Monday Morning – Ike and OPEC Loom

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The U.S. government takes over Freddie and Fannie and the crowd goes wild. Meanwhile, Hurricane Ike bruises its way through the Caribbean on a mission to storm the Gulf Coast and OPEC minsters flock to Vienna for tomorrow's meeting. Sentiment in the energy patch remains decidedly negative despite 15 minute bouts of optimism. If you missed the weekend wrap click here.

Tropics Watch: Hurricane Ike is skirting Cuba and losing strength in the process. The storm is expected to restrengthen and reorganize once it reaches the Gulf of Mexico on Wednesday and is currently on track impact the Texas Gulf Coast on Saturday so expect lots of volatility going into options expiration as the storm's track and strength fluctuate.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today
  4. Odds & Ends

Holdings Watch: The wiki tab is updated.

Commodity Watch:

MMS Gulf of Mexico Watch: Production is slowly coming back on line. Here are the Minerals Management Service estimates for production in the Gulf of Mexico following Gustav through Sunday (September 7).  There are reports of minor damage coming in from a number of central Gulf players but nothing in the way of serious or lasting damage has been reported so far, although pipeline damage has been talked about on this site as recently as Friday's comment section. As Ike approaches I would expect restart activities to grind to a halt and in many cases reverse.

  • Oil production: 80% shut in (about 1 million bopd offline).
  • Natural gas production: 70% shut in (about 5 Bcfgpd).

Crude Oil fell 8% last week as Gustav left traders nonplussed. This morning the influences of Ike and strong dollar are doing battle and the October contract is trading up just over a buck or 1.3%. Gasoline is trading up about 3%.

  • OPEC Watch #1: The group meets Tuesday. I think the market expects no change in quotas.
  • OPEC Watch #2: My thoughts on the meeting remain the same. No cuts to production quotas but talk of more strict adherence to current quota levels. It is widely acknowledged that the Cartel is overproducing, some estimate by as much as 800,000 bopd or about 2.6% of production. While Iran and Venezuela will squawk about cutting it is an election year in the U.S. and Saudi Arabia has its eyes on the long term prize of keeping oil's biggest customer happily suckling and not working on schemes to ween itself.
  • MEND Watch: Gunman attacked a supply boat offshore Nigeria, killing one and abducting another crew member. This is the first notable move by rebels in three weeks; the government has recently taken steps to improve security.

Natural Gas was 6% last week, ditto the reasons for oil being down plus its been cool during the last hurrah for summer cooling load and injections have been near record levels.  This morning natural gas is also up slightly on Ike.

Stuff We Care About Today:

COP Pays $7.9 Billion For Interest In Australian LNG Deal. Conoco is buying a 50% in a coal seam -to-LNG joint venture in Australia with Origin Energy with the intention of marketing LNG shipments to Asia. Probably takes (COP) out of big buyer status in the U.S. for awhile. Interesting comment was that they see LNG trading in parity with oil in international markets in the future. This means unless U.S. prices come up strongly we won't be seeing volumes increase from the paltry levels seen this summer. Production from the initial stage of the project is slated for 2014.

NFX Investor Day, Tuesday, September 8th, 8:30 - 12:00 EST.

Peters & Co. will be hosting its N. American Oil & Gas conference Tuesday through Thursday. I don't have a link yet for the roster so if you see one please shoot it my way.

E&P, Falling Stocks, Not Really So Much On The Estimates. A combination of hedging, rising production, and analyst's price decks that were far lower than reality in than the futures strip (analysts never got close to using $147 oil in their models) has yielded only a slight reduction in Cash Flow Per Share estimates since things really peaked mid July.  While the average mid cap E&P stock is off by a third or more, their earnings expectations are not. Note that several names are now trading well below the low end of their historic range multiples. This probably doesn't matter just yet as the market is in hate with the group but when things normalize (and they will) the ultra low valuations of names like NFX and KWK will matter.

Odds & Ends

Analyst Watch: Deutsche raises (RIG) from sell to hold, Citi raises (TS) (pipe supplier) from Sell to Buy.


82 Responses to “Monday Morning – Ike and OPEC Loom”

  1. 1
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil prices rose in European trade Monday as another
    hurricane looked set to bear down on Gulf of Mexico oil and gas producing
    Hurricane Ike’s projected path into the Gulf of Mexico spurred buyers and
    warded off short-sellers Monday, its progress threatening to further hamper the
    regional output still in the process of returning to full capacity following
    Hurricane Gustav’s trail through the region at the end of last month.
    Market participants also looked ahead to Tuesday’s Organization of Petroleum
    Exporting Countries meeting, where production levels are expected to be left
    unchanged, but subject to scrutiny following crude’s $40 retreat from record
    highs in less than two months.
    At 1119 GMT, the front-month October Brent contract on London’s ICE futures
    exchange was up 88 cents at $104.97 a barrel.
    The front-month October light, sweet, crude contract on the New York
    Mercantile Exchange was trading $1.12 higher at $107.35 a barrel.
    The ICE’s gasoil contract for September delivery was up $13.75 at $967 a
    metric ton, while Nymex gasoline for October delivery was up 747 points at
    276.08 cents a gallon.
    According to the National Hurricane Center’s 0500CET update, Ike weakened to a
    Category 2 storm after making landfall in Cuba Monday. It will move over
    central Cuba later Monday and emerge into the southeastern Gulf of Mexico by
    late Tuesday, it said.
    Its approach threatens a fresh wave of shut-ins and a delay to the return of
    those undertaken as a precaution ahead of Hurricane Gustav at the end of last
    month. Major oil producer Royal Dutch Shell said Saturday that it was not
    redeploying all its personnel evacuated prior to Gustav because of the
    possibility that Ike might require another evacuation.
    According to the U.S. Department of Energy’s latest update issued Sept. 7,
    87.5% of offshore crude production remains shut in, while just over 922,000
    barrels a day of onshore refining capacity is sidelined.
    Evidence of Gustav’s impact on U.S. inventories are expected to be revealed in
    Department of Energy weekly inventory data Wednesday. Weekly stock readings,
    particularly for products, are expected to be distorted and for weeks to come
    due to storm-related shutdowns, analysts said.
    “With this hurricane coming up, we will have several weeks of fairly
    supportive statistics in the weeklies,” said Torbjørn Kjus, oil market
    analyst at DnB NOR in Oslo. “It’s hard to see that prices could really collapse
    in the coming two weeks.”
    OPEC’s gathering in Vienna Tuesday is expected to conclude with formal
    production levels left untouched, many analysts say, although crude’s rapid
    descent from mid July’s record highs near $150 a barrel will likely stir
    hawkish comments from some of the organization’s members.
    “We will assess the market and then we will take our decision. But the market
    is definitely oversupplied,” Iranian oil minister Gholam Hossein Nozari said on
    arriving in the Austrian capital Monday.
    Despite the rhetoric, OPEC’s decision is expected to largely rest on input
    from Saudi Arabia, the group’s largest producer.
    “The key is what Saudi wants and we believe that is not more than a high
    double digit oil price,” said Colin Smith, research analyst at Dresdner
    Kleinwort in London. “We believe Saudi wants oil below $100 as it is concerned
    about maintaining the medium and long term market for oil.” Signs of global
    economic slowdown amid high energy prices have stoked concerns over oil
    consumption, providing resistance to climbs in oil prices. In that vein, some
    analysts suggested Monday that the U.S. government’s takeover of troubled
    mortgage giants Fannie Mae and Freddie Mac provided both a boost to the global
    economic outlook and to oil prices. Asian and European equity markets traded
    sharply higher Monday, while the U.S. dollar strengthened against most major
    “The housing markets would have been left in disarray had either of these two
    companies failed, which would have had a catastrophic effect on global
    economies, so the rescue of Freddie Mac and Fannie Mae is certainly good news
    in our opinion,” said Nimit Khamar of Sucden Research in London.
    -By Nick Heath; Dow Jones Newswires
    Dow Jones Newswires
    09-08-08 0743ET

  2. 2
    Sambone Says:

    Gustav Hits Supply Picture, But Prices Fall


    NEW YORK — U.S. refiners pushed gasoline output to record highs in the days before Hurricane Gustav shuttered operations along the key Gulf Coast.

    Many plants are beginning to ramp up operations, but pre-storm oil inventory data point to several areas of potential supply tightness far from the Gulf region.

    Still, even with the possibility of some local supply worries and price spurts, crude oil futures prices continue to tumble. On Friday, front-month crude futures posted their sixth straight loss and have shed 10% of their value in the biggest streak of down days in 16 months.

    Ahead of a crucial OPEC meeting, where traders hope for hints of a price floor from the group, and its leader Saudi Arabia, expectations that oil may soon fall below $100 for the first time since early March are growing.

    Activity in Nymex options suggests increased expectations that December-delivery crude oil futures will be below $100 at expiration on Nov. 20, Deutsche Bank said Friday.

    Options trading shows a 27% likelihood of the contract going off the board below $100 compared with just 8% in July while the prospect of the contract ending at $150 has fallen to 9% now from 58% in July. The contract settled at $107.18, down $1.82 a barrel Friday.

    Meantime, in the key Northeast and New England region — the world’s largest heating oil market — stocks of distillate fuel (heating oil/diesel) are 5% below five-year averages at the end of August.

    In the lower Atlantic region, bracing for a blow from Tropical Storm Hanna, gasoline inventories are nearly 11% below their five-year averages.

    That snapshot of tight supplies comes from Energy Information Administration data for the week ended Aug. 29, which doesn’t take into account the vast amounts of oil flows lost in the wake of Hurricane Gustav, with 1.3 million barrels a day of Gulf Coast crude oil output shut-in and nearly 2.7 million barrels a day of refining capacity closed ahead of the storm.

    EPA Bends Fuel Rules On Supply Worries
    Late Friday, the federal Environmental Protection Agency issued waivers from clean fuel requirements for parts of Georgia, Alabama and North Carolina, and extended waivers in Louisiana until Sept. 15 to “allow for greater flexibility for the fuel distribution system to support an adequate supply of gasoline.”

    Lost refinery output last week alone could be on the order of 20 million barrels of gasoline and other products. Power outages to plants and pipelines complicate the matter and spread the problem beyond the region.

    Midwest refiners — notwithstanding a surge to record-high gasoline output last week — face a supply shortfall as the Capline pipeline, the 1.2 million barrel-a-day main artery for crude supplies from the Gulf to the heartland, is only just resuming partial operations.

    The Colonial Pipeline from the Gulf to New Jersey, a crucial link for Northeast U.S. supplies, is running at reduced levels. During September, shipments of gasoline on the vital carrier averaged 1.2 million barrels a day in the past five years, with distillate flows at around 625,000 barrels a day.

    At best, refiners are likely to take at least a week to bring operations back, while offshore output will likely take twice as long to return to pre-storm levels, government officials estimate.

    The big loss of refining capacity, relative to shut-in crude output, has helped sharp the steep falloff in prices begun when Hurricane Gustav was shown to be less destructive than Hurricane Katrina in August 2005.

    Imports, especially of gasoline, are expected to flow heavily from Europe, where the fuel remains in surplus and the usual seasonal decline in demand may blunt the impact of supply losses.

    The end of August brings an end to the peak summer gasoline demand season, which was battered by high prices this year. Michael McNamara, who compiles the SpendingPulse survey for MasterCard Advisors LLC, said U.S. gasoline sales between the end-May Memorial Day and Labor Day dropped 3.9% to around 9.4 million barrels a day, after a year-to-year rise in the peak period in 2007 of 2.4%.

    Demand Down For 13th Month
    EIA data for the four weeks to Aug. 29 show total U.S. oil demand down 733,000 barrels a day, or 3.5%, from a year ago, at 20.292 million barrels a day. That would be the lowest August demand since 2003 and mark the 13th straight year-to-year drop in monthly oil demand.

    Preliminary data show January-August U.S. oil demand is down 847,000 barrels a day from a year ago, the biggest decline in the first eight months since 1981. At 19.9 million barrels a day, demand is the lowest in the period since 2001.

    A pre-storm surge in gasoline output in the Midwest of 12.3% pushed regional output to a record 2.55 million barrels a day, and pushed nationwide output to a highest-ever weekly level of 9.422 million barrels a day.

    In an indicator that says more about sluggish demand than about refining capabilities, domestic output of gasoline topped demand at the end of August for the first time on records dating back to 1991. The last time domestic output topped demand in any week was in mid-January.

    Production exceeded demand by a slim 22,000 barrels a day in the latest week, while a year ago, demand outpaced production by 420,000 barrels a day in the last week in August.

    Still, while margins favor a counter-season shift to gasoline output over distillate output, and refiners outside the Gulf Coast have some spare capacity, reliability of crude supplies from the region is vital. Marathon wants to borrow crude oil from the Strategic Petroleum Reserve for running at two Midwest refineries, but the oil must be shipped through the still-limited Capline, which Shell said it hopes to have fully operational in the coming weekend. Valero said it cut runs at its Tennessee refinery.

    Gustav May Cloud OPEC Talks
    EIA warns that some local markets may face supply tightness and potential price jumps. But they won’t likely be enough to reverse the slide in prices in recent days, provided there isn’t any lasting damage to facilities.

    The aftermath of Gustav adds another dimension to the Sept. 9 meeting of the Organization of Petroleum Exporting Countries, where Saudi Arabia is likely to come under pressure from Iran and others for output cuts aimed at putting a floor under the market at $100 a barrel.

    The Saudis have a long-term stake in keeping demand for oil strong by diminishing the potential for costly competitive supplies and substitute energy sources, and may be able to stave off the calls at least beyond the U.S. presidential election on Nov. 4 and to another OPEC meeting said to be in the planning for mid-December in Algeria.

    Nymex crude futures fell Friday for a sixth straight day in the longest losing streak since May 7, 2007. October delivery crude fell $1.66, or 1.5%, to $106.23 a barrel, the lowest level since April 4. Front-month crude is down 27% from the record-high settlement on July 3 of $145.29 a barrel. Crude has fallen 10%, or $11.92 a barrel, since Aug. 27.

    October heating oil futures fell 4.09 cents, or 1.4%, Friday to $2.9828 a gallon, the lowest level for a front-month contract since April 3 and shed nearly 21c on the week.

    Nymex gasoline for October delivery fell 2%, or 5.43 cents, on Friday, to $2.6861 a gallon, the lowest level since April 1, and lost nearly 17c on the week.

    Front-month crude has been the cheapest of all listed Nymex contracts in the past 10 days, a price curve that suggests weak near-term demand for crude and potential for a significant stock build, as refiners are rewarded for building inventories at relatively cheap prices now.

    But, at least in the U.S., Gustav is overriding, at least temporarily, those traditional moves.

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

  3. 3
    zman Says:

    GDP on the tape with mid-year reserves and Haynesville vertical well. Not a lot to grab onto in terms of news but not bad results on the reserve growth.

  4. 4
    zman Says:

    Poor bottom fishers in FNM & FRE

  5. 5
    crysball Says:

    Not enough information to determine if this was an LNG carrier.

    Mon Sep 8, 4:20 AM ET

    KUALA LUMPUR, Malaysia – Pirates armed with rocket-propelled grenades attacked three vessels off Somalia’s coast but failed to hijack them because of quick action by crew members, a maritime official said Monday.

    A Chinese cargo ship, a Singaporean liquefied gas carrier and a Thai bulk carrier managed to thwart the pirates in the Gulf of Aden by increasing speed and taking evasive maneuvers, said Noel Choong of the International Maritime Bureau.

  6. 6
    crysball Says:

    Would you expect the Saudi’s to hold crude prices down through the November election?

    If the GOM operators who shut down last week have to shut down again week (although the stormpath path is likely somewhat different) won’t this start to take a big toll on the production numbers?

  7. 7
    apbd Says:

    Shiver me timbers. Pirates!
    What next? Marooned on deserted islands? Green energy quotes?

  8. 8
    zman Says:

    Crys – yes, or at least away from the old highs. They may start shipping less but I don’t think they cut quotas.

    On the Gulf, most of it did not get back on and now won’t through this week as platform do U-turns back to the beach. It will show up in the numbers with this week’s reports but the Street will discount it pretty severely as one time in nature. For gas prices, I think right now damage is the only thing that saves the near term day.

  9. 9
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures climbed Monday as traders braced
    themselves for another a hurricane in the energy-rich Gulf of Mexico.
    Light, sweet crude for October delivery was recently up $2.06, or 1.9%, at
    $108.29 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    Futures exchange rose $1.25 to $105.34 a barrel.
    Crude oil gained as Hurricane Ike neared the U.S. Gulf Coast, home to a
    quarter of U.S. crude-oil output and 40% of its refining capacity. The storm
    was centered over Cuba as a Category 2 storm Monday, the National Hurricane
    Center reported on its Web site, and should move into the Gulf late Tuesday.
    Oil declined every day last week after Hurricane Gustav’s Gulf landfall didn’t
    match fears of potential damage to energy infrastructure. The U.S. Minerals
    Management Service reported Sunday that about 80%, or 1 million barrels a day,
    of Gulf oil output remained off line after Gustav.
    Products refined from crude were especially strong in light of Ike’s approach.
    Front-month October reformulated gasoline blendstock, or RBOB, was up 10.69
    cents, or 4% to $2.7930 a gallon. October heating oil rose 8.04 cents, or 2.7%,
    to $3.0632 a gallon.
    The Organization of Petroleum Exporting Countries is meeting Tuesday in Vienna
    to discuss output policy amid oil’s fall from a $145 peak in July. While few
    expect the cartel will formally cut production quotas, the market remains on
    edge over its plans.
    “In the face of seven down days in a row, an OPEC meeting and a hurricane
    potentially entering the Gulf, it seems pretty reasonable to be up a couple
    bucks,” said Peter Donovan, vice president at Vantage Trading on the Nymex
    Oil remained higher in spite of a powerful rally in the dollar, whose recent
    vigor has helped drive investors out of commodities. The euro was recently
    neared a one-year low against the greenback, and was trading at $1.4209 from
    $1.4237 late Friday.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    09-08-08 0949ET

  10. 10
    zman Says:

    Crys – just as far as storm impact goes, I still think refining is the place to be. Ike is on target to hit more of the refining segment than Gustav where much of the power has still not come back on.

  11. 11
    ellwodo Says:

    If the GFDL track turns out to be accurate, what effect would the projected hit about midway between Galveston and N. O. have relative to other landfalls?

  12. 12
    zman Says:

    Elwo – very hard on platforms and the refining segment. I’ll scrounge up a map.

  13. 13
    Nicky Says:

    Morning all. As you say Z looks likely plenty of volatility ahead this week. I see Ike isn’t scheduled to make landfall until Saturday so likely we see a few up and downers first in the oil market. Likely we retest the lows again and maybe a touch lower….

  14. 14
    zman Says:

    Elwo – check here and cursor over refineries.


  15. 15
    crysball Says:

    In anticipation of the Gulf refinery production pinch will Europeans send tanker loads of refined gasoline into the US market………..and if so, will they be enough to compensate for the shortfall….at least on the East Coast?

  16. 16
    Nicky Says:

    Broader market. We need to take out 1307 on spx to confirm the low is in – until then the market is still at risk of another move to the downside. Cycles are predicting a low to be in place sometime in this timeframe but it ‘could’ stretch out into the 3rd week in September.

  17. 17
    zman Says:

    Nicky – yep, OPEC I think unlikely to do much but talk. Funny a couple of months ago with oil flying high even the Saudis said the market was well supplied. Then, at the behest of Bush, they went ahead and upped production and now, with oil low, they don’t talk about cutting even though they have said the world is about to see stock piles zoom. Tell me that’s not political.

  18. 18
    zman Says:

    Crys – Europe is awash in gasoline so my thought is they will send more here. I don’t think the Northeast will have a problem unless we start seeing extended outages.

  19. 19
    ellwodo Says:

    Thanks for the map. It reinforces my confusion as to why the energy market seems to be taking Ike so much in stride.

  20. 20
    Sambone Says:

    NEW YORK (Dow Jones)–BP PLC (BP) is evacuating non-essential personnel from
    the Gulf of Mexico ahead of Hurricane Ike, the company said Monday.
    Most energy companies are still restoring production after a total evacuation
    before Hurricane Gustav at the end of August. About 80% of oil and 70% of
    natural gas production is still offline.
    Ike is currently passing over Cuba as a Category 2 storm. The hurricane is
    likely to crosses the Gulf this week, before hitting the Texas or Louisiana
    coast on Saturday, according to the National Hurricane Center.

    -By Brian Baskin, Dow Jones Newswires

    Dow Jones Newswires
    09-08-08 1013ET

  21. 21
    zman Says:

    Elwo – hear ya on that; the refiners are up however but not by epic amounts.

  22. 22
    tomdavis12 Says:

    Z: Your numbers today show a range of 3 – 8 for high and low for CHK CFPS in the last three years. Your numbers before had a low of 4. Which is correct? If three is correct, is there any reason this stock can not drop $10/sh. Thks

  23. 23
    zman Says:

    Tom – My low for CHK CFPS multiple is 3x back as far as I see in my spreadsheet. 3.0x was achieved back in 2004. $10 would be an insane price for CHK, can’t see it, not based on their holdings, cost structure. But if NG goes to $2 then yes, $10 could happen.

  24. 24
    Sambone Says:

    By Steve Gelsi

    Most energy stocks rose with the broader market Monday, with buying in the
    sector tied to rising oil prices, the approach of Hurricane Ike and relief over
    the U.S. government’s bailout of Fannie Mae (FNM) and Freddie Mac (FRE).

    Oil for October delivery gained $1.62 to $107.85 a barrel in electronic
    trading on Globex. Hurricane Ike churned over Cuba on Monday morning, weakening
    to a Category 2 storm as it made landfall, but forecasters predict the storm
    will move into the Gulf of Mexico and hit somewhere between Texas and Alabama
    by this weekend.

    Traders are also focusing on the Organization of Petroleum Exporting Countries
    meeting scheduled Tuesday in Vienna. The oil cartel’s widely expected to keep
    its production unchanged.

    The Amex Oil Index jumped 4.63 points to 1227. The Philadelphia Oil Service
    Index advanced 1.2% to 269, while the Amex Natural Gas Index fell 0.5% to 559.

    Among energy stocks in the spotlight, ConocoPhillips (COP) agreed to pay up to
    $8 billion for a 50% stake in coal seam assets of Australia’s Origin Energy
    Ltd., including a $5 billion upfront payment. Shares of ConocoPhillips rose 2
    cents to $75.

    On a broader level, hurricanes Gustav and Ike are expected to take a bite out
    of third-quarter profit for the component companies making up the Philadelphia
    Oil Service Index, Dan Pickering of Tudor Pickering Holt said in a note to

    “Two hurricanes back-to-back keeps Gulf of Mexico (drilling) activity muted
    for two weeks, perhaps three,” he said. “Remember, the Gulf of Mexico (is)
    generally a high-margin business with high fixed costs.”

    Every major oil-service player will see some impact, but Smith International
    (SII), Superior Energy Services (SPN), Hercules Offshore (HERO) and Oceaneering
    International (OII) may have the most exposure, he said.

    Meanwhile, Transocean (RIG) was upgraded to hold from sell by Deutsche Bank,
    as the broker sees “more realistic” expectations embedded in the stock.
    “Additionally we believe RIG’s substantial backlog and visibility on cash flow
    provide some defensive qualities in the current challenging market
    environment,” the broker said.

    Transocean’s shares fell 16 cents to $122.

    Baker Hughes (BHI) said rig counts worldwide rose 87 to 3,523 in August, with
    the number of rigs in operation in the U.S. rose 55 to 1,987. The provider of
    oilfield services counts the number of drilling rigs actively exploring for or
    developing oil or natural gas in the United States, Canada and international

    Shares of Baker Hughes rose 15 cents to $72.53.

    Overseas, Royal Dutch Shell’s (RDSA) natural gas plan for Iraq has received
    provisional clearance from the Iraqi government, opening up the chance for
    Shell to invest $3 billion to $4 billion to gather 500 million to 600 million
    cubic feet a day of associated natural gas in Iraq currently going to waste,
    Global Insight noted.

    U.S.-listed shares of Royal Dutch Shell fell 49 cents to $62.
    -Steve Gelsi

    Dow Jones Newswires
    09-08-08 1029ET

  25. 25
    ellwodo Says:

    The broad market is up, oil is up, nat gas is up, and the E&Ps are down. I know “the market can be irrational a lot lomger than you can be solvent”, but this is ridiculous.

  26. 26
    zman Says:

    Elwo – I think the stocks would be up were it not for the broad market being up. Oil’s rally is nothing for where the hurricane is going and OPEC is, well, looming.

  27. 27
    zman Says:

    Ike – looks to be popping out the other side of Cuba.


  28. 28
    zman Says:

    Stocks look to be just treading water now, waiting on Ike and OPEC. The broad market meanwhile is all over the place, dropping 150 points in a couple of minutes then bouncing. Gasoline outpacing gain in crude 4 to 1, heating oil 2 to 1.

  29. 29
    Sambone Says:

    HOUSTON, Sept 8 (Reuters) – Shell Oil Co RDSA.L said on
    Monday it plans to evacuate all Gulf of Mexico offshore
    personnel by Wednesday ahead of Hurricane Ike.
    Production will remain at minimum levels before being
    completely shut by Wednesday, the company said.
    (Reporting by Erwin Seba)

    Mon Sep 8 15:10:06 2008 -GMT

  30. 30
    md Says:

    Are we going to see GUS and Ike action in NG. I would see this as more of an opportunity. I’m looking at 2005 and it’s interesting that imports went up by 1 and YOY consumption dropped in Sept and then Oct. So the draws seem to have been only effected by two weeks. Yet the domestic supply was effected by 5 and 4 BCFPD for the month of Sept and Oct. which would add up to 275 BCF over the period.
    Considering that Kat Rita did the damage that it did it seemed that inventories kept up although GOM production has yet to recover.
    Considering the minor nuisance that GUS and Ike are it may have the same if not greater effect through downtime unless you see lower consumption or other supply to replace it.

  31. 31
    md Says:

    PQ – Low multiples Looks real cheap. Market concurs with your assessment this AM

  32. 32
    douglas51 Says:

    I am hearing Anadarko looking at Cabot…from my friends on Wall Street

  33. 33
    md Says:

    Are small cap NG’s in danger of being gobbled up on the cheap

  34. 34
    Sambone Says:

    Uncle Phil


  35. 35
    zman Says:

    There are a lot of rumors around that consolidation must be just around the corner. APC for COG makes some sense in terms of basin overlap however a lot of names make sense. What you need is a current that has not been beat down as much as the target. If you look at the table in today’s post you can see the dichotomy large to lessor cap in terms of the fall from the peak. I know it won’t be EOG as a buyer. But DVN, APA and APC are likely acquirors in this environment and Hacket at APC has a history of doing big deals. COG would be an afterthought for him…but it could be a cheapish way to get more involved in the Haynesville (it would more than double their acreage there if my last acre counts are not dated too much).

  36. 36
    zman Says:

    Oil red.

  37. 37
    zman Says:

    I may do a little quick trading again here. Thinking about it anyway.

  38. 38
    BossmanG Says:

    Z, any strategy for the hk 40’s?

    any idea about the love for e&p’s going to come back by year end?

  39. 39
    md Says:

    Consolidation – at giveways or what kind of premiums. The first one to go will raise the stakes for those to follow.

  40. 40
    md Says:

    Why isn’t GMXR are your radar in todays post

  41. 41
    zman Says:

    Concerned about the HK $30s, not any hope for the $40s, planning to sell if possible on any sector pop. Does the love come back prior to year end? Not to the degree of a couple of months ago but we should see a good bounce in the names between now and November.

  42. 42
    zman Says:

    GMXR just wasn’t on the spreadsheet I used back the peak so it was not in the update. Nothing against them at all, just not in that spread and I wanted to look at how little bottom line expectations have changed relative to the give back we’ve seen in the names.

  43. 43
    Garyinhou Says:

    fair warning.. don’t drink anything..

    Just told the girlfriend my port-holio has retreated 40% since peak early July.. she says “win some, lose some”

    anyway.. cog interesting.. super high vol on cogii’s

  44. 44
    Nicky Says:

    Wow is this the best the stock market can do with the F and F bailout? $ rallying, euro failing again, metals fading, oil fading…..

  45. 45
    zman Says:

    Hear Nicky…so the dollar is up why? Because things are so bad the U.S. has to assume the debt of F&F???!!! So the $ now goes up when the U.S. prints more money…hmmm…

  46. 46
    zman Says:

    Nicky – here’s your lower low on oil…now what?

  47. 47
    Sambone Says:

    Sept 8 (Reuters) – The recovery of oil and natural gas production in the
    Gulf of Mexico in the wake of Hurricane Gustav halted due to a new hurricane
    threat that was triggering a fresh round of evacuations.
    Hurricane Ike was pummeling Cuba Monday morning and was expected to reach
    the Gulf of Mexico by Wednesday.
    The following outlines the impact of last week’s Hurricane Gustav on the
    energy sector:
    *Hurricane Ike halts Gulf oil recovery 3
    *3 refineries, 1.8 pct of US capacity, still shut
    *79.8 percent US Gulf oil shut, 70.0 pct US Gulf gas shut
    *Shell stops returning workers, plans full Gulf evac ahead of Ike
    *Anadarko plans U.S. Gulf evacuations due Ike
    *Louisiana Offshore Oil Port restarts at slowed pace
    *Some 180,000 Entergy customers still lack power
    *DOE to deliver 250,000 barrels of oil to Marathon
    ******************CRUDE OIL, NATURAL GAS********************
    *79.8 percent of U.S. Gulf’s 1.3 million barrels per day crude output shut
    Sunday, down from 87.5 pct Saturday, MMS says.
    *70.0 pct of the Gulf’s 7.4 billion cubic feet per day natural gas output
    shut Sunday, down from 74.1 pct Thursday
    *Anadarko plans U.S. Gulf evacuations due Ike
    *Shell plans full Gulf evac by Wed ahead of Ike
    *Shell says finds minor topside damage at Mars, West Delta 143 and Cognac
    *Marathon evacuates US Gulf oil platform due Ike n
    *BP BP.L: Flyovers show no damage, crews to do checks
    *Chevron restarting some offshore output, hubs look OK
    *Exxon Mobil XOM restores some production, still assessing damage
    REFINERIES STILL SHUT (Louisiana unless otherwise noted):
    *ConocoPhillips COP 195,000 Alliance – no power
    *Alon ALJ 80,000 Krotz Springs
    *Shell 55,000 St. Rose
    *Valero 195,000 Memphis, Tennessee big cuts due Capline
    *Valero 325,000 Port Arthur, 130,000 Houston, 245,000 Texas City, Texas

    *Citgo 430,000 Lake Charles
    *Motiva 285,000 Port Arthur,Texas
    *BP 467,700 Texas City, Texas
    *Pasadena Refining 100,000,Texas
    *Valero VLO 250,000 St. Charles
    *Motiva 235,000 Convent refinery restarted
    *Placid 56,000 Port Allen restarted
    *Motiva Norco 236,000 restarted
    *Exxon 503,000 bpd Baton Rouge, 193,000 Chalmette restarted

    *Murphy MUR 120,000 Meraux restarted
    *Calcasieu 80,000 Lake Charles restarted
    *Marathon 265,000 Garyville restarted
    *Total 232,000 Port Arthur restarted
    *ConocoPhillips Lake Charles restarted n
    *Chevron ramps up 330,000 Pascagoula after run cuts
    *Exxon Mobil says Baytown and Beaumont, Texas, refineries back to normal
    ********************ELECTRIC POWER IMPACT*************************
    *Some 180,000 Entergy customers still lack power
    *Entergy to restore most La. power in a week
    *Entergy to restore power for 11 of 12 La. refiners
    *Entergy’s Waterford 3 to restart Saturday, River Bend still shut
    **********************PORTS, WATERWAYS****************************
    *LOOP restarts at reduced rates, no damage
    *Waterways mostly reopened
    *********************PIPELINES, GAS PLANTS************************
    *Enbridge EEP to end force maj. on UTOS, Stingray
    *Henry Hub lifts most force maj., lacks compression
    *NYMEX keeps force maj. in place for August, September contracts
    *Capline restarts at reduced rates
    *Houma-to-Houston crude line to restart Saturday
    *El Paso’s EP Tennessee, Southern Natural begins coming back
    *Colonial, Plantation pipelines at reduced rates
    *Centennial pipeline restarts
    *SPR Bayou Choctaw, La, still shut; West Hackberry no damage – DOE
    (Reporting by Bruce Nichols, Erwin Seba; Editing by Richard Valdmanis)

    Mon Sep 8 16:01:14 2008 -GMT

  48. 48
    Nicky Says:

    Z – I personally don’t see huge downside for oil here (famous last words!) – not at this moment anyway. Looks to me like an ending diagonal.

    SPX has support at 1242 – 1245.

  49. 49
    Fred Says:

    tater – JOYG is even better buy off 8%.

  50. 50
    zman Says:

    The give back on the Dow is impressive today. Nasdaq down pretty sharply now.

    Gasoline and natural gas the only thing in the energy complex that is green and I suspect the only things close to trading with an eye to Ike. Waiting and watching.

  51. 51
    zman Says:

    Coals getting blown out again.

    Nicky – um, glad to hear that re oil and downside.

  52. 52
    zman Says:

    Buyout rumor on COG only able to keep the stock flat. That’s pretty tough.

  53. 53
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures fell Monday, reversing earlier gains
    as the dollar strengthened.
    Light, sweet crude for October delivery was recently down 93 cents, or 0.9%,
    at $105.30 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    Futures exchange fell $1.19 to $102.90 a barrel.
    The dollar rose to an 11-month high against the euro Monday, undercutting
    dollar-denominated commodities’ attraction to investors seeking to hedge
    currency risks. The euro was recently $1.4121, from $1.4237 late Friday.
    “Look at the strength of the dollar,” said Nauman Barakat, senior vice
    president at Macquarie Futures USA in New York. “At this stage it’s what is
    driving the market.”
    Oil trading remained on edge as Hurricane Ike was on a path to strike the
    Texas coastline near the Houston-Galveston area this weekend, the National
    Hurricane Center said. The U.S. Gulf Coast is home to a quarter of U.S.
    crude-oil output and 40% of its refining capacity.
    But predictions for Ike are divergent. The center’s five-day forecast track
    shows Ike could strike anywhere from Texas’ southern border with Mexico to
    Alabama. It’s expected to enter the Gulf of Mexico late Tuesday.
    “The Gulf of Mexico is a huge area,” Barakat said. “So it could be totally
    devastating or it could be a storm in a teacup.”
    Oil declined every day last week after Hurricane Gustav’s Gulf landfall didn’t
    match fears of potential damage to energy infrastructure. The U.S. Minerals
    Management Service reported Sunday that about 80%, or 1 million barrels a day,
    of Gulf oil output remained off line after Gustav.
    Gasoline was bid up in light of Ike’s approach. Front-month October
    reformulated gasoline blendstock, or RBOB, was up 2.97 cents, or 1.1% to
    $2.7158 a gallon. October heating oil fell 50 points, or 0.2%, to $2.9778 a
    The Organization of Petroleum Exporting Countries is meeting Tuesday in Vienna
    to discuss output policy amid oil’s fall from a $145 peak in July. While few
    expect the cartel will formally cut production quotas, market participants are
    focused on the group’s next move.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    09-08-08 1236ET

  54. 54
    Sambone Says:

    NEW YORK (Dow Jones)–Rig operators are evacuating employees from the Gulf of
    Mexico as Hurricane Ike approaches, the three largest deepwater drillers in the
    region said Monday.
    Transocean Inc. (RIG), Diamond Offshore Drilling Inc. (DO) and Noble Corp.
    (NE) are all evacuating offshore employees. Ike is expected to threaten the oil
    and gas producing portion of the U.S. Gulf by Thursday, according to the
    National Hurricane Center.
    The three companies operate 23 of the 27 deepwater rigs active in the Gulf,
    according to Rigzone, an industry news and data service.
    All of the rigs had evacuated before the arrival of Hurricane Gustav early
    last week.
    “We were just repopulating the rigs,” said John Breed, a spokesman at Noble,
    which operates five moored deepwater rigs in the Gulf.
    Transocean has 11 deepwater rigs in the area. Gustav had damaged two of the
    rigs, while a third, the Transocean Amirante, is being towed to Mobile, Ala. as
    a precaution after its mooring system took damage during the last storm. The
    company’s remaining rigs have the capability of propelling themselves to a safe
    location in the Gulf, said Guy Cantwell, a spokesman.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    09-08-08 1246ET

  55. 55
    VTZ Says:

    Days like today disgust me.

  56. 56
    Nicky Says:

    Z – good support where we are at the 105 area. Then you have support at 100.48 which is a 75% retracement of the 2007 – 2008 rally. There is also a Gann support line that comes in at the 101 area.

  57. 57
    md Says:

    “ConocoPhillips’s investment values Origin’s coal-seam gas resource at A$1.65 per gigajoule of proven, probable and possible resources based on an LNG project with two production units.” (If gigajoule is .95 MCF and A$= USD.8126) Value is $1.40 MCF.

  58. 58
    zman Says:

    MD – I know you know this but just to clarify for those who might not, that value COP paid is an in the ground reserve price for gas that’s 6 years from first sale and in Australia. Can’t even begin to compare that to prices in the U.S., only to other LNG asset buys.

  59. 59
    zman Says:

    Hear ya VTZ…no rhyme or reason, just watch the dollar. Of course, if oil goes back to $10 like in ’98, the U.S. government would NOT be bailing out the oil companies. More likely, they’d throw a party while scratching their heads over the unemployment pop.

  60. 60
    zman Says:

    RIG reporting minor damage to two rigs, and moderate damage to a third, no timelines for repairs given. I’m seeing short press releases here and there that indicate Gustav was not as wimpy as the market believed. There will be delays in hookups beyond just Ike cruising through.

  61. 61
    md Says:

    SD being sandbagged

  62. 62
    md Says:

    How long do you think before rigs are manned again after Ike comes through early weekend. That’s providing they pass inspection.

  63. 63
    zman Says:

    md – seems to be a punt the more recent names day as well with CLR getting hammered. Only thing doing even half way decent is the refiners and they are flat to mixed.

  64. 64
    Sambone Says:

    Fun little thing to play with


  65. 65
    zman Says:

    Depends on the storm and rig location. If you mean all rigs probably a week. They had not gotten everyone back on yet following Gustav and not just because of Ike on the way. Staging location Port Fourchon was hit pretty hard by Gus.

  66. 66
    zman Says:

    Thanks Sam, huge time waster there. Just what I need on a day like today. Will add to link list. I reorganized the weather tab the other day pretty hastily but if you have suggestions, adds please let me know.

  67. 67
    VTZ Says:

    Z – fyi my oil sands piece is done although I’m going to update the cost piece I did because of developments in the last couple weeks… capex continues to grow further out of control

  68. 68
    Sambone Says:

    VIENNA (Dow Jones)–Global oil markets are adequately supplied, which will
    lead to oversupply by the year’s end, OPEC President Chakib Khelil said Monday.
    “There is plenty of oil on the market,” Khelil said.
    The OPEC president said the oil market will be oversupplied at the end of the
    year. “Everybody agrees there will be an oversupply of between a half to
    one-and-a-half million (barrels a day),” he said.
    Khelil, who is also Algeria’s oil minister, acknowledged that oil prices have
    weakened as the dollar has strengthened in recent weeks.
    The OPEC president is in Vienna for an OPEC ministerial meeting on Tuesday, at
    which the group is expected to hold current output levels unchanged as it
    surveys the steep drop in oil prices in recent months.

    -By Benoit Faucon, Dow Jones

    Dow Jones Newswires
    09-08-08 1407ET

  69. 69
    Fred Says:

    Sam – couldn’t get link in #64 to work maybe I am missing something from google maps.

  70. 70
    zman Says:

    oil back to green…barely. That comment from OPEC pres is not new but a reiteration of their last monthly minutes statement. They meet again in December and I would expect they will lower then. This is, by the way, after the election.

    VTZ – excellent, send at your convenience to the zmanalpha@gmail.com address.

  71. 71
    Fred Says:

    Uncle Jim seems to becoming a favorite:

    “It is hard to predict the timing of a recovery in natural gas prices, but patient investors in natural gas names will eventually be vindicated, I think. Though perhaps not in my lifetime (just kidding, I hope).”


  72. 72
    Sambone Says:

    Fred – Not sure Why it won’t work. Works for me.

  73. 73
    zman Says:

    Fred, you may need to get a plug for the google maps site. Works for me too, and if you are extremely bored, you can plot the eye as it crosses your neighborhood, lol.

    Refiners making another attempt at putting in gains.

  74. 74
    zman Says:

    Latest track looks like H-town:


  75. 75
    zman Says:

    VTZ – fyi, DVN got approval for Jackfish 2.

  76. 76
    tater Says:

    fred #48,
    JOYG – I spent about a half hour in that one last week. Made a little bit, decided I really had no clue what the trade involved and got out before something bad happened.
    I am just getting started today, needed to run my little guy to the doc, so I am just playing catch-up.

  77. 77
    zman Says:

    HAL getting clobbered. All the Street research I am now reading says no one wants to touch oil service as no one believes the estimates because everyone sees activity falling. The interesting thing is that the estimates have not risen dramatically since the start of the year and really only moved up slightly after the 1Q and 2Q reporting periods, despite a sharply improved outlook. I think people (fund managers) are completely missing how it is that HAL gets paid. When the group comes back I would expect money to be thrown at SLB, HAL, BHI, RIG first.

  78. 78
    zman Says:

    TSO putting in a breakout, to my not technical eye. Continuing to hold the Sept and Oct $20 calls there and the VLO $35s.

  79. 79
    Bleemus Says:

    good day all, it’s tini time! 🙂

  80. 80
    zman Says:

    Kuwait says no need to cut production.

    PQ says no apparent structural damage

  81. 81
    VTZ Says:

    Z – Everyone files for approvals in order to have the right to build because there is a large line-up at the Energy Resources Conservation Board (ERCB), but it means nothing if the capital costs keep increasing (and they are… you can’t even keep track of the costs from month to month due to the escalation).

    BA energy has undergrounds built and regulatory approval and the site all ready to go and they cant find enough financing to build their upgrader. They just laid off Jacobs this week and will be delaying their project because nobody wants to take the risks due to the extreme cost escalation.

  82. 82
    fabricante de carpetas Says:

    fabricante de carpetas…

    […]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Monday Morning – Ike and OPEC Loom[…]…

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