Wednesday – Fed Decision Likely To Overshadow Inventory Report

Pardon the formatting and incomplete piece on NOV this am. Lost power and battery backup allowed me to copy and transfer to a remote site. One monitor with delayed quotes for the next 3 hours....ouch. 


In Today's Post:

   1. Morning Thoughts
   2. Holdings Watch
   3. Commodity Watch
   4. Stocks We Care About Today Watch
   5. Odds & Ends

Yesterday was not fun. After a pretty good run over the last several weeks, oil and gas producers and oil service stocks took a beating, closing on the day's lows. It's one of the those days that in hindsight are pretty easy to see. In this case we knew Fed decision induced dollar strengthening fear could hurt oil plus we knew the strike in the UK would only last 24 hours and that headlines like today's "Oil Down On Easing Supply Concerns" would be echoed by one reporter after another.

Today will likely see more of the same action early as striking workers in Nigeria have agreed to return to work but the Fed decision will be key to oil prices at least in the very near term. We do get EIA inventory numbers this morning but they will probably be largely ignored unless they are well afield from expectations (see Zcomment below) in favor of waiting on the Fed decision this afternoon. The market has signaled it would like to see one more cut and then a pause out of the Fed and that is probably what we'll get. Oil may slip to $110 in the near term if the dollar rally re-exerts itself.

At present, I'm largely positioned in longer dated calls, in relatively inexpensive names; names that aren't discounting $100 oil in their valuations, let alone $115 (see bullets below). However I will be quick to take profits or losses in names that disappoint or in any name that looks to be becoming technically abandoned AND that lacks near term catalysts in the form of earnings or other expected news.

Oil Strip:

    * 12 month: $112.01
    * 24 month: $109.89

Street Estimate:

    * 2008: $90.67
    * 2009: $86.67

Note that for 2008, the second through fourth quarter estimates by Wall Street average $88.50 meaning that the Street is using prices in its models that are roughly $25 below current strip pricing. So oil could fall to $90 today and stay for the rest of the year and actual results for the group would still climb relative to current estimates, and that's before you consider the boost in production profiles brought about by recent increases in capital spending.

Holdings Watch: We did a little bottom fishing in yesterday's sea of red. Painful, at lease as the first few hours go.

    * (CHK) - Added CHK May $55 Calls for $1.25. Last bid $0.70.
    * (HK) - Added HK May $22.50 Calls for $1.95. Last bid $1.55.
    * (EOG) - Entered EOG June $140 Calls for $3.90. Last bid $3.50.

Commodity Watch:

Crude Oil tumbled $3.12 to $115.63 with the return to service of (BP)'s Forties oil pipeline and an ever so slightly stronger dollar. This morning crude is up slightly despite dollar fears and the end of the strike in Nigeria.

    * Nigeria Watch: Union workers under contract to (XOM) have agreed to return to work. Estimates run as high as 770,000 bopd  

The Inventory Preview Table (expectations from the Platt's Survey).


ZComment: Bloomberg is looking for a smaller build in crude along the lines of 0.95 million barrels and we could see a decline in crude inventories if refineries continue to return to service and imports ease a trifle. In today's EIA report, the key numbers will be:

    * crude inputs to refineries to refiners which are likely to edge higher given last week's move up in utilization and the expectation of another increase this week. That's additional demand.
    * last week saw a surge in crude imports that shielded the crude inventory levels from a draw as those refiners ramped up. Imports are volatile from week to week and we could see them fall back enough to actually cause a draw.
    * Last week we saw crude inputs and utilization rise but did not get a big jump in gasoline production. That probably flows through to the numbers today. So unless gasoline demand really rallies I think you could get a build in gasoline (draw currently expected).
    * Not a huge degree of confidence in this but it could happen. This would give you up oil and down gasoline and there you have my justification for waiting a little longer to play the refiners.



Natural Gas fell hard with crude yesterday falling nearly $0.50 to $10.84. Natural gas has been led around by the moves in oil for quite some time now while traders touted strong demand and weak supply (incorrectly I might add).

Stocks We Care About Today: Today is the calm before the storm for more earnings on companies we presently hold. The following are noteworthy.

(TLM) reported 1Q08 results. The results are pretty unspectacular but the stock remains cheap and they did announce a couple of decent Bakken wells (on the Canadian side of the play) had been drilled. Just something to keep an eye on as they right the ship here.

(HES) announces a big beat for 1Q08

    * EPS of $2.34 vs $2.02 expected.
    * No guidance given in the PR.
    * Conference call at 10 EST which could help buoy the group.

(NOV)...cut short due to power failure.

    * EPS of $1.11 vs $1.09; 

    * Backlog increased 10% to $9.9 B    * Favorite quote watch "our record backlog for drilling equipment continues to provide us with unprecedented visibility".

Odds & Ends

Analyst Watch: RJ cuts (NXY) to outperform from strong buy,  (JRCC) upped to buy at UBS, (VLO) cut to neutral at Credit Suisse, FBR ups (PCX) price target to $95, cuts (TSO) target to $39.

154 Responses to “Wednesday – Fed Decision Likely To Overshadow Inventory Report”

  1. 1
    zman Says:

    morning, can I get a quote on oil / ng? thanks.

  2. 2
    rseidman Says:

    Last check:
    Crude 116.34 up .71
    NG 10.92 up.08

  3. 3
    uop Says:


    expect a wild day with Bernanke , I hope, not cutting further, he should have noticed how the expectation of a no cut helped yesterday ( not for us), after all interest rates are really low.

  4. 4
    uop Says:

    did you expect/hope for last Monday to hear about a HK takeover ?

    what is your newest thinking.

  5. 5
    zman Says:

    No. Takeover there will happen someday, I think this year. A watched target never gets popped. My thinking is that they will add to the Haynesville acreage, have news on the Elm Grove Taylor Sand wells (2 of 3 could be good at this point it seems by the date of the call) and have favorable comments re their other ops, especially Fayetteville Shale.

  6. 6
    uop Says:


    the UNG puts may are just about worthless,
    do you contemplate to take another position , for June ??

  7. 7
    bill Says:

    hes and tlm up big today.

    I hope we get same reaction to Mur and CHK

  8. 8
    bill Says:

    hes 109.50 and tlm 20.73

  9. 9
    zman Says:

    Not until I see the momentum shift…yesterday was not enough to say that has happened. In my book, that was just profit taking based on the drop in oil.

  10. 10
    john11 Says:

    CHK ceo Aubrey McClendon to appear live on cnbc Fast Money after close on thursday, intersting that this is before cc on friday am, probably good stuff to share don’t you think.

  11. 11
    bill Says:

    Mur 90.47
    CHK 51.86

  12. 12
    bill Says:

    i think chk will be 55 this week, im going to buy more calls

  13. 13
    Sambone Says:

    7:52 am EST

    Crude Steady As Nigeria Supply Concern Eases

    By Angela Henshall

    LONDON — Crude oil futures were broadly steady in London Wednesday on a stronger dollar against the euro and reports ExxonMobil Corp. workers in Nigeria were returning to work following a strike.

    Although the workers are still negotiating on a pay deal according to state oil company Nigerian National Petroleum Corp., a London-based trader said “some of the risk premium has now been taken out” putting downward pressure on the crude oil price.

    On Monday, ExxonMobil declared force majeure on its energy operations in Nigeria after the strike forced it to shut-in around 800,000 barrels a day of its output. The declaration indemnifies it from its contractual obligations.

    Although a swift conclusion to the dispute may be on the way it could take some time for production and exports to return to normal, because it could take several days for pipelines, drilling rigs and export facilities to be brought back into full service.

    At 1142 GMT, the front-month June Brent contract on London’s ICE futures exchange was up $0.24 at $113.67 a barrel.

    The front-month light, sweet June contract on the New York Mercantile Exchange was trading $0.15 lower at $115.78 a barrel.

    The ICE’s gasoil contract for May delivery was down $1.75 at $108.775 a metric ton, while Nymex gasoline for May delivery was down 18 points at 293.74 cents a gallon.

    Traders are awaiting the release of the U.S. Energy Information Administration’s weekly supply report due at 1430 GMT.

    According to a Dow Jones survey of analysts, crude oil stocks are expected to rise by 500,000 barrels, gasoline inventories are forecast to decline by 500,000 barrels and refinery utilization is expected to increase 0.2 percentage points to 85%.

    “This week’s DOE stats could provide some fireworks this afternoon,” said ODL Securities broker Glen Ward. The statistics will likely add to market volatility, and lower-than-expected crude oil inventories could prompt buying, he added.

    Crude oil price movements remain closely tied to the U.S. dollar, and immediately following the EIA data the market will focus on the U.S. Federal Reserve interest rate decision, set for 1815 GMT.

    The central bank is widely expected to cut rates by 25 basis points to 2% and to signal a pause in its monetary easing, as U.S. policymakers need time to judge how effective their aggressive rate-cutting policy has been so far, according to Andrey Kryuchnkov, an analyst at Sucden Research.

    “This is widely seen as supportive to the U.S. dollar, which could add more pressure on commodities in the near term,” Kryuchnkov said.

    —By Angela Henshall, Dow Jones Newswires

  14. 14
    zman Says:

    sorry for the delay, powered back up at the office.

    John – thanks, yep, he wouldn’t do that without Haynesville, West Barnett, or news on one of the oil shale plays.

    Bill – hope you are correct.

    Wow, my trading screen has a funny green tinge to it.

  15. 15
    zman Says:

    Sambone – thanks for the story, note crude expectations for inventories started the week with a build of 2.4 mm bop expected, fell below 2 mm last night (as seen in the table in the post) and are now under a million. I think people are starting to think along the same lines as me that we could easily get a draw, could be some of the reason for the support in crude this am too.

    we’ll know in 20 minutes

  16. 16
    zman Says:

    Glad I shied away from VLO. Just no joy on those crack spreads yet.

  17. 17
    VTZ Says:

    PQ up nicely

  18. 18
    kyleandy Says:

    any thoughts on BEXP i see they got a lot of bakken acreage

  19. 19
    zman Says:

    PQ – see that, all time high after yesterday is pretty impressive. Continuing to hold May and July calls there.

    BEXP – is interesting, am holding the CLR and EOG plays for Bakken. BEXP’s chart has been the subject of a stock touting service which counts on word that they are in to drive it higher. Ponzi scheme and when they exit you don’t want to be holding the shares. I plan on listening to their call next week but am shying away for now. Other Bakken is WLL, little KOG,

  20. 20
    isleworth Says:

    any news or upgrades anywhere on PQ?

  21. 21
    zman Says:

    If we get the right numbers VLO could make a nice day trade.

    I may buy back some of my NFX if we get the right kind of numbers to drive crude higher.

  22. 22
    VTZ Says:

    Why is NFX pulling back? minor correction from recent appreciation?

  23. 23
    zman Says:

    Big build in crude, up 3.8 mm bls

    imports stayed high.

    gasoline down 1.5 mm barrels,
    distillates up 1.1.

    probably pretty good numbers for the refiners. Sitting tight for a bit and watching crude.

  24. 24
    bill Says:

    3.6 m build

  25. 25
    bill Says:

    Mur and CHK down 1 % on the news

  26. 26
    Nicky Says:

    Morning all. CNBC can’t even get the data out correctly initially reporting a much bigger build in gasoline than consensus which of course is incorrect.

  27. 27
    Nicky Says:

    wti has support at 114.25….

  28. 28
    zman Says:

    Logistically speaking its unlikely imports stay this high 10.2 mm bopd next week, for now oil will likely soften.

    Morning Nicky, what’s your level below that?

  29. 29
    zman Says:

    NFX – fell with the group yesterday to levels below the conf call which makes little sense. I spoke with them after the call as per my notes and am considering taking some more of the common on. $1 F&D in the dual laterals by year end in the Woodford (wow), Mancos results in a couple of weeks, outperforming Street expectations in Gomex and possible in Asia etc, etc, Numbers are coming up

    Stocks have softened but are doing pretty well considering the sell down in oil, now off $0.80. Going to be a long day. Why is the dollar flat right now?

  30. 30
    Nicky Says:

    WTI – 20 dman is at 113.08. Then further support is at 112.00.

  31. 31
    Nicky Says:

    They had seemed worried about a gasoline draw pre data report – where are those worries now. I would have thought that rbob would have supported the complex as the bulls are now citing driving season…

  32. 32
    zman Says:

    Nicky – I know we’re supposed to be building crude stocks this time of year but 3.8 mm bopd is pretty big. Refiners sat on their butts relative to the prior week and imports remained pretty high. That’s gotta trump that gasoline number. I was surprised that the return of workers to work in Nigeria didn’t have crude off this much at the open.

    Stocks falling into a “weak hands market today”…what is down now gets weaker unless the commodity improves, happening to NFX and CHK at present. Notice nat gas went from up to down in the blink of an eye.

  33. 33
    sane Says:


    Re gasoline, The draw was in blending components, which might be lessining the blow, plus gasoline demand was down again week over week.

  34. 34
    zman Says:

    Gasoline demand was down 0.3% versus last week and 0.8% against year ago levels. People seem to be curbing spending else where.

  35. 35
    Dman Says:

    Hey Nicky, I ain’t at 113.08, you shouldn’t go sayin’ things like that 🙂

  36. 36
    sane Says:


    I am not saying it was down a bunch. I still see people driving around aimlessly every day. Just saying the traders like to make a mountian out of a mole hill.

  37. 37
    uop Says:


    how -if you are – playing potential drop in oil,
    XLE, XOM, USO ??

  38. 38
    Nicky Says:

    Lol Dman!

    Looking at wti – if this is just a correction we should at least see an abc – in which case we are now in c down. I would say 110 is a good target.

  39. 39
    Sambone Says:

    10:36 am EST

    Crude Stocks Rise More Than Expected

    From Market Talk:
    [Dow Jones]–US crude oil inventories rose by 3.8 mln bbls — more than expected — while gasoline stocks fell 1.5 mln bbls and distillate stocks (heating oil/diesel) rose 1.1 mln bbls, in the week ended Apr 25, EIA data show. Analysts surveyed by Dow Jones Newswires expected crude oil stocks to rise by around 500,000 bbls, with forecasts ranging from a fall of 2 mln bbls to a gain 3.25 mln bbls. Gasoline stocks were expected to drop 800,000 bbls, with forecasts ranging from a rise of 1.4 mln bbls to a drop of 2.1 mln bbls. Distillate stocks were expected to be unchanged, with forecasts ranging from a fall of 1.1 mln bbls to a rise of 1.3 mln bbls.

    Reported Earlier:
    HOUSTON — Crude-oil futures traded higher Wednesday morning, as market participants waited for U.S. inventory data and the Fed’s next move.

    Light, sweet crude for June delivery traded 70 cents, or 0.6%, higher at $116.33 a barrel on the New York Mercantile Exchange. June Brent crude on the ICE futures exchange traded 82 cents, or 0.7%, higher at $114.25 a barrel.

    Trading is focused on two events scheduled for Wednesday, the release of weekly U.S. oil and product inventory data by the U.S. Department of Energy and the conclusion of a two-day Federal Reserve meeting, at which point the bank’s monetary policy body is expected to announce a decision on its benchmark interest rate. The inventory data release offers clues to the U.S. supply-and-demand picture, while the Fed’s moves affect the course of the dollar, which has become tied to oil prices.

    Futures fell by more than $3 Tuesday in anticipation of the Fed’s move, and Wednesday’s uptick could be a brief bounce before the inventory data release, analysts said.

    “I have a feeling it will be a very volatile day, starting with the DOE numbers and then moving focus over to the Fed,” said Peter Beutel, president of trading advisory firm Cameron Hanover.

    Analysts expect Department of Energy data due 10:30 a.m. EDT to show U.S. oil inventories to have grown 500,000 barrels in the week ended April 25, with gasoline stocks down 800,000 barrels and distillate inventories unchanged. Refinery utilization will be closely watched, as runs fell to a more than two-year low two weeks ago, but began a recovery last week.

    “A pullback in utilization will exacerbate market fears regarding the industry’s ability to manufacture gasoline for this summer and heating oil for next winter,” wrote Stephen Schork, editor of the Schork Report in Villanova, Pa.

    The Fed is expected to announce a 25-basis-point cut to its benchmark interest rate, but dollar-watchers are also hoping for some indication of the body’s next course of action. Should the Fed hint at a pause in cuts, the dollar could strengthen, which in turn would exert downward pressure on oil prices. Investors have used oil as a hedge when aggressive rate cuts caused the dollar to weaken, and, should the Fed hold rates steady for several months, they may begin to sell oil futures and buy dollars, analysts said.

    “Even if the Fed were to cut rates by 25 basis points (as is the majority view), we still could see the dollar rally if the accompanying policy statement suggests that the downward move will be the Fed’s last for a while,” wrote Ed Meir with MF Global.

    The last of the production outages that had sent oil to a record $119.93 on Monday was resolved Wednesday, as Exxon Mobil Corp. (XOM) workers in Nigeria prepared to return to their jobs as a strike neared resolution. The work stoppage had forced Exxon to halt all energy operations in the country, cutting off 800,000 barrels a day of oil production. Royal Dutch Shell PLC (RDSB.LN) still has oil output shut-in after militant attacks last week.

    Front-month May reformulated gasoline blendstock, or RBOB, recently traded up 3.14 cents, or 1.1%, at $2.9706 a gallon. May heating oil traded up 1.38 cents, or 0.4%, at $3.2603 a gallon. Both contracts expire Wednesday.

    —By Brian Baskin, Dow Jones Newswires

  40. 40
    zman Says:

    Sane, I know, just putting numbers on it for those not looking at the “special file” from the EIA.

    Re PQ – some blogger somewhere said something nice about it and it got picked up YahooFinance last time it moved like this. Don’t see anything today.

    Uop – probably DUG calls or DUG itself

  41. 41
    Sambone Says:

    I guess everybody saw Pickens yesterday on CNBS. If not here it is.


  42. 42
    zman Says:

    Nicky – did you see T Boone earlier, don’t think it was CNBC. He said no change in trend on crude, sees $125 to $150 later this year.

    Re holdings: most of mine are for earnings. I’m not adding, especially before I see the Fed statement and I’m not punting anything either. Most of my positions are June or July and we’re at the end of April.

    euro slightly up on the dollar now which is sort of odd.

  43. 43

    Hi Z.

    I appreciate the email blasts since I don’t get to the blog much anymore. I bought some CHK May 55s, should I risk doubling down on Mays or go out a month?


  44. 44
    Nicky Says:

    WTI – alternatively we could still be in the a wave of an abc decline.

  45. 45
    zman Says:

    Hey Q – I bottom fished a little early there and am off substantially there. The safer play is to roll out of course. I think Aubrey puts up good numbers and says the right things to reverse the chart. If oil goes to $100 or some such then of course NG will decline and he can cure cancer and the stock will go down. I hold the July’s here too.

  46. 46
    Nicky Says:

    Yes saw TBoone last night. He ticks me off to be honest. Comes on about two months ago and calls what he thinks will be a very important top citing ‘fundamental’ reasons and says he is short. Two months later when his fund has lost 20% he tells everyone he has made a mistake and has now switched back to long, once again citing the fundamentals.
    I have no idea why he switched to short in the first place when none of the fundamental supply and demand reasons he gave for being long in the first place had changed. Not sure why the energy world hangs on his every word when he is just flip flopping about! He is just using the media to benefit his position imo.

    Did you note though that he saw a lot more upside in natural gas than oil?

  47. 47
    reefguy Says:

    46- All funds down 1.6B by March 31. By April 25 got back to better than neutral.
    It takes guts to make a quick turn, but that reversal is telling.

  48. 48
    reefguy Says:

    I cannot believe it- TMR 10k/a Overpaid management has agreed to end employment by year end, stock up 9%

  49. 49
    uop Says:


    oil curves show steep downward slope,

    ewquities are becoming attractive, look at the DIA, even NG/UNG shows less slope,

    could you please review briefly which companies benfit and which companies suffer from lower oil prices ??
    Of course, somewhere sombody is ready to blow up another pipeline or terminal, hurricane season is also in the future,

    this is tough to evaluate IMO.

  50. 50
    Nicky Says:

    re #47 – why did he even try calling the top in the first place? he has been resolutely bullish for months – his call to go short made no sense by his own reasoning.
    Yes I don’t doubt it was a brave decision to reverse – but whenever he makes he move he makes sure he is on every tv channel – can’t do any harm in a world where they hang on his every word and no doubt follow him can it? You can’t accuse him of not talking his book thats for sure!

  51. 51
    zman Says:

    Nicky – re 46, yep, he’s long NG now, lol.

    Uop – I assume you just mean in the energy patch. Independent refiners benefit as long as lower oil does not take down gasoline proportionately. Today gasoline is barely moving and cracks are up. Refiners could care less with a downgrade of VLO weighing on the group…they also often move with crude first and then adjust slowly to a move in crack spreads.

    Who gets hurt by down oil? Oilier names in E&P like a CLR or a BRY, all of the Big Cap E&Ps, even the gassy ones as down oil will likely lead to down NG and they have had big runs.

  52. 52
    ellwodo Says:

    CHK – what about the May 52.5s, they look pretty cheap if aubrey cn generate ny bounce at all

  53. 53
    zman Says:

    Re 51 – that’s the knee jerk to lower oil with “lower oil” meaning oil falls to some number near term above $100. These companies don’t model projects on anything like $114 oil and $10+ gas for determining IRR so rest assured they are minting money at these and lower levels.

    El – they do, I’m just for reaction to the Fed to get out of the way before deciding.

  54. 54
    Dman Says:

    Nibbling at DITM calls several months out in NFX, CHK, NOV, CLB, OII. No luck yet splitting the bid on OII calls, (due to earnings later today I guess) so may have to resort to some stock.

  55. 55
    zman Says:

    John 11 – where’d you see that Aubrey on Fast Money Thursday info?

    Good luck Dman, one thing that’s interesting today, at least so far is the selectiveness of the moves today following yesterday’s drop in all of the names. It tells you there’s some appetite for energy names and not just rampant baby and bathwater dumping to go by C or ABK or tech.

  56. 56
    el_vogel Says:

    Getting killed in DO calls…how long before the rebound? 🙂

  57. 57
    reefguy Says:

    tmr- up 13.3%

  58. 58
    ellwodo Says:

    CHK – Between changing the conf call to after opening on Fri and agreeing to be on Fast Money Thursday after earnings, my theory is that Aubrey wants to give the market a chance to react to good news before the analysts screw it up.

  59. 59
    Bob Says:

    Re: 55
    On last night’s show Ratigan said Aubrey would be on Thursday “In the flesh”

  60. 60
    zman Says:

    El-V – me too…don’t know. Looks overdone to me, latest I heard was people were upset about the size of the special dividend, thought it should be bigger. This seems way overdone for the small miss, at this point, I may just dump it. Long term nothing has changed and the stock has gotten a lot cheaper. These deepwater drillers move in big spurts up and down. The up could be around the corner.

    Elwo – you’ve played this game before!

    Thanks Bob.

  61. 61
    zman Says:

    Reef- Why would TMR quit and who’s taking the reins?

  62. 62
    reefguy Says:

    They have been paid their big parachutes, summing it now- like 15MM/four folks. Puts them into play, with new as yet unnamed management, more likely liquidation by EOY.

  63. 63
    reefguy Says:

    z- did you see SGY pay less than market for BDE?

  64. 64
    tater Says:

    Bakken – Trying to think about who is going to sell the pickaxes and shovels. Somebody has to get hired to refit TSO’s Mandan refinery. Am I confused or is it NBR’s rigs that have the extra horsepower? Roadbuilding, pipeline (ENB?)
    Any thoughts or should I just go open a strip bar?

  65. 65
    reefguy Says:

    64-Cheap hotels,juice joints and condoms to go..

  66. 66
    zman Says:

    Tater – NBR has the 1000 to 1500 hp rigs ready to play in the Bakken. HAL and SLB will be heavily involved there as well. I think Reef covered everything else.

  67. 67
    Dman Says:

    With the recent Forties fiasco along with the usual Nigerian problems and with shots fired at the Iranians thrown in for no extra charge, I got a sense that a lot of short-term fears driving oil were realized , which provides a basis for a near-term top. The market continues to assume that GWB is bluffing about Iran (it ran up a few dollars, not exactly pricing in WWIII). Not to say that a lot can’t go wrong tomorrow & we could see $150, like Boone says.

    Z – I’d be interested in your thoughts on the impact of current prices on E&Ps, given your views, going back several months, that it would actually be better for the stocks to see oil at eg. $90.

  68. 68
    john11 Says:

    Z 55 They mentioned it on the show yesterday that Aubrey would be on in person on thursday

  69. 69
    zman Says:

    D – impact of current prices would be that they get to hedge at these prices if they use their heads and lock in the higher capex budgets that they are uniformly announcing. With that said, most of the capex budget increases I have seen are fairly conservative and based on much lower price decks than the current strips so I don’t think they have sacrificed discipline or increased activity to the extent that we see a return to: 1) over-leveraged balance sheets and 2) service inflation on the scale we saw over the last half decade. I would like to see the shale mania calm a bit and if I do start to see cap-ex increases on a monthly or quarterly basis I’ll reduce my exposure as I’ve seen the E&P boys shoot themselves in the foot before. Also, will continue to monitor NG supply…if those monthly numbers start to increase faster than they already have been you have to get nervous that a downdraft in gas prices is possible.

  70. 70
    zman Says:

    Nicky – they cited your $114.25 level as the key to the future of oil prices on CNBC earlier. We’ve got to get you in front of a camera instead T Boone or Phil Flynn. Man, Flynn disappeared into a black hole once he turned bearish. Looks like the bulls are trying to get it over that level again now.

  71. 71
    Sambone Says:

    11:17 am EST

    Nymex Crude Lower On Large Oil Stock Build

    By Brian Baskin

    HOUSTON — Crude oil futures traded lower Wednesday on a larger-than-expected build in U.S. oil inventories.

    Light, sweet crude for June delivery traded $1.67, or 1.4%, lower at $113.96, a level not seen since April 18. June Brent crude on the ICE futures exchange traded $1.41 lower at $112.02 a barrel.

    Oil inventories rose by 3.8 million barrels in the week ending April 25, according to the U.S. Energy Information Administration, far outstripping the mean analyst forecast of a 500,000 barrel build. The EIA also reported a small dip in refinery utilization, which is already at a seasonally low level.

    Oil futures are likely to hold between $113 and $114.25 a barrel before recovering later in the week, said Mark Waggoner, president of Excel Futures in Huntington Beach, Calif.

    In the past two weeks, oil prices have risen on large gasoline stock draws, which some saw as a sign of a potential supply crunch once demand peaks in the summer months. The EIA reported a 1.5 million barrel decline in gasoline inventories last week, nearly double the expected 800,000 barrel drop.

    “We look for the main impact of this report to be on the gas cracks that should expand further,” said Jim Ritterbusch, president of trading advisory firm Ritterbusch & Assoc. in Galena, Ill. “We are not viewing (the oil inventory build) as a development capable of keeping crude values in the negative column today.”

    Focus in the market now turns to the Federal Reserve, which is expected to announce its decision on whether to cut its benchmark interest rate Wednesday afternoon. Signs that the Fed will hold off on further cuts is seen causing the dollar to strengthen, which in turn would spur investors to sell oil and buy the greenback.

    Front-month May reformulated gasoline blendstock, or RBOB, recently traded down 2.42 cents, or 0.8%, at $2.9150 a gallon. May heating oil traded 4.65 cents, or 1.4%, lower at $3.2000 a gallon. Both contracts expire Wednesday.

    —By Brian Baskin, Dow Jones Newswires

  72. 72
    zman Says:

    Denise – Doug Kass musing about the impact of $10 lower oil on the markets, saying it could be negative given the weightings of energy in the market.

    I may take some DUG calls going into the Fed statement. A little quick insurance in case they say things that pump up the dollar and or slam crude.

    Two questions for the bears on oil who have long said the dollar is not behind a big chunk of the move higher in crude. 1) if that’s the case will a move higher in the dollar necessarily results in lower crude as an inflation hedge, noting that Iran has begun selling oil in other currencies and 2) if the Fed thinks the economy is now sound enough to stop lowering rates, does that not mean that oil demand will be headed back up.

  73. 73
    zman Says:

    MMS approves development plans set forth by PBR and DVN to bring first FPSO (floating production storage offloading) vessel to a Gulf of Mexico development. They have long opposed this but PBR is a pioneer in deepwater development via FPSO. It can be a lot cheap to develop deepwater reserves if you can use a ship instead of a spar, TLP or semi-submersible. Good news for these guys and for the likes of APC and even down to NFX. FPSO’s could shrink the reserve size needed to make many deepwater projects economic.

  74. 74
    Nicky Says:

    Re # 72 – great points Z. It is seeming far too obvious and as we said yesterday now so widely touted that they expect oil to sell off on any rhetoric from the Fed that is slightly hawkish. So stand by for the opposite to happen I expect maybe after an initial move lower.

    Remember products expire too today which will add to the volatility.

  75. 75
    Nicky Says:

    Dennis Gartman was on yesterday saying the commodity trade is done especially in metals – he literally said get out of gold! Also said Ag was done for now.

  76. 76
    zman Says:

    Nicky – I would not be at all surprised to see crude $1 lower just before the fed statement comes out. Dollar is flatlined today waiting on the statement. Energy equities marking time for now, a little drift higher in some of my names but nothing to write home about.

    Re products, they sure do seems to making a lot of gasoline given the utilization levels. Blending components fueled the draw.

    Tempted to either buy calls on DUG as the group is trying to rally a little bit and it is flat right now as a hedge to all my longs or step back and be a little more patient. I’m going to wait on the statement.

  77. 77
    Denise Says:

    Good Afternoon
    Mr K mia until Friday-I do not think he sold any Dug yesterday-he is still long
    His market reading 3-3(yesterday)-no change

    I agree with Nicky too obvious-
    I lightened up my short crude yesterday

    We are overbought(market) and my T/A says a correction is likely if not off the fed today maybe friday’s employment number or next week

    My vodoo man says a sharp correction in May possible

    I raised $ and am awaiting some fat pitch’s

  78. 78
    uop Says:


    I sense that oil might not hold and drop, the all hydrocarbon energy in trouble, then they should be more in future(timewise),
    if oil holds and rallies, they will be ok.

    Does that make sense ??

  79. 79
    zman Says:

    Nicky – sentiment suddenly hard against ethanol. Not that it will impact anything soon but maybe sentiment on the ags, seed co’s and fertilizers names like AGU, TRA, POT. Wonder what took people so long to see its a bad idea.

    Denise – well said, I’m not biting on a DUG insurance policy at this point. Weird bet on crude going on with it down just over a buck…not buying in as 1) they know nothing and 2) volume is very light compared to the earlier head kick it took.

    Names like NFX, CHK showing all is not lost. Probably bargains but I’m pretty loaded in the latter and the former lacks a definite May catalyst (I’d bet NFX has news out on the Mancos in 4 weeks or so).

  80. 80
    zman Says:

    Uop – are you saying because the curve is backwardated that you think oil is going to drop?

  81. 81
    Sambone Says:

    D – #77, “Sell in May and go away”. Old Wall Street saying

  82. 82
    Jay Reynolds Says:

    Humor Dept


    U.S. House Committee Invites OPEC Secretary General to Testify

    April 30 (Bloomberg) — The chairman of the U.S. House Judiciary Committee invited the secretary general of the Organization of Petroleum Exporting Countries to testify at a hearing on rising fuel prices.

  83. 83
    zman Says:

    Iran No Dollars For Oil story:

  84. 84
    uop Says:

    zman: DO is so far down, is there hope in a few months ?

  85. 85


    Are you “Dig”ing or “DUG”-ing the announcement?

    I have a couple May 30 DUG calls.


  86. 86
    zman Says:

    There’s hope to recover some losses there but I would not expect it to see the $160 call price.

  87. 87
    kiaora Says:

    Got a few May 31 Dug calls for insurance

  88. 88
    zman Says:

    Q – I’m waiting on the announcement…think its a bit 50/50 on the reaction the energy equities will have.

  89. 89
    uop Says:

    zman: just a few minutes to Bernanke.

  90. 90
    Sambone Says:

    Z – I think the energy patch will be down after the announcement.

  91. 91
    Nicky Says:

    I can’t see why the broader market is up so much today ahead of the Fed. It seems to be setting up for a buy the rumor sell the fact. 0.25 is priced in and if they don’t cut at all the market will fall I would say at least initially.

  92. 92
    Nicky Says:

    Only thing that has not beeen addressed is what happens if his comments do not imply he is done with cuts with cuts for now. Will leave the market in limbo again.

  93. 93
    zman Says:

    A lot of people do but the group is half and half right now and well off its lows. Yesterday was an absolute bashing and DUG, the double short on the group is actually up, so there is some question.

  94. 94
    zman Says:

    Does an end to cuts mean they think the economy is ok, or just that they need to fight inflation now? If it’s ok, then that’s not going to be seen as so bad for oil. tricky, tricky

  95. 95
    zman Says:

    That statement does not sound hawkish on inflation to me. Sounds like they left the door wide open for further cuts.

  96. 96
    Sambone Says:

    Over 1400

  97. 97
    zman Says:

    they just read the whole statement on CNBC Uop. 25 bips and they are not as concerned about inflation.

  98. 98
    Nicky Says:

    Comments on inflation have hardly changed which is not going to send commodities off a cliff imo.

    2 dissenters is maybe the only bearish thing for commodities.

    It seems like a statement that is leaving the market in limbo again.

  99. 99
    zman Says:

    Dug at 31.30 at time of announcement

  100. 100
    zman Says:

    Nicky – I agree. The tone did not say a shift in policy is in the making, at least, that’s not how I read it.

  101. 101
    Nicky Says:

    According to CNBC the comment ‘downside risks to growth remain’ has been removed from this statement.

  102. 102
    zman Says:

    holy cow, I agree with Bob Pisani…now implied pause in fed policy. Dollar up a little, I would think that interpretation there may take through the overnight hours for foreign banks to decide what they think. Stocks look limbo-y

  103. 103
    Nicky Says:

    Hopeless action by the Fed I would say – they had every opportunity to prop up the dollar and take the heat out of the commodity market and again they have concentrated on the freakin stock market!
    Mortgage rates are higher than when they started easing in January – they couldn’t care less about the man in the street.

  104. 104
    uop Says:

    Bernanke and the FED stink

  105. 105
    uop Says:


    I gave Bernanke again more of what he does not have.

  106. 106
    zman Says:

    Oil sliding a bit despite the fact that dollar is weaker slightly. Thought that pre move up looked odd. Energy stocks so far are better on the day than they have been since inventories. If you think oil is about to crash now’s your chance to take the DUG trade or punt the group. I, myself, am holding.

    Nicky – saw Steve Leaseman say that, anybody got a link to the transcript.

    Either way, oil is about to close and is not exactly getting shelled. HAL up a buck now, CHK down a dime, …looks like bargain hunting to me.

  107. 107
    Nicky Says:

    CNBC think the market is reading it that the Fed have gone to neutral. Dollar and metals not reacting that way right now. They certainly didn’t sound worried about inflation to me – they continue to say it is moderating. $4 gas and its moderating???

  108. 108
    zman Says:

    Uop – 105 fairly cryptic. I think he said enough to tide him over the summer without coming into the ivory tower once on a weekend.

  109. 109
    zman Says:

    Nicky – I hope they have given up even thinking about fighting oil based sources of inflation like gasoline. They simply can’t, especially while trying to export their way out of a recession or whatever the president wants to call it.

    For the new subscribers, please know that we are usually a much more energy stock specific crowd but that each day is different. I have not added to positions yet as sometimes the best trade is the one you don’t make. I’m cautiously optimistic for energy sectors and am happy to see the cheap names being taken up first this afternoon. Look for more trades tomorrow and especially Friday and thanks for subscribing.

  110. 110
    ram Says:

    You’re welcome.

  111. 111
    zman Says:

    Oil closing on 114.25 to the penny, lol.

  112. 112
    zman Says:

    NFX still down but barely. 9 out of 10 other E&Ps moving higher. I may add here.

  113. 113

    CHK May 55s a bargain?

  114. 114
    zman Says:

    Q – I own a stack of them higher so I obviously think so. It’s risky as per the usual disclaimer as tomorrow is May 1 and the stock is reporting but I think they say great things.

  115. 115
    uop Says:


    so far USO is not buying into.

  116. 116
    Nicky Says:

    Z – all they have done since January is cause hyperinflation. Of course they have propped up the banking system and made sure the very idiots who started this are okay. I can’t see they have done anything to help the housing market either.
    Commodity market and the $ is now sticking two fingers up to him – crude up hard since the close, euro, gold and silver up…..

  117. 117
    zman Says:

    ZTRADE: NFX – Added June $60 calls for $4.10

  118. 118
    Bob Says:

    PBR-Nice Spike

  119. 119
    zman Says:

    Nicky – they have done nothing to change the behavior that I see. Got offered a 6%, 0 principal repay, continuously variable 30 year LOC yesterday on the phone with no credit check necessary. Unreal.

  120. 120
    zman Says:

    Bob – Re PBR. I think it goes higher but what the hey, I think the analyst who said Carioca was 600 mm barrels needs to have his head examined. 1) he has no idea, nor does the govt guy who said 33 billion, 2) the stock is about a lot more than that and the blurb I pointed out in #73 (MMS allowing them to develop ultra deep Gomex with FPSO) is a game changer for them and others. 3) At $100 oil, they will figure out the pre-salt development challenges.

  121. 121
    kiaora Says:

    Z would you go out longer on PBR?

  122. 122
    bill Says:

    bot 40 of them (nfx)

    bot some chk as well

  123. 123
    zman Says:

    Missed the OII trade, and don’t feel like chasing. Their call will be interesting as it should reiterate deepwater demand along with other news today (Samsung building a $1 Billion drillship).

    K – likely to hang onto it through next week, then roll.

    So does the general market pulling back mean money is flowing into commodities now? CNBC makes me laugh now talking about a gold rally.

  124. 124
    Denise Says:

    Mr K weighs in with a fast comment from the road-he is all in short
    new rating 2-2

  125. 125
    zman Says:

    Dollar index: du/y for those of you who like to track these things. Nicky, you were right, too many people betting one way there. Down a half percent now.

  126. 126
    zman Says:

    HAL putting on a nice show, saving its chart technically.

  127. 127
    BossmanG Says:

    Who is Mr. K? or what fund does he run?

  128. 128
    zman Says:

    Doug Kass – you can google him, pretty smart, runs a short only fund I think but knowledgeable in finance, economics etc.

  129. 129
    zman Says:

    Nice turn on the CLR and EOG today, Bakken interest remains alive and well.

  130. 130
    zman Says:

    PBR up $7+. Aside from the FPSO story there is one out saying Brazil is mulling a fuel price increase, the first since 2005 (when oil was $30) which would be good news for them.

  131. 131
    bill Says:

    could chk beat?

    if yes, how much do we need for a pop

  132. 132
    Sambone Says:

    Z – #90, I was wrong!

  133. 133
    zman Says:

    Bill – I would assume they beat, most analysts I’m sure think they will beat slightly and they could easily do it on the volume side and not just on price which is what you want. I think guidance and what they say about the oil shale plays they just announced plus any well results at Haynesville will trump the numbers.

  134. 134
    zman Says:

    Sambone – re 132. A very rare occurrence in your year plus of gracing this site. I would not sweat it. Plus, it’s early and tomorrow is another day.

  135. 135
    apbd Says:

    And I shorted the whole industry on Sam’s prediction. LOL

  136. 136
    zman Says:

    PQ is the only name in E&P land where I think a miss is possible. They pre-announced a production short-fall weeks back and then I said this type of shortfall was one of the ones that Wall Street generally gives you a get out of jail free pass on for circumstances beyond your control. Not sure numbers have come down enough (they’ve been rising the last few days) since that PR came out but the stock has certainly been let off the hook.

  137. 137
    VTZ Says:

    Does anyone or their voodoo masters see green tommorow in their crystal balls?

  138. 138
    Sambone Says:

    Well, that just goes to show ya that there are buyers and sellers (The market), and you can’t figure it out. Just ask those bubbleheads on CNBS, not! LOL

  139. 139
    zman Says:

    LNG, the compan, CEO selling 1.7 million shares. No there’s a vote of confidence.

    Nigeria union workers for Exxon have decided to continue their strike. Story says virtually all of XOM’s 800,000 bopd remain shut in for a 7th day.

  140. 140
    reefguy Says:

    LNG CEO-gotta sell…margin call…

  141. 141
    zman Says:

    V – we have XOM reporting and many people have voiced an opinion that they miss. You have the Nigeria strike resumption which may drive crude back up but I don’t know when that was first reported. The group has taken a hit over dollar fears which are at least at present failing to materialize. And you’re about to get reports from the Big Cap E&Ps and they should be pretty solid. How many days from Bonny Island to the U.S. Gulf Coast.

  142. 142
    Nicky Says:

    I agree with John Najarean that any rally in commodities or the euro in the next day or so will be a selling opportunity. The market will realise the Fed is done they would just have liked it to be spelled out to them – so as he says this is going to be a fools rally.
    Ironic that the broader market is not happy with him not addressing inflation either.

  143. 143
    reefguy Says:

    pq and sm are acting like sisters

  144. 144
    Sambone Says:

    183 point swing today

  145. 145
    zman Says:

    Reef- if CHK says its got double-digit IPs in the Haynesville those two will rock in my opinion. HK will really rock.

    Saw your comment re SGY and I’ve just never been interested in tracking GOMEX Shelf production ….got paid to track them back in the day modeling South Tim and High Island production and I just don’t miss it. Seems like one excuse after another out of management, back when I knew them and I remember NFX joking about how it seemed to rain harder on Stone’s platforms than on theirs in the same block after SGY missed a production number due to “weather difficulties” in the gulf.

  146. 146
    zman Says:

    add GDP to that list in 145 too.

  147. 147
    Sambone Says:

    Tini time

  148. 148
    Jay Reynolds Says:

    I don’t know how the State of Louisiana is reporting IP rates now but all of our other tests are turned in via the state agent in the field via laptop/wireless immediately visible on the Sonris site.

    I’d give equal odds that one or two Haynesville’s are officially potentialled tomorrow for CHK.

  149. 149
    zman Says:

    Jay – I was on Sonris this am, looking at 15N x 15W which is Caspiana Field, in Caddo Parrish and they have a number beyond test with no rate listed (some said waiting on completion paperwork from company). Will check it again tonight as today is the day for the weekly update.

  150. 150
    Jay Reynolds Says:

    Just my guess. By this point Aubrey has a pretty good idea just how incredibly “leaky” potential reports are in Louisiana. Even if official results are not internet posted until a week from today, having a state test tomorrow would allow Aubrey to “scoop” the leaks and put his remarks on the record.

    I just have this funny feeling. Sorta like your “this is getting too easy” feeling maybe. But I’m talking my book too!

  151. 151
    Wyoming Says:


    Any comments about coal / BTU? S&R is looking good. Thanks.

    BTW, some larger pressure pumping companies are starting to take Barnett frac’s back to old high prices. New pricebooks out. Looks like they are setting up the H2. Mom and pops not joining, actually calling up asking if we want dates.

  152. 152
    zman Says:

    Wyo – will have some coal comments out soon but for now I think I missed the quick move after I talked about BTU at $48. Numbers so far this quarter have been strong but its been buy the rumor sell the reality since ACI reported and BTU only got a fleeting, intraday pop before drifting off. Analysts called the group lower before the quarterly announcements started and seem to be mostly sidelined now, staring in disbelief at the coal prices that they said could not go up any more back in February (wrong). Will have more soon but need to do a little more digging and I think I have a little time before they run again.

    Thanks for the frac data points. Mom & Pops probably just happy to lease their acreage out to the big boys. Are you seeing in creep in land rig day rates?

  153. 153
    Wyoming Says:

    Rigs are pretty flat, they tend to contract on longer terms, frac’s are usually job by job or in packages. Operators with large drill programs may contract on long term.

    Thanks for the coal update.

  154. 154
    reefguy Says:

    z- Going to Big Sur for weekend, Aubrey will announce and may push HK, XCO, SM, PQ, GMXR, GDG. I think they announce commerciality in W Tx Woodford/Barnett. This pushes KWK. Friday is a big day, best of luck!

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