volumes that the heating oil companies in the northeast are requesting a special release from the emergency stockpile because their customers can’t pay their HO bills and they can’t buy more oil if the customer don’t pay.

    Yes Ram?

  77. 77
    uop Says:

    CHK down 6 %

  78. 78
    ram Says:

    I didn’t have the right words and I still don’t. I accidently hit submit.

  79. 79
    zman Says:

    Re: CHK, yes but I’ll hold off on taking longer calls for now. SWN down 6%, EOG down 7%, XTO down 5%, the list goes on and on…

    COP down 5% is pretty absurd considering the lack of recent run up and the cheapness to its peers.

  80. 80
    Sambone Says:

    Z – Agreed, but Jim Cramer tells Ben “Help my buddies”, not the old people. I listen to some of these “Hedgies” on conference calls and they wouldn’t give two seconds thoghts on people who are on fixed incomes, it’s all about retaining their bonus’s and their second houses. It’s all about “Greed is good” and Ben and Paul are right with them. If you really want something to blow your skirt up, read this at your pleasure.


  81. 81
    T-Tupp Says:

    ‘The commodity bubble is bursting, and the party is over.’

    — Phil Flynn,
    Alaron Trading

  82. 82
    Jason Says:

    Hi Z – What names are on your radar for some bottom fishing in what looks to be a bad last half hour?

  83. 83
    Sambone Says:

    J – I like PBR under $100

  84. 84
    Sambone Says:

    2:11 pm EST

    Nymex Crude Drops $6 As Funds Flee Commodities

    By Gregory Meyer

    NEW YORK — Crude oil futures fell more than $6 a barrel Wednesday as traders fled commodities in droves.

    A report showing that U.S. oil demand is slackening helped foster the rout, but most market participants said larger dynamics among skittish investment funds drove most of the selloff.

    The contract for light, sweet crude for April delivery, which expires Wednesday, was recently down $5.76, or 5.3%, at $103.66 a barrel on the New York Mercantile Exchange, after falling as low as $103.00 a barrel. The more actively traded May Nymex contract was $5.54 lower at $102.96 a barrel. The front-month contract dropped below Monday’s recent low of $103.23, and was close to a two-week low.

    May Brent crude on the ICE futures exchange fell $4.79 to $100.77 a barrel.

    Oil’s dive echoed selling across commodities markets as the dollar strengthened against the euro and other currencies.

    “The overall commodity complex is unwinding to a certain extent,” said Peter Van Cleve, president of brokerage T.W. Energy Consulting in Kansas City, Mo.

    The selloff snowballed after the Energy Information Administration released weekly statistics on U.S. petroleum stockpiles. While the data showed a unexpected drop in gasoline stocks, and a surprisingly large decline in distillate fuel stocks, they also showed that U.S. oil demand in the four week ended March 14 was down 3.2%, averaging 20.259 million barrels a day.

    “As far as the price reaction goes, it looks like after several months of ignoring bearish data and rising anyway, the market is now inclined to decline in spite of a fairly supportive inventory report,” said Tim Evans, an energy analyst at Citigroup.

    Nymex crude settled at an all-time high of $110.33 a barrel last week, and Monday made a record intraday high of $111.80 a barrel.

    Oil had jumped $3.74 a barrel Tuesday after the Federal Reserve trimmed short-term interest rates by 0.75 percentage point.

    The Fed’s cut could add pressure on the dollar and thus potentially lend support for commodities such as crude. But some analysts parsed its monetary policy committee’s statement — which noted that “it will be necessary to continue to monitor inflation developments carefully” — to mean the central bank will be more hesitant about big cuts ahead. Tuesday’s rate cut was smaller than expected.

    “Prior to this cut, the perception in the market was the Fed was pretty much fixated on trying to get growth accelerated. I think the 75-point cut rather than 100-point now seems to indicate that perhaps the central bank now is looking at the possibility that inflation, and therefore the impacts on commodities, could be a danger,” said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.

    Front-month April reformulated gasoline blendstock, or RBOB, dropped 10.57 cents, or 4% to $2.5543 a gallon. April heating oil fell 13.54 cents, or 4.3%, to $3.0025 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  85. 85
    zman Says:

    Afternoon T – see 60 above, lol. The guy is relentless once he picks a direction.

    Jason – If you mean in the March’s I’m really not since I don’t trust this market to not just completely capitulate. If oil holds up the April SU calls are interesting , agree with Sam on the PBR and may to my big names E&P which are getting shelled this afternoon (EOG, CHK, APA). Best trade may be stay away.

    SUN puts also might be interesting

  86. 86
    sane Says:

    Re 76:

    It gets me that we are creating inflation to bail out the screwups. Gee thanks for punishing me for being financially responsible and living within my means.

  87. 87
    Popeye Says:

    LOD’s all over my screen now.

  88. 88
    zman Says:

    creating inflation AND debting up your grandchildren.

    Everything energy getting routed now, xoi and xng down 2x + vs the SPX.

    XNG (gassy stocks) chart looks to be rolling over.

    EOG about to be down 10.

  89. 89
    Jason Says:

    Thanks Sam & Z. SUN puts as a play on quick refiner gains? I’ll get PBR on the screen.

  90. 90
    zman Says:

    Jason – yea but I’m not doing it. Some smart sector analyst could come out pounding the table on the group tomorrow:

    1) first draw on gasoline in 19 weeks, could be a new trend starting
    2) refiners have been overly beaten about the head
    3) they are cheap on forward earnings (maybe, maybe not)
    4) they are cheap on replacement costs (true)
    5) oil is coming down which helps margins (maybe)

  91. 91
    Sambone Says:

    Boys and girls, if this energy patch continues like this tommorow, Sam da man will be in buying. IMO, everything is on sale!

  92. 92
    scoop006 Says:

    Z&SAM da man, In your opinion what does your crystal ball forecast for the overall market tomorrow

  93. 93
    zman Says:

    I obviously don’t have one of those. If I had to guess a low volume bounce. This market is addicted to Fed news and rate cuts…seem to be about of those.

  94. 94
    Sambone Says:


    Triple witching baby. Scoop, I’m bearish so I always think it should go down. On another note, it’s just before a three day, so trading shouldn’t be that high.

  95. 95
    T-Tupp Says:

    is the market closed fri?

  96. 96
    T-Tupp Says:

    isin’t it quad witching day ?

  97. 97
    zman Says:

    T – yes closed Friday

    NG went through $9 briefly just now.

  98. 98
    md Says:

    I’ve been under radar for a bit.
    I got stopped out late Feb on Long RBOB Short HO and had to take a $.12 loss. Today the loss would be closer to .40. I should have followed your advice in Feb and waited till gas inventories turned around.
    Your comments re: VLO and gas inventories at 15 year level is noted.

  99. 99
    zman Says:

    md – long time no chat! I took a pasting today so it’s nice to hear that I said something useful of late, lol. Hate these kind of days (when I’m long). Putting that aside, if I were on the sidelines, looking at these values (low) and these charts of E&P and Majors (iffy) I’d continue to sit on the sidelines.

  100. 100
    zman Says:

    NG at 8.98 in aftermarket as oil continues to trade lower. UNG showing trades in the 43.70s

  101. 101
    md Says:

    B52Ben is plenty nervous and if this is like other bear markets then 30-35% off SPX high of 1560 would mean 1070-1020. Of course if I’d be that smart I’m be buying SPX Apr puts at say 1300 and sell a 1225 Put and capture some of the move

    How does XOI and DJ oil and gas compare to SPX when the SPX is in a bear market.
    If it’s likely effected then what strategies would work to prtoect or better yet make money.

  102. 102
    zman Says:

    Good ?: The XOI is fully of big liquid energy names, cheaper than the market in general but will move directionally with it nonetheless or sideways in a down market at best … unless… you have rising commodity prices, and I mean continually rising prices. The guys in the XOI are price takers.

    My strategy is pretty straight forward. Go with firms that that unlike the majors are growing unit volumes and cutting per unit costs. Finding a whole index of those is tough so I continually play the growthy E&Ps which have the ability to go up in price while getting cheaper even in a decline commodity price environment. How do they do in a bear market? Generally ok but its a stock picking thing and not necessarily a group thing. These guys are minting money at commodity prices anywhere above $6/mcf for the most part. Most of my favorite names don’t produce a lot of oil but the oily ones I do like are unit volume growers.

    To answer the hedge question I use a combi of shorting the commodity when it gets toppy and shorting margin susceptible names like the refiners or land drillers. I was looking hard at PTR and SNP in the twilight hours this morning (see post) but became distracted by the sea of red and literally forgot to circle back there for puts. Would have made a nice trade.

Leave a Reply

Zman's Energy Brain ~ oil, gas, stocks, etc… is is proudly powered by Wordpress
Navigation Theme by GPS Gazette