Tuesday – More of the Same

Sentiment Watch: Fear and loathing in the equity markets continues. Energy shares are being punted like those of 2001 dot com with no regard for valuation.  Best trade idea is cash. Don't just ask me, note the lack of commentary and critical pieces out of Wall Street. And its not just Energy. Wall Street itself is under siege with cornerstone names walking the plank at an increasing pace. Maybe these guys said it best. Go ahead, click that link, I'll wait here. Ok, I don't think its the end of the world but I do think cash is king in this up is down, right is left (or wrong) environment. There is a lot of debate as to whether Ben Bernake will bring a 25 or 50 basis point cut to the table today or if there will be a cut at all. IF he brings the big 50 bip cut it could damage the dollar and bring some stability to crude (which is tumbling with the broad makrets this morning). As I see it next support for crude now is mid to high $80's.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stocks We Care About Today - commodity sensitivities
  4. Refining Update
  5. Odds & Ends

Holdings Watch:

  • (DIG)  - Bought DIG $66 Calls (DHBIN) for $1.90.

Commodity Watch:

MMS Watch: 99.9% of oil and 93.8% of natural gas from the gulf shut in. So about 1.3 mm bopd and 7 Bcfgpd not being produced.

  • Crude Oil fell $5.47 to close at $95.71. I'd attribute $2 to Ike relief and the remainder to Lehman, Merrill, AIG, etc... This morning oil is trading about $4 lower as the financial crisis expands.
    • Tropics Watch: Nada.
    • OPEC Watch: The Cartel's view of 2008 global demand has been revised down by 900,000 bopd to arrive at growth of 1.02% from a prior forecast of 1.17% . I would bet the tone out of Saudi Arabia now becomes more aggressive regarding those cuts...as in "now we actually mean it when we say we will cut."
    • Gulf of Mexico Platoform Watch: Chevron says "several of its platforms were toppled by Hurricane Ike". Flyovers show platforms  in the eastern and western Shelf of the Gomex were toppled. No word on which ones or production impact. (BP) also noted the rig on its Mad Dog platform was knocked overboard.  It will probably be another few days before we get a more numbery picture of the impact of this last storm.
    • MMS Gomex Production Curtailment Update: Gulf Still Offline.  99.9% of oil and 93.8% of natural gas in the Gulf remained offline through yesterday. I'll have a Gustave/Ike impact chart for tomorrow's EIA oil inventory preview segment.
    • SPR Releasing Barrels Due To Constrained Supplies. The SPR has issued a number of small releases of crude at the request of a handful of refinery operators. Again, this is what the SPR is designed for, not vote getting. (COP) has made the biggest request so far at 1 mm barrels for its Wood River Illinois refinery.
    • Nigeria Watch: MEND attacked two more facilities on Tuesday: a Shell operated pipeline and a Chevron operated oil field. They did declare war over the weekend ya know so I would expect them to continue to make trouble on a daily basis for awhile. I have long suspected them of being price sensitive or having price sensitive financial backers and while they were fairly quiet during the later part of oil's rally, it is worth noting that this boil up in tensions takes place as crude drops through the $100 mark.



  • Natural Gas closed up a mind blowing $0.008 (flat) at $7.374. Mind blowing is both tongue and cheek and not since everything else got blasted out of the arena.  This morning gas is bucking oil yet again; only up a few pennies but up nonetheless.

Stocks We Care About Today

E&P Sensitivities To Oil & Gas Price Changes: These are cannibalized from a number of sources and are limited on the downside by hedges but should give you a "close enough for hand grenades" perspective on where the multiples in the group lie. Here are the basics:

  • In 2009 the Street is looking for ...
    • Oil: $103.78
    • Natural gas: $9.31
  • ...and the 2009 Strip is at:
    • Oil: $97.32
    • Natural Gas: $8.25


Refining Update: Cracks Rallied Again Last Week On Ike ... Crack spreads soared last week with the Gulf Coast region leading the way followed by lessor moves as the potential impacts of Ike rippled through the system. Yesterday saw a partial reversal of this impact as damage assessments came in shallow to the level of fear that built up through Friday.

 ...I was asked if you end of year refining improvement thesis was still intact. In a nutshell, Yes. Lower oil prices and products should lead to a demand response. So the question becomes which goes down more over time, products or crude. My money is on crude as we are not pinched for supply (the LOOP is fine) but the refining segment has taken at least a small hit and inventories should be hitting significant lows over the next 2 weeks. Inventories of gasoline have fallen sharply in recent weeks and heating oil may be next as the ramp for winter supplies has not really started yet and there will be lingering curtailments due to Gustav and Ike.

Odds & Ends:

Analyst Watch: (CGV) and (PTEN) cut to sector perform at RBC, (PDC) and (HP) initiated at UBS as Buys.


177 Responses to “Tuesday – More of the Same”

  1. 1
    reefguy Says:

    This sure feels like deflation.

  2. 2
    zman Says:

    Mark Haines on CNBC “I’ve been down here 30 years and never seen this kind of uncertainty”. No kidding.

  3. 3
    zman Says:

    Ben better come with a big cut today or the market is toast. Maybe toast anyway but he’s looking like Nero fiddling at present. After the beating the energy names have taken, the daily gap down openings are just pathetic. I see Street analysts telling people to ride it out and add to names. Hmmm. I think when OPEC gets serious and the financials settle the energy stocks get a sharp, buy anything and everything couple of days.

  4. 4
    sting Says:

    Zman….I followed your lead on the DIG Sept calls. Do you think they have any chance in Hades of breaking even?

  5. 5
    zman Says:

    Sting – only if #3 happens or begins to happen this week. Obviously a down 8% opening on top of a 12.5% loss yesterday was not what I had in mind this morning. These stocks are incredibly oversold and can turn on a dime given a moment’s stability. Oil is approaching a point where OPEC voices should grow louder while there is potentially news coming from some of the Oil Sands players that margins will soon get squeezed, and you have Congress looking at an energy bill that increases the tax burden on Big Oil and Big Oil is known for reacting quickly to such threats with statements regarding drilling dollars vs buyback dollars.

  6. 6
    VTZ Says:

    I can tell you that with oil behaving this way most oil sands projects will be cancelled or delayed due to capital cost escalation.

    Be aware that all new projects will be announcing capital cost escalation with 100% certainty from whatever their last estimate was even if it came last month… this includes CNQ and OPC/NXY which are both due for startup this year and I doubt will be able to start up until Q1 next year.

  7. 7
    sane Says:

    Re #3

    The market should be toasted. Ben and Co. keep feeding a broken system. They should have either bailed out the banks and not cut rates or cut rates and tell the banks they are on there own, instead they do both. Should have left rates alone at about 5% and told the banks to go fly a kite. They keep slapping the invisible hand of the market with a ruler.

  8. 8
    zman Says:

    Thanks V, couple of questions for you:

    1) got any idea of the size in terms of bopd of the projects (in aggregate) that could be on the bubble.

    2) are any of the current producers marginalize at $90 oil or $75 oil?

    3) do you have a handle on the growth in gas consumption by the industry? Trying to get a handle on how much gas we are talking about these guys using to cook the sand.

  9. 9
    zman Says:

    Second day to have everything blood red everywhere and XOM trying to buck trend.

    Sane, agreed. They keep backstopping THEM and THEY keep doing it. Did you see the piece last night about how the government should create an agency to buy up the empty homes on the market to turn things around? Unreal.

  10. 10
    zman Says:

    Prides – Wyoming Jackup reported missing and expected to be total loss. Older, mat supported slot jackup rig.

  11. 11
    sane Says:

    I do not wish misfortune on anyone, but when you take a risk, you do just that, reap reward, or incur defeat, plain and simple. I for one saw the writing on the wall years ago in the Greenspan hot money era, and now we are feeling the consequences. It just drives me nuts when THEY talk about the market, but THEY do not let the market be the market. Ugh….

  12. 12
    Dman Says:

    XOM flashing green. But I don’t know what XOM tells me.

    Z – what does XOM tell you, versus other energy names?

  13. 13
    zman Says:

    Dman – Not a lot but if the rest of the Dow is getting popped and XOM starts to turn higher it has sometime been the precursor to people moving back towards the rest of the energy group. It spreads to the other majors and on a day like today to the refiners whose investors again see that lower oil is not necessarily a bad thing. So far it is not spreading as crude is held down by fear, uncertain direction of $.

  14. 14
    zman Says:

    Dman – now XOM and COP up. hmmmm. maybe nothing but it’s how turns after slammings like this begin.

  15. 15
    BossmanG Says:

    Z, thinking about any oct calls?

  16. 16
    zman Says:

    I am but am not yet ready to pull the trigger, Like to see that sideways trade action first.

  17. 17
    md Says:

    What is the column on the left side supposed to be. I see adj.2009 Oil 97.32
    Is there a column to the left of that. Just planning for the day apres le deluge.

  18. 18
    md Says:

    Oops. Is there an NG column to the right of that. My southpaw is acting up.

  19. 19
    zman Says:

    This kind of thing is adding to the oil pressure: Scary.


  20. 20
    zman Says:

    md – if you click on the table it should open in a separate window.

  21. 21
    VTZ Says:

    Well The cost part is what I’m trying to pinpoint for my piece because everytime I try to get a group average the group average seems to increase…

    For an integrated mining/upgrader operation the current op costs from last Q were around 40-50 $/bbl.

    That is strictly op costs because everyone uses “sustaining capital” to maintain or replace equipment which wears down fast dude to sand. Sustaining capital is another 5$/bbl.

    Add to this all the overheads and you would have the total cost per barrel.

    For an existing integrated mining/upgrading operation the ALL-IN breakeven for an operation with a 10% return is probably around 65$.

    For NEW projects the capital is completely outrageous and out of control and DO NOT LISTEN TO THE PRs because the numbers WILL increase. It is safe to assume that any capital cost numbers that are 6-12 months old or more will increase by at least 10-20%.

    On the bubble currently I would say are:
    Fort Hills 2+ (~100,000 bbl/day)
    BA Energy (~100,000 upgrading capacity)
    Total (140,000 Synenco’s Northern Lights Project and Joslyn might be delayed as well)
    Horizon phase 2-4(CNRL’s future phases 300,000 bbl/day)

    This is just to start… there’s probably 1-2 million bbls/day total of projects that are made uneconomic by the combination of this oil price and capital costs.

    Most of the insitu projects have lower costs but the capital is still intense and the product quality is worse. These include Encana, Devon, Connacher etc.

    I’m trying to get a hold of an accurate gas consumption number or a range.

  22. 22
    VTZ Says:

    Keep in mind that op cost is slightly higher than it should be if gas prices were like they are this Q.

  23. 23
    VTZ Says:

    Husky and Shell expansions are also at risk.

  24. 24
    VTZ Says:

    It is safe to say that all mining/upgrading projects that have not broken ground and ordered all their major process vessels are at risk.

  25. 25
    zman Says:

    Thanks very much V! It does not appear that OPEC has included your thoughts in their Non-OPEC supply assumptions for next year.

  26. 26
    Nicky Says:

    Morning all. Gasparino reporting that government bailout is back on the table with regards AIG.

  27. 27
    zman Says:

    morning Nicky, saw that, and still the dollar comes off its lows.

  28. 28
    VTZ Says:

    Lots of those 1-2 million bbls aren’t scheduled to come online for a few years but the problem is that you need to start building around 3 years before startup so if it gets delayed now, the supply gets delayed later.

    I’m going to finish up everything today as best as possible and resend it.

  29. 29
    zman Says:

    VTZ = thanks. I was thinking of those barrels on the bubble and not the new adds. Refineries sometimes produce at a loss. Have the oil sands guys done the same or do they reduce activity when oil falls? Just wonder if they can scale back to get more economic or not. It seems that if you have a fleet of dump trucks driving around collecting oil sand you can’t just tell the drivers to slow down or stop driving and get a margin bump.

  30. 30
    Dman Says:

    HAl & SLB leading the green charge. Who woulda thunk *that*??

  31. 31
    zman Says:

    Dman – household names first, then everything, if it happens. Tempted to take on some more COP but I’d like to have a better feel for what the Fed is going to do. Seems that the Fed is going to disappoint the Street.

  32. 32
    Dman Says:

    That shoulda been ‘HAL’. Up 1%. Wow. And to think I was there when it happened.

  33. 33
    REgards Says:

    testing ….

  34. 34
    BirdsofpreyRcool Says:

    Nicky… kudos. You were right, AIG too big to fail.

  35. 35
    kyleandy Says:

    NFX = green

  36. 36
    VTZ Says:

    Z – Oil sands produced at a loss for most of their history at Suncor and Syncrude. They would not curtail because it would hurt margins due to all the fixed costs. If you are operating, you try to fill your units.

  37. 37
    zman Says:

    Thanks V – that’s what I was trying to get at. You are either all on or all off with these projects.

  38. 38
    zman Says:

    Wonder what else the Fed sees that it will have to bail out since it took a pass on Lehman and tried to get others to take on AIG (which Faber just said is now definitively out of the question).

  39. 39
    Nicky Says:

    BOP – maybe premature. they are saying no chance of a private bailout and David Faber says he has not heard anything about the government bailing out AIG.

  40. 40
    Nicky Says:

    Broader market looks in need of a lower low to me.

  41. 41
    REgards Says:

    Hello to all .. Tried to post last night but comment was not printed..
    Dollar strength currently (and for the near future) is primarily tied to the US Treasury notes in demand .. and is VERY much related to the deleveraging taking place ..
    Interesting read:

  42. 42
    Dman Says:

    I think the election comes into play here. The fed is clueless but if they don’t do something to stop the implosions, McCain is toast & that does matter to Bush. So at some point he notices the problem (yes, I have to say that) and picks up the phone (I think he knows where that is). Not saying the fed action will work or ultimately be the right thing. Just saying they want the headlines to go away.

  43. 43
    VTZ Says:

    When is the FED decision?

  44. 44
    Nicky Says:


  45. 45
    BirdsofpreyRcool Says:

    Nicky… this thing changes by the minute. Best to sit it out on the sidelines, for now. For me.

  46. 46
    Sambone Says:

    Something is going to happen. Bazooka Hank has called together the PPT (Plunge protection team).

    WASHINGTON (Dow Jones)–Treasury Secretary Henry Paulson has canceled a speech
    scheduled for Tuesday afternoon at the Brookings Institution, a spokesperson
    for the think tank said.
    Treasury Department officials weren’t immediately available to comment.
    Paulson, who is spearheading the Bush administration’s response to the crisis
    on Wall Street, was slated to give the luncheon address at an event titled “The
    Future of Consumer Payments: An Initiative on Business and Public Policy
    Discussion.” The address was scheduled for 1:30 p.m. EDT (1730 GMT.)
    Later Tuesday, Paulson will participate in a White House meeting of the
    President’s Working Group on Financial Markets.

    -By Henry J. Pulizzi and Meena Thiruvengadam, Dow Jones Newswires

  47. 47
    zman Says:

    Thanks Re, bakc in bit on call

  48. 48
    VTZ Says:

    What do we think is consensus? A cut because energy is down and inflation is less of a worry ?

  49. 49
    VTZ Says:

    Hold because the economy is hurting but the FED is printing money like recycled paper?

  50. 50
    md Says:

    Either 1/2 or nothing.

  51. 51
    tater Says:

    I am still MIA. No internet service. Should be up in a couple of hours, so I hopefully will have something halfway intelligent to add, but for now, the no pause in crude at $100 tells me that nobody wants to play anymore (teacher’s unions, pension funds, all of them are taking their ball and going home).

  52. 52
    elduque Says:

    RE #41

    I think you can get a hint on when the hedge funds
    get their commodity position unwound, by watching FXY ($yen)

  53. 53

    Did you see VMC bounce off 70 to 72 just now?

    I’m in on SEP 70s for a trade

    KEEP AN EYE ON THIS… the oil patch certainly sucks right now.


    P.S. – WLT went from 53 to 59 today

  54. 54
    occam Says:

    Interesting article on the shortage of gasoline.


  55. 55
    Dman Says:

    Silver down 4.6% Something blowing up & liquidating?

  56. 56
    Nicky Says:

    Faber now reporting that the government are taking a look at AIG under the pressure of the policy holders.

  57. 57
    Nicky Says:

    Aye Dman noticing silver very weak compared to gold.

  58. 58
    zman Says:

    Trading system problem, still on tech support back in a bit.

  59. 59
    zman Says:

    Q – what’s the driver now for that aggregate company to rebound.

    Been watching WLT pretty closely. Fallen from over $100 on great earnings and huge expectations to present levels. Like dancing in a minefield there and the other coals, also equally beat up.

  60. 60
    zman Says:

    Anybody have a link to the story on record balances in money market accounts?

  61. 61
    BirdsofpreyRcool Says:

    z – it was on bb yesterday. i’ll see if i can find it.

  62. 62
    zman Says:

    No trouble Bird, thanks. Thompson back up, see I did not miss much, group gradually digging out of a hole but not sure it means much pre fed. Dig off less than 1% now from a down 8% open…trader’s market.

  63. 63

    VMC rebound? They have resilient pricing up about 8% on down volume.

    Really, it’s a recovering economy/market sentiment play. They are a dominant company in a safer industry that’s already had a large downward price adjustment.

    … plus they have plenty of cash to run operations, are not driven by oil price, and have no sub-prime or derivative exposure.

    It’s trending back down towards 70…

    RISKY Q-TRADE: buy (1) VMC SEP 70 call and watch it for a while.



  64. 64
    Dman Says:

    What did XCO do wrong today? Did they forget to get taken over or something?

  65. 65
    zman Says:

    Thanks Q.

    Dman – looks like a chart thing.

  66. 66
    Sambone Says:

    Trading idea – Buy FDG if you believe deal will go through on Sept 30. Stock at $73.82. You get US$82.00 a share and a smidgen of TCKB.To

  67. 67
    Nicky Says:

    I am thinking no Fed cut but that the statement will indicate they will down the line if necessary. So initially we may see the markets sell off but I think they will then recover.
    Wouldn’t be particularly supportive for commodities however.

  68. 68
    zman Says:

    CLR acting well at any sign of stability in oil. No hedges.

  69. 69
    zman Says:

    Nicky – consensus from what I can tell agrees with your 67. Dollar up now.

  70. 70
    zman Says:

    Storm impacts for tomorrow’s report are about the same as the prior week offshore from the Federal waters. The Gulf just did not get back on line between the two storms. So while demand from refiners will be off less than in the prior week (this is pre Ike data) imports and production should be poor. So another big draw on crude and gasoline.

  71. 71
    jsaun14 Says:

    Sam –

    How well do you know TCKB? Any insight into their ability to close? Appears FDG managment is all for the deal.

  72. 72
    zman Says:

    QRCP fires CFO. That stock looked interesting at $10 ish this summer, now in the $2s.

  73. 73
    zman Says:

    Other things the oil market is ignoring:


  74. 74
    VTZ Says:

    Teck took over a copper company last year and closed the deal fine. They are very well managed.

    They’ve indicated they are still trying to close the deal and are just seeking financing.

  75. 75
    zman Says:

    Just got sent a piece from Credit Suisse telling you what you should already know. Estimates for 3Q are too low for the refining sector and will be coming up. Same for 4Q but less sureness there. Long term they still see it as pretty gloomy with new global capacity coming on and an expectation that crude rises again. I’m playing the group for the Fall and not longer term and its nice to see the confirmation as they see a small rally into 3Q earnings.

  76. 76
    Alhambra Says:

    Do people feel the market has already priced in ‘no interest rate cut’ for the price of oil (since it’s down 4.25)?

  77. 77
    VTZ Says:

    jsaun14, sam – The financing is with Merrill… that’s the hold up.

    Teck Cominco TCKb.TO said on Tuesday it has no reason to think financing for its $13.7 billion takeover of Fording Canadian Coal Trust FDG_u.TO will fall apart, while Fording also said it expects the deal to go ahead.

    Speaking on a webcast to update investors on the status of the takeover, Teck chief executive Don Lindsay said the Canadian base metals miner was fully committed to the deal.

    “We are working hard to complete the financing by September 30, and we look forward to closing the deal,” Lindsay said. “We have no indications (the financing) will not conclude on schedule.”

  78. 78
    zman Says:

    Wow CEG, they are denying they have more than $150 mm exposure to Lehman, stock off $31 (64%)!

  79. 79
    Nicky Says:

    Al – I think crude has been largely ignoring the dollar in the last couple of days. Has been falling even when the dollar has fallen. That’s not to say that the talking heads won’t start to talk about the correlation when it suits them.

  80. 80
    zman Says:

    Bought a little CEG at $22. Not even worthy of a WildZ but is sounds like a short attack.

  81. 81
    ddaley Says:

    Intersting technical observations from briefing on the OIH. Bounced off the JAN low of 146, the 50 day “crossing” under the 200 day. In March it was there for only 6 days, before correcting. NE and NBR are mentioned

  82. 82
    Sambone Says:

    4 minutes

  83. 83
    zman Says:

    CEG back to $30 now, almost makes me wish I was a day trader. Nah. Crazy market.

  84. 84
    Nicky Says:

    NO change.

  85. 85
    VTZ Says:

    options spreads just got ridiculously high

  86. 86
    Sambone Says:

    Oops, unchanged, market don’t like it at ALL

  87. 87
    Alhambra Says:

    Thanks Nicky. do you think that unwinding of Lehman’s trading floor could add to this downward affect?

    ps- no change in interest rates.

  88. 88
    md Says:

    A taste of interparties to come.

  89. 89
    zman Says:

    and the market gets whacked.

  90. 90
    BirdsofpreyRcool Says:

    Fed decision is idiotic

  91. 91
    md Says:

    No cut?

  92. 92
    Sambone Says:


    Crude oil and natural gas output in the U.S. Gulf of Mexico began to recover
    following Hurricane Ike, the U.S. Minerals Management Service said Tuesday.
    About 97.2%, or 1.26 million barrels a day, of oil output remains off line,
    the MMS said on its Web site. About 84.2%, or 6.23 billion cubic feet of
    natural gas output remains shut in.
    The agency said personnel remain evacuated from 498 production platforms, or
    about 69.5% of the 717 manned platforms in the Gulf. Personnel from 71 drilling
    rigs also remain evacuated, equivalent to about 58.7% of the 121 rigs operating
    in the Gulf.
    Hurricane Ike made landfall on the Texas Gulf coast early Saturday as a
    Category 2 hurricane. It was downgraded to a Category 1 hurricane later in the
    morning, reduced to a Tropical Storm in the afternoon and then a Tropical
    Depression Sunday morning.

    -By Christine Buurma, Dow Jones Newswires

    Dow Jones Newswires
    09-16-08 1417ET

  93. 93
    zman Says:

    Oil strangely flat post no cut. Guess they expected it too. Energy equities however falling. I think the Fed will just end up doing it in a few days when the market has been spanked.

  94. 94
    zman Says:

    So we are at 2%. Ben has got to be worred about falling into the Japan syndrome. 0% rates and you still can’t juice your economy.

  95. 95
    BirdsofpreyRcool Says:

    instead of taking all that time to hold a meeting, why doesn’t Ben Bernanke just call a press conference to announce: “We’re Idiots. We just don’t get it.”

    it would save a lot of time.

  96. 96
    Sambone Says:

    B52 Ben and Bazooka Hank are in a pickle. They are out of bullets.

  97. 97
    Sambone Says:

    Here’s why Ben couldn’t cut;

    Treasury International Capital (TIC) data for July 2008 are released today and posted on the U.S. Treasury website (www.treas.gov/tic). The next release, which will report on data for August, is scheduled for October 16, 2008.

    Net foreign purchases of long-term securities were $6.1 billion.

    Net foreign purchases of long-term U.S. securities were negative $25.6 billion. Of this, net purchases by private foreign investors were negative $20.7 billion, and net purchases by foreign official institutions were negative $4.9 billion.
    U.S. residents sold a net $31.7 billion of long-term foreign securities.
    Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $8.2 billion.

    Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $8.4 billion. Foreign holdings of Treasury bills decreased $4.4 billion.

    Banks’ own net dollar-denominated liabilities to foreign residents declined $58.1 billion.

    Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $92.9 billion, and net foreign official flows were $18.2 billion.

  98. 98
    zman Says:

    yep, they are almost out of financial viagra and don’t want to take the last pills.

    AIG proxy fight? Great. Somebody fix it.

  99. 99
    md Says:

    When fed started cutting rates in Aug. to 4.75% it has only delayed the inevitable. We’re now down to 2% and a lot less equity to show for it and higher inflation. HariKari Japanese style is not the answer.

  100. 100
    antrimshale74 Says:

    Inflation is not a genuine problem, as the data is lagging. In reality, we are in a period of deflation, sparked by declined values in hard assets and a lack of liquidity.

  101. 101
    BirdsofpreyRcool Says:

    #100. agree 100%

  102. 102
    zman Says:

    MCF on the tape detailing minor offshore damage, 2 weeks from a fix. Also notes pipeline delays (likely due to power)…gives a good flavor for a good chunk of Gulf production that will be slow to get back on line.

  103. 103
    antrimshale74 Says:

    Richard Shelby on Bloomberg preaching on what should or should not be done to stabilize the financial markets. He’s mostly saying do nothing and it will work itself out. Not a very helpful approach.

  104. 104
    zman Says:

    Atrim – you got that right. The problem with the Fed is that they start their thinking process using the press release from last month, making sure to change the date first, then alter some adjectives, read it to ensure a myopic vision and then act on it.

  105. 105
    zman Says:

    Energy group turning mixed, dow up now. Weird.

  106. 106
    antrimshale74 Says:

    What’s going on?

  107. 107
    Sambone Says:

    #104 – Z, I thought that the Fed only listened to Cramer. Hmmm, now I know!

  108. 108
    Fred Says:

    Z – CEG going back down pretty fast.

  109. 109
    zman Says:

    Bird – that MCF is getting hit for very little reason today on their PR which is a nonevent. Just thinking out loud. Looking forward to a time when we get to talk drilling and wells and other stuff that actually matters again. Soon I think.

  110. 110
    antrimshale74 Says:

    Massive spike! Fed reconsidering its AIG stance… may get loan package from Fed. On Bloomberg now.

  111. 111
    Dman Says:

    According to TSCM:

    NBR downgraded at RBC from Outperform to Sector Perform.

    Because: “Land rig pricing gains could be capped in 2009, with new capacity expected to come online.”

    Now for the funny bit: the price target:


  112. 112
    zman Says:

    Fred, already went through my purchase level and bounced back to 28. Wow. I’d sell what I got but I did it in a SEP unthinkingly and mine requires shares in hand to sell (no day trading). So I own it until tomorrow. I found out when I tried to cash it at 31.50. These kind of gains are hard to pass up.

  113. 113
    zman Says:

    Dman – that’s what you get for thinking. Who would want a 50% gain, lol?

  114. 114
    zman Says:

    Service turning positive, XLE up too.

    Hey Dman, check out the XOM and COP now, its uncanny.

  115. 115
    Eagle Says:

    I apologize in advance for the non energy topic, but anyone familliar with which companies have the greatest exposure to AIG? I am thinking along the lines of what are the next dominoes to fall. The financial sector crisis is the dominent theme, and imo will dictate when the great energy stories will start to matter again.

  116. 116
    Sambone Says:

    E – It’s really all about cross party exposure. AIG backed a very large amount of credit swaps, which are like insurance. If they go out today, then many, many firms will have to reprice their portfolios (CMO’s) which could probably reduce equity at major banks to zero.

  117. 117
    zman Says:

    DIG up 4%.

  118. 118
    sane Says:


    I don’t know about exposure to AIG, but I have a feeling CitiBank is next on the chopping block.

    Have a great afternoon everyone. I’m going to try out my new golf clubs.

  119. 119
    Sambone Says:

    Sane – Toss a coin; WM is next, then WB? C?

  120. 120
    VTZ Says:

    Re 100, 101 – We are not in a deflationary environment. That is total bs, imo.

    Here is my analogy… You have a flaming paper bag full of crap and I think it’s worth 10 dollars. I ask to borrow 10 dollars from Zman which I proceed to spend on Cheetos. I now have 10 dollars of debt (which I can’t get back from my bag of crap). I also don’t have 10 dollars but it wasn’t destroyed… it’s still in circulation you just aren’t going to get it back from me because I declared bankruptcy.

    Look at the amount of US dollars going in circulation due to low interest rates.

    Look at the amount of money the FDIC has left.

    Look at the national debt increase caused by Fannie and Freddie… total load of crap that we are in a deflationary environment.

  121. 121
    zman Says:

    Stepping out for 30 min. Cross your fingers for an AIG deal, seems the only thing the market wants. They’ve got more swing than OPEC at this point.

  122. 122
    tater Says:

    So was that the 2pm buy program or was there actual news?

  123. 123
    Sambone Says:

    3:08 (Dow Jones) When CNBC’s Charlie Gasparino reported earlier today that
    discussions regarding the government providing assistance for AIG were on the
    table, the S&P 500 rallied 1.8% in a matter of minutes, Bespoke Investment
    Group says, noting the index gained $192B in terms of market value. But minutes
    later, CNBC’s Steve Liesman said the government’s previously stated position
    regarding AIG (of providing no assistance) had not changed, causing the $192B
    to evaporate. “When hundreds of billions of dollars are created and erased in a
    matter of minutes like this, saying that the market is in a state of anxiety is
    quite an understatement,” blog says. (SMR)
    3:06 (Dow Jones) US stocks higher, and it certainly seems like somebody’s
    spreading word of an AIG deal, even though the NY Fed minutes ago declined to
    comment. After setting an all-time volume record yesterday at 8.2B shares, the
    NYSE is challenging it already, with 7.45B shares traded so far. Of those, 1B
    are AIG alone, which after being down severely for a second day were actually
    higher just minutes ago; currently down 10%. DJIA up 103, S&P 500 up 13, Nasdaq
    Comp up 12. (PJV)

  124. 124
    sting Says:

    Good call on the Sept DIG calls, ZMan. I want to buy stock in your crystal ball company.

  125. 125
    Sambone Says:

    So let me get this straight, The Federal govenment backstops a insurance company, and puts another large potential liability on the taxpayer, and that’s good? Oh silly me, that’s right, financial guys only make money and if they lose, the Fed will bail them out, right?

  126. 126
    Dman Says:

    Z, well I know you’ve stepped out, but with CEG at $36, I was going to suggest an offsetting short in another account since you can’t sell today.

  127. 127
    kaman Says:

    Over 1B shares of AIG traded already today….avg vol more like 60M.

  128. 128
    antrimshale74 Says:

    The AIG cash posting is not a hard decision, as AIG has real collateral that can be posted to the Fed Discount Window through a conduit bank (i.e. JP Morgan). The Fed can receive substantial warrants or preferred shares in AIG in return (as a fee). If done right, this should actually make money for the Fed. Also, not the story on Bloomberg where the Fed has advanced $138 billion to Lehman through JPMorgan. AIG is only asking for 1/2 that much.

  129. 129
    Eagle Says:

    Sam So in laymens terms, the buyers of the CDS from AIG should get hit b/c the insurance of the CDS is worthless if AIG goes bankrupt. Of course, that’s if the Fed’s don’t step up and commit more of our tax dollars to cover the counterparty risk.

  130. 130
    sane Says:

    Barclays to buy Lehman’s U.S. broker-dealer business

  131. 131
    VTZ Says:

    All this intervention and spending by the Fed is in no way deflationary. If anything the lack of liquidity is going to cause more inflation because the banks have nowhere to turn except the fed.

  132. 132
    tomdavis12 Says:

    Z: Hank Greenberg filed a 13D that he is tring to put together a group to take over AIG.

  133. 133
    Sambone Says:

    E – Found this article, might help.

    By Marshall Eckblad

    NEW YORK (Dow Jones)–Regional banks are likely to suffer from a failure of
    American International Group Inc. (AIG). The trouble for investors is
    estimating how bad that suffering would be.
    Regional banks have extensive exposure to AIG, a massive multinational
    insurer, since many of them hold AIG’s debt within their investment portfolios,
    while still more purchased a type of debt insurance called credit default
    swaps, or CDS, from AIG. Should Wall Street and the Federal Reserve fail to
    agree on a solution to bail out AIG, regional banks could see the insurer
    default on its debt bonds, and quickly throw into question the value of the CDS
    it sold.
    An AIG bankruptcy “would create a significant problem for the regional banks,”
    says Jaime Peters, an analyst at Morningstar Inc. “Most regional banks’
    exposure to AIG is much larger” than their exposure to the now-bankrupt Lehman
    Brothers Holdings Inc. (LEH).
    AIG has issued billions in dollars of debt, especially since the onset of the
    mortgage-fueled financial crisis, and much of that debt “is sitting in the
    investment portfolios of many institutions around the globe,” says Jeff Davis,
    an analyst at FTN Midwest, a unit of First Horizon National Corp. (FHN). AIG’s
    debt at one point carried very safe ratings, making it a classic choice for
    banks looking to fill their bond portfolios with stable investments.
    But figuring out which regional banks holds outsized holdings in AIG debt, and
    are therefore most vulnerable to its failure, is not simple.
    “The difficulty is we don’t exactly know what’s in most securities portfolios”
    at banks, says Tim Coffey, an analyst at FIG Partners.
    What’s more, the market for credit-default swaps, which banks use to hedge the
    risk carried by loans they make to commercial borrowers, is notoriously opaque.
    The swaps are, in essence, contracts between two parties where one firm – in
    this case, the insurer – agrees to repay the other firm – a bank – should a
    specified borrower default on debt that it owes.
    Banks use many similar kinds of agreements, which are known generically as
    Wachovia Corp. (WB), for example, held $23 billion worth of derivatives in its
    trading portfolio, as of June 30, according to a recent filing from the
    A spokeswoman for the company did not immediately provide details about how
    much exposure, if any, Wachovia has to AIG.
    According to a recent filing from Washington Mutual Inc. (WM), for example,
    the “gross positive fair value” of the West Coast thrift’s derivatives
    portfolio was $1.79 billion as of June 30. Its net exposure to the credit of
    opposite parties in those transactions – which is known as “counterparty risk”
    – was $405 million.
    Washington Mutual said in a release Monday that it has “no trading exposure to
    AIG is a major player in that market, says Davis, and has entered into untold
    numbers of these contracts around the globe. “The issue with AIG is that it is
    so massive,” says Davis.

    -By Marshall Eckblad, Dow Jones

    Dow Jones Newswires
    09-16-08 1518ET

  134. 134
    antrimshale74 Says:

    Banks don’t need money if they aren’t lending. They are simply using their deposit accounts to fund and are otherwise scaling back lending activities. There is a lack of capital, a re-patrioting of dollars and a contraction of the money supply. Commodities have blown off. Capital asset values have plummeted. Securities prices have decreased substantially. Trust me, this is extremely deflationary.

  135. 135
    Nicky Says:

    SPX should see resistance at the 1221 level which we may hit today and if not tomorrow. I then still favor a lower low out there at the end of the week or early next week.
    Its possible the low is in but the move off the low looks corrective right now.
    Dow could hit 10650 level.

  136. 136
    antrimshale74 Says:

    Nicky – I saw a European technician on CNBC Asia last night saying that the intermediate target on the Dow is 8800. Any thoughts?

  137. 137
    Sambone Says:

    WASHINGTON, Sept 16 (Reuters) – Some U.S. refineries were
    hard hit by Hurricane Ike and the country is beginning to see
    an increase in petroleum imports to offset the constrained flow
    of products due to the storm, a Department of Energy official
    said on Tuesday.
    “We do have some refineries that took a pretty good bit of
    damage, there are at least a couple that will take a long time
    to come back up,” said Kevin Kolevar, assistant energy
    secretary for electricity delivery and energy reliability, who
    accompanied President George W. Bush to Texas.
    (Reporting by Tabassum Zakaria)

    Tue Sep 16 19:10:35 2008 -GMT

  138. 138
    antrimshale74 Says:

    XTO has been relatively strong throughout all of this, holding no lower than the mid 40’s. Looking really good this afternoon and pushing 50.

  139. 139
    Eagle Says:

    Thanks Sam. Not knowing which Regional banks would be hit, I wonder if the XRH ETF would be a good proxy.

  140. 140
    zman Says:

    Sting – its a magic 8 ball.

    Re 137 – Bet we know at least one of them, eh Bleemus

  141. 141
    VTZ Says:

    antrim – Repatriating of dollars?!!!! Banks NEED MONEY TO STAY AFLOAT… not to lend. Interest rates are low, low, low! and the fed is giving money to anyone who wants any via the window!

    Just because your assets don’t have value (which was never real in the first place but assigned to them anyways)doesn’t mean your government can print money so that you can stay afloat. That’s the very definition of devaluation of a currency.

  142. 142
    zman Says:

    Antrim – I know. A lower growth version of check with the same debt to total cap. CHK should start to play soon.

  143. 143
    zman Says:

    Not selling the DBHIN (DIG calls) yet, bid 3.10.

  144. 144
    jsaun14 Says:


    When was the 13d filed? Do you have a link? I thought he had 10 days.

  145. 145
    Nicky Says:

    Amtrim – yes I would agree with the technician and most likely lower. But not immediately! I am looking for a good tradeable low in the current timeframe. The window for the rally is getting shorter and shorter – that said it should run until the end of October minimum and I expect to see 12000 plus on the Dow and 1320 (maybe 1350) on SPX. Then the fun can really begin! The next leg down after that will take no prisoners!

  146. 146
    VTZ Says:


  147. 147
    Nicky Says:

    Joe Terranova on CNBC saying energy is looking like a buy and expects it to rally from here.
    Wouldn’t disagree but can’t discount one more low. Obvious target area is 85 – 87 area.

  148. 148
    antrimshale74 Says:

    Closing at the high for the day. This is rather nice. Oil making a nice move post-NYMEX close. This is nice, too.

  149. 149
    zman Says:

    David Faber should wear a cape. Single handedly rallies the market with his phone call comments on the Fed. Too bad he has no interest in the energy markets. Bargains galore and real balance sheets that mean what they say.

  150. 150
    antrimshale74 Says:

    Nicky, what would you need to see for that technical trend to be broken to the upside?

  151. 151
    zman Says:


  152. 152
    Nicky Says:

    Morgan Stanley results released early – beat of course. All stops being pulled out!

    Antrim – well the downtrend line comes in around 12k on the Dow which is why it is an obvious area for the rebound. But nothing to say we couldn’t go higher. Only a break of the all time highs would change my stance.

  153. 153
    Fred Says:

    Z – Interesting Saudi’s claim they could pump 12.5 mbpd by 2011.


  154. 154
    occam Says:

    China very low on coal.


  155. 155
    zman Says:

    Probably not good:


  156. 156
    Bleemus Says:

    Out all afternoon for family stuff. Saw the refinery comment. Too funny. My friend from the XOM refinery is currently staying with friends in Shreveport and isn’t online often. As soon as I hear from him I will give you all an update on the Beaumont status.

  157. 157
    md Says:

    AIG After hours below $2.00 .
    Rumour of alleged Fed conservatorship.
    Despite being a state juridstiction

  158. 158
    crysball Says:

    MMS reports 110,000 BOPD & 82 MILLION CFD of Nat. Gas production lost due to 28 platforms destroyed in GOM by Ike.

    Since these were older platforms and lower production wells it may be permananetly lost production.


  159. 159
    Fred Says:

    AIG to get $85 Billion loan for 80% delution.


  160. 160
    Nicky Says:

    Have been out for a few hours but is this what has sent the futures up after hours?

    AIG May Get $85 Billion Loan, Cede Control, NYT Says (Update1)

    By Hugh Son

    Sept. 16 (Bloomberg) — American International Group Inc., the biggest U.S. insurer by assets, may get an $85 billion bridge loan from the Federal Reserve and cede an 80 percent stake, the New York Times reported, citing unnamed people briefed on the negotiations.

    Banks led by Goldman Sachs Group Inc. and JPMorgan Chase & Co. couldn’t arrange emergency funding by today, resulting in the planned U.S. intervention, the Times said.

    AIG is trying to stave off a collapse after its credit ratings were cut yesterday and shares plunged 79 percent since Sept. 11. A failure of New York-based AIG could result in $180 billion of losses to financial institutions, according to RBC Capital Markets analyst Hank Calenti.

    “There’s a systemic risk if AIG isn’t saved,” Benoit de Broissia, an equity analyst at Richelieu Finance in Paris, said in a Bloomberg Television interview. Richelieu has about $6.2 billion under management.

    AIG is pursuing “alternatives to increase short-term liquidity, the company said today in a statement.

    Former CEO Maurice “Hank” Greenberg said the company needs a bridge loan rather than conservatorship, which could put the company under government control.

    “Why would you want to wipe out shareholders when you just need a bridge loan?” Greenberg said in an interview. “It doesn’t make any sense.”

    Greenberg, 83, is leading investors considering a proxy fight or buyout to take control of AIG. The group is also considering acquiring subsidiaries or making loans to AIG, the investors said today in a regulatory filing.

    Collateral Damage

    AIG’s fight to stay afloat is the latest tremor to shake the global financial industry, a day after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection and Merrill Lynch & Co. sold itself to Bank of America Corp.

    The insurer may be overwhelmed by protection it sold investors on $441 billion of fixed-income investments, including $57.8 billion in securities tied to subprime mortgages. The swaps already forced $25 billion in writedowns over nine months.

    The rating cuts may trigger more than $13 billion in collateral calls from debt investors who bought swaps, according to an Aug. 6 filing from New York-based AIG, intensifying pressure on CEO Robert Willumstad to raise cash.

    The swaps provided profits when the housing market prospered “for what has now turned out to be a much greater amount of risk than anybody anticipated,” Willumstad, 63, said during an Aug. 7 conference call.

    The $1 trillion-asset company has about $48.7 billion in hard-to-value holdings, and had 116,000 employees as of Dec. 31, compared with 97,000 two years earlier. In addition to selling life insurance and protecting property, AIG owns or manages about $25.7 billion of real estate including residential, industrial and retail properties. The company had private equity and hedge fund holdings of about $30 billion as of June 30.

  161. 161
    zman Says:

    Crys – absolutely agree. Unless it has a drilling program on it most likely that gets P&A’s. Should see this figure to continue to rise slightly for another few days if history is a guide. Dribs and drabs I know but it all adds up. Think of the reaction if you are told that one of the deepwater producers, doing 100,000 bopd is coning water early. Should be same here. Plus, 110,000 bopd out of 1.3 mm bopd is nothing to shake a stick at.

    Nicky – I’ll take it. DIG bid $68. Pretty much everything marked higher.

  162. 162
    Nicky Says:

    Futures have backed off quite a bit now Z. $ doesn’t seem to like it much either.

  163. 163
    Fred Says:

    Nicky – Automakers need to go through Congress to get a loan but AIG can go through the Fed?

  164. 164
    Wyoming Says:

    Keep in mind those old platforms may have had some reserves booked against uphole future recompletions or may have had selective intervals which may have not been opened yet.

  165. 165
    zman Says:

    Here ya Nicky, I’ll put it down to a think market tonight. Tomorrow, this along with JPM could be enough for a jumpstart.

    Wyoming – I hear you also, I was just thinking that they are not likely to rebuild if they are just some thin, uphole bailout zones. Can’t tell of course without knowing what the operator has on it and you are right to point out that economics will dictate decision. Some of it may get tied back to adjacent infrastructure as well. Can’t tell but one thing is for certain, it will take time to remedy.

  166. 166
    Wyoming Says:

    It was only 11k BOPD, not 110K. Kind of groggy but double checked.

    Hard to say about repairs, your probably right. Are the reserves worth the repairs? What is the risk of recovery? This is where we would get into the P10, P50, P90 risk scenario that we went through the other day.

  167. 167
    zman Says:

    here ya groggy. thanks for double checking the number, I saw it in the release and didn’t notice the typo later. Much smaller deal obviously.

  168. 168
    Wyoming Says:

    Sad day about the Pride rig. Hopefully they rename another.

    It will be nice if this is the time where the shorts get to start knock the heads on the wall saying “this makes absolutley no sense” look at the demand destruction, how can oil go up with the dollar ….

    What I was eluding to last night.

  169. 169
    Nicky Says:

    Z – its possible today completed a truncated 5th in the broader market but i am not hanging my hat on it right now. JP Morgan gave back all of its gains after hours.

  170. 170
    zman Says:

    Maybe its the money market fund that halted redemptions. Seen that before, very bad for investor confidence.

  171. 171
    zman Says:

    here’s that story:


  172. 172
    zman Says:

    btw, SPY and DIA up about 0.5% after hours. JPM up just under 1% AH and MS up big on their number.

  173. 173
    tater Says:

    I am finally back online with a chance to do some real work for the first time since Friday. Though I believe it to be counter-trend, I think we are about to see a tradable rally in the S&P (but be quick). As for the price on oil, I’m actually becoming so jaded about fund liquidations that I don’t know if any price (up or down) can be trusted until they get their collective act together.
    I am looking to see a greater separation from the energy stocks and the commodity, as I would take this to be a message that the funds dedicated to trading the stocks are becoming emboldened to trade on individual company fundamentals, rather than the goofier moves in the crude price.

  174. 174
    sting Says:

    Good AM, Zman…is there any point in sight when DUG calls or DIG puts would be appropriate to buy? I have a hard time deciding what to believe about crude oil resistance levels…up or down.

  175. 175
    zman Says:

    Sting – I trade them from time to time, usually the calls on DUG as the puts on DIG (or DUG for that matter) are a little less traveled and seem to have wider spreads as a result. By the way, your comment is on the bottom of the Tuesday post so I’m probably going to be the only one to see it. Will have the Thursday post out in about an hour.

  176. 176
    zman Says:

    SLB replacing AIG in DJ Global Titans 50 Index.

  177. 177
    maxbid Says:


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