Wrap – Week Ended 9/12/08 (In Progress)


Just a couple of quick notes this weekend:

1) Refining margins jumped last week as Hurricane Ike approached the Gulf Coast. I'd expect some reversal there later today as trading opens early and damage/flooding at refineries preliminarily looks less than expected.  Shell and VLO are reporting no significant structural damage yet discovered while XOM is still evaluating its facilities.

2) Natural Gas 12 Month Strip Approaches $8. Get ready for the Capex curtailments/production shutins. The strip is a lot more meaningful to the decision making process than the front month gas contract and it continues to drift lower. While storms in the Gomex will provide minimal and temporary support to prices the Buyside and some of the Sellside continue to see a gas production tsunami that culminates in a massive storage build in 2009 and the most likely cure for those fears is a combination of capital spending reductions (don't expect it to be Chesapeake as they are focused higher margin (lower breakeven) plays as we speak.

Holdings Watch: Slow Week For Trades In A Choppy (To Say The Least) Market. Closed trades for the week.

  • Sold half HK $25 September Calls for $1.65, up 83%.

44 Responses to “Wrap – Week Ended 9/12/08 (In Progress)”

  1. 1
    zman Says:

    Oil opening down $0.80, gasoline off 3 cents in early trading.

  2. 2
    zman Says:

    Oil quickly through $100, down $1.50 and falling at $99.70.

    Meanwhile, the Nigerian military attacked MEND over the weekend and MEND issued a warning to all oil companies telling them to get their people out.

  3. 3
    Nicky Says:

    Morning Z – what a mess Ike has left. Drop may be premature I think especially as oil did not go up into the storm…

  4. 4
    zman Says:

    Hear ya Nicky but its apparent that traders “want” it lower, say $90 to force OPEC to comply with its new policy of sticking to its quotas. Also, MEND has officially declared war on oil platforms and pipelines in the Nigerian delta after the government raided one of their camps yesterday. Chevron has confirmed one already out of service platform was attacked and MEND says it blew up one of the trunk lines in several places and that more attacks are coming across the delta today.

  5. 5
    zman Says:

    MEND even gave their new war a name: Hurricane Barbarossa.

  6. 6
    Nicky Says:

    Mend may support the complex then Z. I am still looking at a major Gann support line which comes in between and bout 93 and 96. Have the refineries got power back?

  7. 7
    zman Says:

    No except for Shell’s Deer park and a couple of smaller ones that never lost it. No flooding reported although XOM has declined to say if their facilities did or did not flood or what the damage looks like yet. Have not seen any reports about offshore infrastructure.

    NG off 11 cents

  8. 8
    Nicky Says:

    I see Chavez is rattling his cage too and explelled the US Ambassador to Caracas along (of course!) with threatening to cut off oil to the US again.

  9. 9
    Nicky Says:

    I saw two rigs had broken loose offshore but heard no more.
    Nat gas paring its losses now.

  10. 10
    zman Says:

    AR – just rain. My sis is Houston, no power, no water, no phones but fine.

  11. 11
    Fred Says:

    Chavez’s latest threat: Addressing his close friend Fidel Castro, Chavez said: “I’m going to fly a Tu-160. Fidel, I’m going to fly low past you there.”


  12. 12
    Nicky Says:


  13. 13
    Nicky Says:

    Z – not sure how much validity there is to this but Texas Senator Kay Hutchison is saying oil refineries may lay idle for 8 to 9 days.

  14. 14
    zman Says:

    Nicky – Beutel’s statement about taking 3 downed refineries vs 13 is true if you do your analysis with a sledgehammer. But 1 big refinery outage with the gasoline supply / demand equation as tight as it is (I mean long term and not the econ weakness based slight bit of slack we are seeing now) is enough to turn the cycle in gas on its ear. 3 would do that now so if they are flooded that’s a big problem. Right now, traders are just selling.
    oil down $2, or 2%
    gasoline down 13 cents or 5%
    heating oil down 9 cents or 3%
    so if this lasts into tomorrow the refiners are going to have a bad day.

    NG is off 5 cents…still looks to be trying to find a bottom.

  15. 15
    Nicky Says:

    I am seeing a couple of other analysts saying not so fast and that the sell off may be premature as restoring power to the refineries could be a problem.
    Gasoline inventories are already pretty low right? Can you see the volume going through?
    And yes agree re natural gas…

  16. 16
    md Says:

    MEND should wait their turn in line. K & L are in the que.
    This week may be a good opportunity to get into refiners if they do a dip post IKE.
    I still have a bunch of TSO Seo.$20. @.40. If I can get .30 or more should I get out.

  17. 17
    jy Says:

    I guess folks don’t realize that IKE crawled across a significant portion of the GAS producing structures in the west central GOM. Until someone can get out there and put eyeballs on the damage all the nat gas ner term price directional speculation is just that. In previous storms companies have issued early declarations of “minimal damage” (which means platforms still standing) only to find after thorough inspection that things below the surface weren’t as sanguine as they guessed.

  18. 18
    Bleemus Says:

    Friend who works at XOM Beaumont refinery said “was under 8 feet of salt water, probably be shut down for months”.

  19. 19
    Nicky Says:

    Ike destroys a number of Gulf platformsBy JOHN PORRETTO updated 9 minutes agoFont size: HOUSTON – Hurricane Ike appears to have destroyed a number of production platforms and damaged some of the pipelines in the Gulf of Mexico, federal officials said Sunday.

    Fly-overs revealed that at least 10 production platforms were destroyed by the storm, said Lars Herbst, regional director for the U.S. Minerals Management Service.

    “It’s too early to if it’s close to Katrina- and Rita-type damage,” Herbst said.

    There are about 3,800 production platforms in the Gulf, including 717 with full-time staffs aboard.

    The MMS says Hurricane Katrina destroyed 44 platforms three years ago, and soon after Hurricane Rita destroyed 64.

    Herbst stressed the assessments were preliminary, but the damage appeared far worse than that caused by Hurricane Gustav two weeks ago.

    Specifics about the size and production capacity of the destroyed platforms were not immediately available.

    In additional to pummeling platforms, Katrina and Rita also damaged about 150 pipelines that gather and transport oil and natural gas from offshore wells.

    Herbst said the aerial inspections showed Ike damaged several large pipelines, but the extent of the damage was not known.

    Since just before Gustav’s arrival two weeks ago, nearly 100 percent of Gulf Coast crude production has stopped, or about 1.3 million barrels per day. About 98 percent of all natural gas production is on hold.

    There was limited production between storms, but that ended as Ike approached.

    Word that Ike did more damage than Gustav left open the question about how high gas prices would go, and how long they would remain there.

    A gallon of regular gas soared past $5 per gallon (euro1.3 per liter) in some areas, notably in regions that rely directly on a link to the mass of Gulf refineries that usually produce millions of gallons of gasoline each day.

    More than half of Texas’ refineries have been shut down by Ike, according to the U.S. Department of Energy.

  20. 20
    Fred Says:

    Bleemus – This is an example of how much confusion exists out there right now. My guess is someone did a fly by after the water receded and reported no damage.

    No visible damage at Exxon Beaumont refinery
    Sun Sep 14, 2008 1:27pm EDT
    BEAUMONT, Texas, Sept 14 (Reuters) – Exxon Mobil’s 349,000 barrel per day oil refinery in Beaumont, Texas, showed no visible signs of damage or flooding in the wake of Hurricane Ike, a Reuters witness said Sunday.

  21. 21
    Nicky Says:

    Woa – dow futures open down 300 – no sign of a Lehman bailout….

  22. 22
    Nicky Says:

    This is going to be difficult to keep up with tonight. Japanese market is closed tonight btw.

    Banks said to unveil plan to restore confidenceBy JOE BEL BRUNO updated 3 minutes agoFont size: 0910b_lehmanbrothers0911b_lehman_wamu
    A top investment banking official says U.S. and foreign banks are planning major steps to inoculate the global financial system as a bankruptcy filing by Lehman Brothers appeared likely.

    The official said Sunday the banks would create a pool of money up to $50 billion to lend troubled financial companies. And officials at the U.S. Treasury and the Federal Reserve are expected to say they are prepared to make additional loans.

    The plan comes as top government officials and Wall Street executives hold marathon meetings about Lehman’s future.

    The official says the Fed and Treasury are pushing Bank of America to buy Merrill Lynch. The person, with direct knowledge of the talks, was not authorized to speak publicly because the discussions were ongoing.

  23. 23
    zman Says:

    MD – re 16. I plan to see how they open and then decide, there may be an initial hard sell in the refining patch at the open, depends on further data coming out tonight but that’s how it looks tonight. I will likely not sell into the initial panic. Either way I’ll hold onto the Octobers there unless I hear model shifting damage was done to oil platforms in the Gulf. Right now there are no reports of “visible damage” at refineries in Tx but there could still be problems.

    Bleemus – thanks for the update from the field, much appreciated.

    JY 17 see Nicky 19. Absolutely agree there is potential for more damage not just to platforms but to pipelines as well.

    Oil down $1.50ish
    Gasoline down a dime
    Natural gas up 7 cents

    Dollar getting dropped on the Lehman news by the way, down another 0.7%. Gold up 17 smackers.

  24. 24
    Nicky Says:

    Bank of America buys Merrill.
    AIG looks to Fed for $40bn bridging loan.

  25. 25
    zman Says:

    Still no buyer for LEH though, huh?

  26. 26
    BirdsofpreyRcool Says:

    LEH is going Chapter 7. end of an era. will be sold in orderly liquidation.

  27. 27
    zman Says:

    fuld failed.

  28. 28
    BirdsofpreyRcool Says:

    investment grade credit index closed at 152 on Friday. trading at 200 now… the level it blew to on the SoGen / BSC disasters. i think we see the Fed pulling a lot of levers tomorrow. could even see an interest rate cut. main thing is to keep the markets calm to prevent any perception of a “run on the bank.”

  29. 29
    zman Says:

    Shell’s 325,000 bopd Deer Park refinery “needs repairs”. No eta on restart.

    Their 235,000 bopd Convent, LA plant is still unable to produce finished product two weeks after Gustav.

  30. 30
    BirdsofpreyRcool Says:

    Fuld so over-played his hand it makes me cry. i am getting emails from Lehman people right now, saying “good-bye and keep in touch.” Lehman did NOT have to go. It was a good firm. Fuld was totally unwilling (?) to do what needed to be done. this is very very sad.

  31. 31
    BirdsofpreyRcool Says:

    Sorry… don’t mean to go on about all this. But, hate to see good people lose their jobs.

  32. 32
    zman Says:

    Hear ya re Lehman. Usually its a game of musical chairs…you pack your crap and walk down and maybe across the Street to the next job. Given this market I think talent is going to be dislocated for quite some time. It is indeed unfortunate.

  33. 33
    Wyoming Says:

    Rigzone has a good article about Ike after the storm in the news section. Has all of the refineries and capacitie effected by Ike.

    All of the refineries listed above essentially took a direct hit from Hurricane Ike this morning, and at least some damage is quite probable. The extent of the problems caused by the 90+ knot winds and the expected 15 to 25 foot storm surge will not be known for several days. But it is certain that these refineries will not be running at full capacity for several days at best and possibly several weeks.

    A major concern with bringing these refineries back online is the power infrastructure for these facilities, which is almost certainly in ruins. Hurricane Gustav, with a much smaller area of hurricane force winds, damaged 40% of the power transmission lines in rural southern Louisiana. Given that Ike struck one of the world’s largest and busiest industrial areas with a 200 mile wide swath of 64+ knot winds, the damage to the extensive power infrastructure will likely take weeks to repair.

    To whoever asked about the new standards for hurricane preparedness, as I said, at least they can track the new upgrades.

  34. 34
    BirdsofpreyRcool Says:

    well… the banking system is certainly shrinking. and most of it will be permanent, i think. but, there is still too much leverage in the system… so, the scariness is not over.

  35. 35
    zman Says:

    thanks Wyo – saw that as well as the one EIA and MMS has up…thought I’d highlight for the morning but I think I’ll just throw the links in and go to sleep, lol.

  36. 36
    Wyoming Says:

    You can sleep when you die, this should be an interesting night. Wish I bought more of the Russel 2000 ultrashorts in the IRA …

  37. 37
    Wyoming Says:

    That downstreamtoday.com link has some decent articles. Too bad it looks like it shuts down on Fridays

  38. 38
    BirdsofpreyRcool Says:

    all-in-all… way too much stuff happened this weekend. way too much, all at once.

  39. 39
    Nicky Says:

    The Merrill deal to BOA has been done at $29 a share. The stock closed at $17.90 on Friday – there is huge short interest at $15 a share. This will cause massive hedge fund liquidation tomorrow morning.

    Broader market. Not that I am planning to stay up all night but will Paulson and his Matrix pump the futures at 3am. Will be interesting to see if the SPX cash can hold 1230.

    Okay as far as rest of this goes. $ hit the target area and bounced at end of last week as expected – this correction should ultimately go back to the 74.50 – 76 region. Metals too now staging a recovery – gold should go back to the 830 – 860 region and silver towards 14 (won’t be a straight line up). So the last shoe to drop is the energy complex. I said last week I felt that ultimately Ike may disappoint but that it would take its lead from the $ and I still expect to see this happen – I doubt it will ignore the $ move for much longer.

  40. 40
    zman Says:

    Too true, sleep is for other people.

    SPY down 3%, gold up 2.9%. $ down 0.8%. Going to be a wild one.

  41. 41
    Wyoming Says:


    Talked to one of our Bus Dev people at an internal shale meeting couple of weeks ago. His topic was the Bakken and he made a comment how it is debated if it truley is a shale play as the clean member is a sandstone. Forgot to mention it.

    He also talked about how everyone was trying to ride their play off of EOG’s results in the Parsall field.

    Just what he saidm don’t know much about the play other than what I hear.

  42. 42
    BirdsofpreyRcool Says:

    With all the backstopping by the just-formed bank consortium to provide funding for member banks (BAC, Barclays, CITI, UBS, MER, JPMo, GS, Deutsche, MS… and others might be permitted to join) we should actually see a more orderly market. The reality is that an orderly liquidation of LEH is no different that what has been going on for the last couple of months. With BAC buying MER (not confirmed yet), this is a positive for credit markets. This whole mess started with credit. So, it will have to end there.

  43. 43
    BirdsofpreyRcool Says:

    thanks, Wyoming. I did know about the shale vs. sandy/siltstone. The play didn’t make sense to me until i found that out. The Bakken is actually 3 distinct layers: shale, sandysiltstone, shale. The top and bottom shales are most wonderful hydrocarbon generators. The silty-sandy member in the middle just sits there and soaks it up.

    the remaining mystery to be solved is: how does the TFS fit into the sedimentology here? I saw one old log (from a 1950s paper z pointed me to) that showed the TFS as overpressured vs the three layers of the Bakken. That suggests to me that the TFS is not in communication with the Bakken… at least in some areas. So, makes it a separate play (and very attractive to find in the same well).

    thanks for your comments!

  44. 44
    Wyoming Says:

    I saw the stratigraphy in someones presentation. Shales have always been traps / barriers. I have a bunch of radioactive logs that show this. Unless there are a bunch of natural fractures, I would believe the TFS is a separate horizon. One easy way to tell would be from API gravity, water salinities. We see these types of indicators for separation / zonal isolation in our vertical wells in North Africa.

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