Thursday Gas Preview & Oil Review


Sentiment Watch:Very cautiously optimistic. Two days of green also do not a trend make. I added opening positions in a couple of less recently traveled service names yesterday ((RIG) and (NOV)) which began acting the way I was looking for them to in yesterday's post. I also took some fast profits on HK and still have enough of a position left from last month to matter. Sentiment towards further drops in oil appear to be eroding as more data from the  EIA shows that it is in fact not the end of the world as we know it for hydrocarbon demand. 


Made Me Laugh Watch:

After cascade extreme,
my screen has gone green.
Where have you been,
long time no seen.

Should have gone down
if followed same patterning.
But no, it went up!
Blessed end to the battering.

Sentiment says there is something anew.
Maybe this downphase is over, whew!

‘Heart says it’s over.
It’s no shake and bake!
‘Head says $10 bbl lower.
Another head fake!

Even if so.
The end is in view.
my fear has gone low,
that portfolio falls into the loo.

~ Mahout

In Today's Post:

  1. Holdings Watch: Took some HK off the table, added some RIG and NOV
  2. Commodity Watch - Natural gas preview and oil review
  3. Stocks We Care About Today - CLB, FRO
  4. Odds & Ends

Holdings Watch: The Wiki Holdings is updated.

  • HK - Took have of my September $30 call position off the table, for $3.10, up 38%
  • RIG - Added October $140 Calls (RIGJH) for $3.00.
  • NOV - Added September $80 Calls for $1.85  (NOVIP) as per comments in yesterday's post.

General thought on the E&P Group: (from yesterday's comment section but it obviously still applies) You are starting to see various middle tier and bulge bracket firms reigning in their price targets which is the first step in the healing process. People know the 3Q estimates for oil are too high in the models given the sudden collapse so they think the numbers need to come down. Now the Street is accommodating them and they can more comfortably buy the stocks AFTER the price target reductions.

Commodity Watch:

Natural Gas closed up a dime at $8.08. The chart looks to be attempting to put in a bottom but we could get a very large injection today due to the now freakishly cool for August weather and the return to service of the Independence Hub which had been down for maintenance for a portion of the prior week. This morning gas is trading up with crude and althoughthe gas storage number will be a whopper, it may already be priced into

The EIA Gas Storage Preview:

  • My Number: 75 Bcf Injection;
  • Year Ago: 22 Bcf;
  • 5 year average: 59 Bcf;
  • Street Consensus: 82 Bcf
  • Anything over Street is likely to put prices into the red on the day at least temporarily. However, this number has been anticipated for some time and a number in the 70s could leave prices untouched given the turn in crude today. Storage after all will end in about the same place 3.3 to 3.4 Tcf regardless of one week's injection and the bigger weight on prices at present remains "supply glut 2009" which I think is overdone.



Crude oil initially traded higher with Fay but faded with a large headline build in crude inventories as imports surged. October crude, which becomes the front month today ended up $1.00 at $115.56. This morning crude is trading up $2+ as the dollar tumbles.

  • Kremlin Watch: Russian Oil Production Growth Slowing. Russia sees production of 9.85 mm bopd in 2008, about flat with 2007 levels and sees slight growth of 2.2% in 2009, slowing to 0.8% growth by 2011.  This slowdown comes on the heals of a decade of growth and is the result of aging fields in Western Siberia.
  • Tropics Watch: Fay Won't Fade Away: All computer models show Fay, now a stalled tropical storm off the east coast of Florida, as moving west north west across Florida towards the FL Pandle and Gulf coastline. The track has move somewhat to the south overnight and the NHC says that if it hits the Gulf waters expect some re strengthening.
  • Dollar Watch: The dollar index is down a half percent this morning as the U.S. banking picture gets murkier yet.

The EIA Oil Inventory Report Review:  Mixed Bag

CRUDE OIL - Huge 9.4 Million Barrel Build - The result of abnormally large imports that were themselves the result of a "catchup" in Gulf Coast imports in the wake Hurricane Edouard which limited volumes in the prior reporting period.

Crude Imports - Moonshot! This is not a sustainable level for more than a week or two at a time.

Crude Stocks. OPEC can readily say we warned you last week about sizable crude stock builds coming in the developed countries, citing yesterday's numbers as a reason to cut production at their next meeting.

GASOLINE: - Yet another big drawdown. Gasoline stocks fell 6.2 million barrels last week and are now down 20.5 mm barrels or 9% in the last 4 weeks. Also note that gasoline stocks are below the five year average. Can't be a bad thing for the refiners.





 DISTILLATE - Somewhat smaller than expected increase in stocks.

Stocks We Care About Today:

(CLB) - Reservoir description and production enhancement. Global focus, largely aid operators with oil reservoirs in the past but are getting more involved in tight gas sand and the shale plays. This one is on my dance list but a little further down due to its thinner trading characteristics. Not a name that everyone's reading list but they are a vital component of producing smartly for the "who's who" list of Majors and E&P's.

  • What they do: Reservoir description and management, production enhancement (fracture diagnostics). Basically the idea here is to maximize production AND recoverable reserves at the field level. Improperly produced a company can end up maxing initial production rates or boosting flagging rates but reduce ultimate recovered reserves ... they help companies do both.


  • A good bit of their growth is coming from increased demand for production enhancement from gas shale projects in North America. They are gaining share in this segment.


  • Conducting a reservoir management study on the Haynesville Shale for 12 major lease holders and a similar study for 18 players in the Marcellus. They developedt specific products for the Barnett and will do the same in the Haynesville/Bossier Shale. Pretty much everyone but CHK, who does their own core work so they can have the data back quicker and not share it with others, will be using CLB in this play.


  • Reservoir description segment is seeing increasing demand from Asia/Middle East. Saw strongest growth in over a decade in this segment last quarter as OPEC nation interest grew. Their slogan for Saudi Arabia should read "Got water? We can help"


  • Stock is a bit unique with no great comps I can come up with. It trades at a premium to the OIH's current average  multiple of about 10x 2009 estimates and as such is largely rated hold by the handful of brokers who cover it. Overtime, as the 2010 number solidifies, I expect them to warm up to the story.

(FRO) - Tanker Driver Posts 2Q Results...jury still out but it looks like a disappointment  based on market indications, chart looks weak, environment may weaken for rates if OPEC cuts, worth a listen to the call.

  • EPS of $2.17 (ex asset sale gains) vs $1.79 expected.
  • Special dividend of $3 per share, was expected to be higher.
  • Conference call: today, 9 EST

Odds & Ends

Analyst Watch: UBS upgrades coals: (MEE), (FLC), (ACI) from Hold to Buy.


115 Responses to “Thursday Gas Preview & Oil Review”

  1. 1
    Sambone Says:

    By Lananh Nguyen

    LONDON (Dow Jones)–Crude oil futures traded nearly $2 higher in London
    Thursday, taking strength from a sluggish U.S. dollar and persistent
    geopolitical concerns.
    “Energy prices are firm as a two-day slide in the dollar has taken some wind
    out of the bears’ sail,” said Stephen Schork, editor of the Schork Report
    energy newsletter in Pennsylvania.
    At 1137 GMT, the front-month October Brent contract on London’s ICE futures
    exchange was up $1.61 at $115.97 a barrel.
    The front-month October contract on the New York Mercantile Exchange was
    trading $1.74 higher at $117.30 a barrel.
    The ICE’s gasoil contract for September delivery was up $34.50 at $1038.50 a
    metric ton, while Nymex gasoline for September delivery was up 232 points at
    293.35 cents a gallon.
    Oil prices extended Wednesday’s gains, tracking the weaker U.S. currency while
    traders weighed the potential for further upward moves.
    “The greenback was…still retreating after a strong rally recently when
    investors were revaluing their portfolios and buying back the oversold dollar
    amid fears of slowing growth in Europe and the rest of the world, not just the
    U.S.,” said Andrey Kryuchenkov, an analyst at Sucden research in London.
    Crude oil futures typically rise when the dollar falls because some investors
    seek to use oil and other commodities to hedge against decline in the currency.
    Participants also cited the ongoing conflict between Russia and Georgia over
    the breakaway region of South Ossetia as a factor supporting prices.
    “The specter of conflict between Russia and NATO is firmly in peoples’ minds
    and…price activity backs this up,” said Andy Riddell, an energy broker at ODL
    Securities in London.
    In terms of supply-demand fundamentals, participants are assessing whether
    slowing crude oil demand growth in advanced economies – and the recent sharp
    decline in oil prices – could prompt the Organization of Petroleum Exporting
    Countries to roll back production in September.
    “The hawks within the cartel are terrified of allowing Western countries to
    build any kind of cushion for the unexpected, because it has the potential to
    return prices to normal or sustainable economic levels,” said Peter Beutel, an
    analyst at Cameron Hanover, a trading advisory firm in New Canaan, Connecticut.
    But the producer bloc may need to react to increasing evidence of lackluster
    oil demand, particularly in the U.S., the world’s largest oil consumer.
    “Today we are still in a situation where low product demand is leading
    refineries to run at minimum capacity and pushing crude oil away,” said Olivier
    Jakob, managing director of Swiss-based consultancy Petromatrix.
    The oil selloff in recent weeks has cast a bearish shadow over the market, but
    several days of rangebound trade suggest prices may have reached a floor for
    “We are looking for the market to form a temporary base,” said technical
    analysts at Barclays Capital in London. In the medium term, the analysts said
    any gains would be “corrective,” and predicted prices would fall to $100 a
    barrel later this year.
    One oil broker in London suggested the market could be at a short-term turning
    “It will be interesting (Thursday)…the technical picture would suggest
    (gains) should be sold into, but if we see more short covering we could see us
    heading back to $120 a barrel,” the broker said.
    -By Lananh Nguyen, Dow Jones Newswires
    Dow Jones Newswires
    08-21-08 0746ET

  2. 2
    crysball Says:

    Nominate Mahout as Poet in Residence.
    Could you define a ‘Bulge Bracket Firm’

  3. 3
    Sambone Says:

    Jump In Crude Stocks Fuels Talk Of OPEC Cut


    NEW YORK — The biggest weekly jump in U.S. crude oil stocks in seven-and-a-half years is stoking market expectations that OPEC soon may cut production to underpin oil prices.

    Last Friday, the OPEC Secretariat warned in its monthly oil market report of the “potential for a sharp build in crude oil inventories’ given that current OPEC output is “well above the expected demand.”

    The Organization of Petroleum Exporting Countries meets Sept. 9 in Vienna to view output policy, following essentially unilateral moves in recent months by Saudi Arabia to lift output to cool off scorching prices.

    Nymex crude oil futures prices have fallen more than 20% from the record high settlement of $145.29 a barrel on July 3, amid the largest sustained decline in U.S. oil demand since 1982.

    OPEC members are haunted by the market collapse of 1997-1998, which was brought on by a misreading of the Asian economic crisis, a Saudi-led push to boost production and an unusually warm winter that sapped oil demand across the Northern Hemisphere. Prices were slashed in half in less than a year, to a record low below $11 a barrel and took nearly two years and steep output cuts before they regained their previous levels.

    In an eerie echo of those times, Nymex crude oil futures prices are tracking a weak path they haven’t followed since the price crash 10 years ago.

    With just seven trading sessions left in August, the price of front-month crude futures is averaging $116.72 a barrel and is on pace to be the weakest since April. Traditionally, U.S. crude prices rise during the summer months, which are the peak gasoline demand season. The August average price hasn’t been below the May, June and July averages since 1998.

    No Signals On The Right Price
    The price downtrend has clipped the value of OPEC’s reference basket of crudes to $108.26 a barrel on Tuesday, a drop of 23% from the record high of $140.73 hit on July 3.

    Price-hawk Venezuela is calling for OPEC to cut output when it matters in three weeks, showing no apparent concern that despite the recent drop, prices still are more than 60% above year-ago levels.

    OPEC or Saudi Arabia, the world’s biggest oil exporter and the group’s de facto leader, have studiously avoided signaling the appropriate level for oil prices. Saudi King Abdullah ordered the kingdom’s output cranked up after prices surged to near $140 a barrel in early June, and the Saudis have pledged a flow of about 9.7 million barrels a day, a level that hasn’t been hit in more than 25 years.

    But in the U.S., high oil prices are weighing on the shaky economy and the great uncertainty and OPEC worry is that the booming oil demand growth in developing nations, such as China and India, may start to slow too.

    Michael Wittner, global head of oil research at Societe Generale in London, said he believes OPEC will defend oil prices at $100 a barrel “with informal quiet production trimming.”

    “Price is the key signal for OPEC. But no one really knows what prices Saudi Arabia wants, and this is a wildcard,” he said.

    Nymex crude oil futures were battered Wednesday after the Energy Information Administration reported that U.S. crude oil stocks rose by 9.39 million barrels in the week ended Aug. 15, while market forecasts had called for a rise of just 800,000 barrels.

    The gain was the biggest in any week since March 23, 2001, and it jolted at least the near-term outlook. Despite the fact that the gain largely reflected the smoothing out of delayed crude oil imports in the wake of Tropical Storm Edouard, the balance has shifted in the world’s biggest oil market.

    Crude stocks, now at 305.9 million barrels, are back in the middle of their five-year average range for this time of year after falling into the lower half a week ago, EIA said.

    Stocks Above Five-Year Average
    The year-to-year stocks shortfall has narrowed to 23.5 million barrels from 36.6 million barrels in the week.

    Crude stocks are sufficient to cover 20.7 days of refiner demand for crude, up from 20 days a week ago, and above the five-year average of 19.8 days.

    A key reason for the stocks’ rise is that refinery runs are lagging expectations. So far this month, refineries are processing about 14.8 million barrels a day of crude, as weak demand and high crude costs pinch margins. That’s about 600,000 barrels a day lower than the near 15.4 million barrels a day processing level EIA had projected for August.

    Just as crude oil stocks posed a shocker with an unexpectedly large rise, gasoline stocks fell more steeply than had been projected in the latest week. Stocks fell by 6.2 million barrels, while analysts expected a drop of 2.4 million barrels.

    Much of the drawdown likely was caused by refiners running down inventories of summer-grade gasoline as the season ends and they need to make tank space for winter-grade fuel.

    The drop pushed gasoline stocks below their year-ago levels for the first time since Feb. 1 and to the biggest deficit compared with a year earlier, at 3.5%, since Nov. 30, 2007. Stocks are sufficient to cover 20.9 days of current demand and are above the year-ago level of 20.1 days, while only slightly trailing the five-year average for this week of 21 days of demand cover.

    The gasoline stocks figures and position adjustments related to the expiration of the September-delivery crude oil futures contract pushed prices up Wednesday despite the worrisome crude data.

    $100 For Basket May Be Trigger
    September expired at $114.98 a barrel, up 45 cents on the day, up from its session low of $112.61 but well below the high of $117.03. October crude, the new front month, rose $1.02 to $115.56 a barrel. September gasoline futures settled 1.6%, or 4.64 cents higher, at $2.9103 a gallon, but 19% below the record high price hit July 3.

    A month ago, when the August-delivery crude contract expired, at $127.95 a barrel, it was the cheapest of any Nymex crude contract, which are listed as far forward as December 2016. On Wednesday, when the September crude contract expired, the most highest-priced contract listed on Nymex was $117.55 a barrel for May 2009 delivery crude, a measure of how the market has dropped in recent weeks.

    Analysts said the course of prices in the runup to the OPEC talks will determine the group’s next move.

    A drop below $100 for the OPEC basket “would represent a matter of major concern for most of the key ministers,” said Paul Horsnell, analyst at Barclays Capital in London. A move below $90 would likely be viewed as “something of a crisis.”

    The only thing that could avert an OPEC cut is a price jump back above $120 a barrel, coupled with a steady outlook.

    “Should prices stay close to current levels, then a cut in actual output is fairly certain,” Horsnell said. If prices fall further, OPEC would like officially reduce its output ceiling as well.” Regardless of price movement, OPEC will likely find itself meeting again in October or November at the latest to again review the market, he said.

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

  4. 4
    zman Says:

    Bulge bracket = Merril or Lehman, middle tier = Piper, Jefferies, etc.

    Sam – thanks, that’s what I wrote in the post, it’ll be a lot easier on OPEC when they cut to say we told you just days ago that inventories in the West would rise.

  5. 5
    zman Says:

    Dollar getting dropped, oil getting popped, getting on the FRO call.

  6. 6
    Nicky Says:

    Morning all. If oil is back at 120 or higher then OPEC is unlikely to cut I would have thought.

  7. 7
    bill Says:

    drys reporting after the close today

    I have no position but good earnings usually means a 5 % pop. Might be good for a day trade and sell in after hours.

    Earlier this year the stock pop from 80 to 90 in after hours only to close at 80 the next day.

    Dry rates have been (relatively weak) as well as tanker rates

    Opec may call for production cutbacks.

    I only own tnp in the tanker sector

    Fro likes osg and they own 5 %

  8. 8
    Sambone Says:

    New ETF’s

    PowerShares DB Crude Oil Short ETN (SZO)
    PowerShares DB Crude Oil Double Short ETN (DTO)
    PowerShares DB Crude Oil Long ETN (OLO)
    PowerShares DB Crude Oil Double Long ETN (DXO)

  9. 9
    Nicky Says:

    Oil has resistance at 120.10, 121.40 and 122.30.
    If this is a B wave correction there is nothing to say it can’t retest the all time highs!

  10. 10
    bill Says:

    Look like a good day for gas e&p coming..

    z do you like FST, xto, dvn

  11. 11
    zman Says:

    Bill – check out slide 18 on the FRO 2Q presentation.

    FST – no opinion
    DVN – in general yes, nothing specific right now, expanding deepwater, lead in Barnett.

    XTO – I’m staying away, better opportunity in CHK I think.

    Oil up $4+…short covering on the dollar/OPEC

  12. 12
    zman Says:

    FRO saying Iran has reduced offshore storage of oil. Bad for tankers, also removes overhang of supply.

  13. 13
    zman Says:

    FRO saying order book for VLCC (very large crude carriers) has increased during the quarter. Saying the order book for new ships in 2009/10 is almost equivalent to the remaining single hull fleet. Market has gone in the last month from worry about enough supply of ships to worry about enough demand.

  14. 14
    bill Says:

    yep, i saw it

    q3 and oct usually the worst months for tankers and stocks generally decline, I have found year end to be a good time for bargain hunting if rates support the purchases

    Fro seems to squeeze every potential dollar from its assets. Very well run company

  15. 15
    bill Says:

    I listen to the fst call regarding their latest purchase. I came away impressed with mgt.

    hk baffled me by issuing shares after their stock was off 50 % from highs., but it seems they issue 25 m shares every 3 months. Maybe they put the wheels in motion when the stock was 50.

    Seems to me a convertible offering timed when the stock is higher would be a better strategy for raising cash.

    I like how chk has spun off some assets to pay for their aggresive acquisitions

  16. 16
    zman Says:

    FRO – newbuild ship prices have been increasing at a substantial clip, leveling off of late.

    saying global fleet utilization will fall. They sound a less bullish by a bit versus last couple of quarters.

    chart looks vulnerable Bill, also, I heard people were looking for a bigger dividend than $3, obviously some disappointment looking at the pre market indications.

  17. 17
    zman Says:

    HK – hacked me a bit on that last deal but its done now so water under bridge.

    CHK – the coming JVs in Marcellus and Fayetteville will catalyze the shares, look for them pre 9/30, also another VPP (volumetric production payment) is in the works.

  18. 18
    zman Says:

    RIG chart now big gap up, know I bought Octobers but was not looking for this kind of day …won’t round trip this move if I can help it.

  19. 19
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures shot to a 13-day high as escalating
    tensions between the U.S. and Russia overshadowed concerns about weak demand.
    Light, sweet crude for October delivery traded $3.94, or 3.4%, higher at
    $119.50 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchanged traded $3.66 higher at $118.02 a barrel.
    The oil market has bounced back from three-month lows hit last week, with
    futures now trading at the highest point since Aug. 8.
    Oil prices had not moved during Russia’s war with Georgia, despite the direct
    threat to a major oil pipeline near the conflict zone. The two countries have
    signed a ceasefire, but a war of rhetoric began when Poland agreed earlier this
    week to host a U.S. missile defense system. Russia responded with talk of an
    “arms race” with Europe, raising fears of long-term tensions. Russia is the
    world’s largest oil producer, and a major supplier of crude and natural gas to
    “This seems almost a delayed reaction to tension in Central Asia,” said
    Addison Armstrong, with Tradition Energy in Stamford, Conn. “Security of energy
    supplies coming into Europe are being called into question now.”
    The “political risk premium” for oil prices is over $10 a barrel due in part
    to the widening conflict between Russia and the U.S., said analysts at JBC
    Declining U.S. oil demand was temporarily forgotten. On Wednesday, the U.S.
    Energy Information Administration reported a massive 9.4 million barrel build
    in oil inventories, the largest since March 2001.
    “Prices are inclined to work a little higher for the balance of the week, as
    geopolitical tensions move front and center, temporally sidelining the more
    bearish fundamental backdrop,” wrote Edward Meir with MF Global.
    Rising crude futures were given a second boost from the dollar, which is
    weakening against the euro after several weeks of dramatic gains. Oil priced in
    dollars becomes cheaper as the U.S. currency weakens, and the popularity of the
    oil-dollar trade allows movements in one market to lead to shifts in the other.
    Front-month September reformulated gasoline blendstock, or RBOB, recently
    traded up 8.26 cents, or 2.8%, at $2.9929 a gallon. September heating oil
    traded 10.90 cents, or 3.5%, higher at $3.2725 a gallon.

    -By Brian Baskin, Dow Jones Newswires

    Dow Jones Newswires
    08-21-08 0924ET

  20. 20
    zman Says:

    Sam , right, right, because Poland produces so much oil, lol. The trade seems to be reversing. The 4 week draw on gasoline is more of a factor than Russia Vs Poland but reporters get paid for using their headline rolodex’.

    CLR on fire, WLL and EOG have been running. I may add a small position in BEXP.

  21. 21
    zman Says:

    Group taking a break pre nat gas numbers.

    HAL continues to underperform the group and SLB and I’ve about had enough of that.

  22. 22
    zman Says:

    Stocks having trouble making headway with $4 up oil. Either they don’t believe the rally is real or they are worried about the gas number being huge in 15 minutes or they are running into bits of overhanging share supply as indicated by Tater yesterday.

  23. 23
    bill Says:

    probably a little profit taking too

    yesterdays gains were wiped out with the oil number only to rebound later

    I hav a ng buy at 8 if we get a dip

  24. 24
    zman Says:

    Here ya Bill, 10 minutes to go, gassy stocks well off highs now. If we get a smallish number AND a good reaction from gas I’ll probably take a position in SWN and a new position in CHK.

  25. 25
    Nicky Says:

    Wednesday’s low of 7.916 needs to hold with nat gas…

  26. 26
    zman Says:

    Hear ya Nicky, thanks. If we get a big number, say 90+ that will be a hard level to hold.

    WRES out with guidance and budget, looks strong, stock not moving. Very interesting story on Cali oil drilling.

  27. 27
    zman Says:

    88 Bcf Injection, pretty big.

  28. 28
    zman Says:

    Gas fighting to go up on that number, yep looks like they are saying it was already factored in

  29. 29
    Nicky Says:

    CNBC have wheeled Ray Carbonne out and he and Sharon Epperson are throwing everything bullish they can at it….

  30. 30
    zman Says:

    ZTRADE: Adding SWN $40 September calls for $1.90 for a quick trade on gas making it through the storage number ok. Good company but this is probably a day trade.

  31. 31
    bill Says:

    ng up on a bearish number lol

  32. 32
    Fred Says:

    Z – If the Farmers Almanec is correct, 85% track record, we’ll be needing that ng for the up coming winter.


  33. 33
    zman Says:

    Bill – well, it has been the opposite for 4 weeks now so I’d say about time. More of a commodity trade in general too though as NG not getting killed seems to have green light up $5 oil.

  34. 34
    zman Says:

    Thanks Fred, those guys are spooky right.

    Wow, check out the minute chart on SWN. Like a telephone pole.

  35. 35
    bill Says:

    ng low 8.015 damn i missed by 1.5 cents arrrrrrg now 8.30

  36. 36
    reefguy Says:

    Political Theory:
    OIL at 112-McCain up by 5%
    Oil at 130-OBama up by 5%

  37. 37
    Nicky Says:

    Ummm – tyical B wave stuff here.

  38. 38
    zman Says:

    Reef – no doubt. I had thought OPEC had been talking oil lower to help McCain. Can’t see them wanting Obama and a sustained push for green energy and conservation over here. I think Obama would mean higher oil prices when he goes after “BIG OIL” and their production profiles then fall apart.

    Wow SWN. Going to cash that in if it can’t take out $40.

  39. 39
    Sambone Says:

    122 wow

  40. 40
    Popeye Says:

    Crazy market, all I know is not to get in the way.

  41. 41
    zman Says:

    Nicky – got levels for us on NG?

    Tater – if you get a chance tell me how to vote for you and also your thoughts on RIG and NOV techs. Thx.

  42. 42
    jsaun14 Says:

    Z –

    JPMC updated research on WSP. Would we be interested in their bullet points or is it old hat?

  43. 43
    Nicky Says:

    Nat gas – resistance at 8.370.

    We still need to see a close above 8.730 for confirmation a low is in.

  44. 44
    zman Says:

    Jsaun – I would yes please.

    Thanks Nicky.

  45. 45
    zman Says:

    Latest on FAY from the NHC at 11 EST:




  46. 46
    zman Says:

    FAY from Accuweather with graphs:


  47. 47
    mahout Says:


    Thanks much for your astonishing and revealing post #137 of yesterday. It explains the absolute nuttiness of price action on gold and silver in recent days and months. I won’t be selling my “gold in the ground stock” or my silver in the lock box now because the price is not real. Someday, hopefully, it will have to come back to reality.

    Crooks do abound
    in banks and in trading
    There’s no gold to be had
    But the price is still fading

    Cloaked in legalized secrecy
    With no hope of any transparency
    A monstrous mischief is underway
    We can only hope, someday
    they will pay

    Thanks again.

  48. 48
    jsaun14 Says:

    JPMC (Asia Pacific) Feng Zhang –

    – $10.20 Price Target w/ Overweight Rating

    – JP raised their earnings estimates by 17% for FY 08 & 09.

    – The production of value-add products, non-API, was 73,736 tons, up 73% YOY. Expect momentum will continue into the next 18mths. Successful will price increases.

    – Reduced Jun 09 price target to US$10.2 by applying 7.8x PE to FY09 EPS estimate of$1.3. 7.8x PE is 20% discount to global comps avg.

    – New orders healthy. New customers = Shell & SIAM.

    – Company likely to expand capacity to 800,000 tons.

    – Feel steel prices have leveled, so the next biggest risk is pricing strength. But demand is forecasted to stay strong.

  49. 49
    zman Says:

    I hereby dub Mahout the Minstral of Methane

    Jsaun – thanks for the WH comments. The last statement says it all, metals leveling and I think they have 0 worries on demand for OCTG.

  50. 50
    jsaun14 Says:

    I like WH…I’m partial to the sector since I was in NS Group when Ipsco took them down.

  51. 51
    zman Says:

    JS – NOV sells pipe too and then of course there is TS.

  52. 52
    zman Says:

    By the way, FRO said earlier that tankers are slowing down to help support rates. Stock has been creeping up since the conf call. Thinking puts.

  53. 53
    zman Says:

    ZTRADE: Out remaining HK $30 September Calls for $4.70, up 52% on that batch bought on 8/13. I continue to hold 35 and 40 Sept calls and will be back in the $30s as the stocks try to find a bottom.

  54. 54
    Wyoming Says:

    All our Barnett wells use WC80 pipe. That is Wild Cat 80k# yield. Same as API rated but it does not meet the requirements, therefor it is not called N80. WC80 is China. It is not like we have much of a choice…

  55. 55
    zman Says:

    PQ starting to wake up now.

    HAL too.

    Pretty happy with the RIG / NOV trades

    3 green days in a row. Amazing.

  56. 56
    zman Says:

    GMXR continues to run without me, still thinking stock and written calls against it.

  57. 57
    zman Says:

    Selling SD September $40 calls against my position.

  58. 58
    Sambone Says:

    11:16 (Dow Jones) Oil futures hit a two-and-a-half week high of $122.02/bbl
    intraday, shooting up in seconds after breaking through the $120 psychological
    level. With tensions between oil- and gas-rich Russia and the West giving
    energy consumers another thing to worry about, analysts are calling the end of
    a correction that saw oil go as low as $111.34 Friday. Some traders say oil’s
    July 11 intraday record at $147.27 could be challenged if several technical
    levels are breached. Nymex Oct crude recently $6 higher at $121.56 on its first
    day as the front-month contract. (ANR)

  59. 59
    zman Says:

    Wow – SWN – overstayed my welcome on that daytrade. Round tripped it. That’s why I don’t do those.

  60. 60
    ram Says:

    RE SWN – Is the reasoning enough to stay longer?

  61. 61
    Fred Says:

    Alan Metzler quote live from JH, on Bloomberg, “we can’t have a system where the financial folks make all the gains and the public takes all the losses.”

  62. 62
    zman Says:

    Ram – yes, if NG doesn’t peel into the red, I think it will bounce again. Should have stuck to may day trade sentiment and chucked it for a 20% 20 minute trade. I don’t do that well. On these guys I have no trouble holding overnight and I’m a little low in exposure to gas right now with no CHK calls on now and less HK.

  63. 63
    zman Says:

    ZTRADE: Out HAL $45 September $45 calls for $2.28, up 43% . Didn’t like how it has been underperforming the group. Will reposition this one soon or with another service name.

  64. 64
    Sambone Says:

    12:29 (Dow Jones) Rebound in oil can no longer be dismissed as a “blip” after
    crude fell near $110 last week, but that doesn’t mean oil has re-established
    the trend that saw it peak around $145 in mid-July, MarketBeat says. With
    varying fundamental issues in play, traders are also looking at the price
    action. “We were technically oversold and we did see a bounce coming,” says
    Gene McGillian, analyst at brokerage TFS Energy. “You had too many bears down
    around $110 thinking oil was going back to $100 a barrel, and that caught a lot
    of people on the wrong side of the oil market,” says Tom Bentz at BNP Paribas
    Commodity Futures. (SMR)

  65. 65
    zman Says:

    ZTRADE: Doubled that SWN $40 September call trade at $1.80. Still thinking short term.

  66. 66
    Sambone Says:

    By Isabel Ordonez

    HOUSTON (Dow Jones)–What was supposed to be a mechanism to protect energy
    companies from the ups and downs of commodity prices ended up hurting them in
    the second quarter.
    Crude oil and natural gas producers such as Anadarko Petroleum Corp. (APC),
    EnCana Corp. (ECA) and Devon Energy Corp. (DVN) reported “non-cash losses” due
    to hedges that worked against them.
    While out-of-the-money hedges can make a big dent in a company’s bottom line,
    Wall Street tends to shrug them off, instead focusing on energy firms’
    long-term operational prospects.
    Shares of Devon, the largest producer of oil and gas in the U.S., for example,
    closed 4% higher on Aug. 6, the day it reported second-quarter results that
    included $584 million in non-cash losses.
    Unlike major integrated energy companies, such as Exxon Mobil Corp. (XOM),
    independent producers usually don’t have refining arms that act as a natural
    hedge to support profits when prices of raw materials such as oil and gas fall.
    So, they hedge by taking short positions in the futures market. Any decrease
    in the price companies realize for their output is offset by profits taken from
    that bet that prices would fall. Those bets alone didn’t pay off last quarter,
    because prices were much higher than anyone had expected. But revenues from
    operations skyrocketed.
    The “non-cash losses” aren’t losses in the traditional sense. Companies’ costs
    didn’t exceed revenue; accounting rules proscribe that they classify forfeited
    income as a loss. And in an environment of volatile commodity prices, a loss
    can quickly turn into a “non-cash gain.”
    “Now that prices have fallen in the past few weeks and if they stay low until
    the end of the quarter, Sep. 30, there will be a large gain as result of those
    hedges,” said Alan Boras, a spokesman for EnCana, Canada’s top energy company.
    In July, crude oil futures fell by 15% from all-time record highs hit early in
    the month and now trade around $121 a barrel. Natural gas futures peaked above
    $13 a million British thermal units on July 2 and have been on a downward trend

    Lost Opportunity

    In the second quarter, Anadarko, the second-largest independent U.S. oil
    producer, had hedged 75% of its natural gas production at $9.31/MMBtu and 44%
    of its oil output at $106 a barrel. These levels were lower than the prevailing
    market prices.
    Anadarko put these hedges in place because it wanted to ensure it would have
    cash available to finance two large acquisitions made in 2006 regardless of
    commodity price fluctuations. This led Anadarko to post a non-cash loss of $1.6
    billion in the second quarter, or a 98% drop in earnings from the same quarter
    a year ago.
    “We do have a lot of production hedged and a lot of that is the result of the
    acquisitions we did in 2006,” said Anadarko spokesman John Christiansen.

    Big Regrets

    While large integrated companies that have balanced production and refining
    divisions don’t hedge extensively, their smaller brethren do. Hess Corp. (HES)
    and Marathon Oil Corp. (MRO) reported millions of dollars of hedging-related
    non-cash losses. Marathon inherited hedges with its 2007 acquisition of Western
    Oil Sands.
    For a small portion of its oil production, Hess still has hedges that lock in
    a price of $25 a barrel. While this bet looked smart when crude oil futures
    traded below $11 a barrel in December 1998, some of Hess’ barrels have missed
    out on crude’s rally past $145 in July.
    “As prices have shown tremendous volatility in the last months, companies have
    reported higher losses than in the previous time periods,” said John England,
    Regulatory and Capital Markets Partner at Deloitte & Touche, referring to the
    non-cash, hedging-related losses independent oil companies posted in second
    Encana, the largest producer of natural gas in North America, reported a
    quarterly non-cash loss of $235 million. The Canadian company has hedged 40% of
    its natural gas production, and during the last quarter, it locked a big part
    of its natural gas output at $8.20/MMBtu, 34 cents below its average realized
    sale price.
    Devon was faced with the same challenge last quarter. It committed a large
    part of its natural gas production at a price below its average realized sale
    price of $9.61/MMBtu.
    Wall Street tends to disregard such losses, focusing instead on cash flows and
    production levels.
    “Companies are required to report hedging losses by the accounting financial
    standards, but most analysts just ignore them,” said Michael Henzi, senior
    analyst at Sterne, Agee & Leach, Inc. in Boston.
    After Anadarko reported a huge drop in earnings due to the hedging losses,
    some analysts lauded the company because it reaffirmed its production outlook
    of 207 million-212 million barrels of oil equivalent in 2008.

    -By Isabel Ordonez, Dow Jones Newswires
    Dow Jones Newswires
    08-21-08 1240ET

  67. 67
    zman Says:

    CRR – odd chart for an energy related stock.

  68. 68
    BossmanG Says:

    Z, question about your repositioning

    “ZTRADE: Out remaining HK $30 September Calls”

    Is there a reason why you held your other HK 35, 40;s? Why not reposition those too?

  69. 69
    zman Says:

    ZTRADE: Tanker stock FRO September $50 puts for $1.50 with the stock just over $56. 3Q looks to be tough but that’s expected. Potential for rate softening exists as OPEC meeting approaches. While OPEC may or may not cut production officially, tanker tracking companies are already noting reduced mid-East OPEC volumes for August and the chatter about “adherence to quotas” is rising along with a few calls for an official production cut from the Cartel being needed to buoy prices. The options have a fat spread and I will average in slowly.

  70. 70
    zman Says:

    Boss – just less capital at risk in those and I thought it might go a little higher yet and allow me to squeak out some more gains. I will probably add the $30s back on our first red day and to cash in on the $35s as they “premium up” being the close to the money strike.

  71. 71
    zman Says:

    NOV still on fire. I may take them off the table and wait for the inevitable red day to re-enter. I know I’m being a little tradier than usual but this market is far from cured.

  72. 72
    Dman Says:

    Broad market strangely only a bit red with oil up big. Could be thinking that “if energy is up, the world economy might not be vanishing, so that can’t be so bad”. S&P actually flashing green at times.

  73. 73
    zman Says:

    Damn – I was thinking that too re the broad, late $1 up oil has been cause for devastation in the Dow. I will say trading again looks pretty light, lots of folks on vacation.

  74. 74
    zman Says:

    FAY crossing back into Florida, course looks WNW.


  75. 75
    ram Says:

    Re FRO – 3.7 otm calls are only .75 and the 6.3 otm puts are 1.5. Volumes are a little more on the calls as well. Seems fishy in a good way if you own puts.

  76. 76
    ram Says:

    You would think SWN would pick a direction and stick to it.

  77. 77
    zman Says:

    Ram – right, with NG maintaining this gain I would indeed think it would pick a direction.

  78. 78
    reefguy Says:

    BN reports Cantarell down to 1.127 MMBOPD
    from 1.599 the year before..

  79. 79
    kyleandy Says:

    ram – z – the reason FRO puts are out of line is they are paying a special div of $3 on sep 4. the stk shud drop $3 on the next day

  80. 80
    zman Says:

    Kyle – Should not affect the option, already factored into price.

    Reef – they need help badly there. Nothing to replace it near term although they are trying onshore and off. Meanwhile, domestic demand keeps growing.

  81. 81
    Bleemus Says:

    REXX Rex Energy announces sale of New Albany shale acreage (21.45 +0.30)

    Co announces it has completed the sale of approximately 79,000 net undeveloped acres in Indiana and certain related non-producing wells for approx $8.4 mln. The acreage divested consisted of all of Rex Energy’s interests in acreage known as the Wabash and Lawrence areas of mutual interest, which are operated by Aurora Oil and Gas Corp., and all of its undeveloped acreage in Knox, Sullivan and Daviess Counties, Indiana, which was operated by Rex Energy. The proceeds of this sale will be used to fund a portion of Rex Energy’s planned capital budget items, including its Marcellus Shale exploration projects in the Appalachian Basin and its Alkali-Surfactant-Polymer projects in the Illinois Basin.

  82. 82
    zman Says:

    VTZ -sent me a draft of a post on Everything You Always Wanted To Know About Oil Sands But Didn’t Know To Ask. Look for it in a few days. I’m always more than impressed with the specialty knowledge we have around here.

    Any of you who want to show off your knowledge set please do. Send me a note at zmanalpha@gmail.com

  83. 83
    ram Says:

    Thanks K.

  84. 84
    Sambone Says:

    Knowledge? That’s why I’m on this blog because I need knowledge!

  85. 85
    zman Says:

    You know it’s hype when: Hybrids get their own parking slots.


  86. 86
    zman Says:

    Oil and NG rallying into the close of NYMEX, with crude ending off a buck from the HOD. Pretty strong medicine considering this is being driven by Russia driving down the dollar and not a fundamental supply or demand issue. A week ago, oil would not have moved on this “news”. Sentiment meter ticking up slightly.

  87. 87
    Nicky Says:

    Looks like everyone has got their chance to jump back into the long side in oil once again cued by GS! As the fundamentals did not matter when it was falling I don’t see why they should matter on this bounce either! But its going to be very difficult to work out an area that may halt the bounce that I can say.
    Interesting that the indices are completely ignoring it or is it energy stocks going up?

  88. 88
    Bleemus Says:

    WLL CEO on CNBC right now.

  89. 89
    MMarkkk Says:

    Z – just checking in. On the IKEA hybrid parking spots…I take my big old gas guzzling suburban and park my fat self right in one of those hybrid spots!! Just to tweek em. Got some squirrely looks from people running around in their “death boxes”. Wish I had a Hummer! Just to park it there.

  90. 90
    zman Says:

    Hear ya Mark. The wife is on me to buy a turbo diesel that get’s 40+ mpg for her but I just can’t do it and go against the cause, lol. Actually, the savings in fuel quantity is offset by the cost in fuel price on that deal.

    I think we need to see some mergers soon or people are going to miss out on some bargains.

  91. 91
    Sambone Says:

    Hmmmm, Mexico has a problem.

    MEXICO CITY (Dow Jones)–Average Mexican oil production fell 10% during the
    first seven months of this year to 2.85 million barrels a day, Petroleos
    Mexicanos reported Thursday.
    For July, output fell by 10.7% on year to 2.78 million barrels a day.
    State-run Petroleos Mexicanos is suffering from steep production declines at
    the giant Cantarell offshore oil field, forcing the company to scale back its
    production estimates for the next few years. Pemex hoped to produce over 3
    million barrels a day this year, but recently said average production would be
    much lower at around 2.85 million barrels a day.
    Pemex said it spent $14.8 billion dollars during the period on fuel imports.
    Mexico imports gasoline and diesel and then sells it at a discount to
    international prices. Gasoline imports rose to 342,500 barrels a day during the
    Pemex said crude oil exports fell 16.3% during the period to 1.44 million
    barrels a day. July exports fell 21.7% on year to 1.38 million barrels a day.
    Pemex has given preference to its domestic refining network, and has therefore
    cut exports as overall production wanes.
    The average price of Mexican crude exports in July was at $122.79 a barrel.

    -By Peter Millard; Dow Jones Newswires
    Dow Jones Newswires
    08-21-08 1430ET

  92. 92
    Dman Says:

    PDS up 11%

  93. 93
    zman Says:

    XLE @ HOD

  94. 94
    Dman Says:

    Z – things seem a bit quiet on the analyst front, unless I’ve tuned them out by accident or something. Could the eerie silence have anything to do with takeouts in the works?

  95. 95
    zman Says:

    D – I doubt it. More likely shell shock + summer. People are taking a hard look at the price decks in their models for 3Q and 4Q right now. They’re also waiting for oil and gas to find a comfortable range. When the stocks start moving up on a daily basis in the face of downwardly adjusted price targets sentiment will have changed. We are starting to see that this week.

    This is still a reflex rally and susceptible to a $3 pullback in oil as soon as tomorrow with no one able to say boo about it. Note the coals are raging uniformly higher today too.

  96. 96
    zman Says:

    Hope somebody took a look at the GMXR…I did nothing after the write up…ug.

  97. 97
    ellwodo Says:

    Never mind fundamentals or charts. I’ve decided the market is best viewed as bipolar. After five weeks of depression we have now had three days of the mania side. I’m just hoping we are dealing with a “well balanced” bipolar. Another four weeks or so of upward movement would be just right.

  98. 98
    Fred Says:

    BeaconEquity.com Issues Trade Alerts on Independent Oil & Gas Stocks: CHK, GMXR, HK, SU, CEO, OXY


  99. 99
    zman Says:

    ZTRADE: Added CHK $52.50 September Calls for $1.60.

  100. 100
    zman Says:

    Meant to add going in lightly on that last one.

  101. 101
    Nicky Says:


  102. 102
    Fiveanddimer Says:

    This is a follow-up to the article I posted yesterday afternoon. No more gold eagles from the US Mint. The gold bullion just isn’t available.

  103. 103
    zman Says:

    Five – the GLD calls have some seriously thin spreads. Hmmm.

  104. 104
    zman Says:

    Thanks Nicky, hard to argue with that evidence on the speculators. I don’t think it means they have as much leverage over price as that would imply but it is fitting that the damning quote in there is from Dingle, D – Michigan who has helped to defeat better mileage standards for years as Detroit has him in their pocket.

  105. 105
    Fiveanddimer Says:

    Z- re GLD
    I’ve never bought the ETF. I prefer the real stuff to salt away in case of US$ monetary problems. I count ounzes, not profit or loss.

  106. 106
    Sambone Says:

    Nymex Crude Ends At 17-Day High As Dollar Weakens

    By Brian Baskin

    NEW YORK — Crude oil futures jumped to a 17-day high as the weakening dollar sparked a commodities-wide rally.

    Light, sweet crude for October delivery settled $5.62, or 4.9%, higher at $121.18 a barrel on the New York Mercantile Exchange. October Brent crude on the ICE futures exchange closed up $5.98 at $120.34 a barrel.

    Futures have risen for three straight sessions for the first time since prices peaked in mid-July. The weakening dollar, as well as worsening relations between the U.S. and Russia, were cited as factors behind Thursday’s gains. The euro recently traded at $1.4872, a 1% gain from Wednesday.

    “The dollar really just got kicked in the teeth today,” said Matt Zeman, head of trading at LaSalle Futures Group. “It’s not only crude oil, we saw basically all the commodities up sharply.”

    Oil received an extra boost from escalating rhetoric between the U.S. and Russia. Poland agreed earlier this week to host a U.S. missile defense system, prompting an angry response from Russia. Tensions were already high between the U.S. and Russia over the latter’s war with Georgia earlier this month.

    The market was still unsure whether to treat oil’s sudden move higher as a pause in the downturn or a resumption of the rally, however.

    U.S. demand, which drove selling over the last month, remains weak. U.S. oil inventories grew by a stunning 9.4 million barrels last week, the largest build in more than seven years as refiners scale back gasoline production.

    And while Russia has injected new geopolitical tensions into the mix, the lack of any new, specific threat against oil supplies leaves the market with little to draw on for direction other than technical factors.

    Now that oil prices have settled above $120 a barrel, traders are watching to see if futures can trade above the 100-day average price, around $126 a barrel. After that, $129 becomes the new barrier, with several traders predicting new record highs should that level also be breached.

    “I think $129 is the target,” said Dean Hazelcorn, a trader with Coquest Inc. in Dallas. “Let’s see what happens then.”

    Others note the worsening demand picture, which could put an abrupt end to the nascent rally at any time.

    “The question is how high can it rise and can it sustain that rise,” Zeman said. “I think that we could see it come back down very quickly.”

    Front-month September reformulated gasoline blendstock, or RBOB, settled 13.49 cents, or 4.6%, higher at $3.0452 a gallon. September heating oil settled 13.71 cents, or 4.3%, higher at $3.3006 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  107. 107
    zman Says:

    Hear ya five, just speaking to my audience, lol.

    Pretty shocking broad market is flat to up with oil up $5 and close to $122.

    DUG has fallen from just under $40 to 33.50 in 3 days. That’s some volatility.

  108. 108
    Fiveanddimer Says:

    Here’s a very interesting CNBC clip with Bill Gross and Cramer re FNM and FRE. Cramer says there is no cop on the beat protecting the small investor in the equity markets.

  109. 109
    zman Says:

    Beer Thirty!

  110. 110
    reefguy Says:

    DNR- Buys Conroe field north of Houston for 600MM for Tertiary recovery. This is gonna be a carbon sequestration project. Take industrial smokestack gas, process it and inject that co2

  111. 111
    isleworth Says:

    Z- Are you expecting some well results from NFX soon?

  112. 112
    MMarkkk Says:

    Reef: not exactly sequestration. They plan to take the smokestack gas from plants and inject it but for CO2 floods…EOR. Project designed to profit through incremental recovery of crude oil. Nuance, maybe, but just wanted to make sure it was clear that this project wasn’t designed around just putting CO2 in the ground to get it out of the atmosphere. Now, if they get tax breaks for that, then its gravy but their business model is designed around profitable EOR projects using CO2. Projects have been around for a long time but the CO2 source hasn’t been available.

  113. 113
    crysball Says:

    Does Queing Theory explain oil’s price swings……..from the Energy Bulletin.


  114. 114
    zman Says:

    Isle – Sometime before the end of the quarter I would expect to hear about Bakken results for NFX. Also a dual lateral in the Woodford could make headlines but I would not think before 3Q release. I only have a worthless set of high strike calls here and should probably add more.

    Crysball. Good article and I wrote the part in my post for Friday about greatly exaggerated re oils demise before I read this.

  115. 115
    Bleemus Says:

    FRO Frontline: Q2 below expectations; challenging environment ahead – Jefferies (58.32 ) -Update-

    Jefferies is lowering their price tgt on FRO to $56 from $60 noting that FRO reported Q2 EPS of $2.18, excluding gains, below consensus of $2.35 and their ests of $2.35, primarily due to lower than expected Suezmax spot charter rates during the qtr. Firm believes that shares are currently fairly valued and are likely to remain range-bound over the next 12 months as they believe a challenging crude oil tanker environment is likely to act as an overhang while the co’s dividend payout potential should provide support.

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