Wednesday – Oil Inventory + More Earnings


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Earnings Watch - EOG, BEXP
  4. Stocks We Care About Today
  5. Odds & Ends

Holdings Watch: The holdings wiki tab is updated.

  • EOG August $100 Calls added for $5.50. See earnings comment below.


Commodity Watch:

Crude Oil tumbled another $2.54 to close at $122.19 yesterday. A greenback rally and seemingly bearish comments from OPEC president combined to drive crude to a 7 week low. This morning crude is trading between flat and down a buck as traders await today's inventory report.

  • Nigeria Watch: From a local paper: An official of the Ministry of Energy confirmed last night that, “Nigeria at the moment cannot meet OPEC quota, because production has gone down below 1 million barrels per day.” Nigeria was thought to be approaching 2 mm bopd just last month. 
  • PEMEX Watch: PEMEX said yesterday that exports in the second quarter fell to 1.4 mm bopd, down 18% from year ago levels. They noted that Mexican production continues to fall with their largest field, Cantarell, now producing about 1 mm bopd, down from 2.1 mm bopd in 2004. Overall, Mexico's production fell 11% to 2.8 mm bopd from year ago levels; their current output target is 3 mm bopd.
  • Driver Watch: The Department of Transportation said U.S. drivers drove 2.4% less in the first five months of 2008 than they did in the comparable period a year ago.

EIA Inventory Preview (from the Bloomberg survey)

ZComment: I think gasoline demand this week and next and the most important numbers in the EIA's report. The knee jerk reaction will come from the size of the build in gasoline inventories which is a proxy for demand, before traders delve into the hey get to demand. I would bet we see some slight pick up in demand in the next week or two as falling prices inspire people to go and fill up their tanks at sub $4 levels. On the oil inventory front, any drop in oil inventories at this point is likely to be overlooked or written off as a slump in imports. Demand from refiners is likely to continue to fall as they peel back utilization so we could see more builds in crude if we have any sort of bounce in those imports. One last note, there is the possibility that we will see a much lower import number this week, the after effect of disruptions in shipping caused by Hurricane Dolly, but again, I think an larger than expected draw on crude will likely be overshadowed by the gasoline numbers.

Natural Gas fell in the outer months as the August contract closed out slightly positive on the session. The September contract fell 6 cents to close the day at $9.13. This morning gas is trading of $0.15 to $0.25 to just under $9.

  • Fresh Production Data From the EIA Shows Slight Uptick in Natural Gas Volumes In May. We'll have a fresh look at more production data later today as the EIA's natural gas monthly was just published. Volumes in May, the most recent month available rose to 57.6 Bcfgpd, up form 57.4 Bcfgpd in April. On a year over year basis this comes to growth of 4.4 Bcfgpd or 8%, which about where growth has been tracking all year, aside from a spike in February that looks like bad data on the part of the government.

Earnings Watch:

EOG Beats Estimates

  • The 2Q08 Numbers:
    • Production: 174.8 Bcfe, up 2.5% sequentially and 12% YoY; there was no official quarterly guidance in place but this quarter does nothing to distract from their annual production target.
    • EPS of $2.52 (ex itmes)  vs $2.38 expected
    • CFPS of $5.25 vs $4.97 expected (range was $4.36 to $5.63)
    • Costs - operating expense of $0.79 per Mcfe was in line with year ago levels and last quarter is more than competitive with their peers. When you look at their cash field costs (LOE + transportation +  G&A + production taxes) you can see inflation creeping in with YoY unit costs up 19%. Since this inflation is tied to the non-operating side it is largely price related and is offset by the higher price realizations.


  • Guidance: Nothing new, they stuck with their 15% organic growth target for 2008.
  • Operational Update: Not a lot here either; expect a lot more on the call. Here are the high points of their press release high points:
    •  U.S. natural gas sales were up 19% YoY, all organic, largely driven by continued strong performance in the Barnett.
    • In the Barnett they continue to see better wells as they progress, announcing June IP's on 5 wells that ranged from 6.1 to 9.2 MMcfepd, much larger than your typical Barnett well.
    • U.S. crude volumes up 51% YoY.... largely Bakken on the oil side, higher NGL cut from the Barnett
    • In the Bakken they have 8 rigs running and released IPs on three recent wells, one of which is a company record from the play at 3,744 bopd so the wells continue to improve as they hone the completion methodology and zero in on what seems to be the best part of the play or at least one of the play's sweeter sweet spots.
    • British Columbia Horn River Basin - drilled and completed 2 wells so far in this play that was first brought to light in February as a potential 6 Tcfe resource. Look for more detail on these wells on the conference call.
  • Low debt gets lower. EOG has stated in the past their desire to go debt free. At the end of the quarter they were at 12% net debt to total cap which is at the low end of the peer group as the continue to reduce this percentage by 1 to 2 points per quarter.
  • In a nutshell: Good quarter, reiterated growth rate, need some more meat from an operational standpoint but everything appears to be on track.
  • Conference Call: Today, 9 EST.

BEXP Beats Estimates  / Announces Nice Bakken Results.

  • The 2Q08 Numbers: 
    • Production: 30.2 MMcfepd, down sequentially and in line with the bottom end of the previous guidance range of 30 to 34. They had previously stated 2 wells would be offline for part of the second quarter and a combined 5 MMcfepd net rate, this makes a difference.
    • Reported revenue of $35.5 million vs $33 mm Consensus
    • Costs: 
      • LOE/Mcfe: at $0.91 / Mcfe, up from $0.80 in the year ago quarter as production volumes fell. I know in the PR they tout cost control but unless you measure it on a per unit basis, talking about the dollar volume drop is meaningless if you don't know that production fell. I'm not saying its dishonest but its bending the true picture.
    • EPS of $0.17 (ex items) vs  $0.15 expected.
    • CFPS of $0.57 vs $0.52 expected.
  • Guidance: 3Q production seen at 30 to 34MMcfepd; 35 to 44 MMcfepd.
  • Operational Update:
    • In the Bakken:
      • they announced their biggest well to date, the Carkuff 22-1H in the Ross area, with an IP of 1,110 bopd (55% NRI to them yields 3.6 MMcfepd net to them or about 10% of total current company production, at least for the first few days before it begins to decline.
      • another 3 wells with a combined IP or flowing rate of just over 1,250 boepd, or 5.2 MMcfepd net to the company. So you can see how they get to that 4Q ramp.
      • they also have a number of near Parshall or in Parshall field wells, some with EOG as operator that will be completed in the third quarter
      • they're adding a rig to get to 2 operated rigs in the play, the first rig has been punching one well per month.
    • South Louisiana:
      • 4 wells expected to come on line in the 3rd and 4th quarters, one of which has tested 15.4 MMcfpd gross, (or 6 MMcfepd net to the company - this well would be equivalent to about 20% of current total company production volumes and is expected to produce at 15 to 20 MMcfgpd when it comes on in August.
  • Conference call: today at  10 EST.

Odds & Ends

Analyst Watch: Lehman cuts (VLO) price target from $40 to $35.

185 Responses to “Wednesday – Oil Inventory + More Earnings”

  1. 1
    zman Says:

    EOG call in 5 minutes:


  2. 2
    Sambone Says:

    7:02 am EST

    Crude Down, Awaits US Supply Data

    By Lananh Nguyen

    LONDON — Crude oil futures fell in London Wednesday as participants awaited the release of a crucial U.S. weekly oil supply snapshot.

    “All eyes will be on the…report today and especially data on crude products, with investors looking for more signs of waning fuel demand in the U.S.,” said Andrey Kryuchenkov at Sucden Research in London.

    At 1045 GMT, the front-month September Brent contract on London’s ICE futures exchange was down $0.39 at $122.32 a barrel, but low trading volumes earlier caused prices to seesaw between positive and negative territory.

    The front-month September contract on the New York Mercantile Exchange was trading $0.50 lower at $121.69 a barrel.

    The ICE’s gasoil contract for August delivery was down $2 at $1,136.50 a metric ton, while Nymex gasoline for August delivery was down 117 points at 299.60 cents a gallon.

    Participants looked forward to U.S. Energy Information Administration data, due at 1435 GMT, to determine if this week’s sharp selloff would continue.

    “Today could well be the key to define the next breakout in the price of oil, the U.S. inventory data will determine whether oil has the legs to test sub-$120 a barrel or stage a rebound,” said Rob Laughlin, a broker at MF Global in London.

    Analysts surveyed by Dow Jones Newswires forecast the U.S. figures would show a 1.1 million barrel decline in crude oil inventories, a 200,000 barrel rise in gasoline stocks and a 1.8 million barrel rise distillate in inventories.

    On Tuesday, oil prices fell to their lowest since May 6 as fears over oil demand destruction weighed on market sentiment.

    “There is not a great appetite for oil at the moment and the continuing bearish technical picture should suggest a further test of support levels,” said Glen Ward, an energy broker at ODL Securities in London.

    Negative technical chart patterns are beginning to “paint an increasingly bleak outlook,” for prices, said technical analysts at Barclays Capital investment bank.

    The Barclays analysts suggested prices could soon test lower toward the psychologically significant $120 a barrel level, pressured by lower open interest and intraday gains in the U.S. dollar.

    Tuesday’s “outside day” — when one day’s trading range exceeds that of the previous day — and lower settlement prices were also taken as a bearish signal by traders.

    Despite an 18% decline in prices from their all-time highs in mid-July, the market continued to garner some fundamental support.

    “We believe that prices will soon find a floor, and show renewed strength as we progress through the third quarter,” said Mike Wittner, global head of oil research at Societe General investment bank in London.

    “Though clearly there is downside risk…there are still some strong bullish factors,” he said, including supply threats in Nigeria, geopolitics in Iran, the Atlantic hurricane season, tight OPEC (Organization of Petroleum Exporting Countries) spare capacity, and solid growth from emerging economies.

    —By Lananh Nguyen, Dow Jones Newswires

  3. 3
    Sambone Says:

    COSWF bumped their payout to C$1.25 from C$1.00 per quarter.

  4. 4
    zman Says:

    EOG CC Notes 1

    reiterating 2009 and 2010 growth rates of 13 to 15%,

    more oily as they go forward. expect to be 18% liquids in 2008, 23% by 2010.

    Bakken: 320,000 net acres, 7 rigs core, 1 rig on periphery,

    1,732 bopd average IP ytd in the Bakken.

    Believe Bakken – Parshall is the core, 850,000 barrel oil equivalent gross…that’s a big number. Had thought close to 450,000 barrels.

    Extension area – 250,000 to 450,000 barrel per well. Excited about extending beyond the core due to recent extensional drilling.

    Drill 80 wells this year, 100 next year

  5. 5
    1520sbroad Says:

    I get the CitiSmithBarney technical analysis report daily – this morning they cite a “candlestick tweezer bottom” in UNG. Also say about NG “This market is very oversold and with the rejection of the lows we could see a rebound. If the decline continues, however, the next risk levels could be 41.50 and 37-35”

    Any other TA thoughts on UNG or NG in general?

  6. 6
    zman Says:

    EOG CC Notes 2

    British Columbia – pleased with initial flow rates.

    more testing need.

    says capacity will be limited to 25 to 50 mm/d until infrastructure is built out in 2011.

    In the Barnett:
    Gas curtailment in Johnson county due to high pressure, also bottlenecks for liquids stripping. Will sell less gas than capacity in 3q, should have takeaway fixed by 4Q.

    Hill County (just south of Johnson): wells coming in at 1.5 Bcfe .

    Barnett Oil Play – won’t give details, no peer company data b/c EOG controls almost all of it. He points out 2 private companies are making good wells here and they are very excited.

  7. 7
    zman Says:

    EOG CC Notes 3

    Uinta Basin – 8 rigs, excellent results

    Haynesville – 100,000 net acres, drilling their first horizontal now.

    Marcellus – 220,000 net acres, very slow to develop, some results by year end. Says Marcellus won’t contribute to U.S. gas macro picture until 2012 at best.

    China – tight gas sands, current producing 8 mm/d net. Low per sand, like S. Tx Wilcox. They are going after it horizontally, could be worth 1 Tcf net, see it as a stair step to further opportunities in a energy poor country.

  8. 8
    zman Says:

    EOG CC Notes 4:

    Cash Flow sensitivity to change in commodity price. Takes into account hedges.

    A 10 cent change in gas = $20 mm change in CF.
    A $1 change = $10 mm
    They are hedged on about 1/3 of 2009 gas at $9.70.

    Gas Macro thoughts from Mark Papa
    In a nutshell: bullish. Think storage will be 3.3 to 3.4 Tcf.

    They see total Barnett peaking at 5 Bcfgpd in 2009 and plateauing for a couple of years. This means other plays will have to come up to continue the recent growth in nat gas supply.

    Q&A starting.

  9. 9
    zman Says:

    EOG Q&A

    Regarding the oil shale plays, they would not moderate activity until oil falls to $60/barrel.

    EOG believes Johnson county will be pretty well drilled up by 2009. At that point the major thrust goes away from the Barnett and it ceases to be a driver for gas supply growth.

  10. 10
    zman Says:

    EOG trading wild after a comment that the TFS is not prospective under their acreage in the Parshall and that it is “spotty” throughout the basin.

  11. 11
    arodeen Says:

    Z (and other experienced option traders): What are your thoughts on stops on options?

  12. 12
    Sambone Says:

    9:37 am EST

    Nymex Crude Declines Ahead Of US Oil Stock Data

    By Carolyn Cui

    NEW YORK — Crude oil futures are trading marginally lower, as traders are awaiting U.S. oil and product inventory data expected later Wednesday.

    Light, sweet crude for September delivery traded 49 cents lower, or 0.4%, at $121.70 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 36 cents lower at $122.35.

    Market participants are looking forward to U.S. Energy Information Administration data, due at 10:35 a.m. EDT, to determine if Tuesday’s selloff would continue.

    Analysts anticipate a 1.1 million-barrel drop in oil inventories, but a 200,000-barrel increase in gasoline stockpiles and a 1.8 million-barrel increase in heating oil inventories for the week ended July 25, according to a Dow Jones Newswires survey.

    The oil market has closely tracked product inventories over the last few weeks, as gasoline stocks have swelled to unseasonably high levels. Traders have attributed much of the drop from the July 11 intraday high of $147.27 a barrel to concerns about the health of U.S. oil demand.

    It’s “the summer driving season that wasn’t,” wrote Dan Pickering, with Tudor Pickering Holt in Houston. “At this point in the summer, gasoline/distillate should be drawing 1-2 million barrels a week…instead, prices are up and demand is down. The oil market is fragile, so lots of attention (will be) paid to today’s number.”

    Further increases in product inventories will confirm that U.S. demand is suffering, analysts said.

    “We’re just waiting for the numbers,” said Ray Carbone, president of Paramount Options Inc. “Nobody wants to step up to sweep the market” before further indications of energy supply and demand emerge.

    Front-month August reformulated gasoline blendstock, or RBOB, recently traded down 1.76 cents, or 0.59%, at $2.9901 a gallon. August heating oil traded 1.05 cents lower, or 0.3%, at $3.4617 a gallon.

    —By Carolyn Cui,

  13. 13
    zman Says:

    Arodeen – I don’t use hard stops. In my experience, many of my best options in terms of ultimate payoff, fall substantially at some period during my holding period. In a 2 steps forward and 1 step back type market this has served me well. In this market it is death as there is little logic to the moves and not a lot of willingness (at least during the entire month of July) to bottom fish what are very oversold names. Stops would have saved me quite a bit of cash this month but normally they would have shaken me out of my best winners too early. I find the best protection is to look at all your positions from a portfolio management sense. I don’t try to win on all of them and I keep a safety net of stocks and cash for extra firepower when needed.

  14. 14
    Bleemus Says:

    I never trade without stops on options. Typically 25-40% loss setting. As a result I am out of all the Aug. bullish call energy plays sitting on a bunch of cash waiting for the downdraft to end. Stops keep me in the game making my avg winner much better than my losers. With IV where it is I am more focused on selling credit call spreads etc.

  15. 15
    zman Says:

    Absolutely wild trading in the group, stocks just all over the place, they will definitely move with oil today so a positive set of numbers (for oil) would provide a strong pop and vice versa today.

    oil off a buck plus to 121 now with 30 minutes to go to inventories.

    NG off another 25 to 30 cents.

  16. 16
    el_vogel Says:

    you can also buy puts with your calls, so that when the stock does take a poop you can cash in on it…

  17. 17
    tater Says:

    re #5 1520sbroad,

    Not sure why somebody would call candles 3 days apart a “tweezer bottom” (unless they are pointing to action on a minute chart) but whatever you want to call it, the general TA idea is that the action from yesterday was a test of the lows of July 24 which was a test of the lows of March 20.

    Does that mean it’s a bottom? Who knows. Does it mean it’s an area to watch the action for significance? You bet. Take your clues from what price does at this juncture. No need to predict, there’s enough room above (or below) to still make money.

  18. 18
    uop Says:

    good STOP strategy:

    you use stop loss ?

    if it is on a LONG, I understand,

    if you have a short which is running up, what stop can I establish at 20 % to buyback ?

    Txs for input.

  19. 19
    arodeen Says:

    Thanks to both for both sides. I haven’t used stops on options before. And while I see the drawbacks in previous months, lately I’m seeing the potential pros. And I keep seeing Z’s comment from a few weeks ago: “It won’t always be this easy.” It’s this kind of candor that sets this site apart. Thanks again.

  20. 20
    zman Says:

    Hedge for the hour would be VLO and TSO calls … if gas inventories build more than expected and crude prices tank they should zoom.

  21. 21
    zman Says:

    Aro – thanks for the candor sets the site apart comment. Your going to see a lot more candor in the form of a swath of losses on positions very soon if this fails to turn. Even if it does turn, your going to see me punt a lot of losers in the near term.

  22. 22
    Sambone Says:

    Ha, now we got two groups in Nigeria fighting each other and the govt.


  23. 23
    zman Says:

    Sam – saw that, Nigeria may be the next Somalia…looks to be descending into chaos and lawlessness. I have not seen the 1 mm bopd comment anywhere but on one site run out of Nigeria but if they are back to those levels it is a lot lower than the general perception.

  24. 24
    Bleemus Says:

    I use thinkorswim and, since they are very option oriented, it is simple to set stops on both long and short positions with their interface. I do this strictly on directional long call or put plays. Multiple leg strategies like butterflies, condors etc. I just set alerts for price levels where adjustments would be needed.

    Be aware that stops on thinly traded options can see significant slippage on bid/ask. I will not use stops on thin stuff and just set alerts instead and then try to work the spread a bit. Since Z trades stuff that is pretty liquid you are in better shape for implementing some sort of stop strategy if you wish to do so.

  25. 25
    zman Says:

    BEXP call starting. Somebody throw a rock at me close to inventories (10:35 est) if I have not mentioned them five minute before that.

  26. 26
    uop Says:



    I want to get out of short positions when a stock runs up and the short runs up too, I want a stop at 20 %, I do not know what type it is, if I do a buy to close at 1.2, it will trade immediately, is it a stop loss at 1.2 ?

  27. 27
    zman Says:

    BEXP CC Notes 1

    See 228 mm barrels reserve potential on their land in the Bakken. Double that if the TFS works. They sound more positive on the TFS than EOG as being ubiquitous. I’d trust EOG on that one.

    thinks reserves are 400 to 1mm barrels per well which sounds ok with EOG’s thoughts.

    in the outlying area, they think reserves are higher than previously stated in the Ross area (Mountrail county)

    Stocks still trading schizophrenically this morning. Think the moves are meaningless before inventories and they will likely be all red or all green shortly after the numbers

  28. 28
    bill Says:

    Bulker stocks are doing good today as we move into earnings season. Most if not all will report good results

    Players are free,ocnf,drys,exm,gnk,egle,nm.

    Free reports tomorrow and im hoping this one will help offset some of my energy losses. They will have more operating days at higher rates and they will hit the cover off the ball imho.

    ocnf goes ex tomorrow 77 cents for a 20 stock and has a 15 % yield

  29. 29
    Dman Says:

    Morning Z,

    OIH up 1.5%. Anyone out banging the table or it just decided to go green on its own?

    NBE down again. Yeesh. Now at 9.1 x ’09 EPS.

    Some serious long-term opportunities here.

  30. 30
    Dman Says:

    Doh! should have been NBR above

  31. 31
    Sambone Says:

    Off subject – For those who like income.

    “Ok, I’m putting in orders for WB pr D at $15.00 GTC. 7.85% coupon at $25.00 par or $1.96 per share. Callable 12/15/12. Cumulative and pays INT. Stock went to a 52 week low of $12.00 on July 15th. I believe we will have another capitulation between now and the end of the year.

    Buy at $15.00 with a $1.96 payout = 13% yield. If called in 5 years at par, that is a 66% return or 13% annualitized. That would be a total return of 26% per year.

    If the tax laws change in 2011 back to the dark days, that would be a 8.71% after tax yield at the Fed tax bracket of 33% (Not counting State taxes).

    The other names are JPM pr Z and C pr G. They did not go down as much on July 15th. If you put an order in for JPM pr Z, it should be at $15.00. This includes C pr G. Remember, these didn’t go down that far on July 15th.”

  32. 32
    zman Says:

    Late in the day I am likely to take some August or September calls in SWN, overly beat down, will say things about the Fayetteville that should be perceived as positive.

    NBR also trading w/o reason. Rig count soaring can’t be bad for them. Thinking the rig count won’t move any higher due to this little drop (in the big scheme of things it is) in commodity prices is not wise. Capex by E&Ps and Majors already allocated and plans are not likely to be pulled unless oil falls by half (see EOG comment above).

    CLR likely to be one that soars if oil numbers are positive. BEXP talking about a number of CLR wells drilling in the TFS near their acreage. One of the oldest sayings in the oil business is “you drill where the oil is” which in BEXP’s case means you follow in the footsteps of the giants like EOG and CLR in the Bakken which is what they are doing and how they are relating the story.

  33. 33
    Sambone Says:

    This might help the pain in the oil patch.


  34. 34
    Bleemus Says:

    Yes, on most platforms it would be a “stop” or “stop loss” order. This would fire a market order to close position at the price level you chose.

    Another way is using an order that is contingent upon a price level in the underlying. Say you have XYZ 50 call options and you have determined that XYZ underlying has significant suppport at 47. You can set order to close the option position when the XYZ stock underlying has violated this critical support zone.

  35. 35
    bill Says:

    gas down 3.5

  36. 36
    zman Says:

    crude: down 0.1 mm barrels
    gasoline: DOWN 3.5 mm barrels
    distillates: up 2.5

    the big down on gasoline is a shocker and should send everything green.

  37. 37
    bill Says:

    distiliate up 2.4

  38. 38
    zman Says:

    gasoline demand increased from 9.3 to 9.468 mm bpd. Imports stayed at the 1 mm bpd mark. This is the first uptick in quite some time and goes to show you how quickly the consumer ran to the pump when gasoline fell through $4.


  39. 39
    zman Says:

    Oil looking to go positive on the gasoline numbers. Like I said before, all the Wednesday morning trading is meaningless. Now, I’m not running in to buy because there has been a trend of selling even bullish news of late and crude can still sell off here and such a reversal would absolutely kill the stocks.

  40. 40
    Dman Says:

    Demand destruction!
    Demand destruction!
    Demand … Doh!!

  41. 41
    1520sbroad Says:

    Tater –
    re #5 and #17 –
    I had never heard of a tweezer bottom. Like you said the chart looked to me like a test of lows from back in mid march. I hold of these lows looks pretty important. I didn’t know if there was some significance to a tweezer.

    Z – #32 – agree on SWN. I had some calls i had sold against my common position that i bought back to stay naked thru their report and hopefully resell after.

  42. 42
    zman Says:

    correction to #38, gasoline imports show off slightly to 965,000 bpd whihc is off 180,000 bpd from the previous week. Multiply that by 7 and you get 1.2 mm barrels of the 3.5 mm barrel change number. The rest would be higher consumption and lower production (also down about 165,000 bpd)

  43. 43
    Sambone Says:

    #38, one of my friends drives 40 miles each way to work. She now takes the bus, but sometimes she still drives. She came in and told me that when she drives she puts the cruise control on 60 mph. 1 month ago nobody was passing her on the interstate. She drove again today and everybody was passing her doing 70 mph. The consumer sees gas below $4.00 and they drive faster. Wow, only in America!

  44. 44
    zman Says:

    Taking a picture of my screen now and going to the beach.

    BEXP working now! Nothing they said though. I think TSO is going to be bought by me shortly, W. Coast finished gasoline production stayed up and stocks fell pretty hard there.

  45. 45
    Brian08 Says:

    HAHA Sam, priceless!!!

  46. 46
    zman Says:

    Oil back into the red, I’m not selling and I’m not buying yet. Would like to see a green close here on gasoline and crude.

    Dman – ha, ha. They should call it demand constriction, not destruction. I have a relative who shall go un named but she’s in the younger generation and gas prices don’t affect her since she always just puts $10 in the tank, no matter the price. This is the kind of thinking we need to get gasoline consumption up to 10 mm bpd, lol.

    Sam – thanks for the laugh. I’ve been doing my part by letting the air out of the tires on all the prius and vespas in my area.

  47. 47
    Sambone Says:

    Weather – Nothing much to report. Kinda dull to be honest. Watching blob in GOM at 93W, 27N. Also watching 83W, 12N and 40W, 10N. Not expecting much at this time.

  48. 48
    Dman Says:

    I think the psycholgy of the pump is that if prices are rising every day, and rising a lot, people freak out because they can’t even budget for a week. But if prices stabilise then people can simply get used to them, make adjustments eleswhere etc. If prices actually fall then it’s back to Happy Motoring.

  49. 49
    Bleemus Says:

    NG is popping a bit. Can’t find any news though. Perhaps people realized how hot it is out there?

  50. 50
    Sambone Says:

    MEXICO CITY (Dow Jones)–Mexican state oil firm Petroleos Mexicanos plans to
    close 2008 with oil output stabilized at 2.8 million barrels a day, Pemex
    planning director Vinicio Suro said Wednesday during a conference call.
    Pemex, which controls all Mexican oil production, pumped 2.8 million barrels a
    day in the second quarter of this year, down 11.5% from the year-ago period.
    For the first six months of the year, Pemex pumped an average of 2.86 million
    barrels a day.
    Suro said output in the second quarter suffered from a pipeline outage that
    has been repaired and that the company will carry out well maintenance and
    repair programs during the second half of this year to slow the rate of decline
    at some of the country’s main fields.
    Pemex will also carry out an enhanced recovery program over the next year that
    involves new fluid injection techniques. Pemex mainly injects nitrogen to help
    increase reservoir pressure.
    At Cantarell, the country’s main oil field where output has fallen more than
    30% in the past year, Suro said Pemex plans to close the year with 1 million
    barrels a day in output. In June, Pemex pumped 1.05 million barrels a day at
    Cantarell, according to energy ministry data.
    Pemex plans to complete 10 development wells at Cantarell in the second half
    of this year.

    -By Peter Millard; Dow Jones Newswires

    Dow Jones Newswires
    07-30-08 1053ET

  51. 51
    tater Says:


    I just have an underlying mistrust whenever anybody puts out analysis based on terms of art (lawyers come to mind). Why not use language we can all understand? (Because then we could all understand it?)
    Anyway, candlestick analysis is nothing more than a way to look at a chart in one time frame, say the daily chart, and have a quick understanding of what is going on in the action on the lower time frame chart, in this case the 60 minute chart.
    It’s not magic, and I really hate it when analysts present it as such. A tweezers bottom is exactly what you see. A retest of a low.

  52. 52
    Sambone Says:

    Nigeria below 1 million B/D


  53. 53
    Dman Says:

    Frankly, a tweezer bottom sounds painful to me. Sorry, couldn’t resist 🙂

  54. 54
    1520sbroad Says:

    Tater –
    #51 – i couldn’t agree more on language choice. I don’t know enough about TA so i appreciate all input.

  55. 55
    zman Says:

    thanks Sam – Cantarell field declines are out of control. Nothing to replace it soon although NBR is sending quite a few rigs down south to try in another new land field.

    Re the Nigeria link, yeah, that’s where I found it. Don’t see anyone else to confirm but that would be big news.

    Yes, I too have been tweezered. Ouch.

  56. 56
    zman Says:

    BEXP holding a school on the Bakken and TFS – sounds very positive …will download the transcript and go over a little later.

    SLB – nice recovery. Hard to see what is holding NBR and HAL out of the green.

    Natural gas down 5 cents now with oil up nearly a buck.

  57. 57
    Dman Says:

    NOV & CAM up on good earnings yesterday & today respectively. NOV bumping up against short-term declining channel.

  58. 58
    apbd Says:

    Whenever I see a ” tweezer ” chart, I just figure ” pluck it!” Ooops.

  59. 59
    tater Says:

    Don’t want to sound like I think I know everything, I absolutely do not. Just want to put out the note of caution that some of this snap-back rally in O&G might be due to short covering.

    These types of rallies always get started from short covering, but it’s the follow-through buying that gives it legs. The question is how badly do the traders who bought at higher prices in the last couple of weeks want to be rescued by a chance to sell? If they don’t, no big deal, the rally keeps going.

    But if they do, then we have over-head resistance. My 2 cents. Good luck today

  60. 60
    zman Says:

    Tater – yep, you don’t see me buying anything in here…waiting for a green close on the commodities. I think from a trading perspective we need to trade up slightly and more sideways for a few days. Though most things are green, these little bounces do not show a lot of conviction. Oil could still go lower by end of day.

    BEXP call just ended. Pretty much a love in later in the call on the TFS. Will go back over notes.

    Good to see the next big cap E&P to report, APA, having a very strong day.

    Missed my entry on SWN and I’m not concerned about it.

    Have no idea what is grounding HAL, anyone see a broker comment there.

  61. 61
    zman Says:

    Natixis upgrades CLR to buy

    RBC reaffirms hold on BEXP.

    Lehman reaffirms rating of hold on VLO to go along with their price target cut today. That one is starting to work well here.

  62. 62
    Bleemus Says:

    Anybody else here watch the show “Black Gold” which I think is on Discovery Channel? Really get to see how tough a job it is to be a roughneck.

  63. 63
    Popeye Says:

    Love that show and the education Bleemus

  64. 64
    antrimshale74 Says:

    Z – There seems to be a problem printing the daily posts.

  65. 65
    zman Says:

    ZTRADE: Added HAL $45 August calls for $1.12. Too cheap in my book, still down on an across the board green energy day, may be a quick trade here. Continuing to hold the August $50s and will be quick to take losses there on a better day.

  66. 66
    sane Says:


    Crude Down 2.1M
    Gasoline Down 3.8M
    Distillates Down 587K

  67. 67
    Fiveanddimer Says:

    Z – WLL reports amc today. Any thoughts on what to expect? I see the stock is particularly strong today.

  68. 68
    Sambone Says:

    11:18 am EST

    Nymex Crude Rising On Gasoline Inventories Draw

    By Brian Baskin

    NEW YORK — Crude oil futures traded higher on a surprise drop in U.S. gasoline inventories.

    Light, sweet crude for September delivery traded $1.11, or 0.9%, higher at $123.30 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 63 cents, or 0.5%, higher at $123.34 a barrel.

    The U.S. Energy Information Administration reported a 3.5 million barrel drop in gasoline inventories for the week ending July 25, compared with a 200,000 barrel build expected by analysts. Oil inventories fell by 100,000 barrels, less than the consensus forecast of a 1.1 million barrel drop. Distillate inventories, which include heating oil and diesel, grew by 2.4 million barrels, exceeding the 1.8 million barrel build forecast.

    The oil market was primed for a build in gasoline stocks, after four straight weeks of swelling inventories. Oil prices have fallen by more than $20 from the intraday record high of $147.27 a barrel set July 11, largely on concerns about U.S. gasoline demand.

    The drawdown in gasoline stocks came as a surprise to the market and gave a boost to gasoline futures, which pulled oil prices higher.

    “All the talk has been that the demand has been reduced,” said Peter Donovan, vice president at Vantage Trading, so the numbers have “invoked some response from the market.”

    “The market is looking for opportunities to bounce back. It has been two weeks since the pullback in crude prices,” Donovan said.

    But prices have ebbed a little bit, as traders say that it will take more than one gasoline inventory draw to change the market’s pessimistic take on U.S. demand.

    “We don’t expect gains to be maintained,” Ritterbusch said, adding that the market is likely to turn negative before the end of the day.

    Front-month August reformulated gasoline blendstock, or RBOB, recently traded up 4.57 cents, or 1.5%, at $3.0534 a gallon. August heating oil traded 76 points, or 0.2%, lower at $3.4646 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  69. 69
    zman Says:

    Five – it has been pretty weak and I thought about taking some but the options were pretty premium priced. I think if they do well CLR will run back up, retracing most of its losses from the earnings release 2 days ago. Nothing was wrong with CLR’s earnings other than the fact that they produce oil. While WLL is cheaper, they have a bit of a hot money feel to them which makes trading a little tricky. BEXP will likely get a boost on a WLL beat as well.

    Antrim – I ran across that last night and we are working on it. Hopefully solved by the weekend.

  70. 70
    Sambone Says:

    Uncle Phil/Mr. Right


  71. 71
    zman Says:

    Thanks Sane, good to see gasoline from API confirming the big draw shown by EIA. That makes today’s numbers a little more bullish on gasoline and on demand reconstruction in my way of thinking.

  72. 72
    Dman Says:

    On track for a high volume day in NOV

  73. 73
    zman Says:

    Dman – hear ya re NOV, said the other day I was going to avoid playing it so it would probably go up….and there ya go. Have not read the transcript from the call yet, anything earth shaking.

  74. 74
    zman Says:

    Oil solidly higher now, up $1.40 and climbing back towards $124. Could be short covering time.

  75. 75
    zman Says:

    Does anyone see any Street research or rating change or price target change on HAL today. Looks like it goes green with the rest of the group but there is amazing reluctance given the peer moves.

  76. 76
    VTZ Says:

    Re NOV – RBC has them with 114 PT at above average risk rating today (apologies if someone mentioned it but I didn’t see)

  77. 77
    kaman Says:

    Z- Any quick shoot-from-the-hip thoughts on PTEN (numbers tomorrow?)…thanks K

  78. 78
    zman Says:

    Re PTEN – drillers trading a little warily right now, see NBR laboring to be up a percent. There is some thought that some Chinese rigs will hit the market and that US rigs sent abroad to places like Russia will be coming back and that they could over shoot numbers. I think that is unlikely given the budgets I’ve seen and the numbers of land rigs that left. I think PTEN should do well on outlook, don’t know about their trailing numbers but that is not important. I like UNT better as they have E&P sub too and have taken a beating and a half in the last month for little reason (and if you are concerned about an E&P’s ability to get the rigs, you shouldn’t be in their case since they drill with their own equipment)…. and of course I still think NBR is a good bet. But I have nothing against PTEN, just not a lot of company specific insight.

  79. 79
    zman Says:

    Tater – do you have TA on HAL on your link?

  80. 80
    zman Says:

    NG looking to go positive. Would be bad for sentiment if we see a reversal on crude back to red now with an hour and a half to go. Crude currently up $2.75 approaching $125, looks like covering.

  81. 81
    md Says:

    May Imports DN 1.8YOY .
    Canada up slightly YOY for 3rd month. Mexico exports much lower. LNG was DN 2BCFPD YOY.
    Consumption was up 2.8BCFPD. Could it be related to higher HDD.
    Supply was up as you mentioned which is the real story.
    Total Supply – consumption DN .5BCFPD

    Mark Pappas forecast of 3.3 TCF injection season seems about right. It comes down to hurricane season.

    Going forward into 09 and onwards mention has been made numerous times today and earlier that the initial production years are the best and then it drops. What kind of daily domestic supply can you expect in the following years based on avg. of 56BCF dry NG production so far in 08.

  82. 82
    Sambone Says:

    Hmmmm, maybe we should invest in asphalt?


  83. 83
    zman Says:

    MD – I’d expect 2009 to see somewhere on the order of 4 to 6% growth. Directionality on Gomex is not great and we may have seen the peak with I-hub coming on earlier this year for a bit, new discoveries are oilier with less gas although there are exceptions.

    I’ve been saying 3.2 to 3.3 Tcf for a bit in my Thursday review table…depends on your assumptions on average refill. We should be refilling more than last year, no two ways about it. So far, ytd not much difference.

    On demand, I think the early price increase in the year curtailed (“destroyed”) some industrial consumption for a time, that’s probably now coming back as they react pretty quickly to prices.

    We are also gaining market share in electricity so more heat = more gas consumption. Still, I would have expected the injections to be running bigger.

    On exports to Mexico, they too are price sensitive. The long term trend is up and they have built the cross border industrial demand and gas fired generation to take gas whenever it is economic for them. I think there is some pain north of $10 for that market but I would expect that they will need to continue to buy US gas as Pemex has no alternative for them.

  84. 84
    zman Says:

    Sam re Asphalt – ALJ and HOC.

  85. 85
    zman Says:

    …are the most leveraged that I know of. Other bigger guys produce more but don’t have the earnings leverage to the play.

  86. 86
    ram Says:

    The U.S. is a net exporter of NG?

  87. 87
    kaman Says:

    Z- Thanks for PTEN remarks, holding NBR with you.

    Sam: re: asphalt, see recent WSJ article…was behind my inquiry last week on NS.

  88. 88
    VTZ Says:

    Z – I haven’t heard you mention PQ at all lately… what do you expect to hear from them in their CC?

  89. 89
    Nicky Says:

    Afternoon all. There must be happiness abounding on here this afternoon!

  90. 90
    zman Says:

    Ram – no, net importer of natural gas.

    We take in between 0.5 and 3.5 Bcfgpd in LNG depending on the time of year and foreign market pricing (which is high right now) so we are taking in just under 1 Bcfgpd at a time when imports are usually strong.

    On the piped volumes we take in between 7.5 and 12 Bcfgpd (or there abouts). Lately, it has been low, around 8, as Canadian demand rises and their deliverability falls.

    We export about 1 Bcfgpd. Not much but it used to be nothing, just about all goes to mexico,

  91. 91
    Nicky Says:

    Have to agree with Tater in #59. I guess if GS repeat 149 often enough, which they did again today, they deserve a rally to get out of their positions!

    Some fib retracement levels to be aware of.

    23.6 is 126.70
    38.2 is 130.80
    50 is 134.09
    61.8 is 137.30

  92. 92
    zman Says:

    VTZ – holding the stock and watching it fall. Took a small call position the other day for earnings (the Aug 22.50s). I don’t expect anything bad out of them. Fayetteville shale will be the high point of their call as the play moves north towards more of their acreage. They are non-op’d there and I would think they are well ahead of their planned well count. Woodford likely to see some upside to IPs seen last quarter. Anything in terms of exploration on the gulf coast would be gravy but its exploration and so I have no idea if they hit anything. No rumors of anything. Have not mentioned it of late because in this market cheap (which it is very) has not mattered and a rebound is more likely to come to the big caps first, that is the historical precedent after such a group drop.

  93. 93
    Nicky Says:

    Broader market – we look to be in the b leg of the C of the ABC rally!

    b should divide into 3 and we have seen a down, are now in b up with c down to come. After which the C of C should take off to the upside. I have a cycle top due early to middle of next week and we should at least see 1290 on the spx if not the 1300 – 1310 area.

  94. 94
    md Says:

    How many BCFPD will be coming out of Canada in rest of 08 and in 09. 2007 avg. over 9 BCF. In May 08 was 8.6BCF. Is the royalty readjustment going to bring Canada imports up again.

  95. 95
    zman Says:

    Afternoon Nicky. Been reading some GS stuff of late about demand destruction and they agree with me that the term is over rated, used, what have you. We now have a good idea where the price sensitivity for the consumer sets in. With that said, one week does not make a trend and I’d like to see this week’s even lower prices reflected in next week’s reported demand.

    On the natural gas front, I think the strip is due a bounce and that the things that make oil go down are not necessarily so elastic for natural gas. People haven’t gotten the big electrical bills for the heat of the summer yet so while they complain about the pump prices they see everyday on the way to work, their meter is spinning on the side of their house as they air condition away in July and August.

  96. 96
    Dman Says:

    Z – re NOV, I haven’t listened to the call yet, but from the previous two calls it was obvious that management expected a very good year. Nothing has arisen since then that would interfere with that, and in the US it has, if anything, gotten more bullish with all the shale plays. So when I saw it green yesterday amid all the red, it just confirmed expectations and they are just not priced in after the big selloff.

    Income for the Q was up 32% (after backing out the one-time-merger charges). Record orders, backlog, pretty much record everything. Execs still optimistic about remainder of year.

    In previous calls I got the sense that management were actually very optimistic, but were keeping a lid on it for the analysts. Have to listen to this call to see if that repeats itself.

    On the Chinese rigs: if they are going to start competing with NBR etc, at least they should have the decency to send us some stock symbols to play 🙂

  97. 97
    Nicky Says:

    Z – I have absolutely no time for the likes of GS. They are market manipulators and great for them that they have the power to do it. As far as I can see they will say anything for their own positions. I have no doubt that once they are out of their longs they will come up with a great reason for the price of oil to drop and hopefully it will when they finally get short!

  98. 98
    zman Says:

    md – don’t know, depends a lot on their weather and what’s really going on with declines there. I have heard Alberta cap ex will be down 2H08 and into 2009 so the higher rig count is going into a lot of other, new plays and away from the traditional big producers out west. I’ll see if I can track down rig counts on a provincial basis. For my own purposes of getting to the 3.3 Tcf number I take average injections from current levels over multiple years and a couple of different start points (really full or really below last year) and then add 1 Bcfgpd for higher production. A lot of people just straightline the five year average which I think is around 67 Bcf per week from now to Oct 31 and say 3.3 to 3.4 which works just as well. My point is, price keys less of end of season storage levels each year and more off perceived supply next year and demand (winter weather being the big wild card). I used to track province by province production via StatsCan but the data is not high quality, very delayed and at the end of the day not very helpful as it correlated less to rig counts and more to winter weather. So why talk about rig counts up there. For me, its just an excercise in understanding the oil service guys and not of production. Lots of wells can get drilled up there as indicated by the rig counts and yet you don’t see a surge in production as they may or may not get tied in until the next season when they have access to the drill site to complete. Just too hard to model in my book.

  99. 99
    Nicky Says:

    Its also interesting that today about the time oil started to go up they announced that the oil speculation bill is going to be vetoed!

  100. 100
    Brian08 Says:

    There seems to be an error, there’s green all over my screen…

  101. 101
    md Says:

    Today’s EIA
    I thought that total inventory +2.6 BCF would be bullish.
    The gasoline and distillate inventories looked to be a function of emphasis in production.
    On the product supplied it’s definitely bullish but when you consider that the 4 wk avg. is lower and the May product supplied came in lower it seems a bit early to pop the champagne.

  102. 102
    zman Says:

    Nicky – I understand your mistrust. I also understand that the E&P guys who use their macro forecasts to model oil and gas prices are living breathing guys with reputations. I think some of their wilder numbers have been a bit irresponsible at times but on the whole and in a longer term sense, I think they are trying to be right and make money and not just manipulate the market. They have a lot more at stake than just the price of oil but all those equities that depend on that opinion coming close to passing as stated. I used to come up with gas price forecasts and we would have killed to be right and be damned any position traders current position.

  103. 103
    zman Says:

    MD – agreed, your talking barrels and BCF was a typo I assume. I think it is a little early to call the doom and gloom for oil we’ve been under over. That’s why you don’t see a flood of Ztrades going across the site at this point. In fact, I was thinking it was covering before and now I’m sure with crude up $4.50 at $126. I’d like to see another week of higher demand but given the fall in prices we had as demand laid flat for 4 weeks (if you believe the govt weekly data) which is all we’ve got, then the rebound today is probably justified.

  104. 104
    md Says:

    I thought that total inventory +2.6 BCF would be BearISH.
    The gasoline and distillate inventories looked to be a function of emphasis in production.
    On the product supplied it’s definitely bullish but when you consider that the 4 wk avg. is lower and the May product supplied came in lower it seems a bit early to pop the champagne.

  105. 105
    jazzkool Says:

    I mistakenly rolled some big time OTM July calls to August. Ergo, I am looking at some calls that are $10 to $15 less than the August Strike price. Today is a nice up day. Thinking about taking my licks today. Does anyone see any upside to oil in the near future. Time premium expiration will soon become a facotr.


  106. 106
    Sambone Says:

    N – #97, AMEN!

  107. 107
    zman Says:

    MD – then I’d say I don’t agree but not because of the total number (and its still not BCF but BO). I said in the post the gasoline number is going to be the most important number and I fell pretty good about that. I said I thought demand would creep up with prices and here you have people proving that they like to drive.

    Jazz – what’s the underlying issue?

  108. 108
    tater Says:

    CLR up into the gap from yesterday’s open. Expect resistance to price increase by at least the top of the gap, even if only temporary.

    HAL added to chart list, top of page two.


  109. 109
    md Says:

    That’s 2 typos. s/b + 2.6 M barrels = bearish. txs for your thoughts.
    On another note
    Ethanol consumption up 200K barrels per day YOY in April to 600K. Would this have any bearing (no pun intended) on oil prices. Good time to own a farm.

  110. 110
    Dman Says:

    It’s kinda odd that the demand-non-destruction data caused this spike up, because to me that was not a huge concern for energy going forward. What *would* be a huge concern is a global recession.

    So my take on the recent drop in oil has been a combo of preceived global slowdow and reduced Iran tensions, with US demand destruction only a 2nd order issue.

    A slowdown is not a recession and I think it will take a recession to really clobber energy. But the thinking would be: “OK, it’s only a slowdown but it could easily turn into a recession, so oil goes lower.”

    Relevant to the above, Cramer sez today: “…you don’t get the rails hitting a 52-week high going into a recession”

    Hmmm. Well, it’s one data point I guess.

  111. 111
    Nicky Says:

    Z – to me its totally laughable that they have stopped the shorting of the financial markets but you can basically do what you like in the energy market.
    I can’t agree with their forecasts. Everyone seems to forget that oil was at $50 only 18 months ago. Demand has not tripled in that time period. Nor have we gone to war against Iran nor have Turkey destroyed the Iraqi pipelines and every other excuse they have come up with to triple the price in this time frame. The chart clearly shows a bubble and to me bubbles are always caused by speculation.
    Only time will tell but the same guys who talked it up are going to find a way to plausibly talk it down again at some stage. As you have correctly stated over the last couple of weeks that demand is hardly off a cliff (and as everyone has said today the minute gas comes down everyone is jumping back in their cars so demand destruction is looking to be over pretty quickly!) but that has not mattered and they have just talked it down. I don’t think fundamentals matter one iota once these guys decide to play a market.

  112. 112
    zman Says:

    Sam – I think if you go into it with an opinion, higher oil is good or lower oil is bad, you are setting off on the wrong foot. There is wanting oil to go lower because you think it is up too much. And then there is looking at the data, the long term growth in global demand, the low OEDC and US stockpiles of crude and the declining deliverability in many key regions and the slide in the dollar which cuts the apparent gain in half and saying ok, these are things to think about when I see a chart that is up this much and think, wow, I should short that. Short term I can’t tell you the price within $20 to $30. Long term I think oil goes quite a bit higher (long term being 2+ years)

    The ethanol thing is bad for the refiners, take VLO’s word for it from yesterday’s call.

    Brian – no mistake, very green. Like to see oil not fall apart into the close of NYMEX.

  113. 113
    jazzkool Says:

    Z, for example,I have 10 EOG $115 August calls. They are worth 1.125 now. I paid 2.50 for them. The stock is up to $104 now, $11 bucks under the strike price. I can take the 50% loss today or I can hope that EOG makes a major move between now and August 15th. With everyone talking oil down, I need a hurricane or an attack by Israel on Iran to get EOG anywhere near $115. I am looking for views of others on this site re whether I should take the 50 loss now or hope that some catastrophe happens that will drive the calls up to 2.50 or above by 8/15.

    I have a number of positions in the same category.


  114. 114
    Nicky Says:

    According to Miss Epperson it is the Israeli PM not standing for re election that has caused this move up. We are back to the Iran sabre rattling.

  115. 115
    zman Says:

    Nicky – I think in the short term you may be right about fundamentals. We see the same in the equities markets. Prices on oil over the long term have a lot more to do with a surplus capacity perceived to be available from the producing states. Then demand. Demand pretty much grows every year. We may have a hiccup here and there on demand but mostly it grows and supply has not been keeping pace meaning the surplus has tightened over several years. So I ask you, has oil gone up too much, or was it priced too cheaply 5 years ago. Hmmm. Also, a lot of things that get drilled at $120 oil don’t at $80 or $60. The third world wants its oil and to eat too.

  116. 116
    zman Says:

    Epperson is just grasping for a reason. Its the gasoline number plain and simple. She should subscribe to the site.

  117. 117
    Dman Says:

    Nicky, re #111, there has been a very serious change in the oil markets in the last few years, which is an inability to extract more oil (in total, globally) even when $145 per barrel is on offer. In 2004 or earlier, such prices would have seen an immediate jump in production to exploit the megadollars on offer. The refusal of such a jump to materialize is not a small thing. And OPEC conspiracies or not, there was always *someone* prepared to open the tap, regardless of what they said in public. Nowadays, even the cheaters within OPEC can’t cheat because they got nuttin’ to cheat with.

  118. 118
    VTZ Says:

    Re – Canadian Rig counts from 98 and 94


    is useful for historical data. It has all sorts of data. Unsure of the accuracy but good for historical trends.

    There is well completion data there as well.

    http://www.caodc.ca/forcasts.htm is their revised forecast as of may (gas prices still increasing)

  119. 119
    jazzkool Says:

    Briefing.com on the EOG call

    On the call… Co reiterates their 15% organic production growth, even though they are running at full capacity pipeline and experiencing gas curtailment at Johnsonville County. Co believes that Haynesville nat gas sales will ramp-up in Q4 after slow downs in Q3. Co says they have low cost acreage at Marcellus and Haynesville. Co is currently drilling with 8 rigs in the Bakken Shale. Three. During 1H08 their average IP rate for all wells drilled was 1,732 bopd and their direct after tax invested rate of return exceeded 100%. Co explains their operation in Parshall Field. Oil wells in this field are ~ 850,000 bopd equivalent growth. EOG is a dominant acreage holder in this sweet spot and this constitute their 80 mln bopd net reserve estimate. Co explains that Barnett western county activity is generating the results they anticipated. However the north Barnett oil play is a 2009 events. Co believes that Barnett has one more year of production ramp up, however, when Johnson County dries up, it will dissipate largely… They have ~ 100,000 net acres in Haynesville and are currently drilling their first horizontal, but can’t give ests on this play without their own wells in place. Further on Marcellus, co says if it works would not contribute meaningfully to the macro domestic gas supply picture until 2012… Co explains that for every $0.10 change in Henry Hub strip prices, EPS and CFO are affected by $20 mln… Co believes that oil prices will be highly volatile but trending upwards. Co continues to believe that nat gas storage on 11/1 will be around 3.3-3.4 Tcf, a bullish harbinger for 2009… On hedges, co has increased their 2009 gas hedge position and are now 36% hedged at an average price of $9.71; 2010 gas hedged at $9.87… From analyst questions: China gas prices they are receiving are very close to current market rates, which are controlled… On the shale plays, co explains that oil prices above $60 makes production economically feasible… Barnett can grow by drilling outside the core, which they say they have started to do, and have been optimistic on results, but won’t give numbers on size… Co is not looking to purchase anymore acreage in the Marcellus… Asked on their confidence of their 13-15% production growth tgt for 2009, co explains that Bakken is outperforming, so are still confident even without purchasing much more acreage… Co explains that the marginal supply in natural gas is $8-9 in GoM because of cost of offshore drilling and around $7.50-8 for onshore. Say that gas prices of $9-10 is more rational than the prices observed earlier.

  120. 120
    Sambone Says:

    Z – I was agreeing with Nicky that GS manipulates the markets. Remember in summer of 06 I believe they readjusted the index? I call GS the “Matrix”. Look who is the Treas Sec, CEO of WB and MER. The Matrix = Not all is what it seems. I believe that GS has the power that JP Morgan had back in the day.

  121. 121
    Nicky Says:

    re 115 and 117. I don’t disagree at all that down the line supply is going to be a very serious problem…..
    personally its great to see a bounce – better level to short frome etc!!!there was no risk reward where we were this morning….
    near term Iran are due to give a reply by this weekend…..

  122. 122
    VTZ Says:

    Also, regarding canadian demand, CNRL and OPTI/Nexen upgraders are set to start up in the fall which is gas-fired power generation because the AECO prices are so low. That being said I think the OPTI/Nexen gasifier offsets something like 33% of their energy usage.

    I think Alberta is expected to be at a gas deficit around 2015 because of all the oil sands requirements.

  123. 123
    zman Says:

    Jazz – Re 113 as do I. The reason I asked which position was that it is going to matter which stock you are in. I have the 100s, the 115s and the 120s there. In making a sell decision, I don’t look at what I paid for something because the only person who cares about that price in the universe is me. The market certainly does not care and so “trying to get” even is a losing game, it is a mental trap that will leave you with $0. I’m being blunt to be clear.

    When out of the money by a wide margin I don’t think about getting my money back. I think about loss minimization. The safest route is to sell that kind of a situation when you get a big pop in the stock. Do we get a pop tomorrow and you miss out on getting back closer to even? Maybe. But that is another trading trap I do my best to avoid. If I sell a position, it goes off my screen (the option ticker) and with that out of my head. I can beat myself up over both sides of trade but that is just not constructive.

    Regarding EOG, I have little doubt it can get back to the mid teens in the next three weeks but it may not, depends a lot on group action and very little on them. I think it should.

    So far this market (in July) has been all about selling the rallies. So far that has not happened today. When these changed come in trading sentiment they often do in a short period of time and usually just after I begin to thinking along the lines of mea culpa, I quit, I give up, etc….. and here we are.

    Anyway, that’s not advice but some trading philosophy from me about how I think about those kinds of positions. Again, being blunt to be very clear about the thought process.

  124. 124
    Sambone Says:

    US Gas Reserves Enough To Last 100 Years — Study

    By Christine Buurma and Siobhan Hughes

    NEW YORK — U.S. reserves of natural gas total more than 2,247 trillion cubic feet, enough to last more than 100 years, according to a study by the American Clean Skies Foundation and Navigant Consulting, Inc.

    The American Clean Skies Foundation is a Washington, D.C.-based industry group chaired by Aubrey McClendon, the chairman and chief executive of Chesapeake Energy (CHK), a major natural gas producer based in Oklahoma City.

    “We think we’re the Saudi Arabia of natural gas,” McClendon said at a press conference on Wednesday. “We haven’t been making good public policy decisions and we haven’t been making good economic decisions because we always thought we had about 10 years worth of natural gas.”

    Forecasts from the U.S. Energy Information Administration underestimate reserves of natural gas from unconventional sources, including tight sands, coalbed methane and gas from shale formations, according to the study. Although these reserves are more difficult and costly to access, rising hydrocarbon prices have made such drilling activity more economic.

    Chesapeake owns significant acreage in U.S. shale plays, including the Haynesville Shale in Louisiana and Texas. Information from natural-gas producers shared with Navigant Consulting indicate that the Haynesville Shale may hold a total of 217 trillion cubic feet of natural gas — or almost 10 times the country’s consumption last year.

    The Marcellus Shale, which stretches from New York to West Virginia, may hold about 228 trillion cubic feet.

    “New technologies have allowed the rapid emergence of gas shale as a major energy source, representing a truly transformative event for U.S. energy supplies,” McClendon said in a statement announcing the study. U.S. natural gas supplies are sufficient for widespread use as a transportation fuel, or to supply electricity for plug-in vehicles, he said.

    Natural gas production from shale formations has increased more than sevenfold since 1998 from less than a billion cubic feet a day in 1998 to about 5 bcf/d now, the study said.

    Navigant analyzed production and reserve data from studies, state agencies, corporate data and large natural gas producers.

    —By Christine Buurma, Dow Jones Newswires

  125. 125
    zman Says:

    Also, on the fundamental side, I’ve said before and forgot to add above. A barrel of oil is not a barrel of oil is not a barrel of oil. You don’t get the same crude out of all the places it comes from around the world. Some is light and sweet (what the refiners love as it is cheap to process and yields lots of gasoline) and some is heavy and sour. All the way down to tar and black wax and with sulfur that must be stripped out. Oil today, in terms of what is being produced, is heavier and more sour than in the past. WTI or West Texas Intermediate is a light sweet oil. There is less of that around now than in the past and that is what oil prices are based on. Just some more food for thought.

  126. 126
    Fiveanddimer Says:

    I’m enjoying the discussion on what makes the oil markets go up and go down. Let me add another thought. This is an election year. I think back to 2004 and if I remember right, we saw an extended downward movement in crude prices ahear of the November election, and shortly thereafter prices recovered. It would not surprise me to see something similar happen this year, regardless of the fundamentals. If this sounds like I’m implying that the market is being manipulated,I am. I can’t prove it, but this is just more than I can pass off as coincidence.

  127. 127
    Dman Says:

    #114 reminds me:

    A while back we had a very strong pro-oil team:

    Bush Admin
    and assorted others I forget just now.

    Since then, there have been some defections:

    Bush and Iran are playing footsies under the table, whilst Iran and Venezuela have tried to talk down prices (without, of course, actually increasing production). Motives for these actions are probably not those stated for public consumption, but regardless of motives the defections still occurred.

    Israel is still very much on the team, but their pro-war statements yesterday were completely ignored by the oil market this morning.

    Russia still seems to be on the team, with their recent tax hike.

    Of couse Iran and Venezuala will re-join the team at some point, because they need the money. Bush on the other hand probably likes lower oil at least until the election.

  128. 128
    VTZ Says:

    Z – regarding what you wrote about oil being too cheap historically, you are 100% right.

    My belief is that we are at a point now where people must pay as much as the market can bear, whereas previously people paid an amount that made the most money for the producers and encouraged consumption. The key is finding that point and now we might be there, but what happens when the US isn’t in a recession and the third world keeps expanding?

  129. 129
    zman Says:

    Fiveanddimer good point and I was just looking at the fundamental (real and perceived) influences. That’s the first peg of a three legged stool that determines oil and gas prices as I see the world.

    The second, and these are in no particular order as their influence on price discovery varies from day to day and, is sentiment which is partly determined by politics.

    The third leg on the stool is voodoo (technical analysis) of which their are a number of disciples and at least 2 prophets on this site, lol.

    Regarding manipulation, I am convinced Bush traded favors with the Saudis to get gasoline prices lower before the last mid-term elections.

  130. 130
    Fiveanddimer Says:

    Dman – speaking of Bush and Iran “playing footsies under the table,” I have to wonder if that was a ploy by the Bush administration to temporarily reduce the angst over the Iran situation. While they sent a high level rep from the State Dept to a meeting, there was never any real attempt at negotiation. To me, it was all for appearance sake only. The Bush admin even denied there was any intent to negotiate. But it seems it did help reduce tensions in the oil markets.

  131. 131
    Nicky Says:

    Jim Cramer talking nat gas on CNBC

  132. 132
    zman Says:

    Was Cramer bullish? missed it.

  133. 133
    zman Says:

    V – agree exactly your last in 128.

    Looking at my screen it now appears CHK and SLB and several of the friends are not in fact going out of business.

  134. 134
    Nicky Says:

    Z was only half listening but I think I heard him saying he was buying Chesapeake as nat gas had fallen so far compared to oil.

  135. 135
    mnt Says:

    Great disccussion regarding the oil price. Just wanted to add that I watched the dvd “A Crude Awakening” the other day and can highly recommend it. Definitely helped calm the nerves and made me buy some stocks for the long term account.

  136. 136
    Dman Says:

    Five – as I noted, the motives may or may not include those stated in public. Your suggestion #130 is very plausible. Even in the event that it was *not* actually driving the decision, Bush has certainly noticed the effect of it on oil and I think he likes it.

    As much as I like to believe in my own mind-reading abilities, Bush is somewhat of an enigma as to motives. Is he really religious or is it just convenient politically? I don’t know: after this long, I *should* have figured it out but I haven’t!!

    What I have noticed consistently is that politics is what Bush really cares about. Some speculated that he would act regardless of how it would affect McCain, yet that seems not to be so. Bush seems to care a lot about this election, despite long personal antagonism towards McCain. I guess all presidents start worrying about legacies, and legacies don’t include having your party annihilated when you leave office.

    Which bolsters your suggestion, especially since it contains the word “ploy”: another thing I’ve noticed is that Bush really like ploys, even when they are fairly obvious! Must be the practical joke thing.

  137. 137
    Wyoming Says:

    waiting to start a meeting. Don’t forget that wells produce in declines. fundies might not change but the well count will. Every day of production is a slight tighten of the noose.

  138. 138
    Dman Says:

    Z – just to state the obvious: no collapse at the NYMEX close. How long since that happened?

  139. 139
    Nicky Says:

    I have redone the fib levels – more accurately!

    23.6 now surpassed was at 126.90
    38.2 is at 130.92
    50 is at 134.16
    61.8 is at 137.46

  140. 140
    zman Says:

    Nicky – thanks, bet he pumps it on Mad Monkey tonight as he generally likes to play reversals and they have earnings out Thursday amc.

    MNT – it beats the chatrooms, lol.

    Hear ya Wyo.

    Dman – true, something must be broken.

  141. 141
    Nicky Says:

    Broader market may have finished b of b and now be in c of b down! OMG talk about confusing!!!

  142. 142
    jsaun14 Says:


    I’m lost on my b’s and c’s. Could you clarify?

  143. 143
    Nicky Says:

    sorry Jsaun 14 – I didn’t think I sounded too clear!

    Okay here goes. My count says we are in wave C up which started at (lets say on the Dow) 11120 area yesterday. This wave should divide into 3 ie an ABC. A and C will be each made up of 5 waves. A topped this morning at 11563 and we started wave B down. B will be 3 waves. So lets call the 3 waves abc. a went from 11563 to 11408, b then went from 11412 to 11496 and we are now in c down from to 11496 to ? (as long as 11496 holds).

  144. 144
    Dman Says:

    OII reporting at the close. Any thoughts Z?

    Another oddity: broad market up along with energy.

  145. 145
    zman Says:

    Dman – nothing intelligent. Basic business should be good, some small contract wins during the quarter they’ve already reported. They should say they are going to be busier than thought later this year as per SLB’s comments about more rigs, they should also say something about improving rates at the catilever Jackup market improves in the Gulf of Mexico. I’d very much bet on another quarterly increase in day rates on the ROV fleet. I don’t see a huge beat there as the improved business on the rig activity side is being partially offset by continued declining business in repairs and stagnant (last I heard) inspection business. The could of course big contract wins. I was planning to wait until the numbers are out, listen to the call and then buy before the next spinner hits the gulf.

  146. 146
    Dman Says:

    Z – nothing intelligent eh? Pretty good imitation of intelligent, I’d say!

    Nice entry on the HAL, btw.

  147. 147
    Dman Says:

    CHK just nibbling at the month-long decline channel

  148. 148
    zman Says:

    Apologies in advance for tomorrow’s lengthy post…got a lot to say/show.

  149. 149
    Sambone Says:

    By Tatyana Shumsky

    NEW YORK (Dow Jones)–Nymex crude futures rebounded Wednesday as an
    unexpectedly large draw in gasoline inventories highlighted the resilience of
    U.S. demand.
    Light, sweet crude for September delivery settled $4.58, or 3.75%, higher at
    $126.77 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange settled $4.39 higher at $127.10 a barrel.
    Wednesday marks a break in crude’s 15-day downward spiral that saw futures
    prices slip 16%, or more than $23, from the all-time settlement price of
    $145.29 reached on July 3.
    Oil prices surged to $127.39 a barrel Wednesday, their highest intraday level
    in six days, as technical traders rushed to cover short positions. The charge
    was triggered when futures prices crossed a key technical level of $123.75,
    said Anthony Rosado, a trader at GA Global Markets in New York.
    Technical traders use statistical tools and chart analysis to predict long-
    and short-term price pattern trends. When the oil futures price breaks above or
    below a key technical level it is said to break out of one pattern and begin
    “The next target was $125.40,” said Anthony Rosado, a trader with GA Global
    The turnaround was sparked by U.S. crude oil inventories data, released at
    10:35 a.m. on Wednesday by the Department of Energy.
    Gasoline inventories stole the show, posting a surprise stock draw of 3.5
    million barrels for the week ended July 25. By contrast, analysts surveyed by
    Dow Jones Newswires anticipated a modest increase of 200,000 barrels.
    Crude inventories decreased by 100,000 barrels, compared with analysts’
    average forecast for a 1.1 million barrel decline. Stocks of distillates, which
    includes diesel and heating oil, got a 2.4 million barrel boost, compared with
    expectations of a 1.8 million barrel increase.
    Traders saw the decline in gasoline inventories as an indicator of resilience
    in U.S. demand, suggesting crude demand would also firm.
    “Bullish gasoline stats in today’s DOE report could be providing the necessary
    fuel to ignite this rally,” said Nauman Barakat. “This looks like massive short
    covering…there were a lot (of) shorts in crude.”
    In fact, last Friday’s Commodities Futures Trading Commission’s weekly
    Commitments of Traders report revealed large speculators, like hedge funds and
    investment banks, were net short oil futures for the first time since Feb. 13,
    2007. The net short position is the difference between the number of short
    positions, or bets that prices will fall, and the number of long positions, or
    bets on a rise.
    “It’s really tough to be short crude oil right now,” said Chris Jarvis,
    president of Caprock Risk Management in Hampton Falls, N.H. “It’s $4 gas, and
    we’re still buying it.”
    With crude oil prices gaining nearly $5.50 a barrel intraday and settling
    $4.58 higher, some traders saw this as a permanent rebound.
    “I would say that this $20 pullback is probably the last chapter, and the new
    chapter is going to read: Crude oil is going to try to take out the high
    again,” said Jarvis.
    Front-month August reformulated gasoline blendstock, or RBOB, increased 12.74
    cents, or 4.24%, to $3.1351 a gallon. August heating oil rose 4.81 cents, or
    1.39%, to $3.5203 a gallon.

    -By Tatyana Shumsky,Dow Jones Newswires

    Dow Jones Newswires
    07-30-08 1530ET

  150. 150
    zman Says:

    D – took a little more CHK in here but didn’t report as it ran right after. Suffice to say I’m pretty long there.

    VLO still holding up (now back up to $35) despite the rally in oil. Gasoline did well but the build in distillates kept heating oil’s feet comparatively to the floor.

  151. 151
    Nicky Says:

    re 143 – clearly wrong!

    Volume confirms this move up which means likely higher highs head in the days ahead and into next weeks cycle high.

  152. 152
    jsaun14 Says:

    Nicky –

    Thanks my man. I’m on board.

    Z – You mentioned that WLL looks like hot money. Would you mind discussing that a little? I’m a rook to option trading, but the pop it gets on up days seems like it would make the options good for short term trades. (This probrably exposes my option naiveté.)

  153. 153
    Sambone Says:

    Wow, this is crazy. look at RIG, etc. Wow!

  154. 154
    Dman Says:

    J – erm, not sure Nicky will appreciate “my man”. Just guessing that she won’t 🙂

  155. 155
    Nicky Says:

    Lol! I can be one of the boys when on here!

  156. 156
    jsaun14 Says:

    Open mouth – insert font. Ok – I’m the board dunce.

    My sincere apologies nicky, I’ve the utmost respect for you and your analysis.

  157. 157
    zman Says:

    Jsaun – not at all, just meant that it moves in those big increments and the options are priced for it. High premiums and nasty fat grotesque spreads. When looking longer term I don’t mind that much because when I trade I plan on being right about the trade. In front of earnings, they inflate the spread and the premiums even more and then deflate them on the other side of the report. As I’m not sure this “rally has legs” I’d be cautious about it (to the point of not doing the trade today) on one like that. In here I like liquidity of all things. Like the HAL earlier…those things trade like water with little spread. Love the story, think they have great things to say on the call as they are very well positioned in the Bakken in the parshal Sanish area and they are busier than ever if the ND website is accurate which it is and since I was tooling around there last night…anyway, they should say good things.

    Congrats on that RIG entry the other day Sam.

  158. 158
    Sambone Says:

    Off subject – For those ACC fans


  159. 159
    zman Says:

    that’s more like it Hal.

  160. 160
    zman Says:

    DUG down 10+% for anyone looking for a hedge here.

  161. 161
    kyleandy Says:

    am at ned davis research now where did u get info they wrote report on CHK? pls reply quick


  162. 162
    zman Says:

    Sam – its just wrong to steal a man’s beer, no matter how gay he is, not that there’s anything wrong with that, lol.

  163. 163
    zman Says:

    RS wrote that in comment early yesterday.

  164. 164
    zman Says:

    1.2 mm share block of HAL traded after the close.

  165. 165
    Nicky Says:

    re 156 – heavens you don’t need to apologize! no offence was taken as how would one know on here.
    Anyway my intra day call was hopeless and I apologize for that!

  166. 166
    Popeye Says:

    Those two FB players are going to be the butt of a lot of jokes.

  167. 167
    zman Says:

    heh, heh, heh, you said butt.


  168. 168
    Dman Says:

    Oddity watch: broad market closed up big even with energy up huge.

  169. 169
    Nicky Says:

    Dman – CNBC reporting that the broader market rally was due to the rally in energy stocks and apparently we must all embrace higher oil prices as it will be good for the broader market – go figure! although this is probably not the blog to argue with that point!

  170. 170
    Dman Says:

    Nicky, even on this blog I don’t think you’ll get any argument that higher energy will (normally) hit the broad market. Until such time as energy makes up say, 60% of the S&P. Then it *will* be good for the market 🙂

  171. 171
    PackMan Says:

    Z – having problems using “print this post”. Any thoughts as to why that is ?

  172. 172
    zman Says:

    Pack – it broke during out upgrade last weekend. Hope to have fixed over this weekend.

  173. 173
    zman Says:

    TSO out with a beat after the bell $0.03 vs expected loss of $0.06. Refiners advancing on it.

  174. 174
    isleworth Says:

    OII reports Q2 (Jun) earnings of $0.93 per share, including a $2.0 mln gain on the sale of the production barge San Jacinto, $0.03 better than the First Call consensus of $0.90; revenues rose 15.8% year/year to $500.1 mln vs the $483.5 mln consensus. Co issues downside guidance for Q3, sees EPS of $0.90-$1.00 vs. $1.02 consensus. Co issues downside guidance for FY08, sees EPS of $3.45-3.65 vs. $3.68 consensus.

  175. 175
    zman Says:

    Isle – thanks, kind of works with my comments in #145. Stock called down $6 on that downside guidance.

  176. 176
    zman Says:

    SWN beats street, boosts guidance. Should, woulda, meantto, didna

  177. 177
    rseidman Says:

    Kyle: Sorry for the late reply, I saw this sell on CHK on My Fidelity Active Trader News

  178. 178
    rseidman Says:

    Exact wording: On July 25th Ned Davis Research downgraded CHK From buy to Sell

  179. 179
    antrimshale74 Says:

    This after-hours drop seems to be a common response to OII quarterly results lately. Didn’t this happen when they reported the first quarter, too?

  180. 180
    Jay Reynolds Says:

    HK takes 4,400 ac block of HS acreage mostly in S. Caddo Parish, family leasing receives 80 MILLION in bonus.

    Lease rider was “to die for” in terms of landowners getting every kind of protection you could imagine.

    Wonder how the no part of the parish will sort out? Will it take a while until more data points are in or will the “land rush” mentality come in and say, “If Caddo Parish is getting 30K per acre we’d be crazy not to go ahead and pay 15K bonus in the north part of the parish.”

  181. 181
    Jay Reynolds Says:

    Wyo note…

    Most significant, where previously we’d only really seen vertical and horizontal pugh clauses, was the addition of the language into the lease rider REQUIRING the continuous good faith prosecution of drilling operations to complete a horizontal well.

    This was added so that the operator could not do as Matador has done, drilling verticals to hold acreage, then coming back at some later date to do the HZ leg as a recompletion.

  182. 182
    kyleandy Says:

    rs went to ned davis this aft and they said they do not do individual stks. only sectors and whole mkts and she was not aware of any recent report. i used to use their research in my past life as a broker, and found them to be highly competent. i thot it stange when u reported that, but it had been years since i used them. let me know if u get this or i’ll repost tomorrow.

  183. 183
    Fred Says:

    Aubrey on Nightly Business report says that one new Hanesville field could supply the U.S. with 10 years of NG.

  184. 184
    Bleemus Says:

    WLL Whiting Petroleum upgraded to Outperform from Sector Perform at RBC

  185. 185
    Bleemus Says:

    MRO Marathon Oil Evaluating Separation of Businesses; decision expected during 4Q08

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