Tuesday Morning – Fay Fades Away

Sentiment Watch: Sentiment remains negative on all energy groups. XNG, XOI, and OIH all trading within a hair of post July 2 lows. Pattern of morning green followed by mid morning sell off and deep red close is persistent. Slow news day and lots of Wall Street types are out of action this week and next. Patience and cash are both kings here.

Things People Don't Care About Right Now Watch:

  • OPEC Shipments Falling. According to tanker tracker Oil Movements, shipments from OPEC members are expected to drop from 24.89 mm bopd to 24.47 mm bopd from the beginning to the end of August. Middle-Eastern shipments are projected to drop by 550,000 barrels per day (Bpd) to 17.47 MMBpd, giving up most of the increase from June ~  Apache.
  • OPEC May Cut Production In September. Iran’s OPEC governor said that the world is oversupplied by 1million barrels of oil per day (jives with recent OPEC comments from various governors), and OPEC might cut production at its meeting in early September (first we've heard of that but they have to be thinking, "OK, price is well off highs, time to stop the slide").
  • Over 1% of Global Crude Production Is Shut In. The 140,000 bopd pipeline from Baku, Azerbaijan, to Supsa on Georgia's Black Sea coast, and the Baku-Tbilisi-Ceyhan (BTC) pipeline, which ships 1 million bopd of Caspian crude, are both shut-in and are expected to remain so until it is safe to reopen them, according to BP.

In Today's Post:


  1. Holdings Watch
  2. Commodity Watch
  3. Stocks We Care About Today
  4. Crack Spread Update
  5. Demand Destruction?
  6. Odds & Ends

Holdings Watch: The Holdings Wiki and ZEB Perf tabs are updated.

  • (HAL) - Added HAL September $45 Calls (HALII) for $1.60. It's on the low end in terms of valuation for the general oil service names out there (see table in the oil service section below), and it is likely to trade higher, earlier when the group recovers. It is trading at support along with the OIH. If it breaks $42.00 I'll punt and regroup lower.

Commodity Watch:

Crude oil closed down $0.90 at $112.87, its lowest close since the first of May, as Tropical Storm Fay failed to impress. This morning oil is trading off $0.50 to $1.00 as .

Natural gas plunged $0.20 to close at $7.89, its first close below $8 since January 23 when it also closed at $7.89. Gas continues to loosely trade with oil but with a slightly more negative bias.

  • Imports: 10 Bcfgpgd, up 0.3 Bcfgpd from last week, all due to higher imports from Canada. LNG continues to flat line at 0.8 Bcfgpd.  10 Bcfgpd is 2.8 Bcfgpd below year ago levels.  Note in the chart below we are getting past the season where you would see a lot of LNG imports showing up on U.S. shores.

  • Electricity Generation: Last week saw generation fall 6% from year ago levels due to the mild weather and 2% from the prior week. This will likely be the weakest week for generation this month.
  • My Early Read On Natural Gas Storage:
    • My Number: 70 Bcf Injection
      • Last Year: 22 Bcf Injection
      • 5 Year Average: 59 Bcf Injection
      • So we are going to see negative comps to last year and the five year average which should be no surprise to the Street but the reaction remains a wildcard as better than expected (smaller) injections have yielded nothing but sell offs in the commodity for the last four weeks.
    • Street Number: Not yet available



Stocks We Care About Today


Oil Service Stocks Are Trading At or Near Historic Low Levels. On average, these stocks continue to see small increases to annual earnings estimates. Most are up 2 to 4% in the last two months which slows slight upward momentum following the 2Q08 reporting period. Just keeping an eye on the numbers for now.



Crack Spread Update. Continuing to strengthen but the group is finding it difficult to get going.  More products data showing renewed demand due to lower prices is needed which I think we get tomorrow in the form of sustained gasoline demand and potentially a rally is distillate demand. Filling stations continue to increase inventories with Labor Day looming as the last fling of the driving season on September 1.

Demand Destruction? Just some pictures, will have comments in tomorrow's post. The main thing is, the "destruction" as measured by total crude products supplied appears to be lessening and as the last graph shows, is in the middle of the range for this time of year. It has been weak all year and with oil prices acting the way they have been you'd really expect the green line (2008) to be dipping sharply.


Odds & Ends

Analyst Watch: Nada. Very quiet of late on the analyst front.

Housekeeping Watch: We've been a pay site for almost a year now and appreciate your patronage.  Just a friendly reminder that the first of the Annual subscriptions, the folks who signed up before we even went officially pay, will automatically begin renewing around month's end.


70 Responses to “Tuesday Morning – Fay Fades Away”

  1. 1
    Sambone Says:

    Iraq Tops Alaska As US Relies More On OPEC


    NEW YORK — The U.S. got more crude oil from Iraq than Alaska in June as imports from OPEC continued to top domestic production.

    A review of U.S. data shows that in 17 of 18 months dating to January 2007, crude-oil imports from the Organization of Petroleum Exporting Countries exceeded U.S. production levels.

    The figures shine a spotlight on the main points of the long-overdue debate over energy policy in the world’s biggest oil consumer. The Bush administration wants to open up coastal waters to oil drilling again, and Democratic leaders are willing to consider it, with some restrictions.

    The new data, though, also help puncture a popular political myth that the U.S. can gain energy independence, even in the long run, despite the sloganeering of the current presidential campaign season.

    “It might be pleasing to the audience” to hear such pledges, but “energy independence is not a logical goal. It is never going to happen,” said Robert Ebel, a senior energy analyst at the Center for Strategic and International Studies in Washington, D.C. The U.S. accounts for nearly a quarter of world oil demand and holds just a fraction of global reserves.

    With most of the world’s oil reserves lying under the sands of the volatile Middle East, where political disputes sparked global oil-price shocks, cutting dependency has been a table-thumping theme well before oil prices tripled in recent years to a record high near $150 a barrel last month.

    But with domestic output and production from non-OPEC producers failing to keep pace with rising demand from the developing world, U.S. reliance on OPEC and Middle East imports has climbed along with prices. What’s more, the higher reliance on imported oil has come as U.S. oil demand has slumped under the weight of high prices.

    Saudis Pump Up The Volume

    U.S. President George W. Bush twice this year directly lobbied Saudi King Abdullah for increased oil supplies. Only after prices surged further did the king agree to push output to 9.7 million barrels a day, the highest level since 1981. Lost amid the scramble to try to cap gasoline prices from rising much above $4 a barrel was yet another pledge to cut dependence on Middle East oil.

    Data from the Energy Information Administration show that U.S. crude-oil imports from Iraq in June averaged 693,000 barrels a day, topping Alaska North Slope output of 667,000 barrels a day.

    For the first six months, U.S. imports of Iraqi crude are up 42%, giving Iraq a 6.9% share of U.S. crude imports, compared wth 4.7% in the first half a year ago. That’s the biggest percentage share for the first half of any year since 2002. The 674,000 barrels a day volume was the most for the period since 1999. Back then, under Saddam Hussein, Iraq was exporting limited volumes of crude under the U.N. oil-for-food program, which has since been shown to have been abused to enrich the Iraqi regime.

    The jump in Iraqi imports may continue, as Iraq’s State Oil Marketing Organization said it aims to surpass the May postwar record of exports of 2.11 million barrels a day in the second-half of 2008, with average exports of 2.14 million barrels a day.

    Along with Iraq, crude-oil imports from Saudi Arabia, the world’s largest oil exporter, rose 8.2% from a year earlier in the first half of 2008. Imports from Saudi Arabia of 1.523 million barrels a day in the first half were the strongest for the period since 2005.

    U.S. imports of crude oil from all Persian Gulf suppliers jumped to 24.8% of total imports in the first half from 20.7% in the year-earlier period and marked the highest first-half share since 2003. Back then, ironically, imports from Iraq surged to nearly 1 million barrels a day a month before the March 2003 invasion and May 2003, with Iraqi flows essentially crippled, imports from Saudi Arabia hit a record level of 2.24 million barrels a day.

    OPEC Flow Tops U.S. Output

    EIA data show U.S. oil output in the first half of 2008 was virtually flat with the year-ago period, at 5.13 million barrels a day. But U.S. imports from all OPEC members have climbed 3.9% to average 5.56 million barrels a day.

    The gap between domestic output and U.S. imports of OPEC crude doubled in the first half, compared with the 2007 period, to more than 425,000 barrels a day. The sharp gain came even as Venezuela, the fourth-biggest supplier to the U.S., cut off sales to Exxon Mobil Corp. (XOM) in February in a dispute over nationalization of resources. Venezuela’s exports to the U.S. fell 8.9% from a year earlier in the first half 2008.

    Between January 2007 and June 2008, U.S. imports from OPEC topped domestic production in 17 of 18 months, by an average of more than 350,000 barrels a day. The figure speaks to declines in U.S. output but also to inclusion of oil imports from Angola and Ecuador to the OPEC side of the ledger, from the start of 2007 and 2008, respectively. But even excluding Angola, imports from OPEC exceeded domestic output in three months of 2007.

    With new output from an Exxon project, Angola’s production output has topped 2 million barrels a day, dethroning Nigeria as Africa’s biggest oil producer. U.S. crude imports from Angola, at 636,000 barrels a day in June, were the most since May 2007. But first-half imports from Angola lagged behind the year-earlier period by 12.7%, as the country emerged as major supplier to China, the world’s second-biggest and one of the world’s fastest-growing oil consumers.

    OPEC meets Sept. 9 to review output policy and the market will be watching to see how the group responds to the 22% drop in crude prices over the past month to the lowest level since May 1.

    Mexico Volumes Slump

    EIA data show that since 2003, non-OPEC supplies have lagged behind growth in global oil demand, and that trend is expected to continue through 2009. This year, global demand is expected to rise by 780,000 barrels a day, nine times greater than the expected rise of 90,000 barrels a day in non-OPEC supply.

    EIA expects U.S. demand to drop 480,000 barrels a day, while Mexico, the No. 3 crude-oil supplier to the U.S., warned the steep decline in its oil output will deepen next year. With a 20% drop since 2004, state oil company Pemex has failed on its goal of holding output at 3 million barrels a day, due to the decline of its huge Cantarell field. Mexico’s output, seen at 2.85 million barrels a day this year, is expected to drop to 2.7 million-2.8 million barrels a day next year. U.S. imports of Mexican crude have fallen 18% in the first half compared with the year-ago period.

    New deepwater projects in the U.S. Gulf will modestly lift output in coming years and alternative fuel use and vehicle-mileage improvements will shave 2 million barrels from U.S. demand by 2030, EIA projects.

    But by then, U.S. dependence on imports of crude oil and petroleum products only will shrink to 54% of daily needs from 60% now, EIA said.

    –David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years.

  2. 2
    Sambone Says:

    By Lananh Nguyen

    LONDON (Dow Jones)–Crude oil futures slid in London Tuesday as fears over
    global demand and a subsiding Atlantic storm threat depressed prices.
    “Weaker demand will continue to dictate sentiment and give additional support
    for oil shorts to build,” said Mark Pervan, senior commodity strategist at
    Australia and New Zealand Banking Group in Melbourne.
    At 1047 GMT, the front-month October Brent contract on London’s ICE futures
    exchange was down $0.77 at $111.17 a barrel.
    The front-month September contract on the New York Mercantile Exchange was
    trading $0.75 lower at $112.12 a barrel.
    The ICE’s gasoil contract for September delivery was down $2 at $1,001.25 a
    metric ton, while Nymex gasoline for September delivery was down 138 points at
    280.14 cents a gallon.
    Crude oil prices resumed their downward trend Tuesday, pressured lower by
    concerns that a sluggish economic climate could further depress demand.
    “Oil is very weak both technically and fundamentally,” said Andy Riddell, an
    energy broker at ODL Securities in London.
    Crude prices are now down over 24% from their mid-July peak, and approaching a
    three-month low.
    “Now the macro (economic) theme is turning towards the U.S. weakness spilling
    into the rest of the world…because of more material fears that the rest of
    the world is not immune from a demand slowdown,” said Olivier Jakob, managing
    director of Swiss-based consultancy Petromatrix.
    A decision by China Petroleum & Chemical Corp., also known as Sinopec, to
    suspend indefinitely imports of gasoline and diesel could also spark some
    worries that China’s rampant demand for crude oil and products could be cooling
    off slightly.
    A company official said earlier Tuesday said the imports were being suspended
    because a domestic fuel shortage has ended. Sinopec’s move will likely weigh
    down Asian fuel prices and worsen an oversupply in the Singapore market as the
    company has been a major buyer there, traders in Asia said.
    Price support also receded after the U.S. National Hurricane Center
    discontinued all hurricane warnings related to Tropical Storm Fay over the
    Atlantic Ocean. The weather system would have a benign impact on Gulf of Mexico
    oil infrastructure, participants said.
    “With the storm threat subsiding, the dollar remains the focus and I suspect
    we won’t get much in the way of definitive price action until the release of
    the PPI (data) this afternoon,” said Hamza Hamza, a fund manager at Sucden UK
    Ltd. U.S. producer price index figures for July are due out at 1230 GMT.
    Lower volatility and trading volumes in the past seven sessions have resulted
    in rangebound prices, but a break of last week’s lows could “re-ignite further
    liquidation,” Hamza added.
    Despite the downbeat demand outlook, participants said other issues could yet
    prop up prices.
    “There are plenty of geopolitical issues in the forefront of people’s minds
    that could turn this market around very rapidly,” Riddell said. He cited the
    conflict between Russia and Georgia in the breakaway South Ossetia region, as
    well as tensions over Iran’s nuclear program, as situations which could lend
    support to the market.
    “(The) still simmering conflict on the Russia/Georgia border may trigger some
    mild buying through the week,” Pervan added.
    -By Lananh Nguyen, Dow Jones Newswires (Renya Peng in Beijing and Sherry Su in Singapore contributed to this report.)

    Dow Jones Newswires
    08-19-08 0714ET

  3. 3
    zman Says:



  4. 4
    zman Says:

    New math, hurricane miss = good for oil prices and group. hmmmm. Group has a bit of the George Costanza’s.

    See comments last night from Wyo on high rate Bakken well out of EOG. Looks like maybe 7,000+bopd from a multi lateral well.

  5. 5
    zman Says:

    Group green over 10 minutes into the day. Wow.

    PQ bucking the trend and heading lower. Odd.

  6. 6
    zman Says:

    “If there is a continued decline in the price we should evaluate a production cut — that is (the idea) we will take to the meeting. What we cannot permit is a collapse in the price of oil.” Ramirez ~ Venezuela’s oil minister.

    Funny, first Iran and VZ say oil prices should fall to about $100 about 1 month ago, now within 2 days of each other both suggest a production cut is needed.

  7. 7
    BossmanG Says:

    Z, what do you think about recovery of the hk sep 40 calls?

  8. 8
    crysball Says:


  9. 9
    zman Says:

    Boss – Lot of time but we need to see a turn in sentiment and a real punch through $30. That will take stable oil and gas, a deal in the group, or an analyst with some stones (so far none of those things are present). I do think OPEC is starting to lean towards a cut, not because of Iran and Vz comments but because of the flat prior statement from OPEC over the possibility of a rapid global stock build in the fourth quarter. That could boost or at least halt the slide in oil long enough for the stocks to decide they are not dead. I doubt I get even on them but I’ll given them a little more time before I pull the plug.

  10. 10
    zman Says:

    Crysball, here, what’s up?

  11. 11
    Nicky Says:

    Morning all. Broader market has support at 1265.

    Oil – still favoring a lower low before the bounce although the minimum downside has been satisfied. Same with metals which appear to be in wave iv (sideways, consolidation) before another move down in v which is likely to take us to the 750 – 770 area before a bigger bounce.

  12. 12
    zman Says:

    Morning Nicky – I take you are out of Fay’s way?

  13. 13
    sane Says:

    Fed’s Fisher says he is worried about the Fed losing credibility. Haven’t they already?

  14. 14
    zman Says:

    What credibility? They can fight inflation about as well as the U.S. can fight a third war on the ground.

  15. 15
    Nicky Says:

    Z – Fay is a bit of a non event by the looks of thinks. Should get it wet later but winds likely to be no stronger than 45mph by the time it gets to us. Had looked somewhat more ominous yesterday!

  16. 16
    zman Says:

    Group gaining a little footing. I’d like to see numbers and a positive reaction from oil prior to getting too excited.

  17. 17
    zman Says:

    Libya says Opec likely to stand pat at next meeting, prices seen rebounding soon.

  18. 18
    mahout Says:

    IOC CC: CEO Mulacek called 2nd Qtr a turning point for IOC (Bal. Sheet, Refinery results and upstream success). Elk 4 tested 63 mmscfd with heavy skin (doing acid stimulation now), plus 1130 bpd high quality condensate.

    Will move their only rig 1.7 Mi. So. to Antelope 1 site (reef complex to the So.).

    Progressing in making deals with strategic partners they need to get more rigs going and speed development.

    Technical guys: Absolutely no problem with flow, matrix porosity good. Quote: “We have enormous deliverability”. Gas column 2028 Ft. 2 firms to evaluate. Antelope reservoir significantly larger than Elk and they are connected.

    Kinda hard to get full picture: Papua Govt. will take 22%. LNG partners, etc. Planned strategic partners (how much?). Will have to do some dilution (how much?). And no firm fix on total asset in ground, but it looks big.

    With Mkt. Cap. of less than 1 Billion, and 8 million acres to prospect in, could be a winner if they keep on jumping all the hurdles.

    Will you be revisiting it down the road sometime to check it out? If so, would love to have your thoughts on it.

  19. 19
    zman Says:

    Odds & Ends addendum:

    water for gas kits:


  20. 20
    zman Says:

    Mahout – I was floored by the lack of response from the market when the better rate and details on the pay column were divulged. Market just not interested in the names at this time. Need to look into the ownership and costs here before biting. Doesn’t seem like a rush. Does look like they have enough gas for the LNG facility. Will snoop about.

  21. 21
    Fred Says:

    Z – Georgia Bigfoot reports are they found a rubber foot at the discovery site. Water for gas probably same catagory.

  22. 22
    Dman Says:


    OK, so now I guess we need to ask: who’s sitting on the worlds supply of baking soda and how do we invest?


  23. 23
    zman Says:

    Fred – too true but on boring but GREEN, vacation weary days like today I have to amuse myself with something…otherwise its just more Olympic volleyball.

    Glad to see how green the group is as lunch approaches.

    For Dman: http://investor.churchdwight.com/phoenix.zhtml?c=110737&p=IROL-irhome

  24. 24
    zman Says:

    Oil suddenly up now. People may start thinking OPEC cut is enough to start the bounce, I’m going to wait and watch for a bit. Too many one day headfakes over the last 6 weeks to point to one day and say its a go. NG back over $8 despite the hurricane miss and coolish August weather.

    Group also green in the face of a very red broad market. Again, all good things but I’d like to see it last longer than a day and if it does the stocks will still be cheap.

  25. 25
    Sambone Says:

    For Nicky


  26. 26
    zman Says:

    Oil up $1.80+
    NG up 20 cents

  27. 27
    zman Says:

    Anybody see smoke? Oil up $3+

  28. 28
    Dman Says:

    Robert Marcin at TSCM sez:

    “IEA energy data suggest that oil demand is better than thought, supply is less than expected, or there’s a ton of the stuff floating in tankers around the globe. It might just be a little bit of all the above. I know the commodity feels heavy, but oil “demand destruction” just doesn’t seem to be happening on a global basis. Or, we can’t find it in the inventory numbers.”

    New IEA report out?

    I note that Matt Simmons stated, in the last interview I saw (from his vacation spot) that the alleged increases in OPEC flows had not been validated independently and were not showing up in inventories.

  29. 29
    zman Says:

    Dman – nothing new out of IEA that I know of, they just had their monthly out last week, maybe he is referring to that.

    Re Matt Simmons, note in the post that a tanker tracking company is showing down OPEC volumes for beginning to end of August.

    I added some graphs at the bottom of today’s post on product supplied which is what everyone referring to demand destruction in the States is talking about. Note the green line in the last one.

  30. 30
    Wyoming Says:

    EOG was a single lat.

  31. 31
    zman Says:

    Wyo – ok, thanks. EOG ripping today but not really abnormal to the group’s move. CLR booming 12%

  32. 32
    zman Says:

    Almost back to even on the HAL trade.

    HK working nicely higher, we’ll see if it lasts / can get through $30 which has been troubblesome.

    Not in a lot else right now aside from the common positions.

  33. 33
    zman Says:

    CNBC saying some models again saying Fay could turn back into the GOMEX.

  34. 34
    zman Says:

    The yellow and blue tracks again showing the possibility Fay heads back to Gulf.


  35. 35
    Sambone Says:

    12:04 pm EST

    Nymex Crude Higher As US Demand Eyed

    By Gregory Meyer

    NEW YORK — Crude oil futures were steady early Tuesday as the market parsed the effects of a weaker U.S. economy on globally growing petroleum demand.

    Light, sweet crude for September delivery was recently unchanged at $112.87 a barrel on the New York Mercantile Exchange. October Brent crude on the ICE Futures exchange fell 11 cents to $111.83 a barrel.

    In the U.S., the world’s largest energy consumer, home construction in July slid to the lowest seasonally adjusted rate since March 1991, the Commerce Department reported Tuesday. In the same month, U.S. producer prices shot to their highest annual rate since 1981, jumping 1.2% as high energy prices seeped into the economy.

    Nymex crude has dropped more than 20% since peaking above $147 a barrel in July, suggesting inflationary pressures may ease. But analysts say Tuesday’s producer-price index figures could force the Federal Reserve to raise interest rates later this year, which could boost the dollar and undercut commodities including oil.

    “One the one hand, the PPI numbers seem to be suggesting the Fed will have to raise rates in the future. That’s bullish for the dollar,” said Peter Beutel, president of Cameron Hanover, a New Canaan, Conn.-based energy risk management firm. “On the other hand, they are looking at housing starts and weakening consumer strength and seeing in that the seeds of lower demand.”

    The dollar was stronger early Tuesday against the euro, which fell overnight to a fresh six-month low of $1.4630. A stronger greenback tends to make oil less attractive as a currency hedge.

    Tropical Storm Fay was expected to slowly weaken as it moves over Florida, the National Hurricane Center reported, signaling it will avoid the U.S. Gulf Coast’s oil installations. Amid simmering relations between Russia and the former Soviet republic of Georgia, BP PLC said it stopped using a railroad line that can carry between 50,000 and 70,000 barrels of oil per day through Georgia following reports of damage to the line.

    In China, the world’s No. 2, oil consumer, China Petroleum & Chemical Corp. (SNP), or Sinopec, has indefinitely suspended gasoline and diesel imports in the latest indication that China’s domestic fuel shortage has eased.

    Still, in a report Tuesday, Barclays Capital said it sees “very little slowdown in Chinese oil demand growth” over the remainder of the year, with factories that have been shut down for the Olympics expected to restart.

    Front-month September reformulated gasoline blendstock, or RBOB, rose 98 points, or 0.4% to $2.8250 a gallon. September heating oil rose 1.58 cents, or 0.5%, to $3.1006 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  36. 36
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures leaped more than $3 a barrel Tuesday
    as the dollar reversed course and grew weaker.
    The steep rise also reflected short-covering, or buying back bets on price
    declines, a day before crude for September delivery expires on the New York
    Mercantile Exchange, a trader said.
    Front-month September light, sweet crude was recently up $2.63, or 2.3%, at
    $115.50 a barrel on the New York Mercantile Exchange, after rising as high as
    October Brent crude on the ICE Futures exchange rose $2.45 to $114.39 a
    After trading quietly for most of the session, the rally “started with the
    dollar reversing and getting weaker,” said Tom Bentz, a broker and analyst at
    BNP Paribas Commodity Derivatives in New York. The euro was recently $1.4766,
    up from a fresh overnight to a fresh six-month low of $1.4630 overnight. A
    stronger greenback tends to make oil less attractive as a currency hedge.
    With volumes light, the initial climb touched off automatic buying orders and
    stoked the rally further, Bentz said.
    Crude prices have been strained in recent weeks by evidence of falling oil
    demand. That message was reinforced by data releases earlier Tuesday.
    In the U.S., the world’s largest energy consumer, home construction in July
    slid to the lowest seasonally adjusted rate since March 1991, the Commerce
    Department reported Tuesday. In the same month, U.S. producer prices shot to
    their highest annual rate since 1981, jumping 1.2% as high energy prices seeped
    into the economy.
    Nymex crude has fallen from its July peak above $147 a barrel, suggesting
    inflationary pressures may ease. But analysts say Tuesday’s producer-price
    index figures could force the Federal Reserve to raise interest rates later
    this year, which could boost the dollar and undercut commodities including oil.
    “On the one hand, the PPI numbers seem to be suggesting the Fed will have to
    raise rates in the future. That’s bullish for the dollar,” said Peter Beutel,
    president of Cameron Hanover, a New Canaan, Conn.-based energy risk management
    firm. “On the other hand, they are looking at housing starts and weakening
    consumer strength and seeing in that the seeds of lower demand.”
    Tropical Storm Fay was expected to slowly weaken as it moves over Florida, the
    National Hurricane Center reported. But traders cited speculation the storm may
    reverse course and hit the U.S. Gulf Coast, home to an array of oil
    installations, as another reason behind crude’s jump.
    Front-month September reformulated gasoline blendstock, or RBOB, rose 6.67
    cents, or 2.4% to $2.8819 a gallon. September heating oil rose 8.46 cents, or
    2.7%, to $3.1694 a gallon.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    08-19-08 1245ET

  37. 37
    Sambone Says:

    By Dan Molinski

    NEW YORK (Dow Jones)–Dollar weakness Tuesday that began with a drop in U.S.
    stock markets is now slipping further as oil prices move sharply higher.
    The lower equities and higher crude prices – which dropped about $3 a barrel
    Tuesday in a surprise move – suggest that many challenges still lay ahead for
    the U.S. economy, and that sentiment is weighing on the greenback.
    The euro climbed to $1.4780 Tuesday, an intra-day high, while the dollar
    slipped to an intra-day low of Y109.55 against the yen.
    Still, some currency traders weren’t yet ready to call Tuesday’s price action
    the beginning of a serious correction in the dollar, which remains nearly 6%
    stronger against the euro since the beginning of the month.
    “I don’t believe we’re seeing a true correction,” said a U.S.-based currency
    trader. “Maybe we’ll head up to $1.4850 or even 1.4900 eventually, but the
    dollar rally is still well underway, and there would be plenty of (dollar)
    buyers if the euro moved toward $1.50.”
    The trader said the overall global picture remains pro-dollar because the U.S.
    is better-situated to handle such a slowdown, given the Federal Reserve’s prior
    moves to reduce interest rates.
    Tuesday morning, the euro was at $1.4774 from $1.4698 late Monday. The dollar
    was at Y109.68 from Y110.07, while the euro was at Y162.01 from Y161.80,
    according to EBS. The U.K. pound was at $1.8651 from $1.8652, and the dollar
    was at CHF1.0920 from CHF1.0979 late Monday.
    The drop in U.S. stock markets is also weighing on non-major currencies as it
    is reducing risk appetite and pulling investors out of emerging markets amid
    fears of a global slowdown.
    The dollar recently rose to COP1,894 against the Colombian peso from COP1,875
    late Friday in Bogota. Colombian markets were closed for a holiday on Monday.

    -By Dan Molinski, Dow Jones Newswires

    Dow Jones Newswires
    08-19-08 1239ET

  38. 38
    Sambone Says:

    As I mentioned yesterday because of the High over NC.


  39. 39
    zman Says:

    EOG – so that is an extended length lateral for $6 to $7 mm with 7,000 bopd and 7 mmcfgpd (8,167 boepd) initial production, which is more than double EOG’s biggest well to date in the Bakken.

    Sam – right, the models had taken it away from bending back to the Gomex but have reverted in a couple of cases this am. Does it look to be turning back to you yet? Afraid if it doesn’t today’s rally is tomorrow’s sell off.

    HAL trade working now.

  40. 40
    Sambone Says:

    Not yet


  41. 41
    Sambone Says:

    For Nicky

    By Brian Blackstone

    WASHINGTON (Dow Jones)–It may be the scariest trilogy since the Exorcist:
    U.S. import prices in July rose at a record 21.6% annual rate, consumer prices
    posted a 17-year-high annual increase, and producer prices jumped 9.8%
    year-on-year, a 27-year high.
    The worrisome theme common to all three reports: inflation has now spread well
    beyond food, energy and commodities – the types of prices that are often
    stripped out even though they comprise a big part of household budgets – to
    sectors like capital equipment, transportation and even clothing.
    The consumer price index for clothing jumped 1.2% in July versus June;
    transportation 1.7%; and recreation 0.4%. For the producer price index,
    passenger cars rose 1.4%, pharmaceuticals 0.7% and capital equipment 0.8%. The
    PPI doesn’t always translate into consumer prices, but recently, an increasing
    number of companies seem to have hit the point where they have to raise prices
    to offset their costs.
    As Dallas Fed President Richard Fisher put it Tuesday, “unless the python that
    is the U.S. economy can quickly pass the recent burst of cost-push pressures,
    we risk a reinforcing spreading of inflationary impulses and expectations.”
    Others, like Atlanta Fed President Dennis Lockhart, have sounded more
    confident that lower energy and commodity prices will be felt quickly.
    That may be wishful thinking, since many of the ex-food-and-energy prices that
    are rising aren’t volatile like gasoline. They tend to stick. And with the 2%
    target fed funds rate now well below the rate of headline inflation, monetary
    policy is extremely accommodative, even accounting for some offset from tight
    lending standards.
    Yet absent tough talk, there may be little the Fed can do between now and next
    year to damp inflationary pressures. The next FOMC meeting is in less than one
    month, and top officials like Fed Chairman Ben Bernanke have been silent the
    past few weeks, leaving financial markets to assume rates will stay on hold –
    unless Bernanke decides to redirect expectations when he speaks Friday at the
    Kansas City Fed’s Jackson Hole conference.
    The following FOMC meeting is Oct. 28-29, just days before the presidential
    elections – an awkward time to begin a tightening cycle. The next meeting in
    December comes in the middle of the critical season for retailers and a time
    when banks may face year-end funding pressures.
    That leaves late January 2009; and another couple of price reports like July’s
    will make those five months seem like an eternity for the Fed.

    (Brian Blackstone writes about the Federal Reserve and U.S. economy for Dow
    Jones Newswires in Washington. He was previously a correspondent for Dow Jones
    in New York and Paris.

    Dow Jones Newswires
    08-19-08 1324ET

  42. 42
    zman Says:

    Thanks Sam, oil looks to be losing faith in a turn too.

  43. 43
    Nicky Says:

    Oil move up looks to be a fake out to me. Could be 4C with v down to come….

  44. 44
    zman Says:

    Nicky – did you see parts of OPEC starting to change their tune? They’ve been talking oil down for weeks now. Starting to see talk of production cuts. Think today is just a function of the first weaker dollar in several sessions and a possible move by Fay.

  45. 45
    kyleandy Says:

    sam’s link 40 sorta scary knocked me right off internet explorer twice. not gonna try it a third time!!!

  46. 46
    zman Says:

    Kyle – its a memory hogger. Works ok on Firefox. Link shows a weakening Fay still moving to the Northeast over central Florida.

  47. 47
    Sambone Says:

    K – Not that big of a deal, just shows the latest on Fay.

  48. 48
    Sambone Says:

    By Christine Buurma

    NEW YORK (Dow Jones)–Amid a swarm of natural gas producers rushing to acquire
    acreage in hard-to-drill rock formations throughout the U.S., Chesapeake Energy
    Corp. (CHK) has stood apart as one of the most voracious land buyers.
    In recent years, some investors and analysts have questioned whether
    Chesapeake’s aggressive strategy exposed the company to too much risk. But if
    the company’s second-quarter results are any indication, the acquisitive
    tactics are paying off – and the best may be yet to come. Analysts are
    generally bullish on its stock, which they consider undervalued and due to
    benefit from even greater gas production.
    Oklahoma City-based Chesapeake has surpassed BP Plc (BP) and Anadarko
    Petroleum Corp. (APC) as the largest producer of U.S. natural gas, according to
    the companies’ second-quarter production data. Chesapeake’s average daily U.S.
    natural gas production in the second quarter was 2,328 million cubic feet,
    which was 9% more than BP’s output and 25% greater than Anadarko’s.
    Anadarko and BP have lagged behind Chesapeake in acquiring acreage,
    particularly in the Haynesville Shale, a vast shale rock deposit in Louisiana
    and Texas that is expected to be a major source of natural gas. Smaller gas
    producers, including Petrohawk Energy Corp. (HK) and GMX Resources Inc. (GMXR),
    have also snapped up significant Haynesville holdings, but Chesapeake remains
    the top leaseholder in the shale deposit.
    Chesapeake “is a great example of an aggressive, opportunistic corporate
    structure,” said Jake Dollarhide, the chief executive of Longbow Asset
    Management, a Tulsa, Okla., investment firm. Longbow has about $40 million in
    assets under management and holds less than 200,000 shares in Chesapeake.

    A ‘Gold Mine’

    Over the past seven years, Chesapeake’s U.S. natural gas production has
    increased nearly sixfold.
    After completing a flurry of acquisitions, including about 8,600 undeveloped
    acres in Texas’ Barnett Shale in January, Chesapeake now owns substantial
    positions in key natural gas reservoirs, including the Haynesville Shale and
    the Marcellus Shale in Appalachia. Since early 1998, the company has spent
    about $18.4 billion to purchase reserves totaling about 7 trillion cubic feet
    of gas equivalent, or tcfe.
    “Our ability to convert leasehold into annual increases of 2 to 2.5 tcfe of
    reserves is the foundation for our belief that Chesapeake can continue
    increasing value by at least $10 billion per year,” assuming natural gas prices
    average about $8 a million British thermal units, Chesapeake Chief Executive
    Aubrey McClendon said in a statement announcing the company’s second-quarter
    results earlier this month. The company didn’t return calls for further
    Chesapeake has been a particularly active acquirer of land in the Haynesville
    play. Like other shale reservoirs, Haynesville requires more costly and
    technologically advanced drilling techniques to extract gas embedded deep in
    rock formations, but high natural gas prices have made such endeavors
    According to the most optimistic estimates, Haynesville could produce up to
    245 trillion cubic feet equivalent of natural gas, enough to supply the entire
    U.S. for a decade.
    “Chesapeake is paying a lot per acre because they see the potential there,”
    Dollarhide said. “It’s an untapped gold mine.”
    In addition to buying up acreage at a rapid clip, Chesapeake has also been
    successful in attracting the personnel and equipment needed to drill the
    properties successfully, even as soaring demand for skilled oil and gas workers
    leads to labor shortages.
    “It’s incredible how high a level of activity they’ve been able to sustain,”
    said Jason Gammel, an analyst with Macquarie Securities in New York.

    Risky Business

    Although Chesapeake’s drilling efforts have been fruitful so far, the
    company’s strategy isn’t without risks. Chief among those risks is the
    volatility of natural gas prices, which have swung sharply between $8 and over
    $13 a million British thermal units in recent months. Natural gas for September
    delivery on the New York Mercantile Exchange settled floor trade at $8.406 a
    million British thermal units on Monday.
    A sharp uptick in natural gas production from shale plays, or from liquefied
    natural gas imports to the U.S. from overseas, could send natural gas prices
    plummeting and cut into Chesapeake’s profits.
    “The natural gas backdrop right now is less than stable,” said Dan McSpirit,
    an analyst with BMO Capital Markets in Denver, Colo.
    And Chesapeake’s drilling activity could become more costly as shale gas
    production ramps up and energy companies clamor for the same equipment and job
    candidates. Higher costs could lead the company to add more debt to its already
    highly-leveraged balance sheet.
    As of June 30, Chesapeake had about $13 billion of long-term debt and $3.2
    billion of assets on its books.
    “It could be a challenge to maintain oilfield service and supply commitments
    and do it at reasonable pricing levels,” Gammel said.
    As for the company’s shares, they have a forward-year price-earnings ratio of
    11.7, compared with 9.5 for the industry. But analysts are basing their
    optimistic outlooks on Chesapeake’s future earnings, when Haynesville has
    started producing. Analysts think the company is undervalued because the market
    has not fully taken into account the value of Chesapeake’s shale acreage and
    the gas within.
    In a recent note, Scott Hanold, an analyst with RBC Capital Markets in Austin,
    wrote that early results from test wells at Haynesville support a “bullish”
    view of Chesapeake’s stock.
    “We maintain our outperform rating because valuation looks attractive and we
    expect positive Haynesville results over the coming quarters,” Hanold wrote.
    Like all independent gas producers, Chesapeake’s stock is heavily tied to
    changes in natural gas prices; recent share price swings have directly
    corresponded to volatility in natural gas prices. Chesapeake shares were
    recently trading around $46; they traded as high as $74 on July 2.
    Although Chesapeake’s heavy debt load creates some risk for investors, the
    company is expected to generate significant cash flow as production ramps up,
    analysts said.
    At current price levels, Chesapeake’s shares represent a compelling
    opportunity for investors, Gammel said.
    “The stock is just exceedingly undervalued right now,” he said.

    (Christine Buurma covers U.S. power companies and the natural gas market for
    Dow Jones Newswires.

    Dow Jones Newswires
    08-19-08 1400ET

  49. 49
    zman Says:

    Hey Sam – Christine missed opportunities to make key points to her own comments. Mentions getting bigger like that is a good thing in and of itself. It’s not. They can grow a lot faster, sloppily if they want to. And by doing so drive costs up and returns down. They’re not doing that but you can’t tell it from the story. Also, she mentions it can be volatile due to gas prices but fails to mention the hedge positions which are designed to take the volatility out of the financial results if not out of the stock price. She mentions their debt load but its a straight dollar figure, useless in a vacuum unless you have a metric to go along with it (gee, $13b sounds like a lot). Anyway, that’s the problem I have with wire service reporters, they throw together stories with little to no analysis but with a headline designed to sway opinion.

  50. 50
    VTZ Says:

    Nicky, if you’re still around can I get your count on precious metals?

    820 or 840 resistance then down to 760 a good bet?

  51. 51
    kyleandy Says:

    sam – off subject i have a friend that has a lot of bank preferreds at a loss. i told him to sell em u agree????

  52. 52
    zman Says:

    ZTRADE: Added September HK $30 calls for $2.25 with the stock at $29.45. Bidding some CLR calls as well as I take a small step back into the group pre inventory numbers tomorrow. I like the action in the group today which is easily outperforming the commodities but I would note it is on extremely light volume and can turn on a dime.

  53. 53
    zman Says:

    Sam – check it out when you turn all the models on.


  54. 54
    Sambone Says:

    K – If it is in an IRA, don’t sell unless your nervous about the bank. It will be a while before they are back, but they are getting paid to wait.

    In a taxable account, by all means. Always use the tax law to your benefit. You offset gains against losses. You can use $3,000.00 loss and carry forward the rest. Then just buy another one, with a better yield. JP Morgan just issued one with a 8.625% yield. These guys are desperate.

    I’ve currently got orders in on WB pr Z at 15. During the selloff on July 15th, some numnut sold his postion and the preferred went to 12. Remember these things are not traded much. If we get another blood bath (Which we will), my hope is to get a 13% yield for 5 years, plus another 40% equity kicker when called. WB won’t go out of biz, but they look like a takeover in the next 12 months.

    Hope that helps.

  55. 55
    Sambone Says:

    Watch out Northern Florida/Southern Georgia.

    Click tab on right “FWD”


  56. 56
    Nicky Says:

    Hi VTZ – yes even if I am off on the minor waves then your levels are right. My preferred count says we are still tracing out a wave iv – likely now in ivC – with v down to come which should take us to the 760 area and then stage a bigger bounce back towards 850 before turning once again lower and down towards 700 or lower.
    If I am off then v is already in at last weeks lows and we are heading most likely for the 850 region before moving down.

  57. 57
    Sambone Says:

    3:09 (Dow Jones) “We cautiously believe that oil prices are nearing a bottom.
    However, we are not calling a turn yet,” say commodities analysts at Societe
    Generale. They mark $100 a barrel as the psychological support and predict the
    correction could continue through September or even longer. Some factors that
    could pressure crude more: next week’s planned reopening of Caucasus oil
    pipeline, more North Sea crude, seasonal demand weakness. On the upside:
    long-term healthy Asian demand growth, Canadian oil sands costs, expectations
    that OPEC will defend $100. Nymex Sept crude settles up 1.5% at $114.53, still
    off 21% from record high. (ANR)

  58. 58
    zman Says:

    Thanks Sam, still have not seen much definitive out of GS.

  59. 59
    Nicky Says:

    #41 – thanks Sam. Interesting how that inflation turned up today in the data even with commodities falling the last 6 weeks. Or is it just that we would have to see oil way lower than anyone’s expectations to reduce inflation?
    Its all still a disaster in the making as far as I can see – if oil starts going up again which it will then they will have to start tightening and what the heck is that going to do to growth…..cycle high is due later in the year for the indices…and then down we go…..

  60. 60
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures staggered to a higher close Tuesday in
    a rally inspired by a slipping dollar.
    Light, sweet crude for September delivery settled up $1.66, or 1.5%, at
    $114.53 a barrel on the New York Mercantile Exchange. October Brent crude on
    the ICE futures exchange closed $1.19 higher at $113.13 a barrel. Brent
    settlement prices weren’t immediately available.
    Nymex crude closed within the range in which it’s been trading for the last
    week. After treading water early in the session, buying picked up as the dollar
    reversed early intraday gains against the euro. Dollar-denominated crude often
    draws investors seeking a currency hedge.
    “The major catalyst is the dollar,” said Mark Waggoner, president of Excel
    Futures in Newport Beach, Calif. “It’s more important than anything else as far
    as I’m concerned.”
    As it battered southern Florida, the path of Tropical Storm Fay also
    preoccupied the market. While the National Hurricane Center reported it was
    heading northeast, traders said a private forecaster identified a chance it
    will move west, the direction of critical oil infrastructure on the U.S. Gulf
    While briefly rising nearly $4, crude’s gains were muted by signs of slipping
    oil use. Last week U.S. gasoline demand as measured by purchases at the pump
    was down 7.8% from the same week a year ago, a unit of MasterCard Inc. (MA)
    reported Tuesday. Gasoline demand was roughly flat from the week before.
    Weekly government statistics on U.S. demand and oil stockpiles are due at
    10:35 a.m. EDT Wednesday. Analysts surveyed by Dow Jones Newswires estimate
    U.S. crude stockpiles rose by 800,000 barrels in the week ended Aug. 15, while
    gasoline stockpiles fell 2.4 million barrels and stocks of distillates, which
    include heating oil and diesel, rose by 500,000 barrels. Refinery utilization
    climbed 0.4 percentage point to 86.3% of capacity, according to the average
    analyst forecast.
    Despite weak U.S. demand, the International Energy Agency expects oil demand
    will rise by 0.9%, or 800,000 barrels a day, to 86.9 million barrels a day this
    year as China and other emerging economies consume more.
    In a move with repercussions for Asian fuel markets, China Petroleum &
    Chemical Corp (SNP), or Sinopec, has indefinitely suspended gasoline and diesel
    imports. A company official said Tuesday that a resumption of imports will
    depend on market conditions but he didn’t elaborate.
    Barclays Capital said in a report Tuesday it sees “very little slowdown in
    Chinese oil demand growth” over the remainder of the year, with factories that
    have been shut down for the Beijing Olympics expected to restart.
    Front-month September reformulated gasoline blendstock, or RBOB, settled up
    4.87 cents, or 1.7%, to $2.8639 a gallon. September heating oil settled up 3.89
    cents, or 1.3%, to $3.1237 a gallon.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    08-19-08 1520ET

  61. 61
    Sambone Says:

    N – Talked about being spooked, take alook at these charts from MER.


  62. 62
    zman Says:

    Anybody have access to historic data on the mastercard survey. Just curious to know how well it ties to the EIA. That is a big delta (7.8%) from prior weeks.

  63. 63
    Sambone Says:

    LEH getting taken to the wood shed. Is it the next Bear Stearns?

  64. 64
    zman Says:

    XLF vs XLE in full force today. Could be some money flowing back into the group but volumes look very light. A little surprised to see the OIH and XNG about to close up 3% and not too far from their HOD. I would put very low odds on Fay coming back into the Gulf so maybe the after hours rally in crude is more dollar weakness. Nothing I have read today leads me to think that traders are giving up on the idea of a dollar rally.

  65. 65
    Sambone Says:

    Off subject

    Low taxes and no school. What could be better?


  66. 66
    zman Says:

    Across the board green close. Let’s see some more of those.

    Bier thirty!

  67. 67
    Sambone Says:

    Tini time, yea!

  68. 68
    douglas51 Says:

    Sambone…the article about school/taxes is actually my hometown…Crossville Tn…I know all those people.

  69. 69
    zman Says:

    CVX going greener, dumps NASCAR sponsorship.

  70. 70
    Bleemus Says:

    Oil, gas insiders bet energy-stock bull is primed to resume run – WSJ

    WSJ reports oil and gas insiders are betting big that the historic run-up in energy stocks isn’t over. Since energy stocks crested and retreated in early July, an unusually large number of directors, officers and large stakeholders have pumped money back into their own companies — a sign, analysts say, that the boom is primed to resume. Kelcy Warren, the chairman and chief executive of natural-gas pipeline operator Energy Transfer Partners LP, said he thinks the recent dip in energy stocks is overdone. “I’ve been amazed that the whole sector has been turned upside down,” he said. “Investors have thrown the baby out with the bath water.” Mr. Warren isn’t alone. Insiders at more energy companies are buying more stock since energy prices fell, according to data compiled by Form4Oracle. “This is the most buying we’ve seen in a long time,” says Form4Oracle analyst Alex Romayev. Analyst Ben Silverman says the insider purchases are a sign energy prices could soon rebound. “What they’re trying to do is call a bottom,” says Mr. Silverman, research director at InsiderScore, which tracks and rates insider buying and selling. “Over the years, energy insiders have accurately made short-term calls.” At least four times in recent years insiders have timed a short-term bottom in energy stocks, Mr. Silverman says. “When prices come down, insiders buy aggressively.” (Stock mentioned: CHK, MMR)

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