Thursday – Natural Gas Preview and Oil Inventory Review


In Today's Post:

  1. Holdings Watch - Busy day yesterday
  2. Natural Gas Storage Preview 
  3. Oil Inventory Review
  4. Stocks We Care About Today - refiners
  5. Odds & Ends - Analyst Watch - strong morning for upgrades and initiations in our names


Holdings Watch: yesterday was an exceedingly busy day as April trades left the building and I added to longer dated positions. This is a little more trading than I like to do but fortunately I have been able to remove names into strength. The holdings Wiki and the Zeb Options tabs are updated to include the following:


  • (COP) - April $80 calls (COPDP) for $2.10, up 27%.
  • (TSO) - Entered May TSO $30 Calls (TSOEF) for $1.25 on a drop in utilization and a big draw on gasoline inventories. Just dipping a toe back into the refining waters here - see refiner comments below.
  • (HAL) Doubled the (HAL) $45 May call position (HALEI) for $1.70, averaging up.
  • (APC) Exited the April $65 Calls for $2.55, up 16% ... just ran out of time here.anything else ???
  •  (HAL) Exited the remaining April $42.50 calls for $2.12, up 93%.
  • (PQ) Exited the 2x position in May $17.50 calls (PQEW) for $3.30, up 89%. Still holding the May $20's and will likely add July calls on a dip.
  • (NBR) Entered the June $37.50 calls (NBRFU) for $1.30. Still holding May $35 calls here.


  • (UNG) Error, bought the $50 April UNG, not the intended $50 May UNG PUTS
  • (UNG) $48 PUTS (UNGQV) for 1.80. Will likely day trade the accidental UNG April puts purchased earlier.


Commodity Watch:


Natural Gas: Natural gas rallied first with crude, then on speculation that Canadian imports are about to tumble. The May contract ended the day up $0.23 to close at $10.43. This morning gas is trading ever so slightly lower as crude is providing no firm direction and the first potential injection into storage of the season approaches. For gas to fall either oil needs to retrench or today's storage change number needs to be a bigger than consensus injection...probably 10 or so Bcf bigger which I don't see.
  • My Number: 5 Bcf INJECTION
  • Imports: up 0.3 Bcfgpd from the prior week to 9.4 Bcfgpd; down 2.2 Bcfgpd YoY due entirely to tepid LNG imports/
  • Weather: 115 HDDs vs  159 1 year ago.  In the prior week we were at 124 so this is not that big of a decline in aggregate. However, the Eastern which reported the majority of the withdrawal last week saw a marked reduction (down 10% on East HDDs week to week). 
  • Street Estimate: 16 Bcf INJECTION
  • Last Year's Comp #: 26 Bcf WITHDRAWAL


Crude Oil: Rallied $1.14 to close the day at $114.93 (albeit with a mid day bout of profit taking that didn't take long to clean up but sent bears jumping, at least temporarily, from their caves).  The run up followed a surprising draw down in crude stocks and of course, a weak dollar. This morning crude is trading +/- $0.50 after hitting $115.54 overnight.

  • Erroneous Statement Watch: From AP ~ "Demand for gasoline is terrible," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. Gas demand has fallen an average of 1 percent each of the last four weeks compared to the same period last year. "Demand should be rising this time of year."

Wrong. He needs to read before grabbing a microphone. Gasoline demand was up from last week and up from the prior year. Don't believe me? Here's a snapshot of the EIA page clearly showing gasoline demand of 9.338 mm bpd vs year ago levels of 9.247 mm bpd (you'll see this in graph form later too). So don't trust everything you read...unless you read it here. This is a guy who has been short and wrong and is talking his order book and not the facts. The fact is that this was record demand for this week of the year. True, year to date demand has been sluggish, but terrible? Nope.


The Oil Inventory Summary Table:


Oil Inventory Report Wrap: 

CRUDE OIL: Unexpected drawdown on crude inventories materializes as crude imports failed to show up.

Utilization /  Crude Inputs are at record lows for this time of year as refiners maintain "Cartel-like " discipline. As you can see in the graph below, we've never seen U.S. refinery levels this low at this time of year. In fact, the only thing that causes this kind of depressed operations is usually a bad hurricane hitting the Gulf Coast. This discipline will likely result in higher crack spreads and I took the opportunity to enter the refining group for the first time in many weeks (see Stocks We Care About Today section below).


Crude Imports: Two weeks in a row at very low volumes and a third is likely next week as Mexico continues to have weather troubles at its ports. 




GASOLINE: Demand Up Vs Year Ago Period.


Imports - remain flattish.  Imports remain below year ago levels which seems a little strange given prices but then you note that certain island and Venezuelan volumes are offline and/or not coming to the U.S. and it makes sense. 


Demand Remains Strong... Demand posted the highest per week number for this week in history. This is the EIA number (I don't make this stuff up).


...Despite Surging Gasoline Prices. This extended lofty demand occurred despite the fact that at a retail U.S. average price of $3.389, gasoline prices are up 20% YoY.





Stocks We Care About Today:

Refiners: Warming up to the group

  • Cracks improving seasonally as refiners stay the course and keep utilization low. 
  • Upward trajectory of rising seasonal demand meets current stalled/declining utilization. If this continues it will likely result in wholesale gasoline outperforming crude prices. Year to date crude has outperformed gasoline 2 to 1.
  • I dipped a toe in (TSO).  Crack spreads in their backyard, West Coast and Pacific Northwest are the strongest of the U.S. refining regions and they look likely to continue to inch up as capacity remains offline.
  • I am by no means ready to call a bottom in the group yet but they have taken a beating and the Street now has very low expectations for 1Q08 earnings so the risk of disappointing on numbers may be outweighed by the potential for them to say positive things about the directionality of cracks spreads now.


(SPWR) - Reported a beat of $0.39 (Non-GAAP adjusted) vs $0.34 expectation on higher than expected revenues. I am not in this one or any other solar at present but will listen to the conference call here at 1:30 EST.

Odds & Ends

Analyst Watch: FBR raises rating on (NFX) to Outperform and lifts price target from $60 to $80, (VQ) upped from hold to Buy at Jefco, (XEC) and (FST) upped from neutral to Buy at UBS. UBS also picked up 5 E&P names: 3 at Buy including (HK) with a $35 price target, (DNR) and (COG) and 2 at Hold including (PQ) with a $20 target and (PXP). 


126 Responses to “Thursday – Natural Gas Preview and Oil Inventory Review”

  1. 1
    Sambone Says:

    7:25 am EST

    Brent Crude At New Highs, Nears $113/Bbl

    By Nick Heath

    LONDON — Crude oil futures pushed to fresh record highs in early London trade Thursday, building on Wednesday’s climbs as weakness in the dollar continued to provide support for crude prices.

    ICE Brent futures breached the $113-a-barrel mark for the first time, while Nymex light, sweet crude futures extended their overnight climb through record levels to top out at $115.54 a barrel.

    Traders also pointed to Wednesday’s U.S. Department of Energy data — which revealed a drop in U.S. crude oil and gasoline stocks and a slump in refinery utilization — as providing a fundamental underpinning for the current strength in crude.

    “Overall, it is quite clear that investors are not prepared to liquidate oil futures at the moment, with strong fund and speculator interest, as they seek better returns in commodities,” said Andrey Kryuchenkov at Sucden Research. “As long as the greenback remains under pressure, market participants will be buying into gold, oil and other commodities.”

    At 1103 GMT, the front-month June Brent contract on London’s ICE futures exchange was up 17 cents at $112.83 a barrel, down from the new record high of $113.38 a barrel.

    The front-month May light, sweet, crude contract on the New York Mercantile Exchange was trading 11 cents higher at $115.06 a barrel.

    The ICE’s gasoil contract for May delivery was up $7.50 at $1,052.25 a metric ton, while Nymex gasoline for May delivery was up 221 points at 296.11 cents a gallon, having set a new record high of 297.22 cents a gallon earlier in the day.

    The euro was stronger against the dollar at $1.5909.

    Three consecutive days of record prices are continuing to lure investors into crude futures, market participants said Thursday, with developments such as Wednesday’s U.S. inventory data — widely interpreted as bullish overall — and the dollar’s frailty adding to the commodity’s appeal.

    “Yesterday’s strength was fueled by three main factors. First the continuing weakening of the dollar. Secondly the unexpected bullish DOE stats but we feel the major reason is still that people want to be long oil and will constantly be looking for buying opportunities in this strong upward trend,” said Glen Ward, energy broker at ODL Securities in London.

    Having brushed aside historical price levels, some analysts said that crude futures now face little technical resistance to moves higher, leaving the extent of any climbs largely dependent on the strength of buying support.

    “It’s thin air, there’s no technical targets, so you just go through the even numbers,” said Jim Rintoul of TheOilTrader.com. “It comes down to a matter of will — will the funds continue to buy? If they do, it won’t come down.”

    Expiry of Nymex May crude options Thursday is likely to have a bearing on futures price activity, some analysts said, raising the potential for volatility in later trade.

    “There will be a risk later today in the open session to see some counter-intuitive price movements that will have more to do with position management around the options then with core fundamentals or core charts,” said Olivier Jakob of Swiss consultancy Petromatrix.

    Traders were also eyeing the impact of a day of strike action at several French seaports Thursday, including the oil hub of Fos-Lavera where four large refineries are located and the port of Nantes-St. Nazaire, which includes the 230,000-barrel-a-day Donges oil terminal.

    Union and port officials Wednesday said strike action is likely to cause disruption rather than a complete blockage at the Fos-Lavera oil terminals.

    French oil major Total, which operates Donges, said it was doing its utmost to keep the refineries running.

    —By Nick Heath, Dow Jones Newswires

  2. 2
    Sambone Says:

    US Inventory Drop Spurs New Crude Oil Highs


    NEW YORK — Crude oil futures prices jumped to a record intraday high above $115 a barrel Wednesday after a surprisingly steep drop in inventories.

    The lower stocks could help prices churn higher, analysts said. But there’s another unexpected element to the latest report from the U.S. Energy Information Administration: the slimmest of increases in demand.

    Oil demand inched up by 0.1% to 20.562 million barrels a day in the four weeks ended April 11,the first increase since Feb. 1.

    Within the figure, sluggish gasoline demand blipped up by 0.8% to 9.268 million barrels a day, the most since the four weeks ended Jan. 11.

    The question for the market is whether it’s the first sign of a bountiful spring or a false bloom. The EIA has projected gasoline demand in the spring-summer driving season will drop for the first time since 1991 on record-high retail prices.

    Analysts had projected gasoline stocks would drop by around 1.7 million barrels, but inventories plunged by more than 5.5 million barrels, or 2.5%, the biggest fall since mid-August 2007.

    Gasoline futures shot up 2%, or 5.8 cents a gallon, to a record $2.939 a gallon. In the past six days, prices have gained 6.9%, or nearly 19 cents a gallon.

    Based on a typical 60-cent differential between futures and retail prices, the new record suggests a pump price of $3.54 a gallon.

    The AAA Daily Fuel Gauge Report said Wednesday that the national average for regular gasoline was the highest ever at $3.399 a gallon, up 53.3 cents from a year ago. The EIA projected last week that prices would average $3.46 a gallon in April before peaking in June above $3.62 a gallon.

    High Stocks, Record High Prices
    Gasoline’s roaring gains come despite outright inventories that continue to be at 15-year highs for this time of year. Current stocks, at 215.8 million barrels, are 8% above a year ago, and are sufficient to meet 23 days of demand, compared with the five-year average of 22.3 days.

    Gasoline futures weren’t alone in setting record highs Wednesday. Heating oil futures joined the party, inching to a record high of $3.283 a gallon.

    After crude inventories showed a drop of 2.3 million barrels — instead of the expected rise of around 1.7 million barrels — crude oil futures continued their record climb.

    May delivery crude set an intraday peak of $115.07 a barrel, and settled $1.14, or 1%, higher at $114.93, the third consecutive record and 82% above a year ago.

    The cheapest crude futures contract on Nymex on Wednesday was the costliest ever. Wednesday’s cheapest contract, crude for delivery from August to December 2012, was priced at $103.41 a barrel. That’s 2.4% higher than the most expensive contract — the front month — was on April 1.

    Crude oil imports fell 33,000 barrels a day to 8.879 million barrels a day in the week, the lowest weekly level since March 2, 2007, and 10.5% below a year ago. The latest week’s level marks just the third time since hurricanes Katrina and Rita disrupted U.S. Gulf Coast refineries in 2005 that imports were below 8.9 million barrels a day.

    Outright crude oil stocks slipped to the lower half of their five-year average range in the latest week, from the midpoint a week earlier, the EIA said. At 313.7 million barrels a day, stocks are 20 million barrels, or 6%, below a year ago. That’s the biggest year-to-year gap since Feb. 8, when stocks lagged the year-ago level by 6.6%, or 21.2 million barrels a day.

    Crude inventories are sufficient to cover 22 days of current refinery runs, above the five-year average of 20.6 days, EIA data show.

    The last time the outright level of crude oil stocks was lower than now was April 2004 — an ominous period in the market — as it was the last month that Nymex crude oil futures traded below $40 on each day. Explosive oil-demand growth from China and other emerging countries materialized back then, and producers struggled to keep up, laying a solid foundation for the ongoing rally.

    Now the once unthinkable price of $120 a barrel may not be far off.

    Market Curve Fuels Rally
    Part of the drama was sapped from the surprise drop in crude stocks by the fact that a huge decline in the isolated West Coast market accounted for most of the nationwide decline.

    Crude traders also shrugged off a dip in refiner use of crude oil in the latest week.

    In the first two weeks of April, crude runs are averaging below 14.3 million barrels a day, even less than the preliminary March level of 14.35 million barrels a day, which was the weakest since the hurricane-damaged October 2005 level. Refiners are struggling with weak profit margins, which have recovered from turning negative in recent weeks, but are still sub-par, analysts said.

    How crude prices can continue to set record highs speaks more about what’s happening far from U.S. shores, as global oil demand is surging in Asia.

    “We’re still seeing global growth of (above) 1.2 million barrels a day,” said Michael Wittner, an analyst at Societe Generale in London. The International Energy Agency, the oil adviser to the world’s major industrialized nations, said April 11 it expects global oil demand to rise by nearly 1.3 million barrels a day, or 1.5%, this year from 2007.

    Still, in the current market formation, in place largely since July 2007, nearby crude oil futures prices hold a premium to forward contracts, discouraging stockbuilding.

    That also feeds into itself, prolonging the current rally.

    Oil companies are “financially penalized for building stocks” now by the shape of the forward curve. That helps to “sustain a backwardated market” which is “self-reinforcing,” Wittner said, as buying to meet short-term refiner demand forces prices higher.

    Furthermore, financial investors, such as index funds, find the backwardated crude market and attractive investment, feeding new money to the rally, he said.

    What derails the cycle? Wittner said his firm forecasts a mild U.S. recession, in which declining demand would allow stocks to grow over time, potentially refooting the market.

    A more severe depression, making a sizable dent in global oil demand, would dramatically and quickly change the fortunes of the oil market, he said.

    —By David Bird, Dow Jones Newswires

  3. 3
    zman Says:

    If anybody happens to come across the NFX upgrade or the HK initiation I’d love to see those comments. Thanks.

  4. 4
    Jay Reynolds Says:


    And the especially savvy can now trade the crack spread, exploiting seasonal changes in refiners’ profit margins by pitting crude oil shares (AMEX: USO) against the gasoline (AMEX: UGA) and heating oil products, something futures traders have been doing for years.

  5. 5
    zman Says:

    Got the NFX and HK research…thank you very much!

  6. 6
    zman Says:

    Oops, didn’t get what I thought. The NFX was a Friedman Billings upgrades, the HK was a UBS initiation with $35 (bless them) price target. Thanks if anyone can email to me.

    Crude turning back green now. NG off 6 cents which is meaningless in this nosebleed territory.

  7. 7
    zman Says:

    Kudos to Dman for a nice and oft repeated call goes on OII which I missed, may take if we get a market related dip today.

    Coal = missed and not chasing BTU up $20 points in a month.

    RDC – high end jackup player sees lower utilization, 1Q08 revs down sequentially, guides to a miss. That will likely hurt names like ESV, NE maybe RIG.

  8. 8
    uop Says:


    se that Najarian recommends HK and the other guy wants PBR shorted.

  9. 9
    zman Says:

    Saw that. Najarian’s comments are based on rumors and option activity. I remember when he said buy DRYS…at 121 and I did and lost my butt.

    PBR could go either way, I’m holding for a bit as they have not said anything yet. The analyst who said 33 billion is wrong on reserve size at Carioca and that its more likely 600 mm barrels is probably low given the territory … but it could go lower. The talking head is just picking up on that and the run it has had, however, PBR really has not discounted anything close to the current oil strip or gotten a lot of credit for Tupi which was pronounced as 5 to 8 billion barrel discovery in November and is just to the east of Carioca in the Santos Basin off southern Brazil.

  10. 10
    zman Says:

    NJ Refinery problem says CNBC,

    We also have part of Shell’s massive Deer Park refinery down for the next 5 to 7 days, unknown impact on gasoline production as it is a coking unit.

  11. 11
    uop Says:

    the coking unit is not impacting gasoline production,

    what is this: low refinery utilization, that is when you shut down for repairs.

  12. 12
    zman Says:

    Uop – Right, when I think coking I don’t think gasoline, I think resid. Not really a concern this time of year. For the laymen, if you see hydrocracker or fractionation unit then I think gasoline production may be in jeopardy. Feel free to add insight as this is not my area…I only play at understanding the machinations within the refining facilities.

  13. 13
    isleworth Says:


    PQ getting hit…..FBR hold rating? Backing up the truck.

  14. 14
    isleworth Says:

    I guess it was a UBS hold re PQ

  15. 15
    tater Says:

    Looked at the UGA fund. Are the numbers I am getting, $21 million market cap, correct?

  16. 16
    zman Says:

    I may add a little longer dated stuff…would love to see how they justify a hold here unless they like it but think it has simply run too much which is bad analytical work. If it cracks into the $19s I take longer dated options. The way this trades on options, its better to try and split the spread on the bid side and let it come to you than to chase. If you miss, try another day, if you hit, great.

  17. 17
    zman Says:

    lot of restarts at refineries going on now, likely recover 1% on util in next Wed report.

  18. 18
    uop Says:

    Zman; your 12,

    gasoline production:
    fractionation of socalled natural gasine is no good anymore as octane is too low,
    modern gasoline depends on:


    these are most bimportant, there are a few others,

    hydrocracker is there to make jetfuel, kerosene, so its for heavier than gasoline,

  19. 19
    zman Says:

    Why PQ has not June options is beyond me. The July 20s look interesting around $2.

    The HK initiation with $35 target by Friedman this morning makes me think they know something re the horizontal wells and the Haynesville. I’m going to stop selling for a while.

    EOG marching

    Refiners continuing to move up as RBOB is up and oil is flat.

    NG down 7.5 cents ahead of the storage number.

    PBR up by the way. That one is anyone’s guess on size of the new discovery but I have to think they think it is bigger than 600 mm given the water depth and subsalt nature. Very expensive to develop subsalt deepwater oil and 600 mm barrels of reserves might not be economic on a stand alone basis.

    Thanks Uop!

  20. 20
    Sambone Says:

    9:40 am EST

    Nymex Crude Flat As Gasoline Boosts, Dlr Weighs

    By Brian Baskin


    HOUSTON — Crude oil futures are trading flat, pushed down by the strengthening dollar but supported by concerns about the U.S. gasoline supply.

    Light, sweet crude for May delivery traded 9 cents, or 0.1%, lower at $114.84 a barrel on the New York Mercantile Exchange. June Brent crude on the ICE futures exchange traded 16 cents lower at $112.50.

    May crude hit a record high in overnight electronic trading of $115.54, driven largely by the dollar, which hit a new low against the euro. The dollar later began to strengthen, erasing those gains and leaving oil futures somewhat listless. Only reformulated gasoline blendstock, or RBOB, futures showed any momentum, rising about 1%. This continued a trend seen throughout the week, of strong products futures taking the lead in the energy complex as concerns about gasoline and heating oil stocks trumped the usual cues taken from oil supply and demand.

    “(The market) does seem docile,” said Dean Hazelcorn, a trader with Coquest Inc. in Dallas. “Once we get going and get some volume in, we should get up.”

    Oil prices surged to a record settlement Wednesday after the U.S. Energy Information Administration reported a much larger-than-expected draw in gasoline inventories for the week ending April 11, as well as the lowest refinery utilization rate in more than two years. The two data points stoked fears that the gasoline surplus seen in recent weeks would be quickly eaten away by increased summer demand. RBOB futures have helped lead the market higher ever since the data came out, taking over that mantle from heating oil futures, which were stronger earlier in the week.

    “The process of bringing U.S. gasoline inventories back toward normality continues at a fairly rapid pace,” wrote analysts at Barclays Capital, who believe that U.S. oil and product supplies are tighter than they appear, and are fueling the recent record-setting market.

    Front-month May RBOB futures recently traded up 3.10 cents, or 1.1%, at $2.9700 a gallon. May heating oil traded 55 points, or 0.2%, lower at $3.2755 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  21. 21
    zman Says:

    DO trading off with the RDC warning mentioned in #7. That does not make a lot of sense given their lack of relative exposure to the jack up market, RIG has more and it up with energy. Hmmm

  22. 22
    kyleandy Says:

    jr re #4 is there some kind of ratio for playing uso against uga. seems like everyone convinced crack spreads to widen and think i should be involved

  23. 23
    VTZ Says:

    Z – Coking is intended to coke the heaviest part of heavier barrels yielding coke (by product). This generally leaves you with 3 oil cuts… naphtha, kerosene/distillate and gas oil.

    Naphtha is loosely used to make gasoline, distillates for diesel, gas oil for fuel oil/heating oil

  24. 24
    tater Says:

    I looked into the UGA. Way too thin for my $. Where’s the exit door when you want to dump?

  25. 25
    zman Says:

    VTZ – thanks, been on a plant tour in my youth and figured out that I’d rather focus on those who find it than those who process it. I’m a financial guy on the sector and have done my share of modeling and M&A work for them and once upon a great time ago, I made pitchbook after pitchbook for TSO as we were trying to sell them a little E&P company. Very not to be in that line of work any more.

  26. 26
    zman Says:

    tater – my thoughts exactly. Thin things stink on red days and are expensive on all days given the spreads.

  27. 27
    uop Says:


    naphta is the feed for the reformer to get the octane up, straight naphta has octane too low for use directly in the gasoline mix.

  28. 28
    zman Says:

    Go NBR, EOG, PBR (so much for Fast Money), HK, etc…

    Re: 27: movie quote: “God help us; we’re in the hands of engineers” – said with a groan.

  29. 29
    uop Says:

    here goes pbr, cnbc guys want to short, maybe later,

    REPSOL is down though.

  30. 30
    zman Says:

    REP has trouble in Argentina with declining reserves

  31. 31
    stolperk Says:

    where should new subscribers invest in the portfolio?

    should we leg in with new entries?


  32. 32
    zman Says:

    NBR breaking out, still cheap to oil service and land driller group.

    HAL – all time high

  33. 33
    uop Says:


    man we are involved:
    gasoline for your car, jetfuel for your plane, kerosene for your cabin, LAB for your detergents and on and on,

    so, have respect, you are in good hands.

  34. 34
    tater Says:

    If refiners have a “time out” and therefore help to drive up the $ of gasoline, lower supply, summer driving possibly up (current debate: economy v. my summer vacation needs) how does that make a refiner more profitable seeing as they are not producing as much? I have a biz, and if I don’t sell, I don’t make more $, and the argument that the units sold, though less volume, are more profitable, gets lost when you total revenues earned. Any help on this?

  35. 35
    zman Says:

    Stol- great to have you aboard. We’ve had a good run and I’m not chasing. One of the things I can’t do is give advice. Used to be licensed to do that and now I’m not and glad not to be.

    I’d read a bit before biting, especially if you are new to options. Paper trade for awhile. Don’t just buy what I buy. More in a second…

  36. 36
    zman Says:

    27 Bcf injection and they are trying to rally NG on the number.

  37. 37
    VTZ Says:

    Can they keep NG propped up with supply like this?

    Apparently 10 over consensus and 20 over the 5-year means nothing.

  38. 38
    zman Says:

    Uop – I was joking. I love engineers. I started out ME, pledged a frat, and wound up in business school. The quote by the way was from Ian Malcolm in Jurassic Park.

    Tater – Its a minor hit to production compared to the price increase it achieves. At least that’s the theory. We’re shaving barrels of production to get double digit % increase in margins.

    Back to Stolperk – anyway, I’m pretty active and their will soon be more buys, currently like I like what I am in except for the cursed UNG puts. I think the E&Ps may be getting a little toppy and that great results are getting built into the stocks. Everything is a bit heated now and I’m leary of chasing. Half the battle of this kind of investing is not pulling the trigger.

  39. 39
    zman Says:

    VTZ – I don’t think they can for very long. Rest assured APC and co are working round the clock to get 1.0 Bcfgpd Indie hub back up, any day now to 3 weeks out it will come back and that’s a pressuring catalyst. Given the weather and the flattish results, shale/resource play volumes are rearing their head in the numbers.

    Next week the comp is 0 from last year and the weather is defnitely warming up so we will see a bigger injection so you start to reverse the trend to the five year AND year ago levels. With indie back up and LNG at least temporarily spiking with the commissioning of 3 regas facilities in coming weeks that’s 2 pressuring catalysts. When the fall comes it will be sudden and big (50 cent type swings)

  40. 40
    Sambone Says:

    Uncle Phil


  41. 41
    uop Says:

    VLO rising sharply, is it a TSO ?

    DO droppingmore.

  42. 42
    zman Says:

    UOP – DO starting to get my attention. I think it is an “exacerbation move”. It was down before when the group was at its highs. When the group came off a bit (with the NG number and not the broad market I would note) DO’s move to the downside accelerated. I may take a little for a quick trade but probably not unless I can grab it with the stock off $3 plus.

  43. 43
    Jay Reynolds Says:

    Nigerian Oil Minister says production to drop 30% by 2015 if not safe for outside investment.

    MEND looks to be having it’s way.


  44. 44
    isleworth Says:

    VLO up 3.23% TSO up 5.04%

  45. 45
    uop Says:


    I am always impressed how trigger-happy traders are:
    when the NG injection was announced, the UNG volume shot up 9 times, now its down to 2 times.

  46. 46
    zman Says:

    Isle – weird isn’t it. WNR doing a little better but I won’t touch them. FTO interesting as that is a sharply run tiny little refiner in the right place geographically with heavier crude processing ability than most of the second tier indies.

  47. 47
    Nicky Says:

    CNBC reporting that ng was at the low end of consensus. They spun it that they were expecting an injection of 35 bcf. They had that idiot trader Ray Carbonne who said he is very bullish nat gas and oil and fully behind TBoone who is now saying oil is going to 125 in short order. I take it from that that Boone has reversed his position as he was short oil.

  48. 48
    zman Says:

    Nicky – there is a string of these kind of things going on … people twisting the facts to talk their book up or down. Why CNBC, Bloomberg, Dow Jones, AP don’t do a better job of looking at the quotes and saying “what the…?” I just don’t know.

  49. 49
    tater Says:

    Thanks for talking a bit of gasoline on natgas day. I think I will just play with the QU, for now. Sold UNG apr 51 call for a day trade, hope is now the strategy for today. Thanks for your help.

  50. 50
    Nicky Says:

    Options expiry for wti today. Last week they said the interest was at 110. Today they are saying 110 and 115 so may not move far from 115 today.

  51. 51
    zman Says:

    Bidding some PQ

  52. 52
    tater Says:

    Just a quick question and i will leave you all alone. Other than FTO, who else is a lower grade input play in the refining sector?

  53. 53
    Nicky Says:

    Z – CNBC now reporting they were expecting a 40 bcf build – lol!

  54. 54
    zman Says:

    VLO – but really, please ask away.

    Nicky – CNBC = Criminally Negligent Boosting of Commodities

  55. 55
    zman Says:

    Funny how the gassy equities aren’t buying the natural gas “rally”

  56. 56
    uop Says:

    Zman: what is your target for PQ bid ?

  57. 57
    zman Says:

    Uop – I’m bid side on the May 22.50s to see if I can pick them off.

  58. 58
    zman Says:

    have not yet but may try to split the spread on the July 20s. The only thing I don’t like about this story is the way the options trade…very thin.

  59. 59
    VTZ Says:

    Nicky – If gas keeps building based on expectations like that trended forward we would have shutins at the end of the yeah, hahaha.

  60. 60
    zman Says:

    ZTRADE: PQ $22.50 May calls entered for $0.35. Pretty risky as it’s a ways out of the market but the stock is off on a hold rating initiation and with the group.

  61. 61
    zman Says:

    Hmmm, NG off a nickel now.

  62. 62
    Jay Reynolds Says:

    Z – What is your current State Of The Art sentient (not recommendation) on UNG puts? Tx

  63. 63
    zman Says:

    UNG puts May should be long enough to get gas back toward the lower 9s. But obviously caution is advise as they are still gaming this market.

    Off to the dentist. Back around 1 EST. On mobile so occasional mkt, o&g updates appreciated.

  64. 64
    Jay Reynolds Says:

    50 UNGSX (July 50’s @ $4.10) here’s hoping for low peaking power in early summer.

  65. 65
    BossmanG Says:

    Having trouble getting the PQ’s, anyone else bidding?

  66. 66
    Sambone Says:

    Dow down 43
    S&P down 6
    OIL down.14 to 114.80
    Ngas up .03 to 10.46

  67. 67
    apbd Says:

    PQ, I’m still at the bid. not much volume.

  68. 68
    ram Says:

    I gave up and added to the May 20’s I have at 1.20. Stubborn option coordinators!

  69. 69
    aaatest Says:

    Stocks mostly red i take it?

  70. 70
    Sambone Says:

    T Boone is now long.


  71. 71
    Sambone Says:

    Energy patch mostly red. VLO, TSO, ALJ up though.

  72. 72
    ram Says:

    RE #70 – He is going to invest $4B in wind energy. Maybe the wind engy guys will pick up. ZMAN – have you ever looked at ZOLT which makes carbon fiber material for those big blades?

  73. 73
    Sambone Says:

    Ram – I thought it said 10 Billion

  74. 74
    aaatest Says:

    Thanks, back in 15 minutes Z

  75. 75
    ram Says:

    Yes, $10B. My thought was who is going to get the money first. Probably the gears, motors, and blade CO’s will start getting orders, or their backlog will take off.

  76. 76
    ram Says:

    AAATEST – CLR down 10% from recent highs. Any thoughts?

  77. 77
    zman Says:

    CLR = down 5%. Post Bakken Mania profit taking. I’ll give it a few days before considering taking options here.

    If you look around our E&P names not getting hit for as much as they gained just yesterday, let alone the last 5 days. No panic that I see, just a little well ordered PT.

  78. 78
    zman Says:

    LNG, the company, getting drop kicked yet again. Well, at least I did warn one emailer that I would not touch that one in the mid teens, ah, such an obvious short it was, kick , kick, kick…that is the only regret you’ll get out of me.

  79. 79
    zman Says:

    NBR on a positive tear which makes for nice timing of going longer yesterday (luck). Anybody see a broker comment on this one?

    Sam – thanks for the market update while I was in the chair.

  80. 80
    T-Tupp Says:

    looks like all the popular trader stocks getting pinned this afternoon…

  81. 81
    zman Says:

    Hey Tupp, Dow going green, think we may see a little more volatility, maybe tomorrow morning before the real insomnia inspiring pinning sets in.

  82. 82
    Sambone Says:

    Z – I gotta give it to you. If I was in a dentist chair, I would not be looking at text messages.

  83. 83
    kiaora Says:

    Come on guys we’re not that bad

  84. 84
    zman Says:

    K – did somebody say we were. I’d have to agree that we are not at all that bad.

  85. 85
    kiaora Says:

    Z–I meant the dentists

  86. 86
    Sambone Says:

    K – Off subject, I had a Sadistic orthodontist as a kid, so those folks in white coats scare the bejesus out of me.

  87. 87
    zman Says:

    Oh, hahahahahahaha. Root planing and scraping is so much fun.

  88. 88
    zman Says:

    FYI: We have SLB numbers and conference call in the morning. Gunslinger move would be to take the April 95s for 1.65. The better move, in my opinion is to take the May $100s for $2 or to hold HAL Mays like I do. The out quarter comments should be constructive, perhaps very much so for the stock. I am taking the May $100s. Note that I have seen people saying they may miss by a few cents but it is the outlook that I think matters.

  89. 89
    zman Says:

    ZTRADE: Entering SLB May $100 Calls (SDBET) Partial fill at $1.95.

  90. 90
    zman Says:

    wow, TSO gave up the gains today…crude coming back now.

    NG nearly flat again.

    That SLB call is a fairly elastic one, stock recovered just slightly and it rallies to $2.05 bid. Of course, 200 contracts traded since I put out the Ztrade so that may have something to do with it.

  91. 91
    isleworth Says:

    Interesting that refiners have reversed strength. TSO now almost flat and VLO up 2%??? Go figure….

  92. 92
    apbd Says:

    I finally feel like I’m one of the group.
    I’ll be in the dentist’s chair at 1:10 MST.

  93. 93
    Sambone Says:

    A – Better you than me! LOL

  94. 94
    Denise Says:

    Good afternoon all,
    Read an interesting comment that world energy expenditure on oil as a % of global GDP is at 7% (level not seen since 1980)

    Z this might be a interesting add to your charts-had a hard time finding long term #’s
    if anyone is interested 2006 govt report about what would happen to the global economy if oil got to $120 and page 4 has a great chart going back to 1970

  95. 95
    zman Says:

    Now you know why you have to wait for your dentist to see you … he’s busy trading options, lol.

    Along the lines of my thinking #88 here is a quote from Merrill made this morning regarding HAL, BJS but it applies to SLB and other service names that have N. American gas exposure (BHI, NBR etc)

    they are looking to second half momentum and won’t be shaken by earnings misses this quarter. they see increasing evidence of “North American snapback”. See increasing visibility into 2009 and even in Canada. So that’s the PDS- precision drilling as well.

  96. 96
    zman Says:

    Nice find Denise…that is very depressing, literally, depression like.

  97. 97
    isleworth Says:

    CHK and XCO removed from Buy list at Deutsche Bank

  98. 98
    kiaora Says:

    Z— You’re right on…..Have spent many minutes on the blog instead of “inflicting” pain.

  99. 99
    Jay Reynolds Says:

    Where am I wrong.. best numbers I have…

    – CHK completing a well/18 hrs in Bakken.

    – Assume others, in aggregate are doing the same.

    – Wells are ranging 2-18 MMCFD – LETS take 2 in this example

    – Completion rate would infer 90 new wells a month X 2MMCFD

    – At 2 MMCFD every 50 wells provides 1 BCFD. That would be significant supply.

    I think my info is wrong on completion rates, it must be. Comments?

  100. 100
    zman Says:

    Thanks, that sounds like a valuation call…much like their Tuesday call on the offshore drillers. Makes sense to be cautious but just because the stocks have run of late does not make either of them expensive:

    P/CF on 2009E CFPS
    CHK: 4.6x
    XCO: 4.2x
    PQ: 4.0x

    HK: is actually a little high at 6.5x but that too is justified given the growth rate, prospects, management, etc.

    K – I knew it!

    These are all very reasonable numbers at it is 2009 numbers people will begin keying off more and more soon.

  101. 101
    scoop006 Says:

    Z You like my trade? PQ April $20.@.25

  102. 102
    zman Says:

    JR – You mean Barnett and every 15 hours to my knowledge.

    2 mm/d IP as an average is low, at least for the wells they have been drilling for the last several months.

    2 MMcfgpd by 50 = 0.1 Bcfgpd or 100 MMcfgpd. You do have the asymptotic decline rate to take into account (3 months later the well is producing half the IP)… which is why you finish one every 15 hours.

  103. 103
    zman Says:

    #101 = WildScooptrade. You just hate your money, don’t you?! It’ll probable work fine now that I said that and all you need is a small recovery and you are up 50% in a flash.

  104. 104
    zman Says:

    SLB, HAL, NBR all trying to run a bit now…of course, the sustainability of each of those moves depends on SLB’s ability not to disappoint tomorrow.

  105. 105
    scoop006 Says:

    If only it can reach today’s high tomorrow

  106. 106
    zman Says:

    Scoop – like it goes back to even on they day today to me. Up to the market really as oil and gas are done on the day.

  107. 107
    Jay Reynolds Says:

    Z – re 102

    Thanks. I knew something was wrong with my lunch/napkin math. Correct on the Barnett, correct on the rate of completion. Muchas Gracias.

    Be interesting to see how the Haynesville stacks into it.

  108. 108
    zman Says:

    JR – a little birdie hinted to me that those are much bigger wells which jives with Aubrey’s statement on the call when he said “these three wells are some of the best shale wells ever drilled at the beginning of a new play”.

    Be interesting to hear how many rigs they have running and how much acreage CHK has down there now. HK has a well turning to the right down their targeting the shale as well.

  109. 109
    Dman Says:

    Hi Z – I’m having trouble keeping up with all the posts today. OII is up nicely but I’d appreciate your thoughts on it’s short term prospects – eg. is it actually being driven by hurricane anticipation?

    NOV: would you expect the S&P add to do much here?

    HK: I seem to recall there was another broker out a few days ago with a $35 target – or was that the same one? Anyway, with that kind of talk around, it sure gets hard to justify selling & I also wondered just what these guys know to set target prices 50% above the market : analysts are not usually a bold bunch, so they *must* know something!

  110. 110
    Sambone Says:

    2:05 pm EST

    Gas, Oil Independents See Lasting Growth


    HOUSTON — Some of today’s oil giants are managing to eke out infinitesimal increases in oil and gas production, while others are struggling just to stay even. But none of the hallowed “Supermajors” is approaching anything like double-digit growth.

    The story is very different among leading oil and gas independents, many of which have settled into a growth program built around systematic exploitation of unconventional natural gas resources like the Barnett Shale in Texas, a strategy that looks almost certain to continue to yield strong volume growth for at least a few more years. One of the biggest independents — companies that produce oil and gas but don’t refine oil into gasoline — is Devon Energy Corp. (DVN).

    The Oklahoma City independent, which notched 12% volume growth in 2007 compared with 2006, projects annual growth of 6%-13% through 2011, depending on commodity prices, said Chief Executive Larry Nichols. Hosting a recent investor presentation, Devon said it could conceivably double its volumes from the Barnett Shale alone. That would place Devon’s Barnett volumes at as much as 2 billion cubic feet per day, or more than 3% of U.S. natural gas production.

    The recent surge in Barnett production has been “extraordinary,” said John Wood, the Dallas-based director of reserves and production for the U.S. Energy Information Administration.

    “The resources we’ve assembled have a lot of capacity for growth,” Nichols said in an interview. In building Devon, Nichols has long eschewed politically risky venues in favor of North America. “I don’t think our strategy has changed one-iota,” he said.

    Over the last year, the Dow Jones Oil Exploration and Production Index has risen more than 40%, while the S&P 500 has dropped 7%. Despite these impressive gains, this group of companies, which also includes Anadarko Petroleum Corp. (APC) and Chesapeake Energy Corp. (CHK), remain a favorite sub-sector within petroleum, owing to a combination of strong volume growth and a recent strengthening of natural gas prices.

    If anything, the near-term fundamentals look to improve further in 2008, say several analysts. Pointing to a “perfect storm of positive fundamentals,” a Citigroup report last week said the sector was poised to outperform expectations due to a host of factors, including relatively low gas storage and waning natural gas imports. The recent jump in crude prices is also lending upward support to natural gas.

    Most of these independents have little, if any, exposure to Venezuela, Nigeria and other far-flung venues that make headlines in the oil market, opting instead for a variety of shale and other unconventional plays in states like Kansas, Texas and West Virginia. That drama-free profile works just fine with analysts like James Halloran of National City Private Client Group.

    “Right now, the least political risk in the world is in the U.S.,” Halloran said, preferring the independents to integrated companies, whose fate is tied to unpredictable foreign governments. .

    Too Much Success?
    Still, as with all energy-related equities, analysts point to some important caveats in an otherwise bullish appraisal of these gas-leveraged independents. Pointing to the possibility of a warmer winter next year, the Citi report warned that “caution for 2009 appears warranted,” given that the sector’s increased output could overwhelm demand growth.

    Other key variables include the effect of a weakening U.S. economy persistent cost-inflation as companies must redouble drilling as these basins mature.

    But the biggest worry may be that “you could get too successful,” warned Halloran, who fears that surging energy prices could prompt action from Washington.

    While executives from companies like BP PLC (BP) and Exxon Mobil Corp. (XOM) are regularly called to Capitol Hill when gasoline prices rise, independents have generally avoided the harshest political spotlight because they don’t sell retail gasoline.

    Still, independents are anxious about how the 2008 presidential election is playing out in a climate of higher energy prices.

    “We are very concerned,” said Anadarko Chief Executive Jim Hackett, about policies “that potentially affect the country’s supply of energy and our nation’s security.”

    The U.S. will continue to rely on conventional petroleum “at least for the next 20 years,” Hackett said in response to written questions. “Our leaders should focus on policies that encourage production and conservation.”

    “There is political risk in every country in the world and it certainly includes Canada and the U.S,” Devon CEO Nichols said. Nichols isn’t sure how Devon would fare if the U.S. imposed new energy taxes, or some other penalty on domestic producers. Such measures would likely pinch domestic supply, leading to still-higher prices, he said.

    But Nichols said he is comfortable with Devon’s current North America-heavy profile, which counts only about 4% of its volumes from international sources. Devon has divested ventures in recent years in Equatorial Guinea and Egypt, while continuing to operate in Brazil and China.

    Devon’s international leverage is greater than companies like Chesapeake, which have no operations abroad. But Devon is less regionally diversified than Anadarko, which currently gets about 15% of its production from abroad. Anadarko is building a significant presence in West Africa and is making entreaties in Iraq. Although Anadarko is not spending capital in Iraq, the company has a technical support agreement with the Iraqi government, Hackett said.

    Nichols, for his part, has no interest in Iraq. “We don’t see any reason to take all the risk that’s presented in Iraq to create shareholder value,” he said.

    —By John M. Biers, Dow Jones Newswires

  111. 111
    Nicky Says:

    Re # 94. Very interesting Denise. I have been saying for months now that oil at these levels is going to be disastrous for the economy and the world. It really has made me very nervous about the overall situation.
    But every time I air these concerns the response is that it is going to take a long time for the effects to be felt and as demand is not falling nobody seems to see any problem and that we can absorb the prices. Even on here that has been the response.

  112. 112
    zman Says:

    OII – it has had a good run and has been a run into earnings and sell the event name for a couple of quarters now.

    Hurricane forecast is probably part of it, the other is Carioca – big discovery = need for a lot of ROVs on those deepwater rigs, and the health of the deepwater rig market.

    PBR by the way up $3+ so take that Dillon Ratagain crew.

    NOV – I’d think it would have had the biggest part of its impact by now and that earnings will matter more to the share price.

    HK – This is a fresh recommendation with 35 target. I still have not laid hands on a report but I’d have to guess that given P/CF or TEV/EBITDA multiples here being a touch to the high side (not bad but a little) they are giving pretty good weight to their NAV forecast. Haynesville alone can get you to a big number: 70,000 acres, 65% of it good, 4 Bcf per well assumption and 60 acre spacing and I can get to a number that will make people smile. The report I remember the other day by the was ML initiating with a $27 target and they gave only $1 per share of value to the Haynesville, which was pretty scrub of them.

  113. 113
    zman Says:

    wow, DO came back by half of its loss and I didn’t remember to grab it.

  114. 114
    texana Says:

    for infor about bakken play visit brigham exp web site http://www.bexp3d.com and click corp presentation. good day to buy wll & eog on low vol pullback

  115. 115
    Denise Says:

    In agreement -painfully long DUG (as of last week)
    but I was short housing way too early and caved in
    Maybe i should see if there is a DUG leap?
    I seem to remember a global recession in the early 80’s

  116. 116
    Sambone Says:

    3:51 pm EST

    Crude Settles Off Highs As Product Rally Fades


    HOUSTON — Crude-oil futures ended down slightly, as receding concerns about the supply of oil products took the momentum out of this week’s rally.

    Light, sweet crude for May delivery settled 7 cents, or 0.1%, lower at $114.86 a barrel on the New York Mercantile Exchange, off from a record intraday high of $115.54 set Thursday morning. June Brent settled 23 cents lower at $112.43 on the ICE futures exchange.

    Oil futures recently have been taking cues from heating oil and gasoline. Heating oil futures appear to once again be surging toward record levels on the back of strong demand from Europe and Asia, while reformulated-gasoline blendstock, or RBOB, futures had hit an all-time high every day this week. Nymex RBOB rose 2% Wednesday when U.S. data showed a surprisingly large decline in gasoline inventories and low refinery runs for the week ended April 11, raising concerns about supplies heading into the summer.

    RBOB, the benchmark gasoline contract on the Nymex, on Thursday once again settled at a record $2.9578 a gallon, up 1.88 cents, or 0.6%, but off nearly 2 cents from the intraday high.

    May heating oil, meanwhile, settled 1.56 cents, or 0.5%, lower at $3.2674 a gallon, down for the first time in five sessions. Relatively shaky performance from products futures from late morning onward indicated that supply fears are rapidly becoming priced into the market, making further gains difficult, said Walter Zimmermann, a technical analyst at brokerage ICAP/United Energy in Jersey City, N.J.

    “A bull market never needs bearish news to reverse, it just needs an exhaustion of upside momentum,” Zimmermann said.

    Others were not quite ready to call an end to the rally in oil and products, with Barclays Capital analysts noting that U.S. crude stocks are dropping, despite historically low refinery utilization.

    “Ahead, we see only limited downside risk from the energy sector, with oil prices poised to hold up well,” according to a Barclays Capital note. “Despite refinery runs remaining well below normal levels, crude oil stocks have continued to erode relative to their usual seasonal pattern.”

    The dollar’s movements, overshadowed recently by the gasoline rally, were felt Thursday, said Matt Zeman, head of trading at LaSalle Futures Group in Chicago. The U.S. currency hit an all-time low against the euro early Thursday morning, roughly when oil hit its record. The dollar then strengthened to a two-day high, leading crude lower, Zeman said, adding that the firming is likely to be short-lived.

    “If the dollar rebounds…crude could lose some of its premium,” he said. “It’s probably got a $10 to $15 dollar weakness premium built in. Unfortunately, I don’t think that’s going to happen.”

    —By Brian Baskin, Dow Jones Newswires

  117. 117
    Jay Reynolds Says:

    Re 108

    I think I might have posted earlier that a little birdie, about the size of Pterodactyl, on the ground, told me without the slighest equivocation, “Twenty million CFD, take it to the bank”.

    That would just about make up for my order of magnitude error in my earlier post.

    Incidentally, informal bidding war starting this week, hosted on a “nice boat” on Lake Ouchita, AK, for about 5K acres up for lease in the Elm Grove and Caspiana field. The proposed terms are so out of this world that the agreement may be subject to confidentiality but I’ll have a pretty close idea by the look on the faces when they get back from the lake.

  118. 118
    Sambone Says:

    Tini time!

  119. 119
    zman Says:

    JR – is that Tarrant county acreage? I see a story saying $17,000 /ac

  120. 120
    Jay Reynolds Says:

    Z – I am seeing over $20K/ac lease bonus confirmed in Tarrant County. Lake Ouchita meeting is with “independent company” re deep rights in NW LA. Highest bonus I know of so far in my area (Caddo, DeSoto and Red River Parishes) is $5,500/ac.

  121. 121
    zman Says:

    JR – ok saw a story on the newswires just a few minutes ago regarding a meeting at the Hilton Southlake to bid on 5,000 acres for CHK in Tarrant County for $17K/ac. Thought it might be the same story but this is middle of the metroplex, largest grab by CHK since they got the 18,000 acres at the airport. CHK will no doubt dry fire for paying so much but the airport has been a boon for them and others are after this acreage.

  122. 122
    zman Says:

    Scoop are you watching Cramer – he’s saying what I was saying yesterday about taking the stock ( I had said the option contract) off your market watch after closing the trade. He’s right.

  123. 123
    scoop006 Says:

    Just came back from the dentist. Will watch @ 11PM. Thanks

  124. 124
    zman Says:

    LNG, the company.


    President quit this week, CFO sold 251,000 shares.

    Turns out if you build it they won’t come. This may be the subject of a buy under. Crippling amount of debt and no market to refi it in.

  125. 125
    bhr5491 Says:

    Z, did you see the MMR move today?

  126. 126
    zman Says:

    Saw they reported but I’ve been away from the name for some time now…not up to speed. Obviously people liked the quarter.

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