Wednesday – OPEC Says Enough Is Too Much, Plus IEA and EIA Comments.

Posted on by zman

Sentiment Watch: Yesterday was about as red as the sentiment meter gets. We'll see what impact OPEC's move to trim production, a meandering Ike, and another IEA demand reduction do to oil prices but volatility is likely to remain high and I don't think hedge funds will flip a switch and say OPEC's move is just what the market ordered.

OPEC Meeting Notes Watch:  These are my raw notes from the final press conference in Vienna last night and from interviews held during and after it.

  • "Since the market is over-supplied, the Conference agreed to abide by September 2007 production allocations (adjusted to include new Members Angola and Ecuador and excluding Indonesia and Iraq), totalling 28.8 mb/d, levels with which Member Countries committed to strictly comply." Read the end of conference press release here.
  • This means Cartel production will fall somewhere between 470,000 and 520,000 bopd from July levels.
  • They plan to more strictly enforce quotas.
  • They plan to reduce production quickly - this means in the next 40 days.
  • The OPEC Secretary General hopes that the speculative element has left the market. They see liquidations, "everybody is going short" [oil], so this is the speculators leaving their inflation hedges as the dollar rallies.
  • If they had left things unchanged, they would have seen a huge overhang which would have probably destroyed prices to a level that would inhibit investment in the oil industry. This decision will work to more or less stabilize the supply / demand equation. This decision will probably not immediately arrest prices ~ I think this was said by their research director.
  • They will re-evaluate production levels at the next meeting in December.

Thoughts on the 149th OPEC Meeting:

  1. They did what I thought they would do...refrain from cutting production quotas and pledge to get back in line with them. So I get a cookie for that one.
  2. What happens next with oil prices? I think they become a little more data dependent with one eye focused on storage levels and not just dire economic forecasts while the other remains focused on the dollar. 
  3. Is this enough to get hedge funds to come back to the energy names? No. I think its a step in that direction but the continued unwinding of the oil/dollar trade, worries about the economy, and fears of a natural gas glut will conspire to keep fund managers unenthusiastic. I do think there will be some bargain hunting soon but time spent trading in a stable range for the commodities will be the best medicine and that may require capital budge cuts and signs of economic stability to bring about.  

Other Notes of Interest from the OPEC Conference. I did see an interesting interview from the conference with an American analyst - didn't catch his name but he was pointing out that for a well supplied market, the oil sure isn't showing up in the stock piles in the US and other developed countries. He was saying this happened last in 2004 and then it was demand that people didn't catch taking barrels off the market. He thinks demand is higher outside the developed countries than people see and that the barrels are being absorbed by them. When you look at the math on just  the crude inventories it explains a lot.

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch - oil inventory preview
  3. Odds & Ends

Holdings Watch: The Holdings Wiki tab is updated.

  • Added (HK) $25 September calls for $0.90.

Commodity Watch:

MMS Watch: Impacts from Gustav and now Ike.

  • Oil: 77.5% of Gomex production shuttered.
  • Natural Gas: 64.8% shuttered.

Crude Oil fell $3.08 to close at $103.26 yesterday, a 5 month low, in very volatile pre OPEC meeting trading. This morning oil tried to trade higher on the OPEC news but has resumed its downward course with other commodities in the face of a yet stronger dollar and a downwardly revised IEA forecast.

  • IEA Watch: Adjusting forecasts:
    • The International Energy Agency reduced its forecast for 2008 global oil demand by 100,000 bopd for a growth target of up 690,000 bopd.
    • For 2009, the eased their estimate by 40,000 bopd to reflect further growth global demand growth of 890,000.
    • Note that the figures reflect growth, not a contraction.
    • The group also cut its Non-OPEC supply forecasts:
      • 2008 comes down 180,000 bopd
      • 2009 comes down 85,000
    • So the call will be increasingly on OPEC to make up the difference.
  • MEND Watch: MEND commandeered a oil service supply boat in the Nigerian delta. Apparently no one in the world cares (except the guys on the boat) about that kind of activity any longer.

EIA Petroleum Inventory Preview (estimates from the Dow Jones survey)

ZComment: Analysts this week should be telling their clients, "expect the unexpected". Today's numbers will be wild to say the least given the full week of Gustav impacts from shutterings of production, processing, imports, and refining in the Gulf of Mexico and along the Gulf Coast. I’d really like to see gasoline demand hold the line tomorrow at 9.4 mm bopd. That would be just long enough for me to type the worlds “RECORD GASOLINE DEMAND FOR THIS WEEK IN HISTORY” blah, blah, blah and then submit it to every third party publisher from google finance to seekingalpha that I know of. Or maybe “WHADAYAKNOW, PRICE MATTERS???!!!” I think the numbers will be wild and largely grain-of-salted tomorrow UNLESS they are bearish from a demand standpoint. Then the bears will say OPEC’s move only proves how weak demand is, and that it is not enough to prevent a massive build in inventories over the winter, and then…hello double digits.

Natural Gas: Ended the day flat at $7.53 despite the slapping crude experienced. The course of Ike and the fact that gas is oversold and played a part in the move. I think technically gas is making is stand after having failed fail on last week's inventory number. To gas will likely tread lightly as it awaits a Gustav impacted number tomorrow.

  • The Rockies Express pipeline is down for maintenance keeping 0.8 Bcfgpd from the Rockies from reaching consumers and storage..

Odds & Ends

Analyst Watch: FBR cut their price target on (NFX) from $70 to $55 but maintained their outperform rating.

 

 

145 thoughts on “Wednesday – OPEC Says Enough Is Too Much, Plus IEA and EIA Comments.”

  1. 7:56 am EST

    Crude Trades Higher; Demand Worries Limit Gains

    By Reza Amanat
    Of DOW JONES NEWSWIRES

    LONDON — Crude prices traded higher in London Wednesday, gaining on the Organization of Petroleum Exporting Countries’ decision to lower its production quota.

    But early gains were tempered by the International Energy Agency cutting global oil demand expectations for 2008 and 2009 on a weak outlook for the U.S. economy.

    “OPEC’s decision is a signal that if (oil) prices fall to $100/barrel, or below, it will take action,” said Serge Laureau head commodities strategist at Saxo Bank, “but it (OPEC) will have to be louder, as negative sentiment in the market will push prices lower and test $100/barrel.” The IEA’s verdict on demand outlook has “compounded the market’s bearish sentiment,” Laureau added.

    At 1123 GMT, the front-month October Brent contract on London’s ICE futures exchange was higher $84 cents at $101.18 a barrel.

    The front-month October contract on the New York Mercantile Exchange was trading up 62 cents at $103.88 a barrel.

    The ICE’s gasoil contract for September delivery was higher $4.50 at $942.25 a metric ton, while Nymex gasoline for October delivery was up 304 points at 268.30 cents a gallon.

    OPEC agreed Wednesday to cut oil production by 520,000 barrels a day as part of a broader move to lower its official production targets, in order to rein in what it considers excess oil supply on global markets.

    OPEC, which supplies 40% of the worlds oil, is expected to implement its decision over the next 40 days.

    Oil market participants’ focus is on how the group’s changes will be delivered to the market. Petromatrix analyst Olivier Jakob said Indonesia leaving OPEC, and the formal inclusion of Angola and Ecuador makes for a statement “clear as mud,” and for wide interpretation as to the desired level of the group’s production.

    Jakob said OPEC warned members to stick to the overall quota of 28.8 million barrels a day from the previous 29.67 million, which implies a cut of about 500,000 barrels a day to 600,000 barrels a day from August production levels.

    “It is not only Saudi Arabia but also Iran that would need to reduce production. We will not bet one cent on Iran doing so, hence the most likely scenario we see is for Saudi Arabia to make a slight cut, around 300,000 barrels a day and to readjust depending on the output from Nigeria.”

    Meanwhile, the IEA on Wednesday said weaker economic growth and the effects of high oil prices were easing tight world crude market conditions in a report, suggesting more downward pressure on energy prices ahead. “I think demand destruction is overwhelming at the moment. The economy looks bad, EIA/IEA numbers are weak again,” said a crude trader based in London, adding that it could be at least 1-2 months before any production cuts are felt in the market.

    By midday, market participants had largely shifted their attention toward the U.S. Energy Information Administration’s inventory report, due at 1435 GMT Wednesday. U.S. supplies were expected to fall sharply after Hurricane Gustav forced the partial or total shutdown of most Gulf Coast refineries last week.

    Analysts surveyed by Dow Jones Newswires expected supplies to fall across the board; crude by 5 million barrels, gasoline by 4.4 million barrels and distillates by 2.2 million barrels.

    Traders are also keeping a close eye on developments with Hurricane Ike, which continues to pound the western coast of Cuba with tropical force winds Wednesday, the National Hurricane Center said in an advisory. Ike is expected to head west towards the coast of Texas where a large number of oil facilities are located in the coming days, according to the NHC.

    —By Reza Amanat, Dow Jones Newswires

  2. 7:51 am EST

    OPEC Zaps Jakarta Ghost; Defends $100 Oil

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — When OPEC meets amid sliding oil prices, the ghost of Jakarta is often evoked, a reference to the output policy blunder in the Indonesian capital in late 1997 that sent prices spiraling down to below $11 a barrel.

    Early Wednesday in Vienna, OPEC ministers exorcised the ghost of Jakarta, in mounting a surprise, spirited defense of a $100 a barrel crude price. But in the deal, which officials say will cut actual oil output by around 500,000 barrels a day, Jakarta itself is cast off, as Indonesia — long a net importer of increasingly costlier crude — has split from the group.

    Indonesia saves future membership fees — assessed equally regardless of output — and costing 1.9 million euros for 2008. It will need that cash to pay for its oil imports, whose costs may again be rising, if prices build on the market’s initial rise in reaction to deal.

    The U.S. Energy Information Administration estimated last month that while the Organization of Petroleum Exporting Countries is on target to earn $1.174 trillion this year from crude oil sales, a 75% leap from a year ago, imports were costing Indonesia $4 billion in the first seven months of 2008, equal to its 2007 oil import bill.

    Indonesia’s departure (technically a suspension of its full membership) shifts its 865,000 barrels a day of output to the non-OPEC side of the global oil production tally, just as analysts were getting used to the group again having 13 members, with the arrival of Angola and the return of Ecuador.

    Transferring Indonesia’s barrels to the other side of the ledger may be the easiest calculation in OPEC’s new accord. OPEC has raised the opaque agreement to an art form.

    OPEC said the new output ceiling is 28.808 million barrels a day for 11 members, with Iraq continuing to be excluded and Indonesia now gone. Including recent Iraqi output of around 2.5 million barrels a day, that latest move, if adhered to, would put total OPEC output at around 31.32 million barrels a day.

    Excluding Indonesia from OPEC’s July total output would put latest output data at 31.775 million barrels a day heading into the meeting this week.

    40 Days To Trim Output

    OPEC President Chakib Khelil said the group will bring output to agreed levels over the next 40 days, trimming by his count some 520,000 barrels a day of overproduction from July levels.

    In a strongly worded, or maybe over-worded, communique, OPEC in the same sentence “agreed to abide” and is “committed to strictly comply” with the new accord.

    OPEC members are ready to “swiftly respond to any developments which might place oil market stability and their interests at risk,” the communique said. They will maintain “a constant and vigilant watch over supply/demand fundamentals’ and meet again to reassess the market in Oran, Algeria on Dec. 17.

    The strong language is meant to apply whatever means needed to kill off the memories of the Jakarta price crash. OPEC failed over many months to contain the price slide, agreeing to a series of too-little, too-late output adjustments. It took 18 months for prices to regain levels seen before the Jakarta move, when OPEC raised output sharply in an ill-fated action as the Asian economic crisis and an extremely warm Northern Hemisphere winter slashed demand.

    OPEC said its review this week showed “the oil market is well supplied” and inventories have built to “comfortable levels” in terms of forward demand cover.

    Oil prices are down 29% from the record high above $145 a barrel on July 3, to $103.26 a barrel at the close of Nymex trading on Tuesday.

    The group blamed the drop on “a weakening world economy” mainly in the industrialized nations comprising the Organization for Economic Cooperation and Development, lower oil demand, rising crude supplies, the strengthening dollar and an easing of geopolitical tensions.

    “All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” OPEC said in its end-meeting communique.

    $100 Ceiling Or Floor?

    In the run-up to the meeting, expectations were shaping up for a skirmish between OPEC’s price hawks and doves. The $100 mark was the midpoint of decidedly different market views. In the often uneasy coexistence in the OPEC apartment house, one man’s ceiling was another man’s floor. Hardliners led by Iran and Venezuela saw $100 as the floor of an acceptable range back up to $120 a barrel or so.

    Saudi Arabia and its Gulf allies were said to view $100 as the ceiling, and prepared to defend a floor price around $80 a barrel.

    Ahead of the meeting, Saudi Oil Minister Ali Naimi said Tuesday the strong dollar was helping to compensate for falling oil prices, in remarks taken to imply comfort with the current state of the market.

    Asked to comment on the fact that benchmark North Sea Brent crude dipped below $100 a barrel, Naimi claimed indifference to the regular behavior of the market.

    “There is no magic about $100, no magic about $110 or $140 (a barrel),” he said. “The market is very healthy. The stronger dollar, yes, is compensating for the fall in prices.”

    Naimi has long had a policy of avoiding comment about appropriate prices. In fact, the last time the de facto OPEC leader declared there was a “magic number” that he would like to see for oil prices, it was $25 a barrel, six years ago.

    The Saudis — with the world’s largest oil reserves — have a long-term interest in keeping oil relatively cheap to maintain market share against a growing host of alternatives. He’s being coy in feigning a lack of concern over prices.

    When prices moved to a then-record price of near $140 a barrel in early June, alarm bells rang in Riyadh over the potential crushing impact on the global economy of a doubling in oil prices in a year.

    Saudi King Abdullah ordered the kingdom’s oil output boosted by 500,000 barrels a day this summer, in essentially a unilateral move outside of OPEC, to 9.7 million barrels a day, the highest level in more than 25 years. Naimi said the increases were done to meet customer demand.

    Weak Demand Outlook
    Now, with demand continuing to slide, the letter of the latest OPEC pact suggests the Saudis will slash the half-a-million barrel a day rise, if they haven’t begun to do so already.

    U.S. Energy Secretary Samuel Bodman said Tuesday he hoped OPEC would keep output steady and the market well supplied.

    The Energy Department’s forecasting arm on Tuesday predicted U.S. oil demand in the fourth quarter would be the lowest for the period since 2003 and estimated 2009 U.S. oil demand would be the lowest since 2002. The Energy Information Administration said global oil demand will rise by 1.1% in the 2009 following a 0.8% rise in 2008, but demand in the OECD countries will fall by 0.8%, on the heels of a 1.4% drop this year.

    Still, even OPEC President Khelil said oil prices may continue to decline even with the new agreement.

    If EIA projections are right, OECD commercial crude oil stocks were at near normal levels at the end of the second quarter and will be again heading into the fourth quarter.

    What’s more, the EIA projects first-quarter 2009 demand for crude from U.S. refiners will average less than 14.2 million barrels a day, the lowest for the period since 2000.

    That could have OPEC considering further cuts by year end.

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

  3. Good morning Z

    Thank you for all that you do to make my life a lot easier.

    Do you have any work on cos like EPD. I am looking for yield and have been accumulating the Canadian Trusts. Just need some diversification.

  4. Iran sold down their floating stockpile of crude.
    KSA allegedly increased output
    Demand allegedly was being destroyed

    So where are all these barrels showing up? Are they all in China?
    There has been talk that the Chinese filled up their reserves prior to the games & are now running them down instead of importing more crude. I don’t know what to make of that, because no-one seems to have any hard data about China.

    Non-OPEC production is declining pretty drastically, so those “extra” barrels might simply have been plugging that gap. Now the extra flow is going to be cut off, … isn’t there a gap somewhere in all this?

    Matt Simmons and ( Boone Pickens are skeptical (to say the least) that Saudi really has any sustainable spare capacity.

    Here’s my guess as to what has played out:

    George Bush went to KSA several months ago and said: “we need crude down for the election”. The Saudis said “we don’t have much extra capacity, but we can give you something for a few months. On it’s own, that will do nothing, but if you really need crude down, you need to stop threatening Iran and back it up by making noises about setting up a diplomatic mission in Tehran”

    Once Bush had clearly shelved any attack on Iran, crude started retreating fast. In that climate, news that extra Saudi flow had finally appeared was uncritically accepted (along with demand destruction) and just accelerated the down move.

    My hunch is that Saudi agreed to tighten up the quotas because they can’t sustain the extra flow anyway, and this makes it looks like they are still in control. Will be interested to hear what Matt Simmons makes of all this.

  5. El D – I have a list of them but I would not vouch for their yields at present. Outside of Canada I have thought EVEP is interesting as they continue to do a good job of adding low cost reserves via acquisitions. 13% yield and they just seem to keep growing their portfolio.

  6. #3 – If you are interested in mlps in the US there are some bargains out there. I am most familiar with APL. They have a good set of assets that they have accumulated over the past few years. yield is 12% at the moment. i can give more info if this is what you are after.

  7. Dman – there has definitely been an effort to talk oil lower. Now it looks like we are entering the phase of talking oil sideways. The missing extra supply (I call it missing since its not showing up in stockpiles and we all know it is not being consumed, right?) is a conundrum.

  8. I still think that 81 area on the $US dollar is going to be strong resistance (the line goes back 16 years), really coincides time-wise with oil possibly getting down to $100. Symmetry is too compelling to ignore. I’m sure if it were to happen, CNBC would bring out a bunch of people talking about how we print too much money or something like that (duh), but technically, I really think that we are going to get a floor at $100 for oil (I know everybody is saying this, but there really are reasons for all of the talk).
    Should the dollar get substantially above 81, that would be a game changer.
    Got most of the oil charts updated and posted. I will try to get to the natgas stuff tonight.

  9. I’m thinking this little bounce in energy is going to be obliterated by forced selling unless the inventory report is very impressive.

  10. Tater – great work and comments on the crude, dollar, and gold charts. Much appreciated. For thos of you who don’t know, Tater’s charts can be seen at the link Tater’s TA at upper right on this site. Glad to hear the dollar is near resistance by the way.

  11. Antrim – I hear ya. Traders will be quick to discount any really big numbers as storm related, one time (or two time) events. Need those demand numbers to hang in there on gasoline and heating oil.

  14. MS??? I could see southern Ark. maybe. Wonder what they see on the USGS maps or if they just trying to make something happen…that always ends badly.

  16. 11% pop in the stock…they say they have the data…anybody have any verticals into? how deep there? same pressure regime? wonder how naturally fractured, what kind of gas saturation. Do you know who has shallower wells over the area?

  17. Bigger than normal reflex bounce in SLB…the early part of bottom fishing the service group may be starting but I don’t trust it.

  21. Morning all. Tater with you on the dollar – last week I think I mentioned the 80 – 81 resistance area. Euro has support at 140 and 138.40..As you say will coincide with 100 on oil although 101 – 101.50 may halt it….
    However will not be the end…yes we will see a bounce but ewi points only to a correction and then lower. Oil could bounce back to anywhere between 112 and 130, $ back to 75 area, euro 1.50….
    Then down again for oil – target area 86, up again for $ target area 94, down again for gold target area 600 (possibly only 680).

  23. #6 – Mahalo,

    It seems like the ultimate no brainer. Good yield, stocks trading at the lows. Just looking for different names for diversification.

    Not expecting you to do the due diligence

  25. Nicky – I don’t give advice but stay dry.

    Bird – I don’t think you are missing anything.

    Reef – I remember, wasn’t it tiny? Need to go look at the math on them but was sure it was too high to be taken out. I don’t short stuff at present, don’t even have a number to stock loan which I’m sure is not how you do it these days. Bird would know better probably. But I’d bet you could short it. You do run into 100% margin requirment at either $5 or $2.50 (can’t remember which).

  26. sorry, reefguy. it’s probably a real company. but, glancing through their last 10Q, there were a number of things that raised the little red flags in the back of my head. Doesn’t mean it can’t work, tho! But, hate Nevada-based, blank-check-type companies with warrants. Just my personal bias.

    On the other hand, if you know the management team there — and like them — that makes all the difference.

  27. Broader market looking rather tepid this morning. LEH needs to stay positive or that is a bad sign.

  34. Over the last four weeks, motor gasoline demand has averaged 9.3 million barrels
    per day, down by 2.1 percent from the same period last year.

  37. crude down 5.9 mm barrels
    gasoline down 6.5
    distillate down 1.2 (that one’s light the other 2 were bigger than expected)

    crude imports were not the reason for the bigger draw, had to be production.

    gasoline demand fell to 9.1 mm bopd, in line with the seasonal trend but robbing me of headline potential.

  40. Antrim, no it is not. Products may take crude lower, kind of depends on what the traders want to do. These numbers are messed up due to the storm in a number of ways. Stocks are actually holding their own better than I would have thought except for TSO.

  41. Re #14 Haynesville in Mississippi is mostly terriginous sandstones w/some thin (20′ or less) organic poor shales interbedded. As you move east toward Alabama the section also contains evaporite layers of anhydrite. Not a conducive environment for self sourced hydrocarbons!!

  42. NEW YORK (Dow Jones)–U.S. crude oil inventories in the week ended Sept. 5
    were sharply lower, meeting analysts’ expectations of a big decline due to
    disruptions caused by Hurricane Gustav, according to data released Wednesday by
    the U.S. Department of Energy.
    Crude stockpiles, dropped 5.8 million barrels to 298 million barrels, the
    department’s Energy Information Administration said in its weekly report. That
    compared with an average forecast of a 5-million-barrel decline in a Dow Jones
    Newswires poll of 15 analysts.
    Gasoline stockpiles fell 6.5 million barrels to 187.9 million barrels,
    compared with an average survey estimate of a 4.4-million-barrel draw.
    Distillate stockpiles dropped by 1.3 million barrels to 130.5 million barrels,
    compared with analysts’ forecasts of a 2.2-million-barrel draw.
    Refinery use fell 10.4 percentage points to 78.3% of capacity. Analysts had
    expected a 6.5-percentage-point drop.

    U.S. Oil Inventories:
    For week ended Sept. 5
    Crude Gasoline Distillates Refinery Use
    EIA data: -5.8 -6.5 -1.3 -10.4
    Forecast: -5 -4.4 -2.2 -6.5

    Figures in millions of barrels, except for refining capacity, which is
    reported in percentage points. Forecasts are the average of expectations in a
    Dow Jones Newswires survey of analysts earlier in the week.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    09-10-08 1043ET

  44. Thanks JY, sounds like a loser.

    BOP – yeah, I wasn’t kidding re that relationship.

    Anybody hearing a “buy the sector” call from one of the bigger houses? Strange action in the E&P and Service names today given commodities. Unfortunately, these early gains look somewhat born to be lost.

  47. I think the deleveraging/unwinding/capital calls at HFs continue for the next coupla weeks. Then, the 3rd quarter will come to an end.

    The next shoe to drop will be the Fund of Funds unwinding strategies and leverage.

    Until the pension funds and individual investors return to this market, we are destined to be at the whim and fancy of hedge fund gyrations: rapid trading strategies and flailing death throes.

    Should make for some very interesting (volatile) days. You can be a day-trader or a long-term investor. Anything in bewteen is going to be tough slogging for a while.

    but, just one person’s opinion.

  48. SPR unaffected as yet.
    Is it fair to say that next weeks changes to inventory will mirror this weeks. Inventory drop of 15 Million per week is not small change.
    How was TSO compared to the group since GUS.

  50. credit indices now wider than yesterday’s close. will be tough to maintain positive on the mrkt in the face of weaker credit.

  51. Broader market – we got the anticipated bounce this morning – I expect it to fail (already is by the looks of things). Critical support at 1207 on the SPX, then nothing really until 1180 and 1120 is a distinct possibility…
    we have some key cycles due to bottom in this timeframe but by that I mean the next 1 -2 weeks and we could go a lot lower between now or then or they just retest the lows which they are pretty much doing here.

  53. MD TSO was better performer, now about same due to yesterday.

    Re inventories next week, I would bet a little better (less of a draw down) and then another week like this one’s report for Ike, but not as much of a ding on the refining nunmberd….depends on where it goes.

    BOP 47 – agreed. Booking profits faster these days is a good plan.

    Thanks Sane, that’s wild….and they claim to be more accurate than EIA. Those numbers don’t make a lot of sense to me.

  54. focus has shifted from LEH to WM. so, adding that to my screen as something you have to watch.

  55. Dollar up again strongly. Very much agree Taters comments on it being overdone but its a trade that is working for them so it will go to far.

  58. Dropping a ground up NAV look at the E&P’s in tomorrow’s post. Purely back of the envelope but worth a look as now is the time to study upif not the time to trade.

  59. #58 — thanks! look forward to your update. “back-of-the-envelope” works pretty well, actually. 80/20 and all that.

  60. BoP – nothing fancy, just an in the ground reserves vs TEV look. I’m not redoing PV10s or anything of the sort but and I won’t be looking at hedges. Just quick and dirty comparison for the mids and smalls to see how cheap things have gotten.

  62. re: 58 Good idea
    re:53
    CL Production drops as predicted 7MBPW
    Imports drop 11271-10058+1.2 8.5MBPW
    Total 15. 5MBPW Stocks DN 15 M Barrels

    next week numbers :How much better can the production be and imports whenever LOOP went back into production.
    Then week after… how do you mean depends on where it goes. Will imports still be coming in. Are refineries out of harms way in LA.

    What happens to all the shiploads of product. Are they hanging around. In which case. In 3 weeks there will be massive imports and higher input.
    TXs

  63. BOP – I know it sounds overly simplstic but in the past, at times like this, taking reserves and slapping a per Mcfe value on them has yielded outliers worth looking into. I’ll start at $2.50 and Mcfe which is kind of where recent deals have been done and then see where TEV of the companies would put per reserve figure.

  65. z – if something requires fine-tuned modeling in order to be “investible,” it’s not worth it to me.

    give me back-of-envelope valuations that can withstand sledgehammer blows… that’s worth spending time, digging deeper.

  66. I think production will be 10 to 20% better this week than last. Then back down again for Ike.

    On imports I’d expect a bump next week as they run to the LOOP and try to get offloaded. It should close again or at least see little traffic from now through the weekend though. Imports will even out over time so I’d expect some bigger numbers again in 2 weeks.

    Re refiners: some in way but less than for Gustav.

    Re natural gas anticipation: we essentially lost (defered is a better word) 8 Bcfgpd for a week so I would think the number will be only half of last week’s number. Gas prics won’t get too excited however since all people care about is next year’s supply growth and not peak storage this year.

  71. In next week’s EIA report we should see an increase in the amount of crude demanded by refineries but not a lot more oil production coming out of the Gulf of Mexico. So it stands to reason that we could see another big drop in crude stocks for the next two weeks.

  73. I don’t understand how SHLD (sears) has gone up 30% since mid July? s the street anticipating that they will sell a bunch of snow blowers and blankets this winter. Gas and Oil at these prices, everyone up north will be able to leave their doors open and install heated driveways …

    Just some sarcasm on a sunny day.

  74. SHLD is a land holdings asset play. Prime, large retail sites with good highway and major thoroughfare access scattered across the U.S. As the dollar strengthens, the theory goes that a foreign investor will be pushed from contemplation to execution of purchase in order to redevelop the properties as outdoor, eco friendly malls with convenient loft dwelling above ground level. 😉

  76. ZMAN – Cramer indicated that the destruction in commodity prices could lead the equities back to their April 2005 levels based on when the run started. Does this have an ounce of merit?

  78. Sam – do you have one of those university of florida or florida state animations for Ike? That last bobble took it to the north and the tracks continue to creep a little more eastward. As it is now, its heading for prime production country and a slow 3 can be worse than a fast 4. Anything slightly damaged by Gus can be bent out of shape by another one so soon afterwards. There are going to be some small cap Gulf players who miss their production targets and get hammer on one time lease operating expense hikes. Thinking MMR, SGY, CPE, EPL to name a few.

  80. Ram – Sorry, just saw that comment in 76. It tells me he uses charts and does not thing about production growth and the resulting higher cash flow that has taken place since then when he makes statements like that. The guy is such a fair weather fan. What happened to his whole natural gas will trade in 6 to 1 parity with oil argument which I said was a load of bullox at the time he was pounding on people to buy natural gas ($10 and up)? I have to say he’s playing trends and little more with that kind of statement.

  81. Boss – I like the names I’m in on the stock side irregardless of the recent price moves. On the options I’m not in love with any of them at the moment and not feeling “tradey” today. Oil is trading in an interesting fashion, having saved itself earlier from a meltdown but the close is an hour and a half from now and they will do what they want to do to it. There is unlikely to be a recovery of real substance in the groups in the near term as it appears funds are still only too happy to sell into strength.

  86. Thanks Bleemus, almost dropped my coffee cup on that left hook until I watched Sambone’s movie. Same question to Sam re the CMC.

    Sam – here ya on Rig, tried it myself last week when I thought it was cheap in the mid $120s. Ouch.

  89. just spoke with another old, smart, energy-focused money manager. he’s buying a few of the (obvious) names today. good to see some fundamental investor’s saying “WTF, time to step in and nibble.”

  90. Nice bounce in the group in progress. Until you consider from where we just were. Then it is not that impressive. Oil trading a narrow but volatile range. If this does not carry through tomorrow then this is nothing more than a headfake in a red sentiment environment. Those HK’s are back in the money but I’ve got a little time so will let them gel for a morning pop (if we maintain the green screen today). I said they were for a quick trade and hold to that. Many charts are hanging in mid air with little to know near term support and so my hold times in them, despite being well off their highs will be shorter than usual.

  92. I understand that attached to the defense bill which is expected to pass is an allowance for some offshore drilling. Which of the service companies (FTI,SLB,WFT) stand to benefit the most?

    Thank you

  93. Of those three the most immediate would probably be SLB. I think some of that will be shallow water as well as deep so names like ESV and RDC will get a pop too.

  95. I would assume TDW is going to have a pretty good quarter moving workers to and fro. Also, the storm premium seems to be coming back to OII.

  96. 1st Mandatory evac of the Tx gulf coast will result in the closing of the 350,000 bopd Seaway line which connects the Gulf Coast with Cushing, OK. Cushing is the reference point for WTI prices and it has been trending sideways while crude stocks have angled lower. In the past, lower stocks at Cushing, though it is a small piece of inventories, have produced rallies in crude. Just thinking out loud on that one.

  100. In the big caps I think its EOG at about a third hedged, maybe a little higher. I have not run the numbers and no one has been kind enough to send me a table of late but I think that is right. In the smaller names I know MCF has a policy of not hedging unless they changed it.

  102. Boss – I’m also tempted to think out loud, save yourselves. Print your watchlist on a color printer right now and tape it over your monitor. Then come back around September 25. Love the bounce, wish it would last, don’t trust any of these HF jokers not to have blown themselves up and to need to liquidate more cheap, great stories down the road.

  103. Take a look at MCF. Their Alice in Wonderland style powerpoint is good for a chuckle and their straight shooter, “yes we outsource everything” no non-sense style is pretty cool too. I never kick myself over bad trades or shouldawouldcoulda’s but I missed that one from the teens all the way up. ug.

  104. I know its not movie time Friday yet but here’s one that if you replace “house” with “option” describes my sentiment meter right now.

    “Here lies Walter Fielding. He bought a house, and it killed him.”

  105. z – a friend of mine in Houston was all over MCF in 2003, trying to get me to buy at $2-something. never did. i still cry over that one.

  106. md – from earlier, on distillate exports, not sure if logistics would be the answer…gasoline imports surged just before the storm which is part of why the gasoline draw down was not even bigger than it was.

  107. Caught a piece of Cramer just a minute ago and he thinks E&P stocks are good for a trade, but are in the hands of hedge funds. I cannot really disagree with him there. But he does change his sentiment daily.

  109. What do you say I do a little work on hedges too for the morning? As I said in the post. With OPEC out of the way I think people are going to start being at least a little more data dependent. Might as well have the data in hand.

  112. z – if you happen to add % current production hedged + % nat gas, would be greatly appreciated!

  113. I just saw your reply to BoP for Bk of envelpe. KISS is fine. Do consider break even comparabler chart when you do a more elaborate E&P presentation

  115. Thanks MD. It is when I take a look at companies initially although it does not really change that much (just quarterly and really the trend over time is the important thing). I look at their cash costs per Mcfe which is pretty much the same thing as in that chart on page 8 of the presentation. The higher growth names will see their volumes overcome operating and other cost inflation leading to the lower $/Mcfe ranking. The lower growth companies will not. I plan on adding a section to the E&P tab to show LOE/Mcfe ranked for the names we traffic in around here and may do complete cash costs over time which adds in G&A, production taxes, and transportation so you can get to cash margins for a given gas or oil price.

  116. md – hmmm… never mind. given that a lot of LOE is %age based, really a “break even” nat gas price would be better.

  117. BOP – I do it every once in awhile and I can do that. Some make it easier than other to figure out so it may start as a short list and expand as I fill them in during these slow news days.

  120. re #21 Nicky and couple other comments,

    Out all day again today. About the dollar/oil, you are much more willing than I to commit to a future price. I like to hedge what I say, that way I can go back and point to my gray statements and act like I was right all along 🙂

    I just think that I see a situation where the charts are coming together with some fundamental arguments about the fed being willing to bailout everybody and where will it finally stop. Though the current argument is that Europe is going to hell faster than the US now, sure sounds like the emperors new clothes.
    Also, I am not so sure that Arabia can afford their lifestyle choices (read American style consumption) at prices below $100. Just as we become happy with paying “only” $3 a gallon, they may have become too happy with their margins to accept less.
    I have not been listening to media, have they been talking-up the 81 area on the dollar?

  122. Wow, big technical bounce for most of the natgas names in the face of a lower natgas price. Wonder why today is the big day for that? Set-up for tomorrow?

  123. Sam #84,
    Bot NFX at 36 area. (Glad to see I’m not the only one buying) It’s my Doomsday Strategy. When I find an excellent company, doing everything right (except promotion and PR), increasing asset value, increasing profits, laying out excellent groundwork for future significant growth: that is grossly undervalued – I buy all the way down to zero. (Hmmmmm, I don’t really like the sound of that) But, never mind. Take that! you lousy Hedge Funds. I’m buying! Now If I can only get a few people to join me.

  124. re 122.

    Feels like a dead cat bounce. Not accelerating higher into the close. Volumes are ok but not great. Its the oily E&P names too so I don’t think it has anything to do with gas. Tomorrow’s number will be low but its a throwaway number and meaningless towards defeating the big fear. I’d say they are up on Ike and the fact that they have been so woodshedded.

  125. Beer thirty!

    Bird, by the way EOG is 31% 2008 hedged, 36% 2009 for gas and about a quarter hedged for oil in 2008. They are moving into a oilier profile with their Bakken and Barnett Oil plays and to listen to them say it, the only way they grow Barnett beyond 2009 (Johnson county) is via their oil production in the play. They are unhedged in 2009 and beyond for oil and will stay that way for awhile.

  126. z – thanks for the follow-up on EOG. when energy bounces, the unhedged kids might lead. just lining up the horses and trying to decide who i want to put in the race. thanks!

  132. md – that’s too bad… ‘cuz i have this pain, right here, that i wanted to ask you about. 😉

    (nothing that a rally in energy wouldn’t fix, i’m sure!)

  133. Regarding URRE, if you own it you missed an excellent opportunity to sell last week on the supposed buyout rumors. I certainly wouldn’t hold this long term, as it is really depending on a return of higher uranium prices. It’s more of a gamble at these prices. I kept a teeny piece in my portfolio after selling the pop last week and really regret that I even held that.

  134. Trying to think of a fundamental reason for a reversal in many of the markets – the one thing I can come up with that would fit the bill is an interest rate cut. With oil down its perfectly viable imo.

  135. PBR Petrobras Brasileiro finds as many as four billion barrels of oil – Bloomberg (39.61 +1.17)

    Petrobras Brasileiro SA, Brazil’s state-controlled, said it found an estimated 3-4 billion barrels of light crude oil in an offshore field, enough to supply the country for five years. The oil was found in the Santos Basin by Petrobras, as the co is known, and its partners BG Group Plc of the U.K., and Portugal’s Galp Energia SGPS SA, the Rio Janeiro-based company said today.

  136. Caught up in the spam. Interesting story;

    “http://news.yahoo.com/s/ap/20080911/ap_on_go_ca_st_pe/interior_oil_trysts”

    without the quotes.

  137. My favorite quote from that piece – Your tax dollars not exactly at work:

    One worker admitted having a one-night-stand with a Shell employee. That same individual allegedly passed out business cards for her sex toy business, Passion Parties Inc., at work, and bragged that her income from that business exceeded her salary at the Interior Department. The employee was authorized to conduct such outside employment, and denied to investigators that she advertised for it during work hours, the report said. She admitted selling products to several of her subordinates.

  139. or a girls gone wild video. Hard to believe people are that stupid but then again, a lot of weird stuff has gone on at the MMS so I guess I’m not surprised they didn’t think they’d get nabbed. Funny how this will make huge headlines because oil is evil but when the head of the Senate Banking Committee gets a cut rate deal on a mortgage from Countrywide while he’s review lending practices nobody says boo about it.

  142. Forgot to tell you. Aside from CLNE, I found another company in all of the clean vehicle articles someone posted here. The outfit in Utah that does all of the CNG conversions (about $6k total cost – $3k for the canister), will only use Dynetek fuel canisters. DNK – Toronto, real thinly traded company.

  144. That’s the one. Fewer brain cells left.

    Thanks for the CNG tip. Is it a good idea to fuel from home and is there a way to do it faster than overnight? Got a friend looking to invest in spreading the tech.

  145. I like the idea of the cell, all vehicle conversions will need one no matter the engine type etc ..

    I was thinking the same thing about the fill from home. The fuel stations have to have something relatively rapid. It must be a matter of the size of the compressor, the higher pressures will require small pistons which is smaller volume. Increase the piston diameter and associated volume and you will have to have a bigger power frame, more $.

    End of the day, does it really matter if it does it overnight? Also, I would make sure I had it as a dual fuel set up, at least initially until the dominant system appears from the crowd.

    Smart guy would CNG a Prius or a Silverado when the come out next year.

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