Wednesday – Oil Preview


Getting Ready To Pull In The Horns Watch. While I don't think the July sell off has been justified by any hard data it doesn't matter. Sentiment towards the group has turned bearish and good news is being ignored. I won't pound my head or my money against a wall yelling, "but it's cheap, cheap I tell you". That doesn't do any good especially in this kind of market. And I won't trade angry but I will trade less for a time, taking more of a wait and see approach instead of waiting (hoping) for a V-shaped recovery ... I don't know when that will happen but I know which side of the V we are on now. I'm up over 400% year to date but I was up substantially more at the beginning of this month. If we get much more weakness I will take the vast majority of my call positions off the table (holding my common shares and cash) and wait for some rationality to return to the sector (for more than just a day or two here and there).

For Now I Plan To Sell Off The Higher Strikes. I plan to sell off higher strike E&P calls in the portfolio at the first sign of a truly green day (yes they will come again). Service I will hold onto a little longer. The reasoning is that some of these positions are so far out of joint with reality that by the time earnings roll around next week or the week after, even a very positive reaction in the stocks will unlikely be enough to rescue these positions as the rise in the common will be countered by the collapse in the implied volatility of the option. The list of candidates that will be punted very soon but especially on any green day this week includes:

  • CHK $75 August calls, (CHKHO)
  • CHK $67.50 August calls, (CHKHU)
  • HK $55 August calls, (HKHK)
  • XTO $60 August calls, (XTOHL)



In Today's Post:

  1. Holdings Watch - added XTO into weakness
  2. Commodity Watch - oil inventory preview
  3. Earnings Watch - NBR
  4. Stocks We Care About Today
  5. Odds & Ends

Holdings Watch:

  • Added (XTO) August $55 calls for $1.90. And then they announced a secondary after the close. When it rains, it pours.

Commodity Watch:

Crude oil was slugged for another $3.40 yesterday to close at $128.42 for the September contract which becomes the front month contract today. A surging dollar, caused by Fed governor statements that the Fed may raise rates before a recover is in hand and a no perceived impact from Dolly led to the drubbing. This morning oil continues to weaken falling another $2 - $3 in early trading.

Crude Is Off 12% Six Days 



  • Tropics Watch: Hurricane Dolly, category 1 storm, coming ashore around Brownsville mid day and only a concern from a potential flooding of refineries standpoint in Corpus. The words "flooding and refinery" in the same headline would be worth at least $3 upside to crude. At present, Dolly is expected to dump 4 to 8 inches on Corpus in the next 24 hours and that's probably not going to be a problem for the refineries there from a flooding standpoint. It may be worth noting that one model currently shows Dolly slowing significantly before heading ashore which would allow for further strengthening and produce much higher rainfall totals.

  • Dolly Impact Watch (or lack thereof). As of yesterday, Dolly had caused producers to shut in roughly 5% of U.S. Gulf of Mexico oil and gas production (about 0.4 Bcfgpd and 60,000 bopd of crude) and some producers have already announced that they are turning the flows back on. 
  • Analyst Estimate Watch: The average estimate being employed by E&P analysts in their models for oil for
    • 2008 is $114.25.
    • 2009 is $114.50 and
    • 2010 goes all the way up to $115.93 but that is skewed by one knucklehead sitting up at $225 per barrel.  The median for 2010 is $101.
    • So in a nutshell, analysts have been pretty conservative in "walking their numbers up after the commodity's move" which means that the CFPS consensus numbers you see me often quote can continue to rise (for the oil companies) unless crude falls through the numbers above. For 2008, the second half of the year would need to average below $117 per barrel to offset the first half's strong performance.
  • Mexico Watch: Pemex has boosted salaries by nearly 5% to avoid a union strike scheduled for August 1.
  • Turkey Watch: Turkey allowed a 480,000 bopd pipeline from northern Iraq to reopen yesterday. It had been closed on Monday while Turkey demanded repayment of a late debt. 

EIA Inventory Preview (estimates from the Reuters survey)


ZComment: I'd give better than 50% odds that we get a bigger draw on crude than the 700,000 barrels in the table simply based on the likelihood that imports peal back from last week's near record levels. Whether or not the market cares about a bigger than expected drawdown on crude stocks is another matter is likely to hinge on the size of the builds in products. Crude has taken a beating in recent days and I would expect traders to be quick to cover recent shorts and to some extent to bottom fish this market.  

Natural gas tumbled with oil falling  $0.44 to close at $10.07. This morning gas is trading lower in direct proportion to crude.

Natural gas has fallen 25% since its closing high on July 2.


What has changed during this time frame? That is hard to tell. It is easier to tell what has not changed:

  • Speculators were already very net short so so much for the theory that they drove prices higher as they have been short and wrong and losing their heads all year.
  • Storage continues to look unlikely to reach the 3.4 Tcf mark by October, the level of storage upon which most participants agree is need to comfortably weather the winter. We did get one week of anomalously high injections last Thursday but as the chart shows, the slide began well that, back when numbers were coming in light to expectations.
  • As such, storage remains well below year ago and slightly low to five year average levels.
  • Imports remain well below year ago levels
  • Supply is up but it has been up and no new data on supply came out during this period, the bulk of E&P and other gas producers' data for the second quarter will come out in the next two weeks.
  • Summer weather is forecast continues to call for a hot one.
  • A near term dip in industrial demand is possible although again the numbers won't be available for months and would likely be offset by rising demand from the electrical generation segment.
  • In a nutshell: this looks like a commodity wide sell down; you see a somewhat similar decline in oil and coal prices.


Earnings Watch:

NBR Reports "Beats" 2Q08 Estimates; Points To Improved Outlook Across The Board

  • Reported EPS of $0.73 (ex non operational items) vs Consensus of $0.70
  • Revenue of $1.28 B vs $1.24 expected
  • "Our second quarter saw a dramatic and rapid turnaround in activity and in the outlook for our North American businesses" and "the outlook for the second half and beyond is improving more rapidly that we had anticipated"
  • Segment outlook quotes and thoughts:
    • U.S. Lower 48 Land Drilling-  (38% of contract drilling revenues). Rig count jumping now, 226 in 1Q, 242 in 2Q, as of this PR 257 rigs, starting to see better margins during 3Q
    • International Unit - (30% of revenues). "posted a significant sequential improvement and expect to achieve much large sequential increases over the next two quarters". Given its size it is important this segment keep to its growth target and management reiterated into 40% growth target for 2008 operating income here.
    • U.S. Well Services -  (16% of revenues). Lousy as anticipated but not as lousy as expected, have just been able to institute price increases and are regaining market share.
    • U.S. Offshore -  (6% of revenues) Rate and activity improve as utilization improves. This  is becoming a recurring themes on call...that the Gomex Jackup market has stabilized and is improving..."current strong environment will continue for the foreseeable future"
    • Alaska (4% of revenues). Expecting strong growth here over the next two years with accelerated exploration activity and the deliver of new rigs.
    • Canada (6% of revenues). "Worst quarter in history" due to spring thaw timing...should be well known already and they say they did a little better than expected although you'd be hard pressed to see it in the numbers. "outlook has improved substantially" but 3Q still looks to be having weather problems, this time too much rain. 
  • So you've got the biggest pieces of the puzzle working well with further improvement expected. Whether that matters in this market is tough to say and maybe lost in another energy red day.
  • Valuation: trading at a little over 10x 2009 expected earnings as of last night. 
  • Conference Call: 11am EST

Stocks We Care About Today:

NFX Reports After The Market Today; Conf Call In The Morning Tomorrow. Looking for more news from the Woodford in terms of recent well rates and drilling costs, plans for the first dual lateral there, Bakken results from at least 3 completed wells.

Odds & Ends

Analyst Watch: (BHI) upgraded to Buy at UBS, (TOPS) cut to underweight by JPM, (FRO) and (NAT) upped to buy at JPM.

170 Responses to “Wednesday – Oil Preview”

  1. 1
    Bleemus Says:

    TRP TransCanada Pipelines: Alaska House approves $26.6 bln TransCanada gas pipeline plan – DJ (38.64 )

    DJ reports the Alaska House of Representatives approved a bill late Tuesday that would award TRP an exclusive license to build a $26.6 bln natural gas pipeline from Alaska’s North Slope to Alberta, Canada. The proposal, by Republican Gov. Sarah Palin, could go up for another vote by the state House on Wednesday, under what’s called “reconsideration.” If the bill doesn’t fail in a reconsideration vote, it would proceed to the state Senate, which has until midnight, Aug. 2, to vote on the proposal under the terms of the Alaska Gasoline Inducement Act. The bill passed the state House 24-16. If the legislature approves the bill, the state would grant TransCanada a state license to build a 1,678-mile pipeline to ship natural gas from North Slope gas fields to consumers in the lower 48 states. Alaska also would provide Canada’s largest pipeline company with $500 mln in state subsidies.

  2. 2
    jd Says:

    Gulf States to Accumulate $4 Trillion by 2015, Deutsche Says
    2008-07-23 11:48:12.70 (New York)

    By Matthew Brown
    July 23 (Bloomberg) — Gulf OPEC members, including Saudi Arabia and the United Arab Emirates, will accumulate net foreign assets of $4 trillion by 2015 if oil stays near today’s prices, said Deutsche Bank AG.
    The reserves will rise from the current $1.2 trillion if the price of oil averages $114.4 per barrel, Deutsche said in an e-mail today. By comparison, the U.K.’s gross domestic product, the fifth largest in the world, was $2.38 billion last year.
    “Asset accumulation of this magnitude is unprecedented in the region, reflecting the fact that between 1970 and 2007 oil prices averaged $24.5 per barrel,” said Caroline Grady, London- based Gulf economist for Deutsche in the note dated July 21.
    Record oil prices will allow Gulf states to save more this year than ever before even as spending increases, filling the coffers of their sovereign wealth funds and providing a cushion should the price of crude fall in the future.
    Saudi Arabia, the largest Arab economy, needs an oil price of $44 a barrel to avoid a fiscal deficit this year, the highest breakeven level among GCC Organization of Petroleum Exporting Countries, Deutsche said. The breakeven price for the U.A.E. is $40 per barrel, Qatar is $35 and Kuwait is $14.50.
    “Breakeven oil prices have increased in line with rising expenditure levels as the oil boom is increasingly viewed as permanent,” said Grady.
    The price of crude has increased 68 percent in the last 12 months, and has averaged $114.05 so far this year compared with
    $72.36 in 2007.
    “Our rule of thumb is that every $1 per barrel increase in the oil price adds another $3.5 billion annually to the GCC OPEC net foreign assets with Saudi accounting for around two thirds,” said Grady.

    Related news:
    For Gulf economy stories: {TNI ECO GULF BN }

    –Editors: Philip Sanders, Andrew Atkinson

    To contact the reporters on this story:
    Matthew Brown in Dubai at +971-4-364-1022 or mbrown42@bloomberg.net

    To contact the editor responsible for this story:
    Chris Kirkham at +44-20-7673-2464 or ckirkham@bloomberg.net

  3. 3
    zman Says:

    Thanks JD, got the Dubai skyline presentation you sent last week. Wow. Your hard earned U.S. dollars exported and put to work.

    Bleemus – thanks, if passed, which has been a tough thing to get done over the last decade I’d bet on first volumes of 1+ Bcfgpd arriving in the lower 48 in about 5 years.

  4. 4
    zman Says:

    Dolly. Pressure dropping, forward speed slowing, and winds now at sustained 95 mph. 40 miles east of Brownsville. Going to dump a lot of rain on S. Tx. Shell reporting onshore gas shut ins, no size given. Track still shows onshore at Brownsville by noon.

  5. 5
    zman Says:

    COP tops 2Q estimates with $3.50 vs $3.45 expected. Stock called up slightly.

  6. 6
    zman Says:

    BMO cuts XTO to neutral

  7. 7
    zman Says:

    MEND on the tape saying it will attack major oil pipelines in the next 30 days to prove it had not received payment from the government to end its campaign. So a terrorist organization is worried about its credibility and doesn’t want to be call a sellout.

  8. 8
    jazzkool Says:

    The severity of the decline in XTO yesterday was probably due to the insiders knowing that a secondary was going to be announced after the close.



  9. 9
    Bleemus Says:

    RBC upgrading coal names this morning.

  10. 10
    zman Says:

    Agreed Jazz. Management said it was coming, sure didn’t sound like the decision of debt or equity had been made at the time of the call when it obviously had.

  11. 11
    jazzkool Says:

    BTU Peabody Energy tgt raised to $90 at RBC (65.03 ) -Update-

    RBC raises tgt on BTU to $90 from $60 on the strength of underlying fundamentals in both the U.S. and international coal industries that could permanently propel the insulated U.S. coal market onto the world stage. Firm bases their tgt on their updated NAV est, which reflects higher assumed coal prices outline in the report.”

    Stock still down in pre-market. Doesn’t matter what is said about energy stocks, the market is bent on destruction.


  12. 12
    zman Says:

    Nicky – when you get in, love to see your new levels on crude and NG.

    Port of Corpus shut due to heavy weather. 3 refiners are supplied via the port. Probably open in a day if no flooding so I’d bet not much of an event.

    Jazz – FWIW, Cramer said to sell BTU if they beat or not on earnings today.

  13. 13
    Sambone Says:

    But they aint GS!! Sambone July 2008

    Crude Oil Could Fall More On ‘Demand Demolition’ In 08-Lehman

    Dow Jones Newswires

    LONDON — Crude oil prices could tumble further as “demand demolition” curbs consumption in industrialized countries investment bank Lehman Brothers said Wednesday.

    “The world demand balance has weakened significantly,” as oil consumption moderates in the U.S., Europe and Japan to offset robust demand in developing nations, said Lehman Brothers analysts in a research note.

    “The deteriorating demand picture reinforces our belief that oil prices are approaching a tipping point,” the bank said.

    Lehman expects Brent crude oil futures to average $110 a barrel in the fourth quarter, falling further to $90 a barrel by the first quarter of 2009, citing the U.S. as an example of high prices causing a reduction in oil consumption.

    “High prices and slower economic growth have driven oil demand in the U.S. lower,” the bank said. “With oil prices above $80 (a barrel) for nearly a year and income growth weakening, demand elasticity has begun to show signs of life.”

    The bank slashed Wednesday its oil demand forecast for 2008 to average 86.3 million barrels a day, or growth of 790,000 barrels a day from 2007, compared to its December projection for demand growth at 1.5 million barrels a day.

    “Growing conservation and souring economic growth may prompt us to cut this further,” Lehman said.

    Meanwhile, demand growth from emerging economies could also moderate following moves by many governments to lift their expensive fuel price subsidies.

    “Affecting demand in China and India are government price hikes aimed at buoying state refiners that must manage rising input costs and fixed output prices,” Lehman said.

    Chinese demand, while supported in the short term, could slow down next year as cooling economic growth, greater fuel efficiency and oil product price hikes put downward pressure on demand.

    With China’s 2009 GDP growth expected at 8%, “we believe China’s (oil) demand growth could shrink to 350,000 barrels a day.”

    India, the other Asian giant driving global oil demand, has also raised retail fuel prices, which could slow down rampant domestic demand. Fuel subsidies have also been cut elsewhere in Asia, including Indonesia, Malaysia, the Philippines, Sri Lanka, Taiwan, Thailand, Pakistan, and Vietnam.

    “Looking ahead, the picture continues to be a tale of two worlds, with further expected contraction in the OECD (Organization for Economic Cooperation and Development) offsetting much of the strong non-OECD demand growth,” Lehman said.

    The bank expected crude oil inventories to build by 1.4 million barrels a day in the second half of 2008.

    Company Web site: http://www.lehman.com

    —By Lananh Nguyen, Dow Jones Newswires

  14. 14
    Sambone Says:

    8:53 am EST

    Crude Falls $2; DOE Data, Dolly Eyed

    By Reza Amanat

    LONDON — Crude oil futures fell more than $2 in London Wednesday, as market fears of potential supply disruptions in the U.S. Gulf of Mexico continued to subside.

    In addition to expectations that Hurricane Dolly will avoid oil production installations in the U.S. Gulf, technical charts also painted an increasingly bearish picture for oil prices, while participants looked ahead to the release of U.S. inventory data, due 1435 GMT Wednesday, amid growing concerns that oil demand in the U.S. is continuing to thin.

    “Another set of negative numbers similar to what we had last week, could result in further weakness, as there is little in terms of offsetting bullish headlines that could act as a buffer,” Edward Meir analyst at MF Global in New York Said.

    At 1240 GMT, the front-month September Brent contract on London’s ICE futures exchange was lower $2.06 at $127.49 a barrel.

    The front-month September contract on the New York Mercantile Exchange was trading $2.10 down at $126.32 a barrel.

    The ICE’s gasoil contract for August delivery was down $12.75 at $1177.75 a metric ton, while Nymex gasoline for August delivery was 530 points lower at 309.40 cents a gallon.

    Hurricane Dolly’s center is expected to arrive along the Texas/Mexico border by midday Wednesday, the latest advisory by the National Hurricane Center said.

    Dolly, currently a Category 1 hurricane, could approach Category 2 intensity when it reaches the coastline later Wednesday, the NHC reported, although it will have moved further away from Gulf of Mexico oil production facilities.

    A Category 1 hurricane has winds of between 74 and 95 miles per hour, while a Category 2 hurricane has winds of between 96 and 110 miles per hour. The highest level is Category 5, with winds exceeding 155 miles per hour.

    U.S. Department of Energy inventory data is expected to reveal crude stocks fell slightly last week. According to the average of a Dow Jones Newswires survey of 14 analysts’ forecasts, U.S. stockpiles fell 400,000 barrels in the week to July 18. Gasoline inventories are seen up 200,000 barrels, while middle distillate stocks are expected to have posted a 2.2 million barrel increase, the survey suggests.

    The market was anxious Wednesday of a possible repeat of last week’s surprise build in crude stocks that helped spark a sharp price move lower.

    “If we get a repeat of last Wednesday’s DOE report (today), then the bulls will likely have to scramble to defend the low $120s,” said Stephen Schork, editor of The Schork Report.

    Concerns that demand for crude oil in the US and other Organization for Economic Cooperation and Development countries is being crimped by high prices remains a weight on oil prices meanwhile.

    Analysts at Lehman Brothers cut their global annual oil demand growth forecast by 600,000 barrels a day Wednesday, and warned that fuel conservation and “souring economic growth” may prompt a further downward revision later in the year.

    “The deteriorating demand picture reinforces our belief that oil prices are approaching a tipping point, with prices expected to average $110 a barrel in fourth quarter 2008, and a further decline to a more supportable $90 a barrel by first quarter 2009,” analysts at Lehman added.

    Having fallen more than $20 from their highs above $147 a barrel almost two weeks ago, downwards technical momentum is dominating crude prices, Michael Wittner, head of global oil market research at Societe Generale said. He suggested that “it would have to take a supremely bullish set of (DOE) figures to reverse this trend.”

    Bearish crude sentiments were further compounded with the dollar strengthening against most major currencies Wednesday. The greenback continued to firm after U.S. Treasury Secretary Henry Paulson spoke out in support of a strong dollar Tuesday, and after Philadelphia Fed President Charles Plosser suggested that a hike in U.S. interest rates is required in order to prevent inflation pressures.

    Meanwhile indications of fresh crude oil output coming to market weighed on crude prices with news that Nigeria’s new Agbami deepwater offshore field, operated by Chevron Corp., is set to produce around 100,000 barrels a day in August. Output is expected to reach 200,000 barrels a day by year-end, Europe-based physical crude traders said.

    ExxonMobil’s Akpo field is also scheduled to come online at the end of this year eventually bringing an additional 200,000 barrels a day to market, they said.

    —By Reza Amanat, Dow Jones Newswires;

  15. 15
    zman Says:

    I actually like to see the growing jump on the band wagon bash oil sentiment going on. Two weeks ago everyone saw $150. Now they all see $100 or lower and the date in between is pretty scant.

  16. 16
    ddaley Says:

    What is the story? Buy? Sell?
    “When in doubt, sell half”

  17. 17
    Sambone Says:

    #15, “The crowd”, fair weather investors.

  18. 18
    zman Says:

    DD – I’ll let ya know when I do it. Right now I’m waiting out the deal closing which should bring some post secondary favorable comments, (BMO) not part of the deal obviously, group trying to get a little traction and this could move in similar fashion to CHK just after they sold shares last week.

  19. 19
    antrimshale74 Says:

    CHK moving nicely this AM. Your buddy Cramer said that CHK and FCX were wrongfully and undeniably cheap.

  20. 20
    zman Says:

    Service trying to gain as well. A green close might give some impetus to one of the bigger houses to say enough is enough. Hard to say. NBR actually green before their call…amazing.

    Think NFX will pop on earnings tonight but that may be wishful thinking.

  21. 21
    ddaley Says:

    briefing now recommending buying XTO, (for a trade)

  22. 22
    zman Says:

    Antrim – you gotta love him like you love a monkey with shotgun.

  23. 23
    antrimshale74 Says:

    What a relief. For a moment there some of the energy stocks were up. Good to see we’re back to normal. Sarcasm.

  24. 24
    zman Says:

    Everything continues to trade at the whim of oil. If we get a build instead of a draw I think oil goes to $120 in short order and we flush out much of the rest of the remaining hot money. Before the numbers today everything seems to be just noise.

  25. 25
    reefguy Says:

    hk and gdp are up

  26. 26
    tater Says:

    Wondering if the real beneficiary of NFX Bakken/TFS news might just be CLR, due to acreage. I know this is bottom fishing (actually a portioned buy on way down strategy), but as CLR has given up all of it’s love since its well announcement and I’ve been daytrading it in one account, thinking it might almost be time to get in for a longer-term investment in another account.

    Not looking for validation, just wondering if you think that NFX report would be good news for CLR.

  27. 27
    Nicky Says:

    Morning all. Just got PF’s morning email. Expecting a bigger build in crude again…but he’s still looking for 133 to short it…

  28. 28
    Bleemus Says:

    Halliburton Co. Raised To Top Pick From Outperform By Tristone >HALLast update: 7/23/2008 10:09:50 AM

  29. 29
    VTZ Says:

    Watch how many people listen

  30. 30
    ddaley Says:

    More briefing comments:
    The long commodities/short financials spread trade has been unwinding. That’s the principle dynamic over the past several sessions. Even if that trade is done for the intermediate-to-long term, it will have a moment of reflexive kickback. I think that will be today. This means I see financials pulling back and materials and energies plays as longs. Will need to see some confirmation of that (oil).

  31. 31
    zman Says:

    Tater – that makes sense but I’m not rushing out to add to anything right now.

    Thanks Bleemus, Natixis B. took HAL up as well.

  32. 32
    zman Says:

    Anybody get GS research. They have been strangely quiet, at least publicly during this oil drop. You’d think they’d want to answer Lehman today.

  33. 33
    Brian08 Says:

    Re #30, wouldn’t suprise me Daley…The Finerman lady (think that’s her name) from Fast Money was saying to short the XLF for a short trade last nite on the show…

  34. 34
    tater Says:

    Thanks. If I had to say, CLR needs a stop gunning shot through the bottom of that gap to push all the little guys out first. I think “they” would do that before any thought of loading up for themselves (but that’s a prediction). Good luck today

  35. 35
    VTZ Says:

    hk aiming for another -10% day

  36. 36
    bhr5491 Says:

    GS this morning notes say:
    Oil services 2

  37. 37
    zman Says:

    bhr – have they anything to say about oil, just curious?

    inventories in 2 minutes

  38. 38
    bhr5491 Says:

    GS this morning notes:
    Oil services 2Q08 too positive too ignore
    22% upside to OSX
    upped estimates for BHI, BJS, and HAL

    sorry about 36

  39. 39
    bhr5491 Says:

    nothing about oil specifically

  40. 40
    zman Says:

    thanks bhr – so I agree with GS and a couple of other analysts and the rest of the world could care less.

  41. 41
    Brian08 Says:

    Down 1.5, thank god…

  42. 42
    antrimshale74 Says:

    Gasoline build was too big.

  43. 43
    Brian08 Says:

    Sorry I listen as little as possible to Sharron, I’m afraid her head might explode if she talks too much…

  44. 44
    zman Says:


    crude: down 1.6 (more than expected)
    gasoline: increased 2.9 (that’s a lot)
    distillates:up 2.4 (in line)

    utilization off 2%

    demand for gas was about flat with prior week.

  45. 45
    BossmanG Says:

    wow, getting hammered here like never before

  46. 46
    zman Says:

    Gasoline demand not falling off a cliff, just not rising, flat for the last 4 weeks now in the 9.3 mm barrels per day range. This is above the five year average but below last years record levels.

    Oil has trade +$0.50 to -0.80 from when the report came out and stocks worse off as well. Looks like they take it lower by end of day on that gasoline build but its still pretty volatile and you could see a bottom fish /short cover trade rally it here.

  47. 47
    zman Says:

    NG fighting to go green (up 5 cents) in the face of down $2.50 oil. That looks like it wants a reflex rally but its hard to get very long prior to tomorrow’s storage report.

  48. 48
    Popeye Says:

    HK particularly unloved.

  49. 49
    ddaley Says:

    XTO, buyers at 49.2

  50. 50
    Sambone Says:

    10:38 am EST

    Nymex Crude Down Ahead Of Oil Inventory Stats

    By Brian Baskin

    NEW YORK — Crude oil futures are trading lower, as the stampede out of the market over concerns about U.S. demand continues.

    Light, sweet crude for September delivery traded $2, or 1.6%, lower at $126.42 a barrel on the New York Mercantile Exchange. The September contract is in its first day of trading as the front month, after the expiration of August crude at $127.95 a barrel Tuesday. Futures remain near a six-week low. Brent crude on the ICE futures exchange traded $1.95 lower at $127.60 a barrel.

    The latest drop is a continuation of last week’s 11% plunge. The correction began in the oil market over concerns about the long-term strength of U.S. demand, but has since spread across the commodities spectrum. Investors lured to oil, metals and agricultural markets by skyrocketing prices are now exiting.

    The prospect of Hurricane Dolly crossing through the main oil-producing section of the Gulf of Mexico sent oil higher Monday. But the storm now appears unlikely to have a major impact, and the downward correction continues.

    “It’s not just oil, a lot of paper that started draining in on the rally…now they’re taking it back,” said Tony Rosado, a broker with GA Global Markets. “It’s a cycle.”

    Investors received an additional scare Tuesday, as details of SemGroup L.P.’s bankruptcy — including a $3.2 billion loss in the oil futures market — trickled out. SemGroup was thought to be taking increasingly large long positions, or bets that oil will rise, in order to compensate for short positions left out of the money as oil prices continued to rise. With SemGroup’s implosion, that upward pressure on the market is now gone.

    “Whatever short-covering that was done is now behind us,” wrote Edward Meir with MF Global.

    Wednesday’s main trading action isn’t expected until after the release of U.S. oil and product inventory data by the Department of Energy. Last week, a surprise build in oil inventories sent futures sharply lower by playing into fears that consumption was falling.

    For the week ending July 18, analysts gave an average forecast of a 400,000 barrel drop in oil inventories, a 200,000 barrel increase in gasoline stocks and a 2.2 million barrel increase in distillate inventories.

    Front-month August reformulated gasoline blendstock, or RBOB, recently traded down 4.51 cents, or 1.4%, at $3.1019 a gallon. August heating oil traded 4.52 cents, or 1.2%, lower at $3.6330 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  51. 51
    zman Says:

    gas up a dime, hmmmm

    stocks circling the drain but off their worst levels but not by much.

    all quiet on the news front probably until the close.

    oil making a run, down only $1.60 again, this may be the rally I was talking about. Too much negativity and not enough data to back it up. Gas demand is flat. Refinery inputs were off about 300,000 bopd last week, that’s not good but not exactly terrible.

    CHK and EOG making a run on breakeven on the day.

  52. 52
    Dman Says:

    Was bidding for CLB HK and PQ calls over last 15 mins. Only filled on the HK. Shoulda taken the ask on the PQ.

  53. 53
    zman Says:

    Hard to tell D, could be a headfake.

    NBR call starting

  54. 54
    Sambone Says:

    Mississippi closed at NO


  55. 55
    Dman Says:

    Z – agree that it might not be a once only chance to get the PQ.

    OII could be a decent entry here, both in general and considering the hurricane peak is just around the corner. Not talking front month though.

  56. 56
    Nicky Says:

    Oil market seems very uncertain which way to go. But nat gas has staged a decent turnaround. Should encounter stiff resistance at 10.690. Oil has resistance at 129.70.

  57. 57
    Nicky Says:

    At some stage you have got to expect some nerves to resurface regarding the Iran decision. They were given two weeks which takes us into the end of next week….so we we chop around into that or do we have time for a huge sell off first? The trend is down but no telling how long it is going to take to get moving.

  58. 58
    kaman Says:

    Cubic Energy, Inc. Provides Update On Its Northwest Louisiana Haynesville Shale Activity-PR

  59. 59
    zman Says:

    Agreed Nicky re 57

    NBR Q&A starting, will have notes in a bit but it was the best, most positive opening from these guys in many many quarters in terms of outlook.

  60. 60
    Dman Says:

    James Altucher at TSCM is plugging Trico Marine (TRMA) ahead of earnings. Reminded me to check out RIG, which I’ve ignored lately. Seems to be holding ground fairly well, by which I mean it’s been stable over the last 2 weeks or so. There is a declining channel overhead… but there always will be at the best buying ops. Since it is very cheap, that is perhaps offering some protection here.

  61. 61
    Fred Says:

    Dolly upgraded to Cat 2.

  62. 62
    Fred Says:



  63. 63
    zman Says:

    NBR Q&A ongoing. Near term #s will be upped (2H08) by analysts. Margins improving domestic and int’l. Canada stunk but rapidly improving and 2H08 will better than 2H07. They also talked about their E&P sub, that it will be significant for them next year in terms of production. No guidance but they are drilling in all the hot plays (Canadian shales, Barnett, Bakken, Fayeeteville, Floyd, Haynesville) ; also helping them to market their rigs to other operators in those plays as they have the horsepower and the dry stacked rigs available.

  64. 64
    Sambone Says:

    Hello Dolly!


  65. 65
    sane Says:


    Crude UP 1.1M
    Gasoline Down 1.2M
    Distillates UP 538K

  66. 66
    ddaley Says:

    Another comment about “uncertain which way to go”. UNG is still stuck in the nether world between its 61% and 100% retracement off the 63 high, AND supported by its 200 day.
    USO has yet to reach its 50% retracemnt off of 120.

  67. 67
    zman Says:

    MEND making more threats, must still be long crude. Saying they are going to attack Bonny Island where their is a 400,000 bopd Shell export terminal and a LNG terminal. Demanding the withdrawal of the Army from the area and that the govet meet several of their demands for development of basic services in the delta.

  68. 68
    Sambone Says:

    11:28 am EST

    Nymex Crude Down After Gasoline Stock Build

    By Brian Baskin

    NEW YORK — Crude oil futures traded lower after a larger-than-expected build in U.S. gasoline inventories raised new concerns about consumer demand.

    Light, sweet crude for September delivery traded $1.35, or 1%, lower at $127.07 a barrel on the New York Mercantile Exchange. The September contract is in its first trading session as the front month, following the expiration of August crude at $127.95 a barrel. Brent crude on the ICE futures exchange traded $1.29 lower at $128.26 a barrel.

    Futures had traded around $126.60 a barrel before the data release. While the data pulled oil slightly higher, it failed to push crude back into positive territory.

    Oil inventories fell by 1.6 million barrels in the week ending July 18, according to the U.S. Energy Information Administration, compared with an average analyst forecast of a 400,000 barrel draw. The draw marked a reversal from the previous week, when inventories unexpectedly grew, sending oil prices tumbling.

    But gasoline stocks rose by 2.8 million barrels, compared with a consensus forecast of a 200,000 barrel build. Refinery utilization also fell by 2.4 percentage points, the largest one-week drop since January, where analysts had expected no change. Distillate inventories grew by 2.4 million barrels, close to expectations of a 2.2 million barrel build.

    The latter two data points played into concerns about falling demand for gasoline in the U.S., the world’s largest oil consumer.

    “There’s clearly no demand on the consumer end, and you don’t have any demand from refiners,” said Stephen Schork, editor of the Schork Report, an energy newsletter.

    Gasoline demand is off 2.3% in the month ending July 18 from a year earlier, according to the EIA. Gasoline futures led other contracts lower, and should continue to push oil toward $120 a barrel, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

    Front-month August reformulated gasoline blendstock, or RBOB, recently traded down 5.45 cents, or 1.7%, at $3.0925 a gallon. August heating oil traded 5.67 cents, or 1.5%, lower at $3.6215 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  69. 69
    zman Says:

    HAL green

    NBR call just ending. There is a sea change in sentiment on this one. Margins were set to drop as of last quarter by $1000 per day from 1Q to 4Q before recovering. That’s pretty significant when you are talking 9000 per day as your margin. 2Q was flat to 1Q. 3Q will now be up slightly and it sounds like 4Q will be up as much as $1,500 /day and rising into 2009. There is an accounting change that will mute some of the 2009 impact but it is a non-cash FASB deal over their convertible debt. Operating margins are rising. This should be viewed very favorably. They also hinted that margins on about 30% of their top line (international drilling) will improve more than 40% next year on top of a 40% increase this year. Anyway, its all very positive but it will be ignored until later today or later this week. Remained of 2008 numbers will definitely go up. 2009 unlikely to drop, maybe a little but again, its non-cash. Otherwise, 2009 numbers will be headed higher: revenues, EBITDA, etc.

  70. 70
    zman Says:



    Bit of a fluff PR in that they drilled one vertical HS well with no test, this was planned and there is little here they have not said before about gas content in the area. I’m not going to bite at this time.

  71. 71
    kaman Says:

    NBR and QBIK “reads”, thanks much Z

  72. 72
    kaman Says:

    I really thought COP might have a better start with their beat.

  73. 73
    VTZ Says:

    kaman – Your first problem was thinking… stop that, then grab a chart of oil and perform some TA. Then you will have the “right” answer.

  74. 74
    Sambone Says:

    What, the DOW is down? Oh, I forgot, it’s lunchtime.

  75. 75
    zman Says:

    Sam – it looks like Dolly has wobbled a bit north, any chance it stays offshore. Not hoping for pain on those folks down there but wondering about crude off only a buck now. If it stays offshore longer than expected it will dump more rain on Corpus while getting stronger

  76. 76
    zman Says:

    What we need for me to not do what I was talking about this morning in the front of the post and punt a majority of my calls would be a strong intra-day reversal. We could be close and that could see a significant flood of cash into the oh so cheap E&P and oh how their year is improving service names. Oil is down twenty cents.

  77. 77
    Nicky Says:

    Dolly –

    BROWNSVILLE, Texas (July 23) — Forecasters say Hurricane Dolly strengthens to Category 2 storm with 100 mph winds off Texas
    Dolly’s leading edge arrived on the Gulf Coast early Wednesday, packing heavy rain and powerful winds. The hurricane was expected to dump up to 15 inches of rain, threatening flooding that could breach levees in the heavily populated Rio Grande valley.

  78. 78
    zman Says:

    Nicky – oil is reacting to Dolly, I won’t chase as it will likely fade when she is a memory by Friday (lots of rain could flood those Corpus refineries so she’ll still be talked about in the morning)

    NG up 20 cents now.

  79. 79
    Dman Says:

    Z – kinda strange that MEND are worried about being seen as sellouts. Didn’t they just have a gun battle at sea a few days ago? My take was they tried to repeat the previous (1st ever) attack on an offshore facility, but the military/security people were ready for them this time (hardly surprising). Also, from a military viewpoint it is a bit retarded to warn in advance what the next target will be. So I think they are annoyed at the recent failure and want to be taken seriously again.

  80. 80
    Nicky Says:

    Z – we saw a move like this a couple of weeks ago when the oil market could not break through support. In that instance it rallied about $6! 132 is actually not out of the question chart wise and would give us that abc for wave ii.

  81. 81
    Dman Says:

    Cramer sez it was all the hedgies blowing out of oil & gas today.

    Just want to point out: EOG has been fairly stable last few days and since it is mostly unhedged, could be a tell for NG.

  82. 82
    zman Says:

    Dman – The rumor was that the govt paid them $12mm not to attack a particular pipeline. They said they will blow up that particular pipeline and others to show that they in fact received no graft. Who says their is no honor among freedom fighters, lol.

    Also note they plan to attack Boony island now which has LNG. Never had an LNG tanker accident in the history of LNG. They range in size from 2 to 3 Bcf of gas and were one to go off, it would make the MOAB look like a an M80. More like a tac nuke. Sheesh, I sound like one of those fear mongers on CNBC.

  83. 83
    zman Says:

    Dman – been watching LNG and own some … likely own more by their earnings call.

  84. 84
    Nicky Says:

    CNBC who have been bearish oil all morning and interviewing everyone they can get their hands on about how low it can go suddenly wobbling and now say everyone is worried about calling the bottom. Now its all about Dolly and the fact there could be more impact than previously thought! They were a great contrarian call an hour ago!

  85. 85
    Bleemus Says:

    SU Suncor Energy reports lifting of production cap at Firebag in-situ oil sands operations (54.66 +0.30)

    The co reports that, effective July 22, the Alberta Energy Resources Conservation Board has removed production constraints imposed on Suncor’s Firebag in-situ oil sands operations. Bitumen production from Firebag had been capped at approximately 42,000 barrels per day in September 2007 due to sulphur emissions that exceeded regulated limits. The ERCB has advised that issues at the site have been addressed sufficiently to lift the cap, but Suncor must meet a variety of conditions, including ensuring emissions remain at compliant levels and providing regular status reports.

  86. 86
    Dman Says:

    Holy cow. I just looked up LNG for the 1st time in more than a year. Last time they were a twentysomething. Now $3 and something! So what’s the Z- thesis on them?

  87. 87
    ddaley Says:

    HK is held down by its 200 day

  88. 88
    zman Says:

    Dman – Re LNG, I tried shorting them in the mid $30s last year and could not get that debt laden unnecessary on this planet stock to fall. They are now making bad deals to stay alive. I’ll stay away unless it rallies to $10 or so again in which case I will take puts.

  89. 89
    zman Says:

    DD – I have HK well above its 200 day, is that what you mean by or do you mean its 50 which it can’t seem to breach from below?

  90. 90
    Dman Says:

    Er … OK, so I’m guessing that in #83 you meant EOG …

  91. 91
    ddaley Says:

    Sorry, you are absolutely right, misread the numbers on the lines! The optimistic way to put it is that HK is trying to push its 50 day up!

  92. 92
    Nicky Says:

    Broader market – it looks like we may see one more move up. Firm resistance on spx at 1291 area.

  93. 93
    zman Says:

    yeah, meant EOG, definitely did not mean LNG in #83.

    Anybody got a good source for expected earnings growth by sector for the S&P500 and in aggregate for 2008 and 2009. I know it is out there but don’t remember where I saw it last. Just wondering how the market makes much progress without 15% of it, the 15% that is really growing, participating.

  94. 94
    Nicky Says:

    Oil – saw a clear 3 waves up. that could be it for the up move…obviously today’s lows are key…

  95. 95
    Nicky Says:

    Senate voting on that housing bill very shortly (Bush won’t be veto ing it.) Will no doubt give boost to Fannie and Freddie if passed. What a sham that is!
    Let the markets work cos they are going to anyway!
    Beige book at 2pm..

    so a few market movers coming up…

  96. 96
    Dman Says:

    Z – Rev Shark at TSCM is looking for a strong bounce in the oil group soon. Elaborates that he expects a “fast and furious upside move to develop soon” and notes that this would be “painful for this market”, particularly without leadership outside of the financials.

  97. 97
    zman Says:

    Dman – did he say what time, lol.

    Thanks Nicky, totally agree re free mkts.

  98. 98
    Dman Says:

    Alas, the Rev neglected to specify timing. It is a slightly unusual call because he is normally in the “follow the trend” camp.

  99. 99
    uop Says:


    agree with your PUNTING on HK and CHk,

    all high strikes have no chance anymore,
    time will help,

    my situation is to sell or roll down and out my HK and CHK,

    august positions are useless,
    even sept might be insufficient, at least october is needed,

    strikes for LC near ATM so I can at least cover these with SC.

    The real question is:
    even with crude going down more, will CHK and HK have an upward life ???

    What do you think ?? TXS.

  100. 100
    uop Says:

    what is outlook for NFX ?
    any notion ?

  101. 101
    zman Says:

    Uop – I think two things will occur. At some point, don’t know when people start separating the stories from the commodities.

    For instance, CHK ran up on an increasing production profile and implied net asset value. It was slow to rally due to its hedges (about 70% of this year’s remaining expected production is hedged at a gas price between $8 and $9. That goes over $9 next year. But the stock has fallen without regard for its 20,20,20 3 yr growth profile or the fact that it wasn’t going to get $13 for its gas anyway, at least not for 70% of its gas. At some point, people notice that its production mix is 92% gas/ 8% crude. The 8% crude was also partially hedged. So the financial impact of the fall from $145 to $125 in the last 7 days would have little bearing on their numbers.

    For now they trade on sentiment and sentiment on the group is firesale, going out of business poor right now. Without some kind of catalyst, and assuming oil continues to fall, the stocks will continue to fall. The catalyst could be 2Q08 for CHK as I think they will put a face on the as of yet un named oil shale plays. But if oil is still sliding when they do that it may take a little while for people to notice.

  102. 102
    Nicky Says:

    Dman – he is a very savvy bloke. He lives about a mile from me and made a killing on real estate here. But.. he did get out whilst everyone else continued to talk it higher. He picked the top perfectly. So in that instance he was certainly going against the trend.

  103. 103
    zman Says:

    Uop – that’s pretty open ended. What do you mean? I have talked about them til I’m blue in the face for weeks now. CFPS should come in in the $2.50 to $2.80 range, $2.70 would be preferable. They should mention the things in the pr and on the conf call that I highlighted in today’s post.

  104. 104
    ram Says:

    ZMAN – It’s fair to see we are just nervous/concerned, so we ask nervous/concerned questions.

  105. 105
    zman Says:

    NFX: I don’t expect them to miss production guidance, biggest fear would be that their operating costs jump on a per unit basis, not a lot of feel for that. They probably won’t be taking numbers up as they just did a few weeks ago back when the stock was trading in the mid $60s.

  106. 106
    zman Says:

    Ram – I’m just saying try to be specific, otherwise I end up trying to answer 10 things when you were only looking for one.

  107. 107
    jsaun14 Says:

    I believe this is a good time to begin to average into CHK common. We have Aubrey punting ownership in certain properties while buying common at the same time. The writing is on the wall (long-term.)

  108. 108
    breakhound Says:


    obviously it ha sbeen a blood bath on the long side for 2 weeks. Eventually a bounce comes in. The question is where. PXP which is an instituional favorite is at the 200 day ma. it touched this line last march and took of like a rocket. maybe we get a repeat?

  109. 109
    Denise Says:

    Greetings everyone,
    Mr K went long xle and short xlf for a trade this am.

  110. 110
    ram Says:

    O.K. – I tend to ask nervous questions, and I should be more pointed. I tend to be too general.

  111. 111
    zman Says:

    Break – its a good thought and maybe so. Often you will get a stagnation of the downward move in the bigger cap E&Ps (APC,APC, DVN, EOG, XTO) before the small and mid cap names can really recovery. This time it may be that the names with the best looking charts rally first. Just a feeling. Also think the group will begin to diverge from the move down in oil at some point before the end of the month unless oil bounces and then the group will too.

    Ram – I was talking about Uop’s question. Guess I’m a little edgy.

  112. 112
    zman Says:

    Volume on CHK is absolute enormous last few days, looking to top 30 mm shares today easy. Other long time favorites down on huge volume as well.

    NG now down a dime as oil falls towards new lows on the session, down $2.70.

  113. 113
    zman Says:

    So Nicky, if we fail to breach the post inventory # lows from this morning but still close down $2.50, does that mean anything at all bullish to you. In my book, they just take out the low in the London session.

  114. 114
    kaman Says:

    Rough day…BTU 2Q profit doubles, mkt not feeling the love.

  115. 115
    Dman Says:

    Hedgies getting their margin calls or just a run-o-the-mill freak out? On track for a heavy volume day in CHK. Just added some Oct calls.

  116. 116
    Dman Says:

    Oops. Didn’t see that Z had already mentioned the CHK vol. My only techno-wish for the site is some kind of auto-update after each post. No idea if that is actually possible.

  117. 117
    breakhound Says:

    The market is probally near some type of capitulation. FRE which is cash flow negative is up 10% and CHK which is one of the cheapest cash flow plays is down almost 6%. sometimes the market stays irrational longer than u can stay liquid.

  118. 118
    zman Says:

    Just got the survey expectations for tomorrow’s gas injection: 83 Bcf. That’s what I would have expected this week just doing the back of the envelop math prior to that whopper of a 104 Bcf injection we got last Thursday.

    The weather was actually a tad cooler last week than the previous week as degree days go. So the Street is ignoring last week’s big injection. If they are wrong natural gas will get slapped hard as it will be the second big miss in a row. I’m cogitating on it and looking for any reason that could explain the bigger draw including contract expiry and the recent decline in prices. Sometimes big moves in price can skew storage away from a purely fundamental number.

  119. 119
    PackMan Says:

    chk; added some common around 48 in various accounts.

  120. 120
    zman Says:

    Dman – autoupdate is what we term Project DING around these parts and it has been gathering dust for some time now, much like my revised FAQ. We should get it out to after 2Q is over on the FAQ. DING is more difficult but one solution is to use a reader to subscribe to comments via email and have them sent to an email account with an auditory note. Its what I do with my blackberry. Buzzes each time one of you say something.

  121. 121
    zman Says:

    Oil just trying to hold $125 now. Gas back below $10. So much for the rally.

  122. 122
    apbd Says:

    ” Can’t we all just get along?”

  123. 123
    Nicky Says:

    iii looks underway for oil and a dive to new lows for nat gas. Where we see the low is extremely difficult to predict in oil. Support is very strong in the 120 -122 area.

  124. 124
    zman Says:

    A – hear ya, I’ll try to chipper up.

    CHK down $14 B in mkt cap since beginning of month, down 35% and $26+ per share since the peak. Adding some common in the personal, non option accounts at just under $48.

  125. 125
    ddaley Says:

    Three or four days ago, Phil (Davis), scoffed at the descending CHK price, and said he would be interested at 45.
    CHK, UNG and XNG are all in that nether world of retracement. 100% for CHK is 42.15.

  126. 126
    1520sbroad Says:

    #124 – i noted the same clip in mkt cap for CHK this month. SWN, HK equally bad
    always important to remember that we will unfortunately have another hurricane, all the companies that we follow are drilling/completing/tying in wells right now, it will likely get cold in december, people will still drive their cars, cnbc will always find someone to yell about a top or bottom

  127. 127
    Sambone Says:

    For Nicky, ref#95

    2nd-Lien Provision Added to Housing Bill
    Second lien holders could benefit from permitting the refinancing of struggling homeowners under a special Federal Housing Administration foreclosure rescue program contained in a massive housing bill the House is expected to pass Wednesday. A provision added during final negotiations on the bill will allow second lien holders to share in a portion of future appreciation on the property. However, they have to agree to the restructuring and refinancing of the existing first mortgages, which would extinguish any second or subordinated liens. The provision was probably added to the bill so the special FHA refinancing program can help more troubled borrowers with piggyback loans. As previously reported, the bill bans seller-funded downpayment assistance on FHA loans and places a 12-month moratorium on the charging of risk-based mortgage insurance premiums by the FHA. Those provisions go into effect Oct. 1, 2008, according to a copy of the bill released on Tuesday. The bill (H.R. 3221) also raises the minimum downpayment requirement on FHA single-family loans from 3% to 3.5%

  128. 128
    ram Says:

    tater – Was CLR’s sell on a breach of 64 or a close below 64?

  129. 129
    ellwodo Says:

    I need something to keep my spirits up, even if imaginary. Any updates on the rumors of s Haynesville buyout or at least JV sale?

  130. 130
    zman Says:

    Elwo – nothing from my end, last week heard something about DVN or Shell looking to get bigger via an acquisition but the potential targets sure are not acting like it.

    CHK about to touch its 200 day sma. This puts them $2 over where they announced the Haynesville shale and the other 8 undisclosed oil and gas shales back on March 24. Complete round trip.

  131. 131
    texana Says:

    if xle closes below 74 today we will have a double bottom breakdown in p&f chart with target 69. the big boys bet over 100million on aug xle puts that we r going down. would go long until xle bases & turns upward

  132. 132
    texana Says:

    would NOT go long until xle bases and then turns up. sorry about that

  133. 133
    tater Says:

    that note is to me. It has to do with daytrading. I am actually accumulating as we speak for a longer-term account. CLR could easily see $57 soon. It could also pop right back up short term. It just went near LOD so I bought some. I went into today 100% cash, so for me, it looks like a steal.
    Make sure you trade charts according to your own holding time period. I cannot say that enough.

  134. 134
    zman Says:

    Hear ya Tex.

    At some point soon, some of the bigger brokers like GS should step in and really bang the buy gong on the E&P names. They are neutral on many names, like CHK, in the and this pullback would give them a good opportunity for an upgrade. If I was neutral on it I would take it up before earnings. They are highly unlikely to miss 2Q numbers and you have to think there is big news on the way.

  135. 135
    MMarkkk Says:

    Z – just saw your post #3 about Alaska gas arriving 5 years from now. No way no how. Even the most optimistic view is +8 years. I’d bet on 10 years, plus or minus 1 year. 5 years defies all the laws of nature, permitting, politics and construction.

    Its been a heck of a couple of weeks; wish I’d stayed on vacation!! Regarding Elwo’s comments in #129 and your response in #130: This drop in prices is a great thing for the M&A market. But most targets are still too darned expensive. 18 holes left and then back to work!

  136. 136
    Sambone Says:

    3:22 pm EST

    Oil Falls On Ballooning Gasoline Inventories

    By Tatyana Shumsky

    NEW YORK — Nymex crude futures fell as a larger-than-expected build in U.S. gasoline inventories amplified market fears of demand erosion.

    Light, sweet crude for September delivery settled $3.98, or 3.1%, lower at $124.44 a barrel on the New York Mercantile Exchange, the lowest settlement price since June 4. Brent crude on the ICE futures exchange closed $4.27 lower at $125.28 a barrel.

    Crude futures continue to falter, posting a second consecutive day of losses in the wake of an 11% price drop last week. The front-month contract is now $20.74 off its Nymex record close of $145.18 reached July 3.

    The U.S. Energy Information Administration reported Wednesday that gasoline stocks posted a 2.8 million barrel build in the week ending July 18, far exceeding the 200,000 barrel increase forecast by analysts.

    Many traders saw this as a sign of eroding U.S. demand in the face of scalding energy prices.

    “For years people have never considered giving up their cars for their daily commute and we really are at that point,” said Matt Zeman, head of trading at LaSalle Futures Group in Chicago. “People are actually making an effort to consume less energy to make it easier on their pocket books.”

    However, larger than expected increases in product inventories were tempered by a larger than expected draw from crude stocks. Oil inventories fell by 1.6 million barrels, compared with an average analyst forecast of a 400,000 barrel draw.

    “The product and the crude numbers pretty much offset each other in the eyes of most of the market place,” said Peter Donovan, vice president at Vantage Trading.

    Over the last six weeks, the oil price rally was supercharged by production interruptions in Nigeria and diplomatic tensions between Iran and Israel. With these concerns fading, traders have been discounting the “fear premium,” and begun to consider whether the latest leg of the upswing was overblown.

    “We had a very explosive run up to the upside without really having true fundamental reasons,” said Peter Van Cleve, president at T.W. Energy Consulting.

    Front-month August reformulated gasoline blendstock, or RBOB, fell 11.26 cents, or 3.6%, to $3.0344 a gallon. August heating oil settled 12.81 cents, or 3.5%, lower at $3.5501 a gallon.

    —By Tatyana Shumsky,Dow Jones News

  137. 137
    apbd Says:

    Metaphor: ” Like a vampire on my neck taking a quart a day.”

  138. 138
    ddaley Says:

    ON CHK, 13,000 AUG 45 puts traded today, yesterdays OI @2400. 45 should be a bit of a floor, maybe a good time to consider buying, and may effect other NG stocks.
    Same strike for UNG puts, the 45’s. Almost there.

  139. 139
    zman Says:

    37 mm shares of CHK traded, down another 8%. This is overdone. I’ve seen this before and it stinks and its usually hard to see coming. The rapid drop this time is nearly unparalleled if you go back and look at the XLE or XNG or CHK on a monthly chart. Going to hit the showers early.

    Mark – agreed re my 5 year time frame, probably way too optimistic. I was thinking 5 years of construction time once they actually decide to do it.

  140. 140
    arodeen Says:

    It looks like everyone keeps swimming in TA for the moment. This is from an ETF newsletter from RedOption:

    Yesterday, we illustrated how UltraShort Oil & Gas ProShares (DUG) had pulled back to support of both its 10-day moving average (MA) and its intermediate-term uptrend line. As anticipated, the 10-day MA “did its thing” by prompting DUG to resume the direction of its relatively newly established uptrend. Although DUG performed as expected, we passed on “officially” buying it as a new ETF trade. Upon further analysis of the oil and oil service sector charts, we came to the conclusion that DUG was more likely to chop around in a range in the near-term, rather than actually resume its uptrend. Nevertheless, DUG presented a low-risk intraday trade for traders who followed our idea to buy yesterday’s open. The bounce off the 10-day MA is shown on the daily chart.

  141. 141
    ddaley Says:

    270,000 odd puts traded today for XLE,
    @67, 71, 74,77.

  142. 142
    bill Says:

    chk 47!!! 3 weeks ago 74!! down 27 bucks!!


  143. 143
    MMarkkk Says:

    Z- agree on construction. My usual answer is 10 years from today, no matter what “today” is!!! I said that 5 years ago and I’m still saying it.

    CHK: fundamentals make no sense. if you look at their earnings sensitivity to gas price for the next 2 to 3 years, they don’t change much. If it keeps going down I’ll have to start buying more and more. Guess you guys caught the ribbing Simpson gave Aubrey on the XTO conf call. Those guys are always giving each other a hard time. They usually get booked to give presentations at the same conferences and its the most entertaining two speeches! I really think there is a bit of “fun” in it. But with the dollars involved, someday it could get nasty.

  144. 144
    MMarkkk Says:

    CHK – meant to say “based on fundamentals, this makes no sense”

  145. 145
    arodeen Says:

    Are there any rumors around about M&A in E&P or Services? I know SII just bought W-H Energy sevices (Pathfinder directional’s parent co.). With all these companies beating earnings at righteously low prices I kind of expect anyone who was ready to jump on the opportunity. SLB looking to buy anyone?

  146. 146
    tater Says:

    CLR – look at the 15 and 60 min charts at the close. Jumped nicely. Why? Because all the daytraders were short today and had to buy to close their accounts so they don’t have to hold over-nite. Little things like that matter to short-term traders. If you don’t want to have to pay attention to that stuff, then make sure you use a longer holding period.

    The trades today mean absolutely nothing this coming Thanksgiving. Do you want to be holding CLR on Thanksgiving Day or not? That’s really the question you should be asking yourself.

  147. 147
    zman Says:

    Hear ya Mark, but fundamentals don’t matter right now. Didn’t ya get the memo. When do the Majors go back to buying gassy domestic E&P, not everything is expensive when you look at it on a proved potential basis and throw out the traditional read on reserves…kind of like BP the other day in the Woodford. Aubrey hated that play b/c he was late to the game and in the wrong spot. BP paid up anyway.,..and no one cares.

    Aro – SLB, HAL, and WFT continue to make A LOT of small tech company acquisitions. Not sure what the next big deal to go down will be but I’d bet its a public technically oriented name. Not really sure in what area, sure it won’t be seismic, could also be a driller bulking up.

  148. 148
    zman Says:

    Somebody give me a shout or throw a rock at me if you see NFX hit the tape. They are usually a bit late in the afternoon.


  149. 149
    MMarkkk Says:

    Z – you still have to make the economics work. Loading up big acquisition costs on top of some of these assets doom them to very low ROR’s full cycle.

    and in the M&A world, don’t like to see the “d” word as in dilution. Low P/E’s on many majors makes it tough to not dilute.

  150. 150
    zman Says:

    Mark – I hear ya but who says everything has to be accretive year one? So the Major’s currency is a bit depressed, how about cash and stock. Yes it would mean taking in a little less stock to the treasury each quarter but we’re talking about the potential to actually grow domestic production via a large location inventory. Of course, the last time I remember a Major growing U.S. production was ….

    Ok, so how about one of the large Cap E&P’s? APC has virtually no resource play exposure and they’ve swallowed big deals (2 at time) in the past, no reason they couldn’t take out an HK here, and suddenly have multi shale play exposure while punting the assets like HS acreage they don’t like to Aubrey…he’ll buy anything, lol.

  151. 151
    crysball Says:

    M&A folks should be be sharpening their knives to harvest some of the slaughter laying in the ‘Killing Fields’ ….it should not be too long before we start to see some offers being made.

  152. 152
    jsaun14 Says:

    Heck, we go red much further I may be able to take a player out with my equity line of credit that was based on an inflated appraisal.

    I like the sound of that…

  153. 153
    MMarkkk Says:

    Heck, if things go down any further I’ll take out my Discover Card…

  154. 154
    mahout Says:

    Back from vacation
    Got smacked by a truck
    Anybody get that number?
    120 something, I thought

    Impetuous me
    Bot the bottom,53
    Now going south of 48
    This action I truly hate

    Common perception,”a commodities bubble”
    A reality deception put us in trouble
    World gone crazy!
    No, always was anyway

    The pain is severe
    Right in the rear
    But always remember
    Could be good in December

    This stuff is cheap!
    Don’t matter a bit
    When the wind blows
    Take shelter and sit

    Pause and reflect now
    Time to be cool
    Let the wind blow
    Later, pick up jewels

  155. 155
    jsaun14 Says:

    MM- good idea. Cash back is kind of like an earnout.

  156. 156
    PackMan Says:

    Looks like the naked shorts migrated from the financials to energy names if you ask me.

    No other way to account for this level of selling … roach motel theory.

    Phantom shares overwhelm the pockets of the buyers, just like we saw in the financials IMO.

  157. 157
    VTZ Says:

    Except the financials are posting massive loss after massive loss and probably have more assets they need to write down.

    On the other hand, the energy sector has assets people give no value to and they have increasing value and don’t lose billions a year.

    Bottom line, the drops in the two are completely different.

  158. 158
    zman Says:

    NFX numbers out. Beat the top end of the guidance range on volumes.

    Revenues were $691 mm vs $538 expected and a $601 max est so that’s not at all bad.

    EPS was $1.06 (after backing out non-cash items) vs $0.98 expected,

    CFPS will have to hand calc and will add in a few minutes.

    Woodford looks very strong, Monument Butte same, year exit rates up on both since last commentary. Woodford has a slug of wells awaiting completion so should add meaningful to 3Q volumes which are seen up.

    Will have a full pre call update out in a few hours but so far, so good.

  159. 159
    zman Says:

    CFPS was above the top end of the range when you back out a one time cash payment to reset their 2009/2010 hedges. Analysts will let them off the hook for this. Excluding the payments gives you the true flavor of the quarter and that’s what analysts want to know, the cash generating run rate that the quarter gave from operations and not the impact of a financial transaction. On this basis, their CFPS was $3.02 which is a record and well above consensus of $2.60 (median) and above the top end of the range of $2.80. In other words, blow out numbers. Again, I’ll have a full piece out close to midnight.

  160. 160
    Bleemus Says:

    XTO XTO Energy announces pricing of 26 mln shares of common stock offering of $48.00 (48.24 -4.87)

    Co says proceeds of the offering are expected to fund recently announced property acquisitions and to repay indebtedness under its commercial paper program. XTO also has granted the underwriters a 30-day option to purchase up to 3,900,000 additional shares of its common stock solely to cover over-allotments, if any.

  161. 161
    bhr5491 Says:

    fwiw re: SemGroup and interesting comparison of crude fall to 2006 copper collapse (and rise)


  162. 162
    zman Says:

    ESV call at 10 CST, I’ll probably tune in for the Q&A. Recurring them being set here, international and Gomex jackup markets are stabilizing. ESV also increasing exposure to deepwater, order two new rigs.

  163. 163
    zman Says:

    Sam – I look like Kevin Bacon …after the crowd ran him over.

  164. 164
    zman Says:

    Reef – Congrats! Maybe Aubrey will do the same.

    Gas cover underway?

    DD – maybe it’s a sign.

  165. 165
    zman Says:

    Higher strikes all about to go away. Planning to reposition in near the money HK and CKH.

    Gary – when they flip the switch the other way the run up is going to be unreal too.

  166. 166
    zman Says:

    Bill – irrational despondency is in charge.

    NFX could not have put up a better quarter if they tried…down 8% now.

  167. 167
    zman Says:

    ZTRADE: Out CHK $75 calls for $0.05, down 99%. Group continues to get washed out and I plan to take what little is left of the higher strike calls taken earlier this month of the table while they still have bids.

  168. 168
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  169. 169
    How to buy twitter followers For Free Says:

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  170. 170
    letterman Jackets Says:

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