Wrap Week Ended 05/02/08 + April Was A Good Month



Last Week's Stats Highlights:

Energy Took A Breather. Energy sectors traded slightly lower last week as oil eased on dollar rebound fears. They made up quite a bid of ground on Friday as the Street decided the rumor's of energy's demise were greatly exaggerated, both in the commodities and equities. I'm in the process of rebalancing the portfolio to give greater weight to certain oil service names that will benefit from an increased focus on both gas and oil directed drilling in the second half of 2008. 

Refining Margins Failed To Continue Their Recent Rally. Despite a larger than expected build in crude stocks and a larger than expected draw on gasoline inventories last week, RBOB failed to keep pace with crude's Friday rally resulting in another week of declines in cracks spreads. This comes at a time when margins normal expand and against the backdrop of record margins in the year ago quarter. 

Gas in Storage Makes A Comeback. Natural gas  in storage is still below 2007s record levels but it is no longer below the five year average. While the price of gas isn't highly correlated to how much or how little of it there is in tucked away underground it is influenced by changes in the direction of deficit and surplus to its year ago and seasonally average levels. Both of those readings just bottomed and reversed. See the Thursday Night Gas Storage and Review piece for the most recent charts. I continue to think gas is due a softening into the $8 to $9 range but even the faster than expected rebuilding of storage may not overcome expectations of hot, hurricane laden summer. Here's how the supply balance stood relative to year ago levels using the most recent monthly data (February 2008).


When you take into account the higher exports relative to year ago levels, something I had been negligent of doing in recent months as I had been holding them flat, the 2.6 Bcfgpd from the equation above yields a 18 Bcf surplus on a weekly basis to year ago levels available for injection which is about the incremental increase in gas injections we saw in last week's numbers as weather flattened with year ago levels. In other words, once weather was similar between the two year distant weeks, the higher injection levels were unmasked. 

Holdings Watch: It was a slow week for sales as I weathered the fear and trepidation of falling oil supposedly tied to the strengthening dollar and actually added quite a few positions on weakness. Last week's closed trades:

  • (HK) June $22.50 calls sold, up 165% 
  • (NFX) June $60 calls sold, up 139% 
  • (DO) Closed out the second half of our May $135 call position down 71%. We had sold the first half up 115% prior to earnings so it was really just a hit to house money profits but the earnings miss and smaller than expected special dividend received a harsher reception from the Street than I would have thought.

On the whole, April was a pretty good month for trading:


As earnings go it was a very good week for NFX, CHK, EOG and we expect even better results from out smaller cap names as the next week unfolds.

more in a bit....

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