Friday Bounce + SLB Beats



In Today's Post:

  1. Holdings Watch - punting my near month losers
  2. Commodity Watch - natural gas storage review
  3. Stocks We Care About Today - SLB beats, CHK sells its Woodford reserves
  4. Odds & Ends

Holdings Watch: the Wiki Tab is updated

  • (CHK) - Sold the remaining July $60 call position (CHKGL) position for $0.10, down 95%. The original position was sold for a 40% gain last week. The CHK July $65s will expire worthless.
  • (CHK) - Out CHKGM, the July $65 calls for $0.05, 98% loss on that one.
  • (CHK) - Added August $57.50 calls (CHKHA), smallish, for $2.55 with stock below $54.
  • (HK) - Closed the remaining July $45 calls (HKHI) for $0.35, down 82%. Sold 1/3 of them last week for a 105% gain. The $50 strike July calls will expire worthless.
  • (HK) Added the August $40 calls (HKHH) entered for $3 with the stock down 17% on the day.
  • (WFT) Closed half of the (WFT) $40 July calls taken yesterday for $0.90, up 50%. Continuing to hold the other half and the higher strike August calls.

Commodity Watch:

  • Natural Gas got slammed for $0.86, or 7.5% yesterday to close at $10.54 and is now down 21% since its peak on July 2nd. Gas fell apart after a much larger than expected storage injection was reported by the EIA and sank further as oil closed down in option expiration related selling.  This morning gas is trading up slightly.
  • Tropics Watch: 94, the tropical wave moving across the western Atlantic, will move away from Venezuela later today towards the warm Caribbean waters where it may strengthen and get better organized. The current track is towards the Yucatan and then into the Gulf. 

Natural Gas Storage Review

I was at 80 Bcf, the Street Consensus was at 88 Bcf, and the EIA reported 104 Bcf which is pretty out of whack with how the season has been running but it is what it is, a big disappointment, at least for this week, for gas. Does it change the end game for storage at the end of October? Not by much as I still think we will end the injection season with 3.1 to 3.25 Tcf in the ground which is on the low side of comfortability. If we see a string of bigger injections that run counter to summer heat then I will become concerned that production is beginning to run at a faster pace than the recent month trailing numbers suggest.  


The gas graphs show a slight improvement in both the YoY and 5 year comparison graphs.


Crude Oil fell $5.31 to close yesterday at $129.29. This capped a 3 day reversal of $15.89 caused by a combination of "its the economy stupid", a bigger than expected crude draw, and a quiet week for on the geopolitical tension front.  This morning crude is trading up marginally on what looks like a bit of early morning short covering after the worst one week loss in the NYMEX crude contract since it began trading in 1983.

  • Iran Watch: The U.S. is sending an envoy to Geneva for the first time to discuss with Iran its nuclear program.

Stocks We Care About Today

SLB Announces A Beat For 2Q08; Reiterates "Stronger For Longer" Expectation

  • Announced EPS of $1.16 vs $1.13 expected ($1.06 to $1.18 range),
    • Operating margins increased 13% seq and YoY to 28.1%,
    • strength coming from increased demand for higher margin technologies in the N. Sea and U.S. Gulf Coast, Wireline and Well Services in the Arabian market, and operating margins in the U.S. land market.
  • Reported Revenues of $6.75 B vs $6.48 B expected,
    • Oil Service Revenue was up 8% sequentially and was up in ALL regions.
    • North America was the only mixed bag for the quarter as activity increases in the U.S. were offset by a seasonal slowdown in Canada due to a prolonged Spring breakup that was well known. I would add that rig counts in Canada accelerated to above YoY levels late in the quarter.
    • Latin America (revenue up 15% seq and 39% yoy), higher demand from Mexico all the way down to Brazil (exploration picking up). Last quarter this region saw a number of project startups (IPM) that carried with them high startup costs, this quarter they are underway and margins are rising.
    • Europe/CIS/Africa - revenue and op income up nicely; primarily due to stronger North Sea demand, also East Russia; partially offsetting results here were project delays in Nigeria (go figure) and a seasonal slowdown in N. Russia. Mix improved here with op margins rising 1.8% to 28.2%.
    • Middle East/Asia. revenue and op income strong led by high demand in the Arabian market for Well Services and Testing Services. China/Japan/Korea showed a good rebound in post seasonal slowdown activity, and Australia/PNG saw higher offshore exploration.
    • Notably seismic  was off a percent seq but up 1% YoY, I was concerned it could be worse but multi client work picked up as did data processing. Backlog increase and bidding remains robust.
  • Notable Quotes:

"at the half year, the uncertainty around the direction natural gas drilling in North America has be removed and extremely high commodity prices have led operators to increase their budgets overseas"

"it appears that customer are responding vigorously to current commodity price levels"

"re-iterate our 'stronger for longer' view of the current cycle of exploration and production spending"

Conference Call: 9 EST 

CHK Punts The Woodford.

  • (BP) paying (CHK) $1.75 billion in cash for its interest in 90,000 aces in the Woodford shale.
  • This should yield an increase in rating agency opinions and combined with the last secondary and a future VPP deal, allow CHK to carry out its drilling plans in the Haynesville and eslewhere
  • Production impact: the Woodford is currently producing 50 MMcfgpd for Chesapeake and I think it is pretty telling about CHK's growth rate in other plays that the removal of these volumes for the last four months of the year does not result

Implications For Newfield:

  • This deal equates to $19,444 per acre.
  • NFX is the most active driller and largest leaseholder in the Woodford
  • NFX has 165,000 acres which I would consider to be more concentrated than in the core of the play than the acreage CHK essentially said it did not like but even on the $19K per acre basis this values NFX's Woodford assets at $3.2B billion.
  • NFX's Total Enterprise Value (market cap plus debt less working capital) equaled ~ $8 B as yesterday's close,
  • As of 3/08 NFX, 30% of NFX's production came from the Woodford reserves
  • So if essentially one third of the company's assets are being given 40% of the value, this puts quite the discount on NFX's other assets (Rockies, Gulf Coast, China, Malaysia) 

Odds & Ends

Analyst Watch: Bernstein cuts (TSO) to mkt perform, Citi slashes price targets on the refining sector, Stifel ups (XTO) and (RRC) to buy, 


169 Responses to “Friday Bounce + SLB Beats”

  1. 1
    bill Says:

    gas stocks down in pre market whilst the commodity is up 5 cents

    i can’t believe the carnage in this area. Hot money came in and left

  2. 2
    SkyKing Says:

    Etrade says “SLB sees 35 new offshore rigs in second half”.
    Is that North America offshore?
    If true, does that imply a plus for SLB, but a minus for oil prices?

  3. 3
    zman Says:

    SKY – that’s global fleet increase, positive, would not be a negative for oil prices as its pretty well baked in already that the fleet count is on the rise. Those rigs are mainly going to work in deeper plays where the timelines from spud to first oil is at 2 to 5 years.

  4. 4
    Sambone Says:

    Weather – Where should I begin? Let’s start with good old Bertha. Wow, she’s still cranking!

    94L still is marching on. Not much to report. Doesn’t look to build in the near future. Cane hunters will be out today, but I don’t expect much.

    Still watching 95L. Not expecting it to affect other than land.

    Watching blob off of Georgia. may spin up today.

  5. 5
    zman Says:

    Oil all over the map this morning. Up $2 early, then down slightly, now up $1.40. That’s the last 30 minutes. Looks like some short covering and watching of CNBC where they keep saying the worm has turned against oil.

    SLB CC in 10 minutes.

  6. 6
    SkyKing Says:

    Thanks for the explanation. SLB starting to jump up, premarket.

    While it’s slow can you help on this question?
    Saw in a news story, that there are huge amounts of oil in the Rocky Mountain area. I think they said almost equal to arab oil.
    Can that be true???

  7. 7
    john11 Says:

    Tudo Pickering mentioned first ever CHK analyst day…any idea when this is? From 7/18 morning notes
    … CHK ($54.74 – B) – Leading player in Haynesville, proven strategy of high-grading/monetizing inventory, getting cash in hand, and accelerating development in core operating areas. Would be in stock leading up to first ever analyst day, as meaningful well news / Haynesville type curve expected at or prior to conference. 128% upside to $125 NAV.

  8. 8
    zman Says:

    Sky – if the story is not referring to the Bakken which is thought to be huge but over in east Montana and west North Dakota it is probably talking about the deposits of kerogen, the pre cursor to oil, in the Rockies. Hard to get at and to upgrade and not economic even at $150 oil with current technology.

  9. 9
    SkyKing Says:

    Thought that might be the case.

  10. 10
    zman Says:

    John – they’ve never had one before but mentioned they will this year on the last Haynesville PXP call. Have not yet seen that they set a date, will do some checking.

  11. 11
    zman Says:

    SLB CC starting.

  12. 12
    bill Says:

    a side note


    chk had estimated that they would get 1.5 to 1.75 for the Woodford

    They rec’d high end

  13. 13
    bill Says:

    z stupid question

    chk uses the term “Lifted gains”

    what is lifted gains? is that the gain on unhedged gas?

  14. 14
    zman Says:

    lifted just means they took some hedges off the table.

  15. 15
    zman Says:

    my kingdom for a management team that does not read its press release. I can read. Most people on the call can read. Less trees, more forest.

  16. 16
    Sambone Says:

    By Allen Sykora

    Gold and silver futures are sharply weaker early Friday after tumbling in
    after-hours trading on Thursday when crude oil fell below $130 a barrel for the
    first time since June 6.
    The continuing improvement in stocks and stock-index futures has also
    pressured the metals, they said. There may be a fund asset reallocation
    occurring, said one dealer.
    Platinum and palladium followed but faced extra pressure from worries about
    the auto sector and upbeat comments about the energy situation in South Africa
    Thursday from utility Eskom.
    As of 9:02 a.m. EDT (1302 GMT), August gold was down $16.60 to $954.10 an
    ounce on the Comex division of the New York Mercantile Exchange. September
    silver fell 40.5 cents to $18.33.
    A couple of traders blamed much of the move on weaker crude oil prices. August
    gold settled Thursday at $970.70, then fell roughly $15 in the next hour of
    screen trading as crude oil broke sharply lower. Sell stops were hit in the
    August crude at the time as it fell below $132 a barrel, observers said.
    Additionally, the September stock-index futures are higher so far this
    morning, pointing to a stronger open on Wall Street. At least some participants
    are taking off flight-to-quality long positions in gold as equities improve,
    said Larry Young, senior trader with Infinity Futures Inc.
    A New York trader said much of the market moves appear to be a general shift
    in fund money.
    “I hate to blame all of this stuff on index funds, but when I see everything
    moving in the same direction at the same time, it makes me suspicious of that
    type of behavior,” he said. “We saw a sell-off in crude from $132 to $128.50
    almost, and at the same time, gold, silver and copper sold off.”
    Meanwhile, crude has bounced from its low, and the metals are up from their
    lows, he continued.
    “I think it’s a big asset shift, with people covering shorts in the stock
    market and allocating to the stock market, but liquidating from gold, crude
    oil, etc.”
    Overall, he added, gold appears to remain in the range of mostly $950 to $980
    that has been in place since the beginning of the week.
    Young suggested gold could get some kind of an uptick during the morning after
    the metal fell from a high of $989.60 an ounce on Tuesday to a low so far this
    morning of $950.
    “We’re going to see some time today a bounce as people book profits,” he said.
    “We’ve been selling off for the last three days.”
    Elsewhere, October platinum was down $47 to $1,853.40 an ounce, while
    September palladium was $5.85 weaker at $420.50.
    These metals continued a slide that began in earnest after an announcement
    from General Motors on cost-cutting measures early in the week, said a trader.
    This heightened concerns about a weak U.S. auto sector, which in turn means
    less demand for platinum group metals in auto catalysts.
    Further pressure ensued when Eskom expressed optimism about the future
    availability of power in South Africa, the trader said. Electrical shortages
    had curtailed mining output early in the year and contributed to a run-up in
    prices to record highs.
    October platinum has fallen as far as $1,845.10 an ounce, its weakest level
    since February, when it was still running up on the South African electrical

    -By Allen Sykora, Dow Jones Newswires
    Dow Jones Newswires
    07-18-08 0913ET

  17. 17
    zman Says:

    SLB Q&A starting

  18. 18
    zman Says:

    SLB Q&A:

    North America: too early to say on 2009, seeing some pricing power going forward in the spot market,

    2008 – Latin America will be the star of activity, 2009 will be a North Sea, Gomex, Brazil, land activity in Russia

    sounding more confident but the CEO here is never a raging bull.

    “going quite well” in ability to raise prices to offset increased materials costs

  19. 19
    cadillac Says:

    Thanks for the SLB update Z. Its good to hear the CEO is confident. I think right now CEO’s that exude strong confidence during CC’s are giving investors/analysts reasurance in their stock decisions.

  20. 20
    zman Says:

    more SLB CC Q&A

    in offshore projects, reliability is increasingly important, companies aren’t winning on price, they are winning on quality

    N. American pressure pumping: fuel surcharge – more than reasonably successful in implementing.

    International has clearly picked up in the last few months, they were “surprised by the strength of the rebound coming out of winter, particularly on land”

  21. 21
    zman Says:

    more SLB CC Q&A

    Analysts in general sound pleased, sound like they may be taking up their 2008 and maybe 2009 growth expectations for international.

    they are talking about shale gas expertise, real time frac monitoring which allows for modification of the frac as it happens, the pr had a blurb that they boosted CLR’s gas production on a 4 well woodford shale frac by 40% and that they are seeing sales as E&P co’s are realizing the benefits of the staged, live monitored frac.

    Said the biz there is suddenly accelerating

  22. 22
    el_vogel Says:

    strong opening volume on chk, nbr, options expiry day no doubt a big obvious factor…

  23. 23
    zman Says:

    WFT getting a better pop than SLB.

    SLB is always conservative sounding but they are setting a more positive tone for the service sector than they have for the last 3 quarters.

  24. 24
    Sambone Says:

    What, this can’t be right! Dow is down? But C beat the street! I thought that the worst was behind us? Blue sky ahead. This can’t be right! Where’s Benny and Hank, OMG!

  25. 25
    ram Says:

    ZMAN,are you thinking sell on the pop?

  26. 26
    zman Says:

    Ram – still listening to the call, not sure yet.

  27. 27
    crysball Says:

    Are you considering HAL August Calls based on SLB CC?

  28. 28
    zman Says:

    Ram – still thinking,

    Russia looks better than expected

    On N. America it sounds like they are sandbagging , very substantial increases in production and low LNG makes the long term call difficult. He did say that activity is higher than what they thought.

    Wyoming – care to give your thoughts on zipper fracs?

  29. 29
    cadillac Says:

    Ram – I’ll probably kick myself later but I took my profits on SLB and WFT…too chicken, given this week, to not take the money and run.

  30. 30
    zman Says:

    Crys – I’m thinking about adding more WFT due to what I’m hearing. I have the Aug HAL 50s now, may double those. Going to punt my July WFT calls shortly.

    Cad – who could blame you, lol?

  31. 31
    ram Says:

    I did on WFT at 2.

  32. 32
    zman Says:

    SLB call done, tone more positive than I’ve heard in 3 or 4 quarters. Analysts should be able to talk it up further today as numbers will be under review for boosting.

  33. 33
    zman Says:

    ZTRADE: Out remaining July WFT $40 calls for $1.90, up 217%. Continuing to hold my Augu $47.50 position.

  34. 34
    ram Says:

    SLB seems to be sliding a little.

  35. 35
    zman Says:

    Bidding some August WFT calls

  36. 36
    zman Says:

    Nice to see HK not really going out of business; back over $40.

  37. 37
    zman Says:

    ZTRADE: Added August WFT $42.50 calls (WFTGV) for $2.20

  38. 38
    tater Says:

    SLB, that’s a sale of the first push to 7/14 high of 103. Now a retracement. Will it hold the retrace?
    If I can be so bold, make sure you are trading in the same time frame that you are watching.

  39. 39
    antrimshale74 Says:

    RBOB moving nicely this AM, especially relative to WTI. Nice change.

  40. 40
    rseidman Says:

    Z: Didn’t you mean WFTHV?

  41. 41
    zman Says:

    Thanks T, always a good reminded that if you are watching the minute charts its a different game. The group coming in also as oil just dropped a buck plus in 5 minutes back to up $1 at 130.24…people still worried that a failure to hold $130 means $110 soon….makes for edgy traders.

  42. 42
    ram Says:

    tater, not sure waht last statement means. Although SLB slipped away in real time.

  43. 43
    Dman Says:

    Tap tap. What’s wrong with my monitor? Every stock on my screen is green. Obviously a major Wall St malfunction.

    Cramer a week ago was ridiculing the small amounts of demand destruction as being totally inconsequential for energy prices. Yesterday he said the declines signified that demand destruction was real and was causing the energy retreat.

    Z – a question for you: where does avgas show up in the weekly figures. Is it a significant % of total oil consumption? My point being to figure out if the various airline cutbacks matters or not.

    Oh, now that I’ve typed all that there is a red stock: PDC down 0.17 % (!)

  44. 44
    zman Says:

    yes, WFTHV

    avgas is kerosene which shows up in the distillate numbers, been down for awhile now.

  45. 45
    ddaley Says:

    The only caution about the SLB price today, is that 100 is the pin number. 40 is the number for WFT.

  46. 46
    zman Says:

    Gasoline price strength is pretty odd, looking to see if any news, can’t imagine on a Friday what might cause the bigger than oil rally.

  47. 47
    zman Says:

    hear ya pin number and good point, will take out my July SLB’s for a smallish loss in awhile, just milking now. Happy to be long the Augusts. Made money on the play as whole via the WFT’s

  48. 48
    Sambone Says:

    9:56 am EST

    Nymex Crude Arrests Decline On Supply Concerns

    By Gregory Meyer

    NEW YORK — Crude oil futures arrested their descent Friday after three sessions of sharp losses, with prices buoyed by uncertainty over supply and bargain hunting.

    Light, sweet crude for August delivery was recently up $1.05, or 0.8%, at $130.34 a barrel on the New York Mercantile Exchange. September Brent crude on the ICE futures exchange rose $1.30 to $132.37 a barrel.

    Since Tuesday, prices have dropped nearly $16 — their biggest three-day drop ever in dollar terms. Pushing markets lower were mounting fears the weak U.S. economy will discourage consumption and renewed optimism the diplomatic standoff over Iran’s nuclear program will come to a peaceful resolution.

    With world output and demand balanced precariously, however, the market remains vulnerable to supply disruptions. The National Hurricane Center reported Friday that two weather systems, one in the Caribbean and one in the Atlantic, have a 20% to 50% chance of becoming tropical depressions in the next two days. Nasty weather in the Gulf of Mexico has historically stoked traders’ concerns about the safety of the region’s oil infrastructure.

    World oil inventories are relatively low, so with “any sort of whiff of anything heading toward facilities in the Gulf, you will see a strong move in prices. We have no cushion anymore,” said Brad Samples, an analyst at Summit Energy in Louisville, Ky.

    A five-day strike by platform workers at Petroleo Brasileiro (PBR) was scheduled to end Friday, although labor union leaders were discussing the group’s next steps, a union spokesman told Dow Jones Newswires. Sindipetro-NF union leaders will discuss a possible nationwide walkout organized by an umbrella union.

    In Nigeria, a sudden drop in pressure on a pipeline had taken about 47,000 barrels a day of production off the market, Italy’s Eni SpA (E) said Thursday.

    Crude futures are now more than $16 off their all-time trading high of $147.27 a barrel reached a week ago and are “drawing support from bargain hunters, who perceive the 11% drop in futures prices due to cascading liquidation may be overdone,” said Addison Armstrong, an analyst at brokerage Tradition Energy in Stamford, Conn., in a note to clients.

    Front-month August reformulated gasoline blendstock, or RBOB, rose 4.96 cents, or 1.6% to $3.2129 a gallon. August heating oil rose 1.99 cents, or 0.5%, to $3.7637 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  49. 49
    bill Says:

    if you like chk at 70 you have to like it here at 55,imho…im adding calls

  50. 50
    zman Says:

    Bill – agree more than completely on valuation of CHK. Added more calls yesterday and will not add today…I’d like to see it trade sideways. Sentiment is such that if oil (which they have very little of ) falls CHK and the E&P’s will get dashed (more). I think Aubrey will put out the stops on other plays on the call, oil plays , and maybe throw a mega monster rate at us on a Haynesville completion.

  51. 51
    tater Says:


    Just a reminder that if you trade in a week to week time frame, your exit price target shouldn’t be influenced by the minute to minute price fluctuations.
    My decision on how to trade SLB this morning was to sell this first push to what I considered strong resistance on the 15 minute chart. I am already out, so my sale pressure on the stock around 103 should not influence your decision on whether to hold it until next month. Guys like me might already be gone, or even may have switched to the long side.

    Minute to minute trading fluctuations are just noise if you are a longer term trader. If you make day to day adjustments, then certainly follow the 60 minute charts/prices as well as the daily. That’s where some of these price gaps and support / resistance areas, like this morning at 103, exist.
    Otherwise, just ignore these price fluctuations (and me for that matter) as trading noise.

    Hope that helps. If you want, and Z says it’s ok, I would be happy to post a chart of what I am talking about.

  52. 52
    zman Says:

    ZTRADE: Doubled HAL August $50 call position for $1.53.

  53. 53
    zman Says:

    Tater – feel free, I could always use the lesson.

  54. 54
    tater Says:

    Z – You are so full of …. Me giving you a lesson!

  55. 55
    ram Says:

    tater, thanks. My JUL SLB’s unfortunately are gone for a small loss but I did have to look min by min in this case because of expiry.

  56. 56
    Dman Says:

    Interesting phrase “cascading liquidation” in # 48 (2nd last paragraph).

    But who was liquidating? Jim Brown at optioninvestor.com pointed out that the initial very sudden oil selloff occurred when it was the financials that were under the most pressure. The suggestion being that funds needed to sell their good (oil & gas) to prevent being sunk by their bad (financials). That amounts to a “sell energy, hold financials” trade, just not a voluntary one.

  57. 57
    zman Says:

    Tater – In TA you are light years ahead of me. I use my copy of Murphy to prop up a bad corner on my desk.

    Hear ya Ram on the minute to minute due to expiry. I was more time on expiry Friday’s like this watching a minute chart in those months where I fail to follow my rule about getting out of the front month 2 weeks before expiration.

  58. 58
    zman Says:

    Oil back into the $129s, pretty volatile.

    NG up 13 cents at 10.66, perhaps this is the extent of the bounce Nicky was looking for yesterday.

  59. 59
    Nicky Says:

    Morning all. Well… being a Friday and the ‘news’ events like Iran over the weekend I would be surprised to see it fall much lower today.

  60. 60
    Nicky Says:

    spx has resistance at 1263 – 65

  61. 61
    Bleemus Says:

    SLB Schlumberger: Q2 earnings follow-up (101.48 +4.68) -Update-

    SLB reported earnings today with earnings and margins in largely good shape as q/q growth was very strong (revs 8% non-annualized for oilfield services, LA saw 15% growth, Europe/Africa 9% and Middle East and Asia 9%). Co also saw higher margins in basically all worldwide operations except North America and Nigeria. Q2 saw continued strength from N. Sea drilling and favorable mixes worldwide. However, as expected, Canadian Spring break-up hurt N. American margins. Co is also seeing inflationary pressures due to the unexpected strength in natural gas land plays, especially in NA. The co continues to benefit from energy producers’ pressure to increase production as reserves decline. The co has noticed strength in land rigs and services and has altered the cap-ex spend to tailor to that. Co reiterates their ‘stronger for longer’ view on E+P worldwide… The co explained on its call that technology is slowly starting to be implemented in the field but that they see large potential, hence their acquisition of Canadian Extreme Engineering (provides them rotary systems technology). The co sees continuing growth internationally and explained that in the future growth will come from LA and Russian GeoMarket (land) — and see 20% international increase in FY09 along with improving margins. Co also explained on the call that growth drivers will be continued gas exploration momentum and increases in execution/reservoir contact. Outlook on the sector remains as strong as ever, and we look for stronger technologies to not only help players like SLB win contracts, but also improve margins as production cos understand the technologies and continue to feel pressure of increasing reserves.

  62. 62
    zman Says:

    E&P just not happy, with oil under $130.

    Agreed re 59 Nicky.

    MER up now. So everything must be ok there, lol.

  63. 63
    arodeen Says:

    Chesapeake Energy CEO buys $43 mln in stock

  64. 64
    zman Says:

    Pinning action definitely setting in.

  65. 65
    arodeen Says:

    Chinese oil giant Sinopec warns of profit fall

    Does this have any implications for US E&P companies?

  66. 66
    zman Says:

    No, its a function of having your refined products capped at an artificially low price while you buy crude at $130 per barrel.

  67. 67
    tomdavis12 Says:

    Z: The energy bashers on CNBC point to weaker demand overseas. I know Sam had pointed out that the first six months of this year China had increased crude oil consumption of 11%. Are there any other datapoints that point to either int’l demand for crude being no more than 3 -4% lower just like NA gasoline or nat gas still strong? I also see things as more of a supply bull market. Are there any datapoints that you keep an eye on?

  68. 68
    zman Says:

    Tom – good question with not so good an answer. The data from China is suspect, from India even more suspect. From Europe we are supposedly going to get weekly change in inventories soon but the inventories held by the developed world is all the data we have now that is fairly solid and the OEDC inventories are low at present but the data is fairly stale, probably 2 to 3 months out of data. Everything else is anecdotal and what you get out of the IEA and EIA and OPEC on demand. They are all looking for up demand in 2009 but less so than they were earlier this year due to high prices. What really drives prices, on the fundamental side of the picture and in my opinion, is the excess supply capacity in OPEC, when that number is seen closer to 3 mm bopd of excess capacity prices soften. When it is 2 or below they move higher, holding thoughts on demand flat. One thing that is very hard to gauge is the amount of growth in per capita consumption that is occurring in the producing nations (OPEC primarily). We know it is up, but how much is the subject of much debate. Places like Iran have seen rapid growth in consumption refined products in recent years due to high demand brought about by highly subsidized consumer prices…good way to keep the people in check is to give them almost free gas. This has led Iran to be a net importer of gasoline. China has kept its prices down as well and this gives you higher demand as well. But those numbers are pretty squishy and I just try to monitor whether or not they are gaining or receding.

  69. 69
    zman Says:

    Part II Then there is the whole non-OPEC supply picture to consider. In a nutshell

    Mexico in steep decline, #3 supplier of crude to the US, going to be importing oil in the next 5 to 10 years most likely, as they can’t stem declines and have growing per capita demand, lots of first time car buyers in Mexico’s

    Canada on the rise but need higher prices to extract oil sands/bitumen, also pipeline access a bit of an issue but getting solved.

    U.S. just no progress so far despite theses prices. Were producing 8 mm bopd a decade or so ago, now at 5 and still look to be falling.

    Russia – 10 year run up in production to 10 mm bopd, now that is questionable about sustainability and again, they are consuming more themselves.

  70. 70
    BossmanG Says:

    tater, do you happen to have any resources which describe different time frames, the advantages/disadvantages or when its best to use certain ones?
    thanks again for sharing your knowledge in your posts

  71. 71
    Bob Says:

    New volatility index for the USO from CBOE is OVX. Currently 53.25

  72. 72
    Nicky Says:

    If oil gets back above 132 it could spark a short covering rally I think. John Kilduff on CNBC earlier turned super bear now sees 120. Addison Armstrong far more sanguine and says not so fast! I am with the latter at this moment in time….

  73. 73
    zman Says:

    Nicky – just keep talking like that through NYMEX close if you please, lol.

  74. 74
    Nicky Says:

    Well I agree with AA in that should these Iran talks yield nothing which is quite likely then you could see a reaction rally in oil. Would give me my wave 2!

  75. 75
    zman Says:

    Nicky – agreed re Iran, I’d lay the same odds that the nice fellas at MEND throw a BBQ over the weekend or at least do something that involves fire.

  76. 76
    Nicky Says:

    The thought of the US and Iran suddenly sitting down around a table and sorting things out seems absolutely ludicrous and the market I think has priced that in at the moment. The slightest sign that this market is not going to fall further and the shorts will rush to cover and we will get a very exaggerated move to the upside imo.

  77. 77
    Sambone Says:

    Off subject – For those heading to the carolina coast this weekend, this may be the next “Cane”. This baby is firin up big time.


  78. 78
    zman Says:

    SLB July position can get punted at any time, stock has been making moves to get back towards 102 but it feels pretty pinned.

    Broad market down again. Hmmm.

    Sam, I saw where 94L has 35 mph winds and is moving away from the coast. Could be a TS this weekend in the Carib.

  79. 79
    zman Says:

    94 and 95 invest. 94 looks to be heading NW according to accuweather’s read.


  80. 80
    Sambone Says:

    Wow, check put new computer model for 94L. Be sure to hit “FWD” on right hand side. This is from Florida State.


  81. 81
    zman Says:

    Wow Sam, looks like a NOLA is going to have a bad day on the July 23

  82. 82
    Nicky Says:

    Surely the energy market should be reacting to that? Sam is it just a TS or due to strengthen?

  83. 83
    occam Says:

    Any idea why BRY is in the trash can?

  84. 84
    VTZ Says:

    Z are the weatherford numbers on monday before or after trading?

  85. 85
    Sambone Says:

    Man, hope that model is wrong. Your right. NO would be toast again. I wonder how “Thunder horse” would do? LOL


  86. 86
    zman Says:

    Nicky, its only a tropical wave at present, could be a TD shortly, but that model is showing TS by landfall.

    BRY and a few others never made the transition back to green from this morning. Its just stuck in the mud on options expiration day.

  87. 87
    zman Says:

    WFT – before open. That one will be more about tone and future than the current quarters numbers.

  88. 88
    Sambone Says:

    N – Right now it’s just 94L. Cane hunter on the way. Next step is a TD (Tropical depression). After that a named storm. Next cane is “Cristobal” and then “Dolly”. Back up and take a breath, this is just a computer model is all. Give it a couple of days and we’ll see.

  89. 89
    zman Says:

    Sam – I thought it was interesting that the model shows only a TS at landfall and never even a Cat 1 across the breadth of the Gomex. Is the Gomex still a bit cool for development?

  90. 90
    Nicky Says:

    Well tropical storm probably isn’t going to do that much damage but the very thought of something heading that way should be enough to send oil back up another ten bucks surely?

  91. 91
    zman Says:

    I’d bet it is $0.50 to $1 of today’s move. No damage from a TS likely, but you will get shut ins as they copter the crews to safety. In general, they have to turn off the production of the evacuated platforms. That storm track cuts through some of the most densely populated ocean acreage on the planet so we are talking about a lot of guys so they will err on the side of caution if it looks to be something that could be build into a problem. Safety first.

  92. 92
    Nicky Says:

    Z – just as a layman I would say our weather is far cooler than normal this year as we are getting a lot more rain.

  93. 93
    Sambone Says:

    Z – GOMEX at a nice toasty 85 degrees and climbing. Bath tub water. Just right for fuel for a Cane.

  94. 94
    zman Says:

    OII may catch a little tail wind here on the possibility, at 69.73 now.

  95. 95
    zman Says:

    Sam – due you have a recent spaghetti track, one with all the models on it? The one I have is from yesterday.

  96. 96
    zman Says:

    ZTRADE: Out SLB July $100 calls for $1.40, down 51%. Continuing to hold the August $100 and $110s.

  97. 97
    uop Says:

    as oil might drop to 100 and drag E&P down with it, I purchase some USO PUTS.

  98. 98
    zman Says:

    Uop – hear ya on the hedge.

  99. 99
    Sambone Says:

    Z – Try this one for 94L.


    Note – See #1


  100. 100
    Bleemus Says:

    with Implied Vols at records on USO you might want to consider selling call verticals instead.

  101. 101
    zman Says:

    check out the rally in SLB as soon as I sold it. HAL too. This is why I don’t play the last day game as it is too much like Vegas.

  102. 102
    SkyKing Says:

    RE: 94L
    FWIW – Katrina entered the Gulf from Florida at just above a Tropical Storm and quickly became a CAT4.
    The Gulf may be a little cooler water now, but it still is a hurricane generator.

  103. 103
    ram Says:

    We can use the rally for AUG’s.

  104. 104
    zman Says:

    Agreed Sky, I was just wondering why that model didn’t show the storm intensifying more.

    Thanks Sam

    Way to think positively Ram!

  105. 105
    zman Says:

    oil red again.

  106. 106
    Bleemus Says:

    water temp is just one factor for storm development, upper level winds, humidity levels in atmosphere etc. all play a part, Katrina was a perfect storm of many factors.

  107. 107
    Brian08 Says:

    Been outta pocket until now…Just looking at CHK relative to peers…Any reason why they should be down/hovering around even after that BP deal? Seems like Aubrey is “monetizing assets” as he has mentioned he was going to do…Figure this would be a good thing that he was “following through with his plan”…

  108. 108
    zman Says:

    Brian – no reason for the stock to be off that I see. Deal was a good one but investors continue to be weak in the group. Why is HK up $2 today? My guess is options related machinations.

  109. 109
    apbd Says:

    Outta here. My 44th Anniversary. Taking the Bride to lunch. With this week, I’m trying to get off cheap.
    Best weekend to all

  110. 110
    Brian08 Says:

    Yeah that’s pretty much what I was referring to Z…HK getting a nice bounce, not so much for CHK…Eh whatever, thanks for another opportunity to add the common…

    I guess I’ll file it under “Wall Street Shennanigans”…Damn that file is getting big…

  111. 111
    zman Says:

    Hear ya A. Gotta take the bad with the good. Congrats and have a good one.

  112. 112
    zman Says:

    WFT reports BMO Monday
    HAL reports BMO Tuesday
    NBR reports AMC Tuesday

  113. 113
    Sambone Says:

    Z – Cheer up!!!!! Mr. Right now tells us to SELL, SELL, SELL! It’s a sign.


  114. 114
    zman Says:

    Sam – thanks, but I am plenty cheery. This is me being cheery.

    Oil just not cheery, trading above/below $129. Given the action in oil service and the E&P groups today it is apparent people are trying to start sorting out the overkill of the last few days.

    Refiners back to falling even with down oil and up gasoline. That was a short lived recovery.

  115. 115
    zman Says:

    Of the list in #112, the only one I’d be concerned about on the numbers side is NBR who could miss by a penny or two according to some analysts. The thought there is that the pick up in rig counts and the implication that counts will continue to climb in the second half will be more important than a slight miss there. The others I would not expect to miss, especially HAL but if they did it might be more of a one day problem for them. Really don’t expect HAL to brick though.

  116. 116
    zman Says:

    Nicky, any thoughts on oil closing lower, below $129 as opposed to the $131 we saw earlier. Weaker in your mind, wave up already done or just noise with the August contract going off the board on Tuesday?

  117. 117
    Sambone Says:

    Z – Ok, Trying to get your mind off of it. This week’s movie quote;

    “That’s right. I killed your master. And now I’m gonna kill you too, with your own sword, no less, which in the very immediate future, will become… my sword.
    Bitch, you don’t have a future.”

  118. 118
    tater Says:

    Stepped out as I was invited by my 1 year old to play trucks. Sucker that I am, can’t ever resist a good game of trucks on a Friday.

    SLB chart analysis plus a couple others. As always, these are just my opinions about price action, nothing more.


  119. 119
    zman Says:

    kill bill

  120. 120
    zman Says:

    Thanks very much Tater, any thoughts HAL and WFT, just when you get a chance.

  121. 121
    Nicky Says:

    Z – would have preferrred to see a close above 130 obviously. Even under the more bullish count where I am still expecting to see a decent wave ii correction we could work a bit lower but should find a low with this count soon. If it absolutely tanks from here clearly we are already in iii down.

  122. 122
    Sambone Says:

    Man, that’s too quick, Zman!

  123. 123
    zman Says:

    Back at ya and appropriate for the last 2 weeks of trading.

    “If a man dwells on the past, then he robs the present. But if a man ignores the past, he may rob the future. The seeds of our destiny are nurtured by the roots of our past”

  124. 124
    Popeye Says:

    Master Po

  125. 125
    Jay Reynolds Says:

    Thanks to everyone, Z especially. I see a lot of folks here learning a lot from one another. For my part, this week added in the all critical “emotional impact” to my evolving trading rules.

    Possibly pain may not be the best teacher, but it’s very efficient : )

  126. 126
    Sambone Says:

    Wow, your digging. I like “Bruce Lee” for this role.

  127. 127
    Sambone Says:

    My turn; Z’s favorite movie BTW.

    “My mother always told me that violence doesn’t solve anything.
    Really? I wonder what the city founders of Hiroshima would have to say about that.
    They wouldn’t say anything. Hiroshima was destroyed.
    Correct. Violence has resolved more conflicts than anything else. The contrary opinion that violence doesn’t solve anything is merely wishful thinking at its worst.

  128. 128
    jsaun14 Says:

    If we find any momentum I’d love to trade the WLL calls again. Like the rest it took a smack, but loves $105.

  129. 129
    zman Says:

    Sam – I recuse myself on that one

    JR – thanks

    JS – hear ya, will take at the E&Ps over the weekend for monday, we’ve had quite the pullback and the numbers have been doing nothing but go up so if they were cheap before they on fire sale multiples right now.

  130. 130
    Sambone Says:

    Yea, I forgot, you can quote line for line.

  131. 131
    Fred Says:

    Sam – Isn’t that from Starship Troopers?

  132. 132
    zman Says:

    Only b/c DR was in it.

    group softening in final hour of trading, pretty uninspiring for a reflex rally. I think I said it before but I will again, I’d like to see the group trade sideways and not try to pull off a V-shaped recovery. If we get a big V early next week I will take losses in higher strikes and come back closer in the money pre earnings on the E&Ps. On service I am where I’d like to be on SLB and HAL, a little high on UNT but that one could easily march higher on results and find with NBR realizing that it may have a bad day in front of the earnings number but then should go higher post call.

  133. 133
    Bleemus Says:

    HOUSTON, July 18 (Reuters) – A large crane being used in a coker turnaround at LyondellBasell’s 270,000-barrel-per-day (bpd) refinery in Houston fell at about 1:30 p.m. local time (1830 GMT), the company said.

  134. 134
    zman Says:

    Authorities determined that the cause of a pipeline blast that took out 47,000 bopd of ENI Nigerian production was indeed sabotage.

    Brazil oil unions set to end strike, will vote next week on whether to have a broader one in August.

  135. 135
    Sambone Says:

    Fred. you got it. That wonderful grade B movie starring that talented actress, Denise Richards which also includes memorable lines such as “My God. How could this happen?
    Carmen: We thought we were smarter than the Bugs.” Wow, just makes you want to watch it again and again!

  136. 136
    zman Says:

    US oil rig count up 15, just under the 10 year record set a couple of weeks ago.

    Gas rig count off 10 (from a 20+ year record)

    Horizontal rig count 8, new record

  137. 137
    zman Says:

    Sam – watch it with the sound off.

  138. 138
    Sambone Says:


  139. 139
    zman Says:

    That’s ok, I don’t get to go to movies like Kill Bill or SST anymore, now its Kung Fu Panda and WallE

  140. 140
    Bleemus Says:

    Z- Netflix is a wonderful resource for parents. We always have a good DVD laying around. Some good educational kids movies and some fun cartoon stuff.

  141. 141
    zman Says:

    Now is the time for all good options traders to check to see if they anything close to the strike that you might think is worthless but which can put unwanted shares in your account over the weekend. Many brokers will exercise calls for you, if you are a penny over the strike which can make for an ugly Monday morning.

  142. 142
    zman Says:

    Thanks B – little Z1 mostly just watches Spongebob and CNBC later in the day “dad, the Mad Monkey is talking about oil, come quick”

  143. 143
    Dman Says:

    Just added some CLB exposure. CLB now at 16.4 x ’09 EPS & reports Jul 23 (after close).

  144. 144
    Bleemus Says:

    who lives in a pineapple under the sea?

  145. 145
    zman Says:

    Dman – I may do that Monday. They are going to be looking at a lot of shale cores, from everyone but CHK , and with all the secondaries funding it you know they will be pricing to the elevated demand.

  146. 146
    tater Says:

    WFT added. (at bottom of link above #118). Not much help. I will get started on HAL

  147. 147
    zman Says:

    Popeye gets the prize for that Po quote. When I have prizes he will get one that is. Probably a hat.

  148. 148
    zman Says:

    Thanks Tater, did not see WFT on that list though.

  149. 149
    tater Says:

    It’s on page 2 (bottom right corner click, right next to the “please vote for me!” button) 🙂

  150. 150
    Bob Says:

    Z- Curious why we don’t talk about BHI much. (They report next Tuesday BMO, $1.24 vs $1.09 last year). They are the 4th largest holding in the OIH, and have slightly out performed the OIH on 1 and 3 month charts. Do they fall into the large, not much catalyst for growth category?

  151. 151
    zman Says:

    Bob – No reason really, just kind of thought I had the space covered with current holdings. I trade them from time to time but it has been quite a while. Will have a look over the weekend at some reading there I’m behind on.

  152. 152
    Bob Says:

    Thanks. Was a little surprised they held their open gain and are up about 4% into close, and didn’t revert to $80

  153. 153
    zman Says:

    Bob, me too, WFT gave up half of morning gains, was top performer in the OIH all morning.

  154. 154
    Sambone Says:

    watch those cell phones!


    Ok, Early “Tini time”!

  155. 155
    zman Says:

    Looks like NG and OII are the only things paying attention to that tropical wave (94L)

  156. 156
    doc Says:

    the weather has been really hot on the east coast. I would think more gas is going out of storage.

  157. 157
    zman Says:

    Not that it would be hard but here’s to a better week next week.


  158. 158
    Bleemus Says:

    have a great weekend all! Beer thirty here.

  159. 159
    douglas51 Says:

    I manage a retail mutual fund and I saw this same thing happen in the late 70’s and early 80’s…energy stocks would correct hard at certain times when the market pulled back hard. I don’t worry about the energy stocks…they will be back…just be patient…especially coal!

  160. 160
    kyleandy Says:

    doug – prob was market didni pull back hard – it roared up w/ all my shorts creating double-trouble!!!
    at least z is back to beer from flavored water!!

  161. 161
    Bleemus Says:

    EOG EOG Resources discloses for Q2 of 2008, co anticipates a total loss of $842.8 mln from its natural gas and crude oil financial price swap contracts (106.39 +1.77)

    Co discloses for Q2 of 2008, co anticipates a total loss of $842.8 mln from its natural gas and crude oil financial price swap contracts, comprised of $720.0 mln from its natural gas financial price swap contracts and $122.8 mln from its crude oil financial price swap contracts. During the second quarter of 2008, cash outflow related to settled natural gas and crude oil financial price swap contracts was $138.1 mln, comprised of $110.7 mlnrelated to settled natural gas financial price swap contracts and $27.4 mln related to crude oil financial price swap contracts.

  162. 162
    zman Says:

    douglas51 – hear ya, I was an E&P analyst in a former life, this kind of pullback happens every few quarters and every few months to a lessor degree. This was the largest one week drop, in terms of dollars for oil since the contract began trading so the stocks will be a bit nervous until they get some more catalytic news and oil finds a trading range.

    Bleemus – those hedge announcements are part of the mark to market accounting the SEC has the E&P companies do. They don’t mean anything to cash flow and are discounted by the Street.

  163. 163
    Bleemus Says:

    Thanks Z. Always appreciate your comments as I learn more every day. When I worked on the trading desk it was “buy this” or “sell that” with very little discussion why from the brains in the back room. Loving your educational service. Have a great weekend.

  164. 164
    tater Says:

    HAL added to chart list. Have a good weekend.


  165. 165
    Robert1 Says:

    Thanks for the great charts, tater. Your work is much appreciated.
    Do you find volume indicators helpful?

  166. 166
    zman Says:

    We still believe this disturbance will get a name, and looking at the satellite picture, perhaps it should have a name already. Certainly, there is a lot of convection present which indicates the disturbance is soaking up ocean moisture like a sponge.

    Tropical convection is what occurs when steamy surface air rises, forming clusters of towering thunderstorm clouds. When these so-called hot towers begin to rotate in a counterclockwise direction, a tropical storm is often born.

    That’s what we expect to happen over the next 24 hours. This disturbance is likely to be named in short order, and it could be a hurricane by the time it reaches the Yucatan later in the weekend.

    Story by AccuWeather.com Expert Senior Meteorologist John Kocet.

  167. 167
    crysball Says:

    Iran rules out suspending enrichment program ……..What a big surprise????

  168. 168
    tater Says:

    Sorry, I did not see a couple posts on Friday, want to answer here, but let’s remember that there are many places (just google it) to learn TA, and I think that although TA can help with site member’s trading, this is probably not the place to discuss the actual learning of TA.

    That said, it is now Saturday and I doubt we are in anybody’s way at the moment, so here goes. In the future, I will probably just open up the “leave a comment” area on the charts that I post, and we can talk about TA by email.

    Robert1 – Have to love the volume measurement. It affirms or disaffirms the price action candle. If only a few traders act on a particular day (or whatever time period is in question), it’s hard to look back and take that day seriously..

    BossmanG- Don’t really have sources that speak exactly to time frame choices, other than to say that generally, the shorter the time frame on a trade, the more room for error on the part of the trader. All the signals from longer time frames exist on the shorter, not the inverse, as the longer timeframe trader does not have to pay attention to the minute by minute ticks. It is also a life-style question. Do you really want to sit at the computer all day and play for $.50 movement? Another thing is that it is very hard to master more than one time frame, very hard. They each have their own little nuances. I am sure that everybody here has noticed how the market’s personality changes after the first half hour of the open, and then again at lunch, and then again in the last hour. On the daily/weekly time frame you have to be aware of the earnings calander, seasonal trading (natural gas comes to mind), and the other things that CNBC covers.

    ram – I understand now that you were trading a quick one with SLB. At the time I misunderstood and thought that you might be looking at the intra-day price action and worrying about a longer term investment. As I usually use a different methodology to trade than most people here, I am really reluctant to chime in and say things like “watch the resistance on SLB at $103 this am” because that can mean many different things to many different traders. Maybe in the future I can try to get a chart posted ahead of time on a couple of names, asI really think it can be dangerous to venture into the land of intra-day trading without TA on your side. Personally, I find a goofy combination of TA and Fundamental Analysis works best for me (I prefer to look to FA for catalysts and use TA to accomplish my entry and exit).

    More info for anybody looking to learn more:

    Classic TA books: Technical Analysis of Stock Trends (Edwards and Magee), Technical Analysis of the Financial Makets (Murphy), Trading for a Living (Elder).

    There are no short-cuts and no “secrets”. Read them in that order, and do so only if you are comfortable with the idea of the problems that result for a golfer once they begin to re-tool their swing. Everything gets all messed up for a time. Good luck

  169. 169
    invisalign Time lapse Says:

    invisalign Time lapse

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