Flee From the Flood Friday

Sentiment Watch: Still red, still fearful of non-triple digit oil and a rapid refill in natural gas storage. The Sell-side continues to sit on the sidelines and watch the stocks retreat from their target prices. Hard to get excited about that. The only signs of life in oil and the equities are attributable to the presence of Ike and then just barely. Imagine the thought process when Ike is a memory next week and the coast is at least temporarily clear in the Atlantic although there is a slim chance Josephine may reorganize, My current thoughts remain "yes it's all cheap and it can get cheaper during these types of valuation storms. I choose to trade less and study up as things go from cheap to silly cheap and continue to inch up my exposure to the refining segment.

Tropics Watch: Ike remains a very broad Cat 2 hurricane, with most of the models clustered around landfall early Saturday just to left of Galveston. This is a big storm and it will bring with it in the words of one forecaster, a 25 foot high "tsnami-like" storm surge. Ike and lingering Gustav impacts:

  •  Refiner Watch: 3 large refineries are shut in advance of Ike with total capacity of 959,000 bopd, or 5% of U.S. capacity.Look for this number to swell today.  The threat is storm surge and power outtages and a large surge is predicted in the Galveston / Houston region.
  • Onshore Shutdowns: Two Parishes In Louisiana under mandatory evacuation forcing the closing of two natural gas processing facilities effectively shutting in 0.7 Bcfgpd.
  • MMS Shut In Disclosure:
    • Crude oil 96.9% of Gulf production or about 1.25 million barrels of oil per day (mm bopd).
    • Natural gas 93% shut in or nearly 7 Bcfgpd.
  • Hurricane Gustav Damaged 40 Oil and Gas Platforms in the Gulf of Mexico, the U.S. Minerals Management Service said Thursday. The hurricane, which passed through the Gulf over Labor Day weekend, caused moderate damage to five platforms, which will take one to three months for production to be restored. An additional 35 platforms will require up to one month to repair and restore production, the MMS said. ~ Rigzone.

Hugo Is A Nutbag WatchChavez has given the U.S. ambassador 72 hours to get out of town in solidarity with Bolivia which expelled their U.S. ambassador earlier this week. Chavez said the #$X@!!! U.S. was behindsaying "I hold the government of the United States responsible for being behind all the conspiracies against our nations!" He then threatened to cut off oil from the U.S. if there is any aggression towards Venezuela which is the only reason I give this nutbag any air time. I would also point out that Russia is strengthening its times with Chavez and has parked two strategic bombers in the country.  Oh yes, and lastly, it appears he thwarted a military coup yesterday.

In Today's Post:

  1. Holdings Watch
  2. Commodities Watch
  3. Natural Gas Storage Review
  4. Odds & Ends

Holdings Watch: The Wiki Tab has been updated.

  • TSO October $20 Calls added for $1.15 which is in line with my original purchase of these back on 9/3. I continue to think that lower prices will lead to an improvement in consumption of gasoline and that the distillate market will tighten as winter approaches. I continue to the September calls here as well but not for long and the (VLO) $35s (also probably not for long but I do plan to reposition as I continue to warm to the group.

Commodity Watch:

Crude oil fell $1.71 to close at $100.87 yesterday as rumors circulated that Saudi Arabia had given certain market players a wink and a nod that they were in fact not going to abide by Tuesday night's decision to cut production back to the October 2007 quota levels. Oil traded as low as $100.10 overnight before a dip in the dollar and renewed fears about Ike's storm surge rallied it back to the $101.50 to $102 range.

  • Dollar At A 12 Month High. "The U.S. dollar has continued to make extraordinary gains against the euro, despite renewed deterioration in U.S. financials and the U.S. economic outlook," wrote Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, in a note to clients Thursday. Sometimes when things don't make sense it is just because they don't make sense ... yet. The dollar is overbought and due a pause.


  • This sums up my thoughts pretty well on the subject:

"Long term, the dollar will not be able to sustain its current increase for a number of reasons," David Beahm, a vice president at precious metals retailer Blanchard & Co. "Consumer spending in the United States is down, exports are down, the credit crisis continues to claim victims -- with more on the horizon, and jobless claims remain extremely high. These factors are not bullish for the dollar," he said ~ from Marketwatch. While I know the dollar is a relative measure and that the rest of the world seems to be catching the cold that the U.S. caught some time ago the move here looks to have swng too far to the right.


  • Lastly, the inverse correlation between the dollar and crude has become increasingly tight. Technicians have been watching the dollar index for a sustainable break above 80 (we're there now) and in crude failing out of triple digit territory (we're there too).

Natural gas fell 0.14 shortly after the EIA reported a slightly larger than expected injection (see slides below) to close the day at $7.25. My sense is that gas trying to find a bottom in the $7 to $7.50 range...but if oil collapses through $100 all bets are off. Gas has taken a far bigger beating than oil from its peak but it can full further with only serious Gulf of Mexico hurricane damage or the eventual announcements of capital program reductions. This morning gas is trading flat.

The Gulf of Mexico shutterings are likely to drive peak storage to settle below the 3.4 Tcf mark. Projections for storage peaks with 8 weeks left in the injection season.

Gas Inventory Report Thoughts. The East Consuming regions saw an injection 47 Bcf equivalent to last week's number as September arrived with slightly warmer weather increasing cooling load. The West and Producing regions saw lower injections (9 Bcf and 2 Bcf respectively) due to the impact of Rockies Express pipeline maintenance and shutterings caused by Gustav.  (Click first set of graphs to see them in their entirity.)

Odds & Ends

Analyst Watch: Citi starts drillers (NE) and (RIG) at Buy(with RIG actually making the firm's "Top Picks Live" list), and (RDC), (ESV) at hold.




128 Responses to “Flee From the Flood Friday”

  1. 1
    Pete Says:

    Z, With your, ” Still red, still fearful of non-triple digit oil”, what is your take on the common of CHK,HK and PQ going forward from here.

  2. 2
    zman Says:

    Pete – I hold the common in all three of those. And they may go lower. That sentiment watch is how I see the market’s mood for the group and right now the group is unloved. Makes it hard to trade options on the names. If they do go lower I’m likely to add but I don’t see a rush. I’d rather wait and let them base and let the commodities base. I thought the group was trying to form a bottom for the last couple of weeks and then oil legged lower and took the stocks to lower levels again. So I wait and watch and study and write calls against the stocks.

  3. 3
    tater Says:

    Have to believe Hugo’s noise has much to do with a planned defense of $100 (with the Soviets). Don’t they pump the heavy sludge down there? Probably gets much lower than $100 for that stuff and it costs $ to feed the socialist machine. I may have to stop buying my Cheetos from Citgo.

  4. 4
    Pete Says:

    thanks Z I guess once Ike passes has gotten me worried.

  5. 5
    Nicky Says:

    Morning all. Broader market – support at SPX 1230 – 35. As long as 1230 holds I think we have a chance at another shot to the upside above yesterdays highs. Resistance at 1249 and then 1260.

  6. 6
    zman Says:

    Pete – re Ike passing, it may be a painful vacuum down effect for crude and natural gas. When I talk about common I am thinking pretty long term.

    Tater – They’ve got heavy to light crude down there. The heaviest should be seeing somewhere between a $5 and $10 discount to WTI based on where other heavies are.

  7. 7
    Nicky Says:

    $ had a nice bounce of the previously mentioned support area 138.50 (didn’t quite get that low). Metals not really bouncing much. That said we are getting close to major support areas. Tater has mentioned the $680 level in gold and the sideways move we are currently seeing may give way to a push down to the $680 level before we see a more meaningful bounce.

  8. 8
    zman Says:

    Morning Nicky – Dollar in a small retreat this morning. In technical or other thoughts there? Thanks.

  9. 9
    Nicky Says:

    Oil – also sideways action which may lead to another shot to the downside before a decent rally. Either that or it needs to get going to the upside here and now. If lower lows are still out there then there is a Gann support line which comes in at between 93 and 96 (bit wide I know.)
    Gasoline has led the energy market for a long time now – it continues to do so…

  10. 10
    zman Says:

    By the way Nicky, I agree with your thought, at least a good chance anyway, for a non-predicted bounce in oil next week. Everyone sees oil and NG lower in the wake of Ike since nothing else cloudy is on the horizon. However, if gasoline capacity along the Gulf Coast is damaged, we could see a demand pull from gasoline on crude prices. Not putting too much on that except my wallet as usual.

    Refiners running up hard out of the gate.

  11. 11
    Nicky Says:

    Z – re $ I think it has put in its high for this move – yes may retest the low but I now favor a corrective move back towards $75 and euro $146 (could get to $150).

  12. 12
    Nicky Says:

    Z – re #10. Sentiment feels way to bearish to me in energy – its ripe for a bounce. Looks like it could be $ led….but as we know there will be lots of different funadamental reasons cited for the bounce. Its hard to believe this storm is not going to cause huge damage for one…

  13. 13
    zman Says:

    Nicky – did you see PF gloating in quotes re demand destruction. He goes short at $97 and oil runs to $147 and now he’s back to gloating. Even CNBC shies away from him as now he just lurks on Fox.

  14. 14
    tomdavis12 Says:

    Z: There is an informed discussion about the nat gas bubble on Yahoo/Finance CHK. Could not send as a link sorry. Leads to a few questions. We might be facing headwinds in the nat gas space. Maybe the service guys will be where the money comes back to more quickly. SLB, HAL, RIG and NE. It seems that three issues need to be resolved before we can put a toe back into the water. US$,Bank problems and Hedge Fund Liquidations. How bad are things that a monster IKE can hardly move the nat gas needle?

  15. 15
    Garyinhou Says:

    anyone near Houston seeing live shots of Galveston through Surfside? Unbelievable that 200 mi. and 20 hours before landfall the surge is so big already. Huge waves smashing and topping seawall.. Beachfront (no seawall) homes already in deep trouble… $ damage to be unreal..

  16. 16
    Nicky Says:

    Yes interesting that he hasn’t been on CNBC for months. This morning he is looking to sell an oil bounce at 106.50…
    Everyone talks as though once oil breaks below 100 its going to absolutely collapse. I just don’t see it. Yes we could see 86 but the bulk of the downside move is now done and so the risk for a snapback is now very great. Just imo of course.

  17. 17
    Nicky Says:

    Gary from what I am watching this is bigger than Katrina – hurricane force winds are as far as 150 miles out from the center. Its also moving much slower than Gustav and spending far longer in the Gulf so has time to do a lot more damage.

  18. 18
    zman Says:

    Tom – We are facing a headwind of sentiment more than reality in the gas markets. This year production growth probably will be up 8%. That is a huge jump. Next year that growth will probably be close to 4%. Demand will be up around 2.5% is looks at present with a similar move next year.

    Gas should have never been at $13 but you had guys like Cramer shouting BTU parity with oil and a short position that kept covering and reloading all year. My sense is that with gas close to $7 now you have discount the current supply realities in 2009 and the worry becomes the Haynesville Shale 2010. It cannot come on as fast as many hedge fund guys who took the initial look and ran away to buy (LEH) thought. Infrastructure is simply not there. More in a second…

  19. 19
    tater Says:

    Absolutely agree with the discussion this morning. Wondering about the refiner trade theory of traders going into the weekend. We got the pop carry over from yesterday, too strong, so now the sell off. Have to believe it gets re-bought as it may be too risky for some to be naked on this trade going into weekend. I went with Oct, which is a real nice feeling this morning, but wondering if you have some trader theory.

  20. 20
    Nicky Says:

    University of Michigan figures come in way better than expected…

  21. 21
    Dman Says:

    The disaster continues in China: August industrial output is up a mere 12.8% on last August. Retail spending could only manage a pathetic 23.2% increase over last August.


    So you see, China is all but on the verge of collapse and they’ll never need an ounce of any commodity ever again.

    To be serious for a moment … the worry would be that a slowdown from frantic to merely torrid growth could cause various internal weaknesses (corruption, no legal system to speak of, dodgy finance markets, possible economic unrest) to feed on themselves and cause an actual recession. But I ask the question: aren’t those fears pretty well discounted in commodities by now?

  22. 22
    zman Says:

    …so yes, NG markets face headwind. Swing potential is:

    1) winter (of course but it always is and this one looks cold if believe the farmers Almanac…I think the first NOAA read on winter will Oct 8).

    2) LNG. EIA saying 2008 will be about 350 Bcf vs 770 Bcf in 2007. That’s a little high to my data but not out of line with the magnitude of the drop we have seen there. Next year they see 450. I would say not if gas holds these prices unless Europe is just balmy this winter. There is more supply coming on around the globe and most of it is locked up and headed to Asia/Europe. Europe prices are about $6.50 per MMBTU over U.S. right now so it doesn’t look like they think winter will be warmer over there.

    more in a bit…

  23. 23
    zman Says:

    DMAN – thanks for the data and the laugh.

    Gary and Nicky – the thing is a beast.

    Nymex gasoline up another dime.

  24. 24
    zman Says:

    Tater – As much as I am tempted to hold my September TSO and VLO calls through the weekend I am toying with closing them out near the close today which I expect to be the HOD unless Ike suddenly shrinks which looks pretty unlikely. I am much more comfortable with the Octobers.

  25. 25
    zman Says:

    OII starting to run.

    Tater – on another trader angle, some of the Gulf of Mexico shallow water players are 1) going to miss their 3Q on 2 storms in a row,
    2) may not take damage but be subject to damage to pipelines and infrastructure onshore, and 3) take some damage which will put 4Q and beyond in question.

    Looking at CPE, SGY, EPL.

  26. 26
    Garyinhou Says:

    Hope this link works.. skip ahead a few min, 4+ min mark… video was an hour ago.. worse now..


  27. 27
    tater Says:

    Appreciate it. TSO has resistance of Sept 8th high at 19.60, if only temporary.

  28. 28
    zman Says:

    Re 26 – that is chilling. The 1900 storm was much more intense in terms of low pressure / wind speed estimates but the effect was the same…cleaned Galveston flat. Probably don’t need to say that while I can tell you ’bout the hurricane with a gleam in my eye like the best weathergirls on CNBC my thoughts and prayers are with those in the Texas Gulf Coast.

  29. 29
    zman Says:

    Wow – CLR up 11%, the unhedged for oil play catching a bid.

  30. 30
    zman Says:

    Scratch SGY from that 25 above, they are more to the east, probably not a big problem for them.

  31. 31
    Nicky Says:

    Thanks for the link Gary – sobering to say the least. CNBC reporting a freighter stranded out there.

  32. 32
    Sambone Says:

    9:36 am EST

    Nymex Crude Rises As Ike Nears Texas Coast

    By Brian Baskin

    NEW YORK — Crude oil futures traded higher Friday as Hurricane Ike forced Texas refineries to shut down and the dollar weakened against the euro.

    Light, sweet crude for October delivery traded $1.04, or 1%, higher at $101.91 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 84 cents higher at $98.48 a barrel.

    Hurricane Ike dominated the market’s attention as the Category 2 storm headed toward the Texas coast. Ike is expected to make landfall early Saturday, and could produce a 20-foot storm surge in the Houston-Galveston area.

    Oil and gas producers in the Gulf of Mexico have shut in nearly all output ahead of Ike, though the storm is only expected to score a direct hit on the low-volume fields in the western Gulf.

    “This storm is more about the damage it will do to the U.S. refinery infrastructure rather than an oil and natural gas issue,” wrote Jim Rouiller, senior energy meteorologist for Planalytics. “Close to 20% of the U.S. refining capability could be lost for a long period of time.”

    So far, about 25% of the total U.S. refining capacity has shut down for Ike.

    Gasoline futures have surged 7% since Sept. 9, as Ike is expected to force further draws on already-tight inventories. Fuel stocks plunged last week after Hurricane Gustav forced most Louisiana refining to shut down.

    Front-month October reformulated gasoline blendstock, or RBOB, recently traded up 8.81 cents, or 3.2%, at $2.8369 a gallon. October heating oil traded 3.17 cents, or 1.1%, higher at $2.9472 a gallon.

    Other than the anticipated draw on gasoline stocks, Ike’s long-term impact won’t be known until after the storm makes landfall.

    “We expect Friday’s session to end on a positive note,” wrote Edward Meir with MF Global. “However, the markets could open sharply lower on Monday if Hurricane Ike — similar to Gustav before it — ends up being a “bust.'”

    Despite the two hurricanes, oil prices had fallen in nine of the last 10 sessions, and as low as $100.10 a barrel Thursday, over concerns about world demand. Talk of recession in several European economies contributed to oil’s fall, both by raising questions about demand and in causing the euro to weaken against the dollar. Investors sometimes sell oil priced in the U.S. currency when the dollar strengthens, as the commodity becomes relatively expensive

    On Friday, the dollar reversed course, weakening from a one-year high against the euro hit the day before. The euro recently traded at $1.4110.

    —By Brian Baskin, Dow Jones Newswires

  33. 33
    Garyinhou Says:

    The cable news channels coverage is rather pitiful, where’s geraldo.. and that guy with the gray hair and black t-shirts from cnn. Not political enough I suppose.

    btw, reports are 25% of Galveston stayed.. big mistake. 20 ft surge up Hou ship channel will be superbad.. texas city etc to have major issues..

  34. 34
    zman Says:

    Anderson Cooper – busy with the Hurricane Palin I suspect.

    Crude really should not trade higher on events like these. This is event cutting, not enhancing.

  35. 35
    Bleemus Says:

    anybody else thinking of some DUG calls in your speculative portfolio before the weekend?

  36. 36
    Garyinhou Says:

    Freeport = 75 chem plants behind 15 ft levy..

  37. 37
    zman Says:

    Bleemus – I am but am torn…when in this much doubt I do nothing. On the one side things are going to be very bad for the refining space. On the other, like Gary points out you’ve got a ton of Chem guys in the path and they burn a ton of natural gas so demand takes a hit, not commensurate to the one supply will but supply hit may be shorter lived.

    Wow, look at LEH, looks like a direct hit from Ike ;->

  38. 38
    BirdsofpreyRcool Says:

    Having lived in Galveston for several years, it is chilling to hear the Mayor captured on Bloomberg radio ordering immediate evacuation or “face imminent death.” i don’t think i have ever heard wording as strong as that. doesn’t want to repeat the 1900 mistake.

  39. 39
    Sambone Says:

    How to win friends with oil!

    DJ US Expels Venezuelan Ambassador

  40. 40
    zman Says:

    Morning Bird – check your email. CLR = Wow. Lack of hedges and think the dollar is reversing I suspect plus Ike.

    By the way, HK saw a director and an officer buy yesterday, good to see after Floyd punted some in the prior week.

  41. 41
    Sambone Says:

    HOUSTON, Sept 12 (Reuters) – A ship with 22 crew on board was stranded
    without power Friday near the path of Hurricane Ike, but it was too
    dangerous for the U.S. Coast Guard to respond immediately, a spokeswoman
    The vessel Antalina, a fully loaded 584-foot-long petroleum coke
    carrier 90 miles southeast of Galveston, probably would ride the winds and
    waves toward shallower water and drop anchor, the Coast Guard spokeswoman
    “As of right now, we are not (responding) because of weather
    conditions. It’s too dangerous for our crew to go out,” she said.
    The ship left Port Arthur, Texas, to escape the storm.
    Because all Coast Guard vessels and aircraft were already deployed
    around Houston, the New Orleans District 8 office was responding to the
    distress call, the spokesman said.
    Big ships tend to prefer running from storms at sea rather than staying
    in port, but being at sea without power in a storm can be disastrous,
    shipping veterans said.
    The Coast Guard has closed all ports from Port Lavaca, Texas, to Lake
    Charles, Louisiana, due to the threat of Ike, the spokesman said Friday.
    The ports of Corpus Christi and Brownsville, Texas, south of Ike’s
    track, remained open, the Coast Guard said.
    (Reporting by Bruce Nichols; Editing by John Picinich)

    Fri Sep 12 14:17:41 2008 -GMT

  42. 42
    zman Says:

    Sam – I’m sure Putin is working a deal now with Chavez to broker Venezuela’s oil away from the U.S. Nice touch on the part of Vlad to park those strategic bombers there, that’ll ease tensions.

  43. 43
    zman Says:

    More NG thoughts for Tom:

    From the supply side. Canadian production has been easing lower. This is likely the result of three things:
    1) increased domestic consumption in eastern Canada for industrial and consumer needs.
    2) decreased deliverability from the WCSB (Western Canadian Sedimentary Basin). Drilling has been choppy the last couple of years and declines from Canada’s current biggest source of gas are getting steeper.
    3) Oil Sand demand. Production of oil sands is increasing and this requires greater and greater quantities of natural gas to “cook” the sand and extract the oil.

    So what happens next. Other sources come into play in the form of coalbed methane at Horn River in the West and later in the form of the Shale EOG is after in BC. This will take time. So don’t look for a sudden surge from the north to fill the gap that both Canadian and LNG exports have created vs prior years.

    Meanwhile…demand for gas from Mexico remains strong and where the local U.S. market is remote and the Mexican demand across the border is nearby, that demand is growing.

  44. 44
    zman Says:

    VTZ – do you have any figures on Oil Sand consumption of gas either in aggregate or in terms of Mcf per ton. I know that last will depend a lot on the type but I’m just looking to put a little scale on things.

  45. 45
    tomdavis12 Says:

    Z: I very much agree with your assesments about the NG markets. I guess I am just wondering if you agree with the logic that the NG may not be the best performers in the next upleg because of this pervasive negative sentiment.

  46. 46
    VTZ Says:

    Umm… Yeah I could probably wrangle something … but I don’t have anything off-hand.

    I am out of the office this week which is why I haven’t been around at all this week.

  47. 47
    zman Says:

    Tom – not given their valuations (especially the hedged guys). The hedge fund community basically said, “oh crap, peak earnings, end of the 9th inning, run for the hills”. Baby, bathwater, tub, tile, whole house thrown out at these levels. Hedged or unhedged it did not matter. But for guys like CHK who are growing 20% they will see high earnings next year than this one even at $7 gas all year long. It will take time but I find that time educates even the hot money. And a cold winter, if it transpires, would be icing on the cake as they will move from “holy crap, GAS GLUT!” to “yeah, I know about the gas glut angle but what have you got for me in a size 3x forward cash flow multiple, great, I’ll take it.”

    At least that’s how I see things. #1 requirement will be for gas to stop going down (sounds simple but its true) and then to trade sideways, not spike back up but sideways. These prices are inducing industrial demand to come back into the market.

  48. 48
    zman Says:

    VTZ – thanks. Just ballpark. No weighted average by process type. Have fun while you are out but don’t go wind surfing off Corpus.

  49. 49
    Dman Says:

    ” … I find that time educates even the hot money”

    Sounds like T-shirt potential there.

  50. 50
    VTZ Says:

    Don’t worry there’s no wind surfing in Edmonton, Alberta.

  51. 51
    zman Says:

    Tom – re 45. One more thought. Which do I think performs better from here vs current expectations: the gassy names vs the service names. That’s a tough one. Right now service fundamentals are strong but fund managers treat the group like Kryptonite because everyone is looking for production curtailments and capex reductions from the E&P companies. Two mistakes there. 1) not all service cos have the same exposure to the potential problem. RIG for instance is just not going to get hurt by these announcements nor is it going to take a hit (financially) if oil goes to $90. Projects are much longer term and priced for breakeven much lower than $90. The second issue is that just because you see a reduction in capex or a curtailment occur it does not mean necessarily that activity will drop in aggregate. If E&Ps shift to a less conventional focus to capture better economics in the unconventional plays (shales, CBM, tight gas sands) then the rig counts may level out at these elevated activty levels.

  52. 52
    Sambone Says:

    WASHINGTON (AFP)–The U.S. State Department announced Friday it has told
    Venezuela’s ambassador to Washington that “he will be expelled” in retaliation
    for the expulsion of the U.S. envoy to Caracas.
    “We have informed the Venezuelan ambassador to the United States that he will
    be expelled and that he should leave the United States,” State Department
    spokesman Sean McCormack told reporters.
    -Dow Jones Newswires

    Dow Jones Newswires
    09-12-08 1101ET

  53. 53
    BeWater Says:

    VLO resistance looks about 35.18 on closing basis, but i suppose that doesn’t mean much when talking about hurricanes.

    What is it going to take for VLO, etc. to pop on Monday? I’m guessing significant power outages and refiner damage.

    Given the recent move is the Monday risk to the downside on the refiners unless we get total carnage?

    However, i think you are bullish refiners into the end of the year on a fundamental basis so in general you like holding them in some fashion. Is this correct?

  54. 54
    BirdsofpreyRcool Says:

    sounds like BAC is indeed at the head of the list for LEH. whoever buys LEH, it just has to happen. then, mrkt can focus on taking out WM next.

  55. 55
    BirdsofpreyRcool Says:

    another company who benefits from drowned and damaged refineries is TISI. it’s not cheap on a valuation basis… but, there are not a lot of publicly-traded companies that do what they do. it’s a “service company” that isn’t on a lot of radar screens.

  56. 56
    zman Says:

    Be – yes it is correct that I am looking for improved prospects and performance out of the refining group through year end. I’m watching the Septembers for exits today. Monday is a coin toss for oil prices but I think they may get dragged up by product prices. VLO is in the path of the storm as much as anyone really so they could take a hit. In the past this has led to slight underperformance vs the undamaged peers but still a rise in stock price as products outperform crude at least in the immediate term enhancing cracks. I’m thinking we get pretty good amounts of refinery damage resulting in reduced capacity for months. I am looking at COP now which only has a couple of facilities in harms way and I have the TSO. (I have some near worthless COP from earlier but I am thinking of NTM Oct calls).

    In other trading thoughts I’m thinking of taking half of those HK $25s off the table and letting the rest ride the storm. I do think this storm causes more damage to natural gas platforms and processing facilities onshore than Gustav.

  57. 57
    zman Says:

    Re TISI – nice thought there. No options but thin enough that the stock could pop. Their services definitely going to be needed.

  58. 58
    zman Says:

    Bird – re LEH, I’m surprised congress doesn’t make one of the five biggest oil companies buy them.

  59. 59
    BirdsofpreyRcool Says:

    ha! that’s not funny. in a way, that’s what they ARE doing already. it’s just that they are dragging the rest of us taxpayers along with them.

  60. 60
    BirdsofpreyRcool Says:

    to be clear, tho. BearStearns needed to be prevented from creating a CDS meltdown. LEH is a different story. Dick Fuld had 5 months to get “something” done. Hubris or ignorance kept him from doing so. I do not see the govt backstopping that.

    On the other hand, i can’t believe we are talking about backstopping the Detroit 3. Talk about rewarding bad choices!!

  61. 61
    md Says:

    How soon after Ike passes can the refineries assess the damage.

    It would’ve been very appropriate between Gustav and Ike to have Hank but you can’t go higher than Cat 5. Would not have worked.

  62. 62
    zman Says:

    md – should be pretty apparent by Sunday when trading starts in the futures. Not how much damage but at least what sites are flooded.

  63. 63
    AAA Says:

    Did something just happen to cause RBOB to spike down?

  64. 64
    zman Says:

    AAA – Oil just tried to give all of today’s rally back. Latest track show no 3 development. I think that’s pretty short sited as the flooding is what’s going to be the problem for gasoline and a 2 this size will bring plenty of flooding.

  65. 65
    reefguy Says:

    Question for you Hedge Fund guys. Andrew Fishman who runs Kinetics Asset Management and Horizon Asset Management,
    any thoughts?

  66. 66
    AAA Says:

    Z, re 64. I see VLO is making new highs on day, as RBOB is getting crushed. ????

  67. 67
    zman Says:

    Equity guys may be thinking the sell down in gasoline won’t last through the afternoon. That and at these levels VLO is trying to break out of a 2 month long base. And its one of the key go to names when managers want refining group exposure.

  68. 68
    Nicky Says:

    Dennis Neale saying why is everyone panicking about the financial markets when the SPX is at 1250 and we are not at the July lows of 1200 – ummm where was he yesterday when we hit 1211??? He and Mark Haynes got in a right old row this morning when Haynes suggested the guys from LEH should be sent to prison!

  69. 69
    Nicky Says:

    According to Santelli on CNBC there is the possibility that Fed Funds rate are starting to price in a rate cut…he said this weekend would not be out of the question. So LEH doesn’t get rescued and the Fed hold the markets up by doing that instead. Ike doesn’t get the oil market but a rate cut would…I did suggest as much about two days ago as it is the one fundamental thing that would cause all the markets to reverse which is what the charts are calling for. Certainly a nervous % out there today…

  70. 70
    zman Says:

    Nicky – heard that about the rate cut in a couple of places too. Guess that’s what’s spooking the dollar?

  71. 71
    Nicky Says:

    Yes % should have been $..

  72. 72
    md Says:

    Does VLO stock get hurt if their refineries are damaged

  73. 73
    zman Says:

    md – see 56

  74. 74
    elijahwc Says:

    Reefguy – register for this site http://www.j3sg.com/myHome.php it is free and does a good job of tracking holdings, which beats looking up 13-Fs. It also has a database of historical filings and breaks down holdings by sector and capitalization. Might be a useful place to start looking at the two funds… Lije

  75. 75
    Sambone Says:

    Sept 12 (Reuters) – Powerful Hurricane Ike bore down on the heart of the
    U.S. energy sector in Texas on Friday, leaving most production idled and
    threatening a fifth of the nation’s refining capacity with howling winds and a
    possible 20-foot (6-meter) wall of water.
    Forecasters said the storm, packing winds of more than 100 mph (160 kph),
    would likely hit near Houston early Saturday, after oil companies shut down
    about 25 percent of the nation’s crude oil production and nearly 22 percent of
    its refined fuel production as a precaution.
    The following outlines the impact of Ike on the energy sector:
    *15.3 million barrels of crude oil
    *74.8 billion cubic feet of natural gas
    *20.7 million barrels of refining (counting only plants completely shut)
    *96.9 pct Gulf of Mexico oil output
    *93.3 pct Gulf of Mexico gas output
    *14 refineries shut, 21.6 pct of US capacity
    *3 refineries representing 5.1 pct of US capacity at reduced rates
    *Most Gulf Coast pipelines, ports and waterways shut
    *Hurricane Gustav did little damage offshore-MMS
    *Entergy La. Waterford 3 reactor back at full power 6
    *Texas seeks EPA clean gasoline waiver to boost supply
    *Henry Hub extends force majeure due Ike
    ******************CRUDE OIL, NATURAL GAS********************
    *96.9 percent of U.S. Gulf’s 1.3 million barrels per day crude output shut
    Wednesday, from 77.5 Tuesday, MMS says.
    *93.3 pct of the Gulf’s 7.4 billion cubic feet per day natural gas output
    shut Wednesday, from 64.8 pct Tuesday
    REFINERIES SHUT: (Texas, Ike-caused unless otherwise noted):
    *Lyondell 270,600 bpd Houston refinery
    *Exxon Mobil Baytown 567,000
    *Shell RDSA.L -Pemex Deer Park 340,000 2
    *Marathon Texas City MRO 76,000
    *ConocoPhillips COP 195,000 Alliance, Louisiana, due Gustav
    *BP 467,700 Texas City
    *ConocoPhillips 247,000 Sweeny
    *Flint Hills 300,000 bpd Corpus Christi
    *Valero 83,000 bpd Houston nSP34288
    *Valero 200,000 bpd Texas City
    *Valero 325,000 bpd Port Arthur
    *Motiva 285,000 bpd Port Arthur
    *Exxon Mobil 349,000 bpd Beaumont
    *Pasadena Refining 100,000 bpd
    *Valero 195,000 bpd Memphis, Tennessee
    *Citgo 430,000 bpd Lake Charles, Louisiana
    *ConocoPhillips 280,000 bpd Lake Charles
    *At peak of Gustav’s impact, more than a third of U.S. refining capacity
    was either slowed or shut down.
    ********************ELECTRIC POWER IMPACT*************************
    *Entergy La. Waterford 3 reactor back at full power
    *Conoco says preparing restart at Alliance refinery
    *South Texas nuclear plant readies for Ike
    *Some 74,000 Entergy customers still lack power
    **********************PORTS, WATERWAYS****************************
    *LOOP halts operations
    *USCG shuts Houston, Beaumont-PA, Lake Charles; Corpus open

    *********************PIPELINES, GAS PLANTS************************
    *TEPPCO begins shutting down some Texas operations
    *Seaway crude pipeline shut Wed, 6 p.m. CDT (1800 GMT)
    *Centennial Pipeline 210,000 bpd products pipeline from
    Beaumont, Texas, to Creal Springs, Illinois
    *Colonial Pipeline 2.4 million bpd products pipeline from
    Houston to New York Harbor
    *Portions of ConocoPhillips pipeline system in Texas
    *Dixie Pipeline 120,000 bpd propane pipeline from Mont Belvieu,
    Texas to Iowa, Louisiana
    *Enterprise Cameron Highway and Poseidon offshore crude
    pipeline systems in Gulf of Mexico
    *Explorer Pipeline 573,000 bpd pipeline from Gulf Coast to
    *Longhorn Pipeline products pipeline from Gulf Coast refineries
    to West Texas and El Paso markets
    *Portions of Marathon Pipeline system onshore Gulf Coast and
    offshore Gulf of Mexico
    *Enbridge EEP: Four pipelines in force majeure
    *Part of BP Destin gas line to remain shut due Ike
    *Henry Hub extends force majeure due Ike
    *NYMEX keeps force maj. in place for August, September contracts
    *Plantation pipeline at reduced rates
    *SPR Bryan Mound and Big Hill, Texas, West Hackberry, Louisiana, shut

    (Reporting by Bruce Nichols, Erwin Seba; Editing by Richard Valdmanis)

    Fri Sep 12 16:21:39 2008 -GMT

  76. 76
    zman Says:

    Thanks Eli and Sam

  77. 77
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–A second major Texas refining hub succumbed to the
    threat of Hurricane Ike late Thursday, bringing the amount of idled capacity in
    the U.S. to more than 20% and foreshadowing a rise in pump prices.
    Operators of three refineries northeast of Houston decided to halt production
    Thursday night, as forecasters adjusted their paths for Ike’s winds and storm
    surge. Ike has now forced the shutdown of 14 refineries responsible for 3.72
    million barrels a day, or 21% of total U.S. refining capacity. Nearly all oil
    and gas production in the Gulf of Mexico is also shut in, though most platforms
    have avoided the worst of the storm.
    Hurricane Ike is expected to make landfall near Galveston, Texas, as a strong
    Category 2 or weak Category 3 storm at about 1 a.m. CDT on Saturday, according
    to the National Hurricane Center. The storm’s current path scores a direct hit
    on the refinery corridor along the ship channel linking Galveston and Houston.
    Retail gasoline prices have stayed tame this hurricane season after breaching
    the $4-a-gallon market earlier this year. Although Hurricane Gustav shuttered
    most refineries in Louisiana ahead of its Sept. 1 landfall, none of the plants
    were badly damaged by the storm and companies were able to draw on a
    comfortable gasoline inventory cushion while they were restarting their plants.
    In addition, there was already some slack in the sector, as refineries across
    the U.S. that weren’t running at full rates were able to partly compensate for
    the shutdowns.
    Louisiana refineries are still recovering from Gustav, though, and the
    gasoline inventory cushion has dwindled. Imports from Europe could stave off
    severe price spikes, but gasoline prices, which lately have been depressed due
    to waning demand, need to rise more to attract those tankers.
    Benchmark gasoline futures were recently 1.1% higher at $2.7794 a gallon after
    trading as high as $2.8793 on the New York Mercantile Exchange. Gasoline
    futures are up 8.5% since Tuesday, while Gulf Coast wholesale gasoline for
    prompt delivery continued to trade at $2 over the screen, a historically wide
    premium. Movements in retail prices tend to lag trends in wholesale prices by
    days or weeks.
    A scarcity of gasoline isn’t a problem just for the Gulf Coast. Pipelines
    transport fuel from Texas and Louisiana up the eastern seabord. States such as
    North Carolina, South Carolina and Georgia are almost entirely dependent on
    these piped supplies for their gasoline and diesel.

    A Greater Threat Than Rita

    The response by refiners to Ike is rivaled only by their actions in the run-up
    to Hurricane Rita in 2005. A similar roster of refineries shut down before Rita
    hit, as the storm appeared headed for Houston, then swung north just before
    landfall to slam into Beaumont. About 27% of U.S. capacity was down in late
    September of 2005, between the Rita shutdowns and Louisiana refineries still
    recovering from Hurricane Katrina.
    Ike poses a greater threat to refiners than Rita, less than a day before
    landfall. Rita’s uncertain path forced shutdowns along a wide stretch of Texas
    coast, but ultimately that storm damaged only the area around Beaumont and Port
    Ike has the potential to cause severe damage across the entire region. In
    addition to winds of up to 115 miles per hour, Ike could generate a 25-foot
    storm surge that threatens to swamp not only the Houston area, but also
    sections of the coast along the northeast edge of the storm.
    “Hurricane Ike is (a) gigantic (Category 2) monster and is likely to generate
    a massive and particularly destructive storm surge at key refinery centers at
    Port Arthur and the Sabine River Pass southward to the huge refining complex at
    Galveston Bay over the next 24 hours,” wrote Jim Rouiller, senior energy
    meteorologist for Planalytics.
    The gasoline market has no precedent for a long-term disruption to both the
    Houston area and Beaumont-Port Arthur refineries. Rita affected only Beaumont,
    while Tropical Storm Allison damaged a couple Houston-area refineries in 2001.
    Houston last took a direct hit in 1983, from Hurricane Alicia. Some refineries
    continued to operate even as the storm passed over, and gasoline production
    quickly returned to pre-Alicia levels.

    Eyes On Inventories

    Gasoline inventories are already lower than they were after Hurricane Rita, as
    Louisiana refiners only recently ramped up following Hurricane Gustav’s passing
    over Labor Day weekend. Stocks dropped by 3.5% in the two weeks after that
    storm before bouncing back. A similar draw after Ike would send gasoline
    inventories to their lowest level in at least 18 years.
    The active gasoline market has kept a tight cap on oil prices. Futures traders
    are buying gasoline and selling crude, to take advantage of the spiking “gas
    crack,” an approximation of the profit refiners earn from producing fuel.
    Even if Ike causes no damage to refineries, the storm will almost certainly
    rock energy markets once it hits, said Nauman Barakat, senior vice president at
    Macquarie Futures USA.
    “The shut ins and power outages will have a devastating impact,” Barakat said.
    “Cracks … already look rich but will get richer.”


    ExxonMobil Baytown 562,500 n/a
    BP Texas City 417,000 n/a
    ExxonMobil Beaumont 348,500 n/a
    Shell Deer Park 333,700 n/a
    Motiva Port Arthur 285,000 n/a
    Valero Port Arthur 260,000 n/a
    LyondellBasell Houston 247,000 n/a
    ConocoPhillips Sweeny 247,000 n/a
    Valero Texas City 218,500 n/a
    Astra/Petrobras Pasadena 100,000 n/a
    Valero Houston 83,000 n/a
    Marathon Texas City 76,000 n/a

    Flint Hills Corpus Christi 305,000 n/a

    Total Port Arthur 240,000 n/a

    NOTE: All refineries affected by Hurricane Gustav have restarted or are in
    restart mode, although throughput may be limited by the suspension of U.S. Gulf
    of Mexico crude oil output. On Thursday, ConocoPhillips’ Belle Chasse, La.,
    refinery was the last of those affected to regain power and begin the restart

    -By Brian Baskin, Dow Jones Newswires (Susan Daker in Houston and Rose Marton in New York contributed to this

    Dow Jones Newswires
    09-12-08 1247ET

  78. 78
    zman Says:

    Wow – 18 year low possible. Had not looked back that far.

    FTO up another 10% today. HOC as well.

    Oil just went red despite a 1.1% drop in the dollar. Traders fear a lack of damage offshore next week.

  79. 79
    Sambone Says:

    DJ North Carolina Declares Gasoline Market Disruption From Ike

  80. 80
    zman Says:

    They’re off today but TGT and WMT should benefit from the runs on them along the coast. My sister reports a soccer mom tried to steal items out of her cart in H-town last night.

  81. 81
    Sambone Says:

    H town?

  82. 82
    zman Says:


  83. 83
    Sambone Says:


    JPMorgan Chase & Co. (JPM) is in advanced talks to buy Washington Mutual Inc.
    (WM), American Banker reported Friday, citing sources. Jamie Dimon, chief
    executive of JPMorgan, and Alan Fishman, the new chief executive of WaMu, are
    involved in the discussions. The deal, which reportedly does not involve the
    government, could be completed this this weekend, although it is still in flux,
    the sources cautioned.

  84. 84
    Dman Says:

    Z – 18 yr low in ???

  85. 85
    zman Says:

    Dman – I was referring to the comment near the bottom of the story in #77. Basically the story is saying the surge and size here will be worse for Rita and that following Rita production was low and gasoline withdrawals sent inventories very low. Could happen again.

    Oil down $0.65. Gasoline off now. I understand the first but not the second. Oil touched 99.99

  86. 86
    BirdsofpreyRcool Says:

    break in levee south of New Orleans…

  87. 87
    BirdsofpreyRcool Says:

    just south of ConocoPhillips refinery in Belle Chasse

  88. 88
    reefguy Says:

    eli-74 thanks!

  89. 89
    zman Says:


  90. 90
    Sambone Says:

    From a weather blog i follow;

    Hurricane Ike is closing in on Texas, and stands poised to become one of the most damaging hurricanes of all time. Despite Ike’s rated Category 2 strength, the hurricane is much larger and more powerful than Category 5 Katrina or Category 5 Rita. The storm surge from Ike could rival Katrina’s, inundating a 200-mile stretch of coast from Galveston to Cameron, Louisiana with waters over 15 feet high. This massive storm surge is due to the exceptional size of Ike. According to the latest wind field estimate (Figure 1), the diameter of Ike’s tropical storm and hurricane force winds are 550 and 240 miles, respectively. For comparison, Katrina numbers at landfall were 440 and 210 miles, respectively. As I discussed in yesterday’s blog entry, a good measure of the storm surge potential is Integrated Kinetic Energy (IKE). Ike continues to grow larger and has intensified slightly since yesterday, and the hurricane’s Integrated Kinetic Energy has increased from 134 to 149 Terajoules. This is 30% higher than Katrina’s total energy at landfall. All this extra energy has gone into piling up a vast storm surge that will probably be higher than anything in recorded history along the Texas coast. Storm surge heights of 20-25 feet are possible from Galveston northwards to the Louisiana border. The Texas storm surge record is held by Hurricane Carla of 1961. Carla was a Category 4 hurricane with 145 mph winds at landfall, and drove a 10 foot or higher storm surge to a 180-mile stretch of Texas coast. A maximum storm surge of 22 feet was recorded at Port Lavaca, Texas.

  91. 91
    Sambone Says:

    80 mph winds


  92. 92
    Sambone Says:

    #91 as high as 121 MPH (108 knts)

  93. 93
    1520sbroad Says:

    tater – been rolling thru your charts on stockcharts today. great work. interested in your thoughts on resistance points for VLO. i’m looking a bit longer term and looking to sell some calls against my currently uncovered position. Storm related premiums are tempting me.

  94. 94
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures briefly dropped below $100 a barrel
    for the first time since April 2, even as Hurricane Ike neared the Texas coast.
    Light, sweet crude for October delivery dipped to $99.99 a barrel at 1:45 p.m.
    EDT in pit trading on the New York Mercantile Exchange, before rising to
    recently trade at $100.27 a barrel, down 60 cents or 0.6% for the day.
    Oil is trading lower on the strengthening dollar and weak demand in the U.S.
    and Europe. The market has so far ignored the approach of Hurricane Ike, which
    could pass over some of the nation’s biggest refineries if the storm landfall
    Saturday near Galveston, Texas, as forecasted.
    Traders said crude’s surprising weakness ahead of the storm reflects the idea
    that Ike is more likely to have an immediate impact on the production of oil
    products such as gasoline than on crude supplies themselves.
    “It says crude oil is not the problem. Global demand is the focus and even
    with a hurricane on the horizon, what’s going to be most affected is probably
    not going to be crude,” said Raymond Carbone, president of Paramount Options on
    the Nymex floor.
    Front-month October reformulated gasoline blendstock, or RBOB, traded 1.03
    cents lower at $2.7385 a gallon. October heating oil traded 30 points higher at
    $2.9185 a gallon.

    -By Brian Baskin, Dow Jones Newswires (Gregory Meyer in New York contributed to this report.)

    Dow Jones Newswires
    09-12-08 1406ET

  95. 95
    zman Says:

    re 92 – Augur’s a big platform and built to take some good punishment but that will likely do some small damage. For the smaller platforms all around it that’s a little different.

  96. 96
    zman Says:

    OII obviously being seen as a repair / inspection story now. If it is a damager offshore I will buy Monday, miss the bottom but its a whole slice of their income statement that will power earnings going forward for a year or more and that will take time to roll through analyst’s models.

  97. 97
    Sambone Says:

    By David Bird

    NEW YORK (Dow Jones)–Refinery closures, pipeline delays and port closures
    left Gulf Coast gasoline stocks 5.5% below their five-year average in the week
    before Hurricane Ike loomed as the second major storm to hit the region within
    two weeks.
    Concerns over tight fuel supplies led the federal Environmental Protection
    Agency late Thursday to grant temporary waivers from Clean Air Act gasoline
    requirements in nine southeastern states.
    The moves are designed to increase the availability of supply of gasoline sold
    or distributed in Alabama, Florida, Georgia, Louisiana, Mississippi, North
    Carolina, South Carolina, Tennessee and Texas to allow the early use of
    winter-grade fuel throughout this region.
    The waiver took effect Thursday and will allow greater flexibility and
    additional supply for fuel-distribution systems in these states. For Texas, the
    waiver runs through Sept. 30; it will be place until Sept. 15 in the other
    For all nine states, gasoline distributors may sell or distribute fuel that
    exceeds summer requirements for volatility. These standards are imposed during
    summer months to help control emissions from motor vehicles. Also waived were
    requirements for reformulated gasoline required in portions of Texas.
    The EPA said the waiver allows each state to sell or distribute gasoline with
    volatility as great as 11.5 pounds per square inch. Temporary suspension of
    these standards will allow for the sale of available supplies of conventional
    gasoline that have higher volatility limits.
    Energy Information Administration data show that in the week ended Sept. 5,
    after Hurricane Gustav tore through the Gulf Coast region, causing refinery
    closures and interfering with normal fuel shipments, gasoline stocks in the
    Gulf and surrounding region (Alabama, Arkansas, Louisiana, Mississippi, New
    Mexico and Texas) stood at 57.74 million barrels, down 5.5% from the five-year
    In the Lower Atlantic region (Florida, Georgia, North Carolina, South
    Carolina, Virginia and West Virginia), gasoline stocks were 11.8% below the
    five-year average, at 17.8 million barrels.
    Gasoline stocks in the Mid-Atlantic — from Washington, D.C., to New York —
    were 4% above a year ago, at 28.3 million barrels. But stocks in New England
    were 11.9% below the five-year average, at 3.48 million barrels.
    Among the major operations affected by Gustav was the Colonial Pipeline from
    the Gulf to New Jersey, a crucial link for northeastern U.S. supplies, which
    ran at reduced levels for several days due to power outages caused by the
    During September, shipments of gasoline from the Gulf to the East Coast,
    mostly on the vital pipeline, averaged 1.2 million barrels a day in the past
    five years, with distillate (heating oil/diesel) flows at around 625,000
    barrels a day, EIA data show.
    Distillate stocks along the East Coast were 10.7% below the five-year average
    on Sept. 5, at 49.7 million barrels. In New England, stocks were 41.3% below
    the five-year average, at 6.7 million barrels, while stocks in the central
    Atlantic region, were 2.7% below the five-year average, at 31.3 million
    barrels. Together, the two areas comprise the world’s largest market for
    home-heating oil.
    Lower Atlantic distillate stocks were 3% below the five-year average, at 11.7
    million barrels.

    -By David Bird, Dow Jones Newswires
    Dow Jones Newswires
    09-12-08 1432ET

  98. 98
    zman Says:

    In non hurricane news:


  99. 99
    Sambone Says:


    Sabine Pass, Texas, a gulf coastal area home to several liquified natural gas
    facilities, is under four feet of water now and is expected to suffer a 15- to
    20-foot storm surge from Hurricane Ike before flood waters recede over the next
    couple of days, local police said. A mandatory evacuation order for the Port
    Arthur, Texas, neighborhood was put into effect Thursday, a spokesman for the
    Port Arthur police said Friday. “Sabine Pass is empty,” the spokesman said. All
    LNG facilities in the area were evacuated. Facilities in the area include the
    Cheniere Energy Inc. (LNG) facility and a joint venture facility of Qatar,
    ExxonMobil (XOM) and ConocoPhillips (COP). A Sempra Energy facility is located
    in Port Arthur, Texas. Spokesmen from the companies couldn’t be reached for
    -Dow Jones Newswires

    Dow Jones Newswires
    09-12-08 1502ET

  100. 100
    zman Says:

    Crude and gasoline closed flat. Early open for Globex: Sunday 9:30 am EDT.

    Re 99, Maybe LNG, the company, can collect an insurance check since they sure don’t collect imports.

  101. 101
    Sambone Says:

    THE EVENT: Hurricane Ike looms off the Texas coast, threatening Houston, the
    nation’s fourth-largest city, and the area’s extensive energy infrastructure.
    The storm is slated to make landfall late Friday night or early Saturday
    morning, bringing with it 100 mph winds and a 20-foot storm surge.

    REFINERIES SHUT DOWN: As of Thursday, the storm has forced the shutdown of 14
    refineries responsible for 3.72 million barrels a day, or 21% of total U.S.
    refining capacity – foreshadowing a rise in pump prices. By comparison, only
    13% of refinery capacity was shut in before Hurricane Gustav two weeks ago.

    OTHER ENERGY SHUTDOWNS: Nearly all oil and gas production in the Gulf of
    Mexico is also shut in, though most platforms have avoided the worst of the
    storm. The U.S. Minerals Management Service reported Friday that 97.5% of oil
    output and 94.4% of natural gas production was off line.

    MARKET REACTION: Crude oil future briefly dipped below $100 a barrel for the
    first time since April 1 on weak demand and a strengthening dollar – despite
    the threat posed by Hurricane Ike.

    IKE’S CURRENT STATUS: Ike remains a Category 2 hurricane, but the National
    Hurricane Center said it could strengthen into a Category 3 by the time it
    makes landfall. At 2:00 p.m., the NHC said the storm, packing 105 mph winds,
    was 165 miles southeast of Galveston, Texas. Ike was said to be moving
    west-northwest near 12 mph.

    GASOLINE SUPPLY PROBLEMS LOOM: With refineries shut in, gasoline stocks will
    tighten. Gasoline inventories already are lower than they were after Hurricanes
    Katrina and Rita hit in 2005. Louisiana refiners only recently ramped up
    following Hurricane Gustav. Stocks dropped by 3.5% in the two weeks after that
    storm before bouncing back. A similar draw after Ike would send inventories to
    their lowest level in at least 18 years.

    GASOLINE DISRUPTIONS ALREADY: North Carolina Gov. Mike Easley Friday declared
    a state of “abnormal market disruption” on Friday, citing interruptions to the
    state’s gasoline supply from hurricanes Ike and Gustav.

    HOUSTON AREA EVACUATIONS: A evacuation has been ordered for low-lying areas of
    the Houston area. Galveston Island, a barrier island near the opening of the
    Houston Ship Channel, is included in the order.
    As of Friday midmorning, a Galveston city official said about 14,500 people –
    or 25% of the island’s residents – have not left the island yet.

    GAS PIPELINE FORCE MAJEURE: Natural Gas Pipeline Company of America declared
    force majeure Friday on the Louisiana segment of the NGPL pipeline due to
    Hurricane Ike barreled toward the U.S. Gulf of Mexico coast.

    TRANSPORTATION HUB SHUTTERED: The Port of Houston, the nation’s second-largest
    by tonnage, has been shut down and isn’t expected to open until Monday. Almost
    all other transportation conduits in the area have been closed, sending ripples
    throughout the nation’s supply chain.


    “Hurricane Ike is (a) gigantic (Category 2) monster and is likely to generate
    a massive and particularly destructive storm surge at key refinery centers at
    Port Arthur and the Sabine River Pass southward to the huge refining complex at
    Galveston Bay over the next 24 hours,” wrote Jim Rouiller, senior energy
    meteorologist for Planalytics.

    The crude price decline “says crude oil is not the problem. Global demand is
    the focus and even with a hurricane on the horizon, what’s going to be most
    affected is probably not going to be crude,” said Raymond Carbone, president of
    Paramount Options on the Nymex floor.

    “If you think you are going to hunker down and ride this thing out, you’re
    going to be riding it out without a house,” Galveston city official Mary Jo
    Naschke, on those Galveston Island residents who might try to ride out the

    Dow Jones Newswires
    09-12-08 1504ET

  102. 102
    zman Says:

    All local gas stations have long lines, lot of people are filling up fearing $5 gasoline. Probably a big demand number in next week’s report for gasoline.

  103. 103
    Sambone Says:

    #99, Hmmmm, 20 foot water moving through a LNG site might create some damage, ya think? Think about a house with 20 foot of water moving through it (Two stories).
    yea, I guess the street is right that no damage will come about because of Ike and all will go back to normal like it did with Gustave. “What me worry”.

  104. 104
    Bleemus Says:

    Nymex $99.99 Oil Trade Was 1,000-Bbl Lot On Floor – BrokerLast update: 9/12/2008 3:16:43 PM(MORE TO FOLLOW) Dow Jones Newswires

  105. 105
    Sambone Says:

    #102 Not to be an alarmist, but if Ike goes up the Houston channel with a surge, it could bring down a double digit percent of refining here in the US for a while (See Rita/Katerina). That means shortages, empty tanks, no gas ola.

  106. 106
    Sambone Says:

    WASHINGTON (Dow Jones)–Senate Energy and Natural Resources Committee Chairman
    Jeff Bingaman, D-N.M., said on Friday that he would unveil an energy bill on
    Monday and that he expected it to come up for a vote in the U.S. Senate shortly
    after its introduction.
    Congress is drafting energy legislation after oil prices reached record highs
    this year.
    He was speaking to reporters at the conclusion of an all-day energy summit
    that featured chief executives from the airline, nuclear-power, oil and auto
    Bingaman declined to comment on the merits of a House bill that would open up
    swaths of coastal waters to oil and gas exploration. The House bill is to be
    voted on next week.

    -By Siobhan Hughes, Dow Jones Newswires

    Dow Jones Newswires
    09-12-08 1507ET

  107. 107
    Sambone Says:

    DJ Nymex $99.99 Oil Trade By Man Who 1st Bought At $100-Broker

  108. 108
    zman Says:

    Re 107 – “He’s a funny guy”

    Looks like we’re just going to go quietly into the close, green but not really at the day’s highs on the equities.

  109. 109
    tomdavis12 Says:

    Z: Are you looking for below $7 on monday with NG? Even with strong US$ you are hoping for the supply and demand fight to keep things $7 – $7.5.

  110. 110
    ram Says:

    Staying in SEPT calls on TSO and VLO?

  111. 111
    apbd Says:

    Everyone stay safe this weekend. Our prayers go out for for protection.

  112. 112
    Dman Says:

    So I finally decided to get on board the TSO play, bought 10 contracts of the Oct 20s. It was filled in 4 partials: 3 fills of 3 and 1 fill of 1.

    Weird? I mean, yes I was splitting the bid, but still. Never saw quite that degree of order slicing before.

  113. 113
    zman Says:

    Ram – yes.

    Tom – No. If there is any rationality left that won’t happen…it could if crude plunges but I don’t think it goes lower for long. Gas is local and even without major platform damage the power outages and flooding of areas with natural gas processing is going to be widespread, not to mention the extended production shut ins in the Gulf.

  114. 114
    Sambone Says:

    By Leslie Eaton

    DALLAS (Dow Jones)–Insurance companies are girding for losses in Texas that
    are likely to far exceed the $2.1 billion Hurricane Rita cost them in 2005 and
    might come close to the $41 billion total loss caused by Hurricane Katrina,
    depending on the path of the storm.
    A preliminary estimate, made well before Ike reached landfall, put the insured
    damages between $10 billion and $20 billion, with the losses split equally
    between individuals and businesses, according to Equecat, which uses computer
    models to calculate exposure for insurance companies.
    “Maybe it’s not quite a Katrina, but it’s on the cusp,” said Thomas Larsen,
    senior vice president of the company, which is based in Oakland, Calif.
    (This story and related background material will be available on The Wall
    Street Journal Web site, WSJ.com.
    Winds strong enough to pick up mobile homes will cause much of the immediate
    losses, while “flooding is going to impact the recovery,” he said, adding, “You
    don’t have electricity when you are under water,” he said
    Ike’s storm surge will range from 15 feet to 21 feet and could reach 25 feet
    in some shallow waterways, said Howard Botts, executive vice president of First
    American Corporation and geography professor in Wisconsin. Water could push up
    the Houston Ship Channel and reach several feet at the Beltway that circles the
    bulk of the city, he added.
    “The hydraulic power of the surge has tremendous impact,” he said. “It’s not
    the first wave or the second, but the thousandth or two thousandth.”
    Taxpayers may end up picking up a great deal of the costs of Ike through
    subsidized insurance programs, experts said. Almost 75% of the houses in
    Galveston have federal flood insurance, while wind damage to homes on the coast
    is generally covered by a state insurance program, said Robert P. Hartwig,
    president of the Insurance Information Institute in New York.
    -By Leslie Eaton, The Wall Street Journal

    Dow Jones Newswires
    09-12-08 1544ET

  115. 115
    Dman Says:


    Eventually, reality has to matter at some point. Well, I think it does, anyway 😉

  116. 116
    zman Says:

    Refining stock call volumes are off the hook.

    ZTRADE: Partial fill on sale of HK $25 calls for $1.65, up 83%

  117. 117
    Sambone Says:

    Tini time

  118. 118
    Dman Says:

    Hefty volume in TSO today

  119. 119
    zman Says:

    Sorry for the late notice on 116 but I did mention I would sell it down late in the day and it went off when I did not think it would.

  120. 120
    zman Says:

    Here ya Dman! Keep your beer and hot dogs dry and hopefully the UT game won’t get rained out.

  121. 121
    Bleemus Says:

    U.S. “stands ready to release” SPRO oil ‘when and where necessary’, according to the Energy Dept – Reuters

  122. 122
    tater Says:

    Came home to find out no internet at my house for a bit. Finally found a coffee shop. I will try to get charts updated and I will give VLO some better attention, but just a heads-up on that name, I believe that charting is great and all, but catalyst events control over charts any day of the week. (Don’t tell Z that I said that).

  123. 123
    zman Says:

    I’ve seen a few releases from the SPR now. This is what it’s for (and not just to use as a tool to get votes)

    It makes my week that Tater has seen the light, lol.

  124. 124
    Dman Says:


    But, but, but … T-Man, we were hoping you would get so good at the charts that you were going to be *predicting* the catalysts for us. You know, like 3 months in advance so we could plan our holidays around them.

  125. 125
    elijahwc Says:

    UT v Arkansas game is rescheduled for Sept. 27th.

  126. 126
    tater Says:

    Dman, the pressure!
    I didn’t have the ability to add my Friday special “the pig still has wings” chart for AMGN. I put it on page 8 at the very end. Very risky, so take it easy if anybody likes the looks of it.


    Have a good weekend, and don’t forget to short the hell out of Time Warner (&^**%## !!!! company).

  127. 127
    1520sbroad Says:

    tater – i agree on the catalyst theory. I’m a industry, fundamentals, macro first type of guy but i think ta fits into the overall picture – particularly when dealing with options.

    For all those folks in the gulf i wish the catalysts didn’t bring 20+ feet of water with them.

  128. 128
    jsaun14 Says:

    Endeavour (END) Announces Discovery at Noatun C in Norway
    Friday September 12, 8:30 am ET
    – Seventh consecutive successful well by the company in the North Sea

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