Wednesday – Oil Inventory Preview


The government takes over AIG and the world becomes a rosier place...at least temporarily. Concerns still linger about the other large financial houses and until those concerns are addressed look for only brief breaks in the clouds as the eye of this financial storm passes overhead. Natural gas looks to be putting in a bottom but won't get interesting into the slide in oil is arrested and that would actually take a little more attention span for fundamentals than the market's got right now. News out of the energy group remains muted and I think everybody wants to shut the books on the quarter and hold back major announcements until they could have some positive effect. I remain patient and extremely cautious.

In Today's Post:

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

Holdings Watch: No changes yesterday.

Commodity Watch:

Crude Oil fell $5.20 during the day before rebounding somewhat to close down $4.56 at $91.15. This morning crude is gaining back $3+ of the loss as the dollar shows signs of eroding. At least that's one theory on the reason. Here are some other things the market has recently ignored that may be coming into play plus we have inventories later today:

  • OPEC / Hugo Chavez Watch: Venezuela's oil minister said they would consider calling an emergency meeting if oil prices fall further. One month ago these guys were talking oil lower...be careful what you wish for.  OPEC is not scheduled to meet again until December 17.


  • Nigeria Watch: The Nigerian government claims up to 115,000 bopd of additiolnal shut ins have occured in the last 4 weeks. Chevron has removed some personell and Shell has confirmed some pipeline sabotage. In addition, the group claims to have blow up a "very major trunk line", a statement that has not been confirmed and is now threatening to take its attacks further offshore to the larger production platforms.



  • MMS Watch: The Minerals Management Service now reports 28 platforms as destroyed with aggregate production of 11,000 bopd and 82 MMcvgpd. I would expect the losses to rise slightly in the next few days. Although I suspect much of this production will simply be deemed uneconomic and abandoned it yet is not a lot of production in the grand scheme of thing.


  • CNBC Watch: CNBC has taken to pointing out the fact that the market has ignored Iran, Russia, Nigeria and other bullish factors for the last two weeks. As they are spoon fed their "deepest thoughts" by the traders standing behind their anchor in the pitt we may be seeing the first inklings of a sentimet turn for oil.

Oil Inventory Preview (estimate from the Reuters survey)

Production Impact From Gus and Ike: Just a chart before I get into comments on this week's inventory report. The small table at the bottom is for the weekly reporting period covered by the EIA so you can see the impact on inventories in last week's report and the for today.

 ZComment: The numbers the Street is using are as good as any others. We have another week of crimped production similar to the one last week. Imports are unlikely to have improved in the week between the two storms so numbers are likely to be similar to last week except that more refining capacity should have been offline so demand for crude was likely a bit weaker leading to a slightly smaller draw on crude stocks than we saw last Wednesday (a drawdown of 5.9 mm barrels). The numbers today will of course take a back seat to AIG, JPM, the Fed, etc but I would point out that if the consensus draw on  gasoline occurs it will drive gasoline inventories to the lowest levels since the EIA has been tracking weekly inventories (that's 18 years folks), something that may in fact get noticed. (VLO) reported a delay this morning in re-opening its Houston refinery due to a malfunction and I suspect we will see more of this, exacerbating the gasoline inventory situation in coming weeks although the U.S. is likely to see a surge in gasoline imports from Europe which should help alleviate some of the pain to consumers. Distillates will also start to get interesting soon.

Natural Gas fell $0.09 to close at $7.28 in very boring trading. Boring is actually a good thing. No big swings in price and no crude matching sell down. Feels like a bottom. Time will tell. This morning gas is trading up $0.20.

  • Imports: off about 1 Bcfgpd from last week.
    • Canada came in 8.7 Bcfgpd, down 0.8 Bcfgpd
    • LNG saw imports rise to 1.1 Bcfgpd, up 0.2 Bcfgpd. This is the first significant rally in LNG volumes since early Spring. I suspect its a fluke and not the start of some new, "I want to sell gas into a low price environment" scheme.
  • Weather: Not as hot as last year but pretty normal for the season. This is the time of year when temps start to slowly but steadily fall into winter.
    • Cooling Degree Days: 44 CDDs, down 13 from year ago levels
    • Heating Degree Days: 15 gas-weighted HDDs, up from 11 last year ago.


Stuff We Care About Today: 

(KOG) Announces Delays: The rig for their Bakken play was due onsite this month, now late October. They have 3 approved drilling permits ready for the day it shows up. This will be an interesting one, worth keep a quarter of an eye on as it sits way on the back burner.

PetroCanada Sees Rising Costs At Fort Hills. Kudos to VTZ for his fortune telling.  (PCZ) on the tape this morning saying it is talking another hard look at its Fort Hills oil sands project have new estimates show costs could rise 50% over its original estimates. As VTZ has been pointing out, all of these projects are suffering from cost over runs and I would add that they are seen as a source of future oil growth (Non-OPEC supply) in the longer range forecasts that may just not happen if prices don't turn soon.  This one's first phase would add 140,000 bopd by 2011 which really isn't all that far off.

Odds & Ends

Analyst Watch: Nataxis starts (BEXP) with a Buy, (WNR) upped from Sell to Buy at Soleil, (ESLR) upped from Sell to Hold at Citi, Wedbush inititiated on (ESLR) with a Buy and $8 target. Keybanc is doing mark to market price target reductions on several E&P names we talk about here regularly: (WLL), (RRC), (NFX), (CRZO), (CRK), (COG), all come down 10 to 15% on PT but remain Buys since the targets are still much higher than market (NFX's is now $65 for example).

196 Responses to “Wednesday – Oil Inventory Preview”

  1. 1
    Nicky Says:

    Morning all.

    Off topic – Russian stock market fell 17% Monday, 10% yesterday and now trading is suspended indefinetely!!

    GS lowers their short term target for oil (3 months) to 115 and 2009 target to 123.

  2. 2
    Sambone Says:

    Oil Rebounds; Goldman Sees Buying Opportunity


    [Dow Jones] Crude bounced back early Wed, as the market digests the economic implications of the Fed’s AIG bailout and analysts see big drawdowns in US oil inventory data due at 10:35 am. Goldman Sachs, while revising down its 3-month crude price target to $115/bbl from $149/bbl, says in a note that “current price levels present compelling buying opportunities.” Nymex Oct crude +$3.26 at $94.41/bbl.

    Oil Climbs As Financial Jitters Moderate
    LONDON — Crude oil futures held on to overnight gains in European trade Wednesday after a rescue for troubled insurer American International Group Inc. moderated some of the financial market jitters that have prompted a flight from financial assets including crude in recent days.

    While activity in other financial markets has largely obscured oil market fundamentals this week, traders were turning their attention to weekly U.S. crude and products inventory data due out later Wednesday, expected to reveal large falls in stockpiles resulting from the oil production and refinery shutdowns prompted by Hurricanes Ike and Gustav.

    However, analysts were reluctant to suggest that prices had turned a corner after dropping to seven-month lows Tuesday. They warned that with inventory draws widely expected and the outlook for financial markets still uncertain, crude prices remain vulnerable to further falls as sentiment remains under pressure.

    “We aren’t out of the woods yet, said Andrey Kryuchenkov, analyst at Sucden research in London. “Investors remain very nervous, with uncertainty dominating most global markets.”

    At 1132 GMT, the front-month November Brent contract on London’s ICE futures exchange was up $2.80 at $92.02 a barrel.

    The front-month October light, sweet, crude contract on the New York Mercantile Exchange was trading $3.02 higher at $94.17 a barrel.

    The ICE’s gasoil contract for October delivery was up $13.75 at $895.75 a metric ton, while Nymex gasoline for October delivery was up 647 points at 246.55 cents a gallon.

    The Federal Reserve’s decision Tuesday to leave interest rates on hold was largely overshadowed by its $85 billion loan rescue package for AIG. But while some suggested that the rate decision suggested the Fed sees no need to panic amid recent market turmoil, oil demand fears linked to a slowing economy persist.

    “Despite looking oversold, growing concerns about U.S. demand will continue to dampen sentiment for the US-centric commodity,” said Mark Pervan, senior commodity strategist at Australia and New Zealand Banking Group in Melbourne. “Prices over the coming months look vulnerable to a further correction, as sentiment continues to plummet on a weakening demand backdrop.”

    Citing increased demand sensitivity to recent high prices, analysts at Goldman Sachs cut their crude price forecasts. In a note dated Sept. 16, the bank lowered its three-month ahead West Texas Intermediate price forecast to $115 a barrel from $149 a barrel. Its 2009 average forecast was cut from $148 a barrel to $123 a barrel.

    Latest U.S. demand readings from the U.S. Department of Energy are likely to be subject to distortion as a result of the two hurricanes that have blazed through the Gulf of Mexico and U.S. Gulf Coast refining regions.

    The weekly DOE report, due 1435GMT Wednesday, is expected to show crude oil and products stocks have dropped on the disruption that resulted in widespread closure of Gulf oil production facilities and refineries. Uncertainty over how much was reflected in a survey of 14 analysts’ forecasts, conducted by Dow Jones, however. Expectations for crude stocks range from a draw of 19.7 millions barrels to a build of 700,000 barrels.

    “We can expect another material drop in utilization rates for (today’s) report, as well as another purge in products stocks. On top of that, in light of the shut-in to major crude oil pipelines, we can also expect wide regional discrepancies on the disposition of crude oil stocks,” said Stephen Schork, editor of The Schork Report. “In short, this report is going to be a mess.”

    A renewed militant campaign against Nigerian oil sector infrastructure this week has been largely eclipsed by the turbulence in financial markets, although news of another militant strike Wednesday may have secured the unrest more market attention.

    Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta, Wednesday said it bombed a major oil pipeline that may be operated by Royal Dutch Shell PLC and a unit of Eni SpA.

    Militants have now launched around half a dozen attacks on oil facilities since the weekend.

    —By Nick Heath; Dow Jones Newswires

  3. 3
    VTZ Says:

    Just a quick comment about Fort Hills impact to the equities. UTS will probably be hit hard although I’m sure lots of this is priced into the stock. The concern is that they will need to get an additional 3 billion or so of financing in this credit market or else reduce their UTS-only land holdings in exchange for paying a smaller portion of the up front capital for phase 1.

    I expect phase 1 to go ahead at this increased cost provided oil stabilizes for a while.

  4. 4
    VTZ Says:

    That being said, it wouldn’t surprise me if they delay phase 1 for a while either.

  5. 5
    zman Says:

    Thanks Nicky, had not seen GS comment. Makes since since they were really hanging out there. So when does Ben make the call to go and ahead and cut, Dow 10,000?

  6. 6
    VTZ Says:

    Wow, UTS just got destroyed…

  7. 7
    VTZ Says:

    That goes to show what people think of the cost numbers and the viability of the new oil sands projects at this oil price…

  8. 8
    zman Says:

    Nice call V, did not get a chance to react. Exactly re 7. This is oil price is a non-starter for them. I wonder how BQI fairs through this.

    Refiners trying to bounce. EIA numbers should be wild today.

  9. 9
    zman Says:

    Out of the CEG by the way, executed at 31.50 yesterday, unbeknownst to me.

    Group thinking about greening up as the Dow comes off its lows.

  10. 10
    Nicky Says:

    Broader market – support at 1188 spx, then 1163 – 68, resistance at 1211- 1214.
    Repeating from yesterday I am still looking for a lower low but I think the next one will give us the kick off for a very good rally. Best time for the low to occur is between Thursday of this week and Monday of next. My target area for the Dow is 10583 – 10650 but actually we only need to take out yesterdays low for the pattern to be complete. SPX has support below 1163 and 1153, 1134 and 1120.

    Dennis Gartman is now bullish oil…

  11. 11
    Nicky Says:

    SEC bringing back the short selling rule, was going to take effect at the end of the month – now bringing it forward to Thursday.

  12. 12
    zman Says:

    Thanks for the levels Nicky.

    DVN reporting about 50,000 BOEpd onshore curtailed due to gas plant and pipeline issue post Ike.

  13. 13
    zman Says:

    Nicky – so now the shorts have to deliver the shares within a certain number of days post settlement, right?

  14. 14
    Nicky Says:

    Yes Z – if you remember last time they did this it sparked a huge rally….

  15. 15
    Nicky Says:

    Options expiry today for oil – cnbc reporting that we are likely to see a battle for 90 or 95.
    I think everyone on this board is about to start having fun again with energy. Lows looking very close if they aren’t already in. Same goes for nat gas.

  16. 16
    Eagle Says:

    Nicky, Would that rally be the move up that you thought would proceed the bigger move down?

  17. 17
    zman Says:

    Next week’s numbers will be even stranger than this week’s given the greater amount of onshore production that is offline this week on the Gulf Coast. Gas number next week should look pretty smallish.

    Stocks just market time here pre numbers. Refiners definitely think products are going to take a big than expected hit.

  18. 18
    Nicky Says:

    Yes Eagle. If you are talking broader market.
    Big picture:
    There are essentially two counts on the table –
    The bullish one says that we are completing a wave iv to the downside and have another very big rally which will take out the all time highs and some in wave v.
    The bearish count says that V up completed at last October’s highs, I think wave 1 down finished at the January lows and what we have seen since is a very big wave ii correction playing out as an abc and we are currently in (and I believe completing) b down with c up still to come.
    C up could easily go back to the 13k area on the Dow although I think more likely to stall between 12k and 12,500. We are due to see a top late October/early November although a secondary high could be seen as late as March 2009. Then down we go…
    Of the two counts I favor the bearish one to be honest.

  19. 19
    Dman Says:

    My screen is mostly green, so I got a bit of a surprise when I clicked on TSCM and there is Cramer with “PANIC … there is total panic” in the Columnist Conversation thing.

    I do think it is good for the market that the reaction to AIG is a selloff. Rally-by-cash-from-black-helicopters isn’t going to be sustainable.

    Which companies don’t need cash by helicopter? Oh, right, the energy sector. Maybe that explains the green. Service names a bit mixed though.

  20. 20
    zman Says:

    Wow = Gold.

  21. 21
    Nicky Says:

    About to say the same Z. Flight to quality.
    Now on the subject of metals I had mentioned last week that a I had a target for this wave between 830 and 860.

  22. 22
    Sambone Says:

    By Spencer Swartz

    LONDON (Dow Jones)–Nigerian militants said they bombed more oil pipelines of
    major foreign oil companies Wednesday and threatened to disrupt even more crude
    production by taking aim at the West African nation’s prized offshore oil
    The country’s military is preparing to again increase troop levels in the
    country’s main oil producing region, the Niger Delta, senior Nigerian oil
    officials said.
    “The situation has gotten very disjointed and we must get a grip on the
    situation,” one official said, without elaborating.
    The Nigerian military has already increased its presence in recent months
    around some oil installations in the Delta region, an area covered in swamps
    and an endless network of above-ground pipelines, though clearly the militants
    have the upper hand.
    More than 100,000 barrels a day have been disrupted in a handful of attacks
    since Sunday – on top of roughly 600,000 barrels a day in capacity that was
    already shut from past attacks – and that level is bound to rise further
    following the latest alleged attacks late Tuesday and early Wednesday at
    pipelines and other infrastructure operated by Anglo-Dutch Royal Dutch Shell
    PLC (RDSB.LN) and Italy’s Eni SpA (E).
    Shell and Eni representatives said the companies were investigating the
    claims, but so far, the Movement for the Emancipation of the Niger Delta, or
    MEND, the militant group responsible for this week’s attacks, has had all its
    claims about sabotaging oil infrastructure later confirmed by energy companies.
    Oil traders, focused on the fallout of renewed U.S. financial turmoil, have
    barely paid attention to the latest outbreak of violence in Nigeria. U.S. oil
    futures traded up Wednesday by about $3 at $94 a barrel at 1250 GMT, as
    sentiment moderated about the possible impact of the financial problems on oil
    MEND said in an e-mail to media outlets on Wednesday that it planned to once
    again target the multi-billion dollar offshore oil fields known as Bonga and
    Using high-powered speed boats, MEND succeeded in attacking the Shell-operated
    Bonga field in June, forcing the company to shut all 225,000 barrels a day of
    production for several days. The field, located about 75 miles off the Nigerian
    coast, cost around $3.6 billion to develop.
    After that attack, Shell said it would revamp its security at offshore
    Chevron Corp. (CVX) operates the Agbami field, which just started producing
    crude in late July. Agbami is expected to ramp up to 100,000 barrels a day in
    production in the months ahead and max out at 250,000 barrels a day by the end
    of 2009.
    Bonga and Agbami are part of a series of Nigerian offshore fields that
    comprise the bulk of new oil and natural gas production entering service in the
    country. France’s Total SA (TOT) is currently developing the Akpo field off the
    Nigeria coast, which is expected to start delivering 225,000 barrels a day to
    global markets by the end of the year or in 2009.
    To end its nearly three-year offensive against the country’s energy industry,
    MEND has demanded the Nigerian government send more oil revenue to the southern
    Nigeria states, which produce nearly all of the country’s oil, and release the
    group’s supposed leader, Henry Okah, who was arrested in Angola last year on
    suspicion of arms trafficking.
    “The violence we’ve seen reiterates the uphill struggle the government has” to
    end it, said Rolake Akinola, senior analyst at Control Risks in London.
    -By Spencer Swartz, Dow Jones Newswires

    Dow Jones Newswires
    09-17-08 1015ET

  23. 23
    zman Says:

    Nicky , I remember metals call, nice one.

    I wonder how big a hit GS is taking on their dealings in Russia. Know that had size exposure there but no idea how big.

  24. 24
    zman Says:

    Wonder which middle eastern country or group of countries is bankrolling the Nigerian rebels. It would be an interesting bit of investigative journalism to figure that one out. The timing of their flare ups relative to oil price levels is uncanny.

  25. 25
    Nicky Says:

    Eagle I should add that there is an even more bearish count which says we are about to crash from here! But again not preferred by me.

  26. 26
    kyleandy Says:

    z – just wondering about how they were funded myself. think some of their kidnapping also helps via ransoms paid

  27. 27
    zman Says:

    crude down 6.6
    gasoline down 3.3
    dist down 0.9

    not bearish, not bullish report on the big round numbers.

  28. 28
    Dman Says:

    Wow, there certainly is some panic in the broad markets. Not happy at all.

  29. 29
    zman Says:

    Gasoline demand rebounded slightly, could be pre Ike fill ups causing that.

    Oil market still trying to figure out how to handle those numbers. That does put gasoline at an 18 year low for inventories.

  30. 30
    Denise Says:

    Greetings everyone,
    A couple of buy(or least some improvement!) from my favorites:
    -Ms. H’s mother called two days ago
    -Mr K has started posting his market ratings(had suspended a month or two ago because of craziness)
    He is a 9-7 been a long time since i have seen that -especially the intermediate number
    -China maybe back in biz on 9/18? read they were still in shutdown mode (coal)because of those para olympics pollution issues(sorry do not remember proper name)
    We will see-

  31. 31
    zman Says:

    Hey Denise, long time no comment, hope all is well. Can you remind us what the two numbers are for (scale and time) for Kass’ ratings?

  32. 32
    Nicky Says:

    Hi Denise – what does 9-7 mean?

  33. 33
    Wyoming Says:


    Panic = how do we kill energy?

  34. 34
    zman Says:

    NG up 33 cents, oil up $2+. Sure can’t see it in the equities. Market needs a high colonic. I would say that if we get a “late day everything’s ok rally” that energy is likely to surge green unless it is brought about by diving oil.

  35. 35
    Denise Says:

    The first number is his short term and second intermediate
    10 is highest-he is buying GE now
    and went long energy (shared coal being his favorite about a week ago)
    Also my Gann voodoo wiz pointed out the S&P did a 50% retracement

    Mr K is usually early! (also usually right)

  36. 36
    antrimshale74 Says:

    When will it end??? Put out one fire and fifteen others show up! Anybody watching the debacle in London today. When will the ECB wake up?

  37. 37
    Denise Says:

    I am assuming his love for coal has to do with that 9/18 start the factories back up in China date that I had read elsewhere about(sorry can not remember where)

  38. 38
    kyleandy Says:

    denise welcome back missed your comments

  39. 39
    zman Says:

    D – I’ve seen that date mentioned a couple of places. Never hard and fast with the Chinese but their stocks are known to be low (they always run low but now really low). Sorry no numbers, just a variety of sources saying they are short on electricity and have to start back soon or there is going to be trouble. Probably good things for the bulkers and the coals.

  40. 40
    Denise Says:

    Sorry for being so wordy but i think this is also important about short selling rules
    complements of Mr K (renowned short seller)
    A third rule makes it a securities fraud when short sellers deceive brokers about delivering borrowed shares to buyers. The SEC also approved a rule drafted in March that would make it a fraud for investors to lie to their broker about locating shares to sell short. Currently, brokers are able to rely on their customers’ assurance that they had located shares that could be used to cover a short sale.
    It’s a game changer!

  41. 41
    md Says:

    Gasoline demand went up? I show a drop from weekly of 9090 to 8907 or 4 week of 9337 to 9208.

    My concern was that weekly total product supplied showed a drop in demand from 19784 to 19090. Do you show the same numbers.

  42. 42
    1520sbroad Says:

    the short sale rule is big. i think we may see some last ditch, lean on the weakest link today followed by a big short cover.

  43. 43
    Dman Says:

    I just tried to look at some 10-day charts. They are so chaotic, my eyes hurt. I work with chaos theory, so I don’t mind some chaos, really I don’t. But these are something else. The real thing! Yeesh.

    Check out CLB for example. Crazy town, hedge-fund shootout?

    Nicky, any thoughts on NG here?

    Wyoming #33: Well, if they are panicking now, what about when oil heads back up to $120?

  44. 44
    zman Says:

    md – you are right, I had my columns wrong. That makes more sense as we should be seeing lower demand this time of year. Big piece of the week to week dip is av gas which is just travel coming back off the holiday bump.

  45. 45
    Nicky Says:

    Everything lining up – cycle lows around 19th, Bradley turn date 22nd – all these dates are plus/minus two days so we are in the window..

  46. 46
    Nicky Says:

    What really tees me off right now about gasoline is that the price I am paying at the pump is still between 3.95 and 4.25 – how the heck can that possibly be?? It only went up to 4.50 when gasoline was at its highs – surely the @#CDards are gouging us?

  47. 47
    Sambone Says:

    NEW YORK (Dow Jones)–U.S. nationwide gasoline inventories were the lowest on
    record dating to January 1990 in the week before Hurricane Ike became the
    second major storm to hit the key Gulf Coast refining region this month, the
    Energy Information Administration said Wednesday.
    Latest data show that in the week ended Sept. 12, gasoline stocks were 184.634
    million barrels, down 1.8% from a week before and 5.9% below a year ago.
    EIA said the stocks were “below the lower boundary of the average range” of
    the past five years.
    Concerns over tight gasoline stocks led the federal government to issue
    waivers from environmental standards in several southeastern and Gulf states to
    expand the pool of gasoline that can be sold.
    Refineries were shuttered or reduced operations first when Hurricane Gustav
    hit the Gulf Coast on Sept. 1, and many were forced to close ahead of Ike.
    Loss of power at many Gulf Coast refineries is keeping facilities shut, and
    pipeline slowdowns or closures have spread the Gulf problems to the Midwest and
    to the Southeast, where retail gasoline prices jumped above $4 a gallon this
    As much as 20% of U.S. refining capacity, when measured against operable
    capacity, has been closed.
    EIA reported refineries nationwide processed 13.237 million barrels a day of
    crude oil in the latest week — the lowest level since Oct. 7, 2005, when the
    industry was recovering from damaged caused by hurricanes Katrina and Rita.
    Prior to the storms, refiners were running crude at a rate of 15.2 million
    barrels a day.
    Nationwide, refiners used just 77.4% of capacity of 17.61 million barrels a
    day, EIA data show, also the lowest since the 2005 hurricanes.

    -By David Bird, Dow Jones Newswires
    Dow Jones Newswires
    09-17-08 1107ET

  48. 48
    Denise Says:

    Wow even Rev Shark thinking we may have a good setup-mentioning NG and USO
    He has been very bearish on everything.

    Thank you for the kind comment kyleandy-I take breaks from the market and trading when it gets too hard-

  49. 49
    Wyoming Says:


    Thats what I’m talking about. A little “this does not make sense” on the short seller side.

    Movie trivia, “Inconceivable!!” followed later by “Never mess with a Sicilian when Death is on the Line”

  50. 50
    zman Says:

    Princess Bride

  51. 51
    Wyoming Says:

    Sorry Damn does not equal Dman. First mistake this week.

  52. 52
    Wyoming Says:


  53. 53
    Denise Says:

    Even Nicky in agreement!-A very smart source

  54. 54
    VTZ Says:

    Nicky – I know it’s off topic but could you comment on the next wave for gold for me please.

  55. 55
    Sambone Says:

    DJ Valero: “We Are Losing Money On Fuel Sales”

  56. 56
    sane Says:


    Crude down 4.4
    Gasoline down 4.3
    Distillates down 1.7

  57. 57
    zman Says:

    Sam – rather a broad statement…let me know if you see more text.

    Thanks Sane, pretty much inline with EIA thoughts at least directionally.

    Gold up $52. Earth to Ben, hello Ben, I don’t think the market is too worried about inflation pal.

  58. 58
    Nicky Says:

    Dman – nat gas – bigger picture I think nat gas heads back to the 10 area. Short term we are trying to hammer out a lower. A move above 7.8 would be helpful but its going to take a move above 8.8 to confirm the lows are in.

  59. 59
    zman Says:

    Re NG. I don’t think we get back to $10 very soon. Sentiment still too angled towards a gas glut next year. Support now coming from disruptions that will leave gas storage around or just short of 3.4 Tcf, not the 3.5 Tcf at the end of October that most had feared. More in a sec.

  60. 60
    Nicky Says:

    V – I think the $ is about to make another sharp move to the downside. Will be swift and most likely end around the 76 area. This should be supportive of metals and indicates to me we can go a bit higher yet although silver still looks very weak comparatively.

  61. 61
    zman Says:

    Awful lot of midcontinent nat gas prices in the mid $3 range. That’s not economic.

  62. 62
    Dman Says:

    It’s as if half of the market had never heard of any problems and now they see the AIG thing *after* the bailout and it’s like “oh, there’s a problem …SELL!!!”.

  63. 63
    zman Says:

    Why gas is up 40 cents:

    Targa Resources has said that after carrying out an initial assessment of its Gulf Coast facilities in the wake of Hurricane Ike, some natural gas processing plants and other operations could be off line for four to five weeks, perhaps longer.

    The US Department of Energy said 23 of more than 30 natural gas processing plants along the Gulf Coast shut by Ike or Hurricane Gustav were still shut as of last night.

  64. 64
    Dman Says:

    V – I would still argue that a bit of metals talk is not off-topic, given the link to the dollar & the groupthink tendency of the whole commodity complex. I’m never shy about asking Nicky where those shiny metals are going 🙂

  65. 65
    md Says:

    Total inventories change from prior week
    Sep.5 (15,147.00)
    Sep 12.(11,976.00)
    Can we say Ditto for Sep.19
    What and when can we expect replenishments from overseas.

  66. 66
    Sambone Says:

    So it begins.

    By Jeffrey Jones
    CALGARY, Alberta, Sept 17 (Reuters) – The cost of
    Petro-Canada’s PCA.TO Fort Hills oil sands project has
    ballooned by 50 percent to as much as C$21 billion ($19.6
    billion), putting the proposal’s viability into question and
    hammering the shares of its smallest partner.
    Petro-Canada on Wednesday blamed the huge increase on
    rising materials costs, a tight labor supply and higher project
    management expenses. The new estimate comes at a time of
    weakening oil prices and crumbling credit markets.
    “This is the first glance at the crystal ball,”
    Petro-Canada spokesman Peter Symons said. “This shows us that
    costs have gone up across the board.”
    Petro-Canada is operator and has a 60 percent stake in the
    northern Alberta project, one of $100 billion worth of
    developments under way or on the drawing board.
    Its partners are Teck Cominco TCKB.TO and UTS Energy Corp
    UTS.TO, with 20 percent each.
    Shares in the smallest player, UTS, tumbled 37 percent, or
    90 Canadian cents, to C$1.50 on the Toronto Stock Exchange on
    Wednesday. That followed a 19 percent drop the day before as
    investors began to worry about the company’s ability to fund
    its share of Fort Hills, which is one of its only assets.
    Petro-Canada stock fell 99 Canadian cents, or 2.5 percent,
    to C$38.68, and Teck Cominco sank C$1.17, or more than 3
    percent, to C$34.23.
    Teck’s shares were under pressure earlier this week amid
    concern that the U.S. credit crunch could jeopardize its
    takeover of Fording Canadian Coal Trust FDGUN.TO.
    The Fort Hills partners said they remain committed to the
    project and are weighing options for cutting or deferring costs
    before making a go-ahead decision in the fourth quarter. Symons
    would not say if the project could get shelved.
    “We’re taking a longer-term view of the Fort Hills project.
    We feel we have one of the best leases up there and we have two
    strong partners,” Symons said. “At this point, we’re not going
    to speculate on anything other than moving toward that final
    investment decision.”
    This week analysts have warned that some oil sands projects
    could be delayed and rethought as oil prices dipped below $100
    a barrel and the field of available sources of financing got
    smaller due to the credit crunch.
    The new Fort Hills estimate shows that the inflation that
    has plagued the oil sands sector for years amid a development
    rush has not abated. Last year, the partners had projected the
    first phase of the project would cost C$14 billion.
    The Fort Hills plans call for an integrated oil sands mine
    and bitumen extraction plant 90 km (55 miles) north of the oil
    sands hub of Fort McMurray, Alberta, and an upgrading plant in
    Sturgeon County, northeast of Edmonton.
    The project would produce 140,000 barrels a day by 2012 in
    the first phase. A second stage would lift output to 280,000 by
    ($1=$1.07 Canadian)
    (Additional reporting by Janet Guttsman; Editing by Peter

    Wed Sep 17 15:41:46 2008 -GMT

  67. 67
    VTZ Says:

    The UTS news is big news for me at work today and we are discussing their costs relative to ours and others and I can say that theirs is not far out of line with other estimates.

    This cost estimate represents a current capital costs of roughly 135,000$ per bbl/day.

    Once you throw on the high op costs and the current price you can see that it would be hard to recover your capital…

    In my oil sands piece you will see what the op costs look like and my “supply” costs which represent the all in cost considerations of starting a new project are probably made more out of date and I just “finalized” my piece to give to Z yesterday.

  68. 68
    zman Says:

    Md – probably something in that ballpark. Change for crude will depend largely on how fast refiners get back on line. Already seen at times higher shipments of gasoline from Europe. With the relaxing of EPA standards that should encourage more. Probably already on the way, would get it starts showing up soon in the numbers.

  69. 69
    zman Says:

    Dollar flat today, they just won’t give up that trade….I think Ben’s got to cut at somepoint and that should pressure the dollar if math still means much.

  70. 70
    md Says:

    V What does that work out to per barrel. How much is attributable to labour (housing) and how much to raw material.

  71. 71
    zman Says:

    VLO says losing money at “some” retail outlets, had very limited bump in price at Texas pumps. That’s not going to be a large sum. Think they are trying to point out they are not gouging which is going to be something hunted down by the AG’s. They also said they have no restart date for 2 of their shuttered refineries, Texas City and Port Arthur and they are trying to restart, with some difficulty, their Houston refinery.

  72. 72
    VTZ Says:

    Well the way the capital is calculated is per flowing barrel. So it is roughly 135,000 to get 1 bbl/day for 40 years (mine life). The op cost for that barrel includign overhead, energy, sustaining capital, etc is probably around 60-65 dollars.

    This means that your margin of WTI minus 60-65 for each barrel per day must pay off 135,000$.

  73. 73
    zman Says:

    VTZ – plus yield a return. What’s the planning hurdle? 10%+?

    Nicky SPX hit your 2nd support level at 1163 and getting a small bounce…what’s the next lower level?

  74. 74
    VTZ Says:

    Example with 90 dollar oil is you only make say 30 dollars per barrel for ~345 days per year (you can’t operate at 100% all time).

    In a year, with this oil price you would make 20,700$ so it would take 6-7 years to pay out the capital (without discounting cash flows of inflating oil price)

  75. 75
    BirdsofpreyRcool Says:

    the credit market is in complete disarray today. sorry to be the bearer of bad news, but unless we can get the debt markets back to functioning, not much else matters.

  76. 76
    VTZ Says:

    Hurdle rates vary from company to company. At large companies the hurdle rates tend to be higher because they have more projects to pick from.

    At small companies like UTS they probably have a 10% hurdle rate.

  77. 77
    MMarkkk Says:

    Greetings from sunny Houston! Heck of a weekend and its going to be a heck of a 2-6 weeks for folks around here. Good news: in a city of over 4 million people, over half could give a rat’s arse about Lehman, AIG, etc. Mostly because they are going on day 5 with power, some have 75 foot trees sticking out of their living rooms and many have had homes washed away! But it could be worse! Much much worse.

    Through all of it, many kept sense of humor. Heard on radio the other day a call for anyone hearing about price gouging to call and report it. First 3 phone calls had to do with the price of popcorn at the movie theater!! The county official said “heck, that’s been going on for years!” Kind of makes that $4/gallon gasoline look good doesn’t it??

    Looking for a bottom…may be a while! Z, I agree on your outlook for nat gas prices. With production ramping up and drilling going on like there’s no tomorrow, its going to be hard to see prices get back to double digits for a while unless we start getting a really hard freeze across the northeast starting next week!!! But since I’m heading up to the Herold’s conference in Greenwich, CT, next week, I’d rather it wait a week or so!

  78. 78
    MMarkkk Says:

    Should have been Day 5 WITHOUT power, not with.

  79. 79
    VTZ Says:

    Things to keep in mind regarding oil sands projects are the 40 year mine life and the leverage to oil price.

    If oil prices are goign to go up, oil sands is by far the most leveraged and highest value proposition because of the 40 year mine life… invest the capital now and have 40 years of production.

  80. 80
    md Says:

    V Did the royalties help cool things down or help make it uneconomical

  81. 81
    zman Says:

    BOP – you are absolutely correct. I’m sending Ben a bill for my pile of September scuds as this has little to do with oil, gas or the demand for either.

    I think we get some broad market rallies here and there that will be tradable but I don’t see firm footing going into the weekend. Think we could be in for a Friday / Monday if nothing changes.

  82. 82
    BirdsofpreyRcool Says:

    Ben and his Band of Idiots and so completely clueless, it makes me cry. He has been wrong for over a year now. Each time he has made a wrong decision, he has had to overturn his OWN decision within days. One would think one could learn over the course of 14 months.

    If the definition of insanity is to keep doing the same thing, over and over, expecting a different outcome… then our Fed Governors should be institutionalized.

  83. 83
    VTZ Says:

    md – The royalties change helped cool things down by making things that are already marginally economic, less economic, haha.

    That being said, the royalties are low (<5%) until you pay out your project so they aren’t bad to start with.

  84. 84
    Bob Says:

    Z- Any thought on a reentry into CEG? S&P put BBB rating on watch at 11:04. Stock was $66 last week, 38.77 earlier today, below $20 now

  85. 85
    BirdsofpreyRcool Says:

    the market has just pushed rates to almost zero percent. the 3 month t-bill is now paying 0.071 percent. holding rates firm yesterday was a huge tactical error.

  86. 86
    VTZ Says:

    I don’t think it was unless you want even more rampant inflation… Do you want the US to be like Japan was?

  87. 87
    VTZ Says:

    Come talk to me in 1 year after the government has printed out X trillions of dollars to “add liquidity” and bail out the banks then talk to me abotu money supply.

  88. 88
    BirdsofpreyRcool Says:

    it’s not about “inflation” at this point. it’s about people (institutions) buying credit. if people don’t buy debt (in any form, including money markets) then you can not have a functioning economy. no functioning economy, no jobs.

  89. 89
    zman Says:

    Zoiks = CEG. I didn’t ZTRADE it b/c I don’t know them at all beyond the basics but can spot a Wall Street over reaction when I see one. That trade was based on the stock being down so much on the one hand, Lehman hysteria on the other, and a company PR that said it was no big deal. Now I see they are “exploring strategic alternatives” which is never good.

  90. 90
    VTZ Says:

    THIS WHOLE PROBLEM WAS CAUSED BY PEOPLE BUYING CHEAP DEBT!!!! That’s the last thing you want!!!

  91. 91
    BirdsofpreyRcool Says:

    VTZ… I don’t disagree withyou. i agree that “printing money” is bad. but the logjam we are seeing in the bond/credit market right now is unprecedented.

    something has to break that log jam. dropping interest rates helps. a lot. you can always raise them back later, after you get the debt mrkt functioning again, to address the inflation issue.

    this is much scarier than inflation at this point. sorry to say.

  92. 92
    md Says:

    CEG what’s happenin

  93. 93
    VTZ Says:

    Ok, well then lets just print off like 10 trillion dollars because it’s probably goign to take that much to bail everyone out and make sure they have enough “capital” to get themselves out of it.

    Not to mention the fact that the banks probably have even more than that in bad debt.

  94. 94
    BirdsofpreyRcool Says:

    VTZ… agreed. you don’t want bad borrowers to borrow. what we have going on right now is that good companies (and banks) can not borrow to fund their daily operations. no one is lending. “cheap debt” definitely got us into this problem… totally agreed.

    but, you have to have a functioning debt market to support an economy. the debt market is the skeleton that supports the rest of the market. no debt market, no equity mrkt. no funding, whatsoever… even for the best borrowers.

    i certainly don’t think we get to that point. but that is the issue right now. bad borrowers are not getting money. but, we need good borrowers too.

  95. 95
    VTZ Says:

    Ok, agreed. Sorry for getting a lil’ worked up there 🙂

  96. 96
    zman Says:

    CEG caught the Lehman association flu. Right now shorts and their minions are combing through Qs and Ks for Lehman counterparty interest in pretty much all the public companies out there.

  97. 97
    elduque Says:

    Many thanks for all the input.

    Have to believe that hard assets are going to trade at a premium for the next year.

  98. 98
    zman Says:

    I have to step out for 30 minutes. Don’t play nice. Nobody learns anything by playing nice. You two, back at it, lol.

    Oil up $2.30, NG up $0.50. Starting to see some reaction although very mixed from the equities and it may just be a function of the broad market deciding that it only wants to lose 250 points today so it can shed similar amounts tomorrow and Friday. It will be interesting to see if buy programs kick in this afternoon.

    By the way, XOM and CVX green now… I’d say it feels like some timid flight to household energy names is underway for a second day in a row. They really should include COP in that camp.

  99. 99
    zman Says:

    Mark – saw the comment, glad you are thinking what I am thinking. What’s your best thinking on consolidation in the E&P patch?

  100. 100
    zman Says:

    Mark – check your email.

  101. 101
    Sambone Says:

    By Matt Daily and Michael Erman
    NEW YORK, Sept 17 (Reuters) – Constellation Energy Group
    CEG, seeking to quash fears it was running low on cash,
    said on Wednesday its bankers reaffirmed their commitment to
    the power company’s credit and that it was in talks with
    potential buyers.
    The company’s statement came a day after its stock fell 36
    percent on worries that its trading operation would require an
    infusion of cash for collateral.
    Ratings agency Standard & Poor’s, which put the company’s
    ‘BBB’ credit ratings on watch, said Constellation’s management
    had informed it that talks regarding an outright sale were at
    “an advanced stage.”
    The company declined to comment on potential buyers or
    whether it would seek to sell the company in its entirety.
    Constellation, whose earlier proposed buyout by larger peer
    FPL Group FPL was foiled by regulatory hurdles, said it had
    hired Morgan Stanley MS and UBS UBSN.VX to advise it on
    strategic alternatives.
    The company’s trading business has been a drag on its stock
    since August, when Constellation disclosed that a credit rating
    downgrade could force it to post billions of dollars of extra
    collateral. It later took steps to shore up its liquidity,
    including making an agreement for an additional $2 billion
    credit facility.
    Constellation said on Wednesday the banks sponsoring that
    facility confirmed that their commitment remains in effect.
    S&P said it verified the Royal Bank of Scotland RBS.L and
    UBS’ commitment to the $2 billion credit line, but warned the
    company still faced hurdles.
    “Constellation is facing an acute crisis of confidence that
    has resulted in a decline in its stock price and a widening of
    its five-year (credit default swaps) spreads,” S&P said, noting
    that some of its trading counterparties may have started
    backing away from new deals.
    The cost to insure Constellation’s debt with credit default
    swaps rose 8 percent to 678 basis points, according to Markit
    Another analyst said Constellation could also seek a
    partner with a strong balance sheet to back up its trading
    operation, much like Sempra Energy SRE did with RBS.
    “I don’t think they need to be bought totally, they may
    just need a partner for the trading book,” said Dot Matthews,
    analyst with CreditSights.
    “The trading book has been providing all these great
    earnings but it requires so much collateral,” she said.
    The power and gas wholesaler and owner of Baltimore Gas &
    Electric also reiterated that its exposure to financial
    institutions was limited, and that its credit exposure to the
    banks was about $120 million. Its exposure was no higher than
    $28 million to any single financial institution.
    The company also reaffirmed its third-quarter forecast of
    earnings of 83 cents to 99 cents per share and full-year
    earnings of $5.25 to $5.75.
    French energy group EDF SA EDF.PA recently doubled its
    stake in Constellation to 9.51 percent, under an agreement that
    limited the French company’s purchases to 9.9 percent of
    Shares of Constellation reversed an early gain to trade
    down 42 percent to $17.88 per share, on the New York Stock
    Exchange, well below their 52-week high of $107.97 on Jan. 8.
    (Additional reporting by Karen Brettell; Editing by Steve
    Orlofsky, Leslie Gevirtz)

    Wed Sep 17 16:37:20 2008 -GMT

  102. 102
    BirdsofpreyRcool Says:

    the VIX nudged 35 (34.95), so i think that triggered some technical buying.

    we can only go down so much in one day.

  103. 103
    Nicky Says:

    $ not playing ball – may be a wave iv triangle (only a fed cut is likely to take it down it seems) in which case we break higher. It really should have moved lower with metals moving higher which has me on alert here. So there is a change that it just breaks higher as metals top out shortly.

    Support levels on SPX are 1153, 1134 and 1120. We are in v down and if you look you will see that we are in iii of v from the overnight wave iv high – we are nearly there folks – a washout out into the cycle lows due any minute now…

  104. 104
    Nicky Says:

    actually most likely now in iv of v. couple more small moves to the downside would look good now.
    I hope I am right cos if I am wrong its armageddon!

  105. 105
    elduque Says:

    Is there some place on the site that outlines the various coal cos?

  106. 106
    Nicky Says:

    SPX has resistance at 1188

  107. 107
    Sambone Says:

    Sept 17 (Reuters) – Hurricane Ike toppled several platforms in the Gulf of
    Mexico and left a swath of the nation’s crude oil and refined fuel production
    idled in the biggest hit to energy supplies since 2005.
    The following outlines the impact of Ike and the leftover effects of
    Hurricane Gustav on the energy sector:
    *21.74 million barrels of crude oil
    *108.88 billion cubic feet of natural gas
    *35.9 million barrels of refining (counting only plants completely shut)
    *Offshore damage less than Katrina, Rita: MMS
    *Refinery damage less than feared, but some slow restarts
    *97.2 pct Gulf of Mexico oil output shut, down from 99.9 Monday
    *84.2 pct GOM nat gas shut, down from 93.8 pct Monday
    *12 of 16 refineries still shut, 18 pct of US capacity
    *9 refineries representing 11.8 pct of US capacity at reduced rates
    *IEA says assessing case-by-case Ike oil disruption
    *Shell RDSA.L fixing Mars, Ursa, W. Delta 143, Cognac
    *Shell’s Eugene Island 397 gas platform toppled
    *Devon DVN: Platforms damaged, some output restored
    *Targa Resources: Some gas plants off four, five weeks
    *Ike wrecked 28 Gulf platforms, damaged others: MMS
    *Louisiana Oil Port near normal
    *US refineries back from Ike in about a week -Kupfer n
    *Shell Eugene Island pump station damaged 9
    *Ike heavily damaged BP’s BP.L Mad Dog spar platform
    *Marathon Ewing Bank platform damaged on lower decks
    *Exxon: Minor offshore damage won’t limit restarts
    *Chevron CVX some platforms toppled by Hurricane Ike
    *Pride International rig missing after Ike n
    *Diamond Offshore jack-up rig damaged by Ike
    *Henry Hub lifts force majeure, gas drops
    *Anadarko restarts Independence Hub
    ******************CRUDE OIL, NATURAL GAS********************
    *97.2 pct of U.S. Gulf’s 1.3 million barrels per day crude output shut
    Tuesday, from 99.9 Monday, MMS says.
    *84.2 pct of the Gulf’s 7.4 billion cubic feet per day natural gas output
    shut Tuesday, from 93.8 pct Monday.
    RESTARTING FROM IKE (Texas unless otherwise noted)
    *Citgo 300,000 bpd Corpus Christi refinery -DOE
    *ConocoPhillips COP 300,000 bpd Sweeny
    *Exxon: Baytown complex units restart later in week
    *Flint Hills 300,000 bpd Corpus Christi
    *Shell-Pemex 332,000 bpd Deer Park
    REFINERIES SHUT: (Texas, Ike-caused unless otherwise noted):
    *BP 467,700 Texas City
    *Conoco 195,000 Alliance, La, some Ike flooding
    *Exxon Mobil Baytown 567,000
    *Exxon Mobil 349,000 bpd Beaumont
    *Lyondell 270,600 bpd Houston refinery
    *Marathon Texas City MRO 76,000
    *Motiva 285,000 bpd Port Arthur
    *Pasadena Refining 100,000 bpd
    *Total 232,000 bpd Port Arthur refinery-DOE
    *Valero 83,000 bpd Houston nSP34288
    *Valero 200,000 bpd Texas City
    *Valero 325,000 bpd Port Arthur
    *Valero 90,000 bpd Ardmore, Oklahoma
    *Alon 80,000 bpd Krotz Springs, Louisiana – DOE
    *Exxon Mobil 503,000 bpd Baton Rouge, La – DOE
    *Citgo 430,000 bpd Lake Charles, Louisiana
    *ConocoPhillips 280,000 bpd Lake Charles
    *Motiva 235,000 bpd Convent, Louisiana
    *Motiva 220,000 bpd Norco, Lousiana
    *Placid 56,000 bpd Port Allen
    *Valero 195,000 bpd Memphis, Tennessee
    *At peak of Gustav’s impact, more than a third shut or slowed.
    *As of Monday, 24.6 pct U.S. capacity shut down due Gustav or Ike
    ********************ELECTRIC POWER IMPACT*************************
    *Feds: 3 million without power in Texas, 7 other states
    *Entergy reopens Lewis Creek power plant
    *Entergy Sabine power plants still shut
    *********************PORTS, WATERWAYS****************************
    *LOOP near normal
    *Corpus reopens; Houston, Beaumont-PA part open, Lake Charles still shut
    *At least 103 ships await entry to Houston
    *********************PIPELINES, GAS PLANTS************************
    *TEPPCO partially back
    *Explorer shipping refined products
    *Magellan some damage, partially back – DOE
    *Seaway crude line restarts
    *Enterprise early assessment, sees no damage
    *19 U.S. nat gas plants, down from 23; 9.42 Bcf shut
    *5 U.S. gas plants capable of restart when power back
    *10 U.S. nat gas plants at normal or reduced rates – DOE
    *SPR Bryan Mound, Big Hill, Tex; Hackberry, La,
    *Shell Houston-to-Houma crude line
    *Centennial Pipeline products line
    *Portions of ConocoPhillips pipeline system in Texas
    *Dixie Pipeline propane line from Texas to Louisiana, Iowa
    *Enterprise Cameron Highway and Poseidon offshore crude in Gulf
    *Longhorn Pipeline products line
    *Portions of Marathon Pipeline system onshore, offshore Gulf Coast
    *Enbridge EEP: Four pipelines force majeure
    *Shell ramping up Capline
    *Plantation pipeline at reduced rates
    *Colonial restarts distillate line after Ike, mogas down
    (Reporting by Bruce Nichols, Erwin Seba; Editing by Richard Valdmanis)

    Wed Sep 17 16:54:41 2008 -GMT

  108. 108
    VTZ Says:

    Nicky are you looking for one more takedown of gold if the dollar holds its strength?

  109. 109
    Nicky Says:

    Big picture re gold – yes V. Some fib levels I am watching on this rally are 862 which is 50% and 893 which is 61.8%.

    I expect once the indices bottom out gold will top out and I am still looking for a move into the 600’s on gold.

  110. 110
    Sambone Says:

    Looks like July 15 again in the financials. Ouch, glad I own SKF. I will sell it today though after 3 pm, because of the SEC enforcing the naked short rule again.

  111. 111
    Nicky Says:

    VTZ – also should have said that 850 was huge support on the way down so its going to be huge resistance on the way up I would think.

  112. 112
    zman Says:

    El D – will put something on the odds & ends re coal soon.

  113. 113
    elduque Says:

    thanks. Off hand, which one is thought of as being the best?

  114. 114
    jsaun14 Says:

    Libor’s increase yesterday = banks don’t trust each other.

    How many middle market businesses borrow off libor? More do than don’t.

    I agree we have to get the spigot open again. But what about the significance of Sambone’s post yesterday showing foreign purchases of US debt is decreasing? Uncle Sam will have to do something to entice buyers.

  115. 115
    Nicky Says:

    Re 111 – obviously not!

  116. 116
    VTZ Says:

    stalling at 860 ish maybe though.

  117. 117
    zman Says:

    Commodities on fire now, oil up 4.30. Gold and black gold now seen as safe? Wow. Market is in a tortured state.

    El D – the premier names (big) are Arch (ACI) and Peabody (BTU). I like WLT myself – little different, lots of metallurgical coal for making steel. China like steel. Also thinking solar gets a run if oil and gas do.

  118. 118
    VTZ Says:

    jasun14 – imo Uncle Sam has no options left… if you asked me today if I had to pick between a CAD and USD and hold for a year I would take the CAD without blinking. It’s going to be hard to get foreign investment for a long time.

  119. 119
    zman Says:

    There went 1163 SPX

  120. 120
    Eagle Says:

    Nicky, Thanks for the broad market info earlier, had to step away for the job. With gold breaking through 850, what would be the next resistance level?

  121. 121
    zman Says:

    Oil up 4.50; NG up 58 cents. Sector still not noticing. Everyone on CNBC yesterday saying run to tech and yet Nasdaq taking worst hit of all. I say, come home to energy now. Balance sheets strong. Cash flow strong. No sub prime wells. People should react soon and rather swiftly.

  122. 122
    Eagle Says:

    Nicky, Sorry, missed 109. Got it.

  123. 123
    zman Says:

    dollar starting to come off now, anybody have fed funds thoughts here? Is rate cut likelihood increasing that much today or its something else. Oil up a buck more in 3 minutes.

  124. 124
    antrimshale74 Says:

    A few thoughts. One, it seems that the lack of credit has forced the liquidation of equitities in that need for cash. Two, with the lack of liquidity and the respectable price for commodities still, it would seem that the least leveraged companies will be in the best position for the equities to do well. In the energy sector, I’m wondering which entities best fit that bill. Perhaps this is the time for the major integrated companies to shine?

  125. 125
    antrimshale74 Says:

    The VIX blew past 35. It’s about as stressed as I am!

  126. 126
    zman Says:

    EOG is probably least leveraged in the large cap E&P group. CHK and XTO most levered. Note EOG’s performance today.

  127. 127
    zman Says:

    My DIG calls all over the map today from bid 1.25 to bid 4. Will probably cash this afternoon if the commodity rally will translate.

    Good thought Antrim on the leverage.

    Interesting to see people press releasing the fact that they have no counterparty exposure to Lehman. EVEP, one of my favorite MLP names did so yesterday and has insider buying to day, still off over 10%…with a 16% yield.

  128. 128
    antrimshale74 Says:

    DVN has been performing well, too, I see. The hedges on CHK should help to mitigate its leverage I would think. Any idea of CHK debt coverage needs within the next 12 months? I really think that companies with debt are going to be brutalized in this market, regardless of fundamentals.

  129. 129
    antrimshale74 Says:

    Anybody seeing the carnage on Constellation Energy (CEG)? There is absolutely bloody murder on Wall Street. Companies are being destroyed in a matter of hours.

  130. 130
    zman Says:

    don’t recall specifics but their EBITDA coverage of interest is high. Should not be any problem.

  131. 131
    zman Says:

    Antrim – took that one for a spin from 22 to 31.50 yesterday and out. Lucky, like playing Russian roulette.

    DUG going red, DIG thinking green.

  132. 132
    antrimshale74 Says:

    S&P representative on CNBC saying that US government debt outlook is stable. It’s amazing the times we’re living in that it is necessary to get this clarification.

  133. 133
    Dman Says:

    XCO being singled out for a beating. Any clues anyone?

    I’m thinking of adding some stock here.

  134. 134
    zman Says:

    Dman – could be random noise. Household names run first in the event of a turn. All the big cap E&Ps up now. DIG up 1.2% on the day. XOI green too. Yippee-skippee.

  135. 135
    antrimshale74 Says:

    I had an $18 buy order on XCO this morning that I threw out the window. Thank goodness! Market is very discriminating right now. I really think that you can see which ones like based on today’s relative strength. However, the ones that are really down hard will run the fastest if this thing ever turns around. Just don’t stay to long. In this market, options and equities are rented space only.

  136. 136
    kyleandy Says:

    z– re EVEP what possible problems other than gas going to 6 or lower can EVEP have to justify the huge dividend. i believe they are almost fully hedged and their coverage of the distribution seemed plenty ample to me. glad to hear of the insider buying.

  137. 137
    BossmanG Says:

    Z, with your comment: “Sector still not noticing”

    Good idea to get in?

  138. 138
    Dman Says:

    Just looked at some March calls on XCO. IV at 74% !!

  139. 139
    zman Says:

    Kyle – Hedge funds use the MLP’s like you and I use money market. At least like we did until yesterday and now its back to the mattress with the cash. Anyway, they’ve been pounding these guys, all of them, lower …note the string of EVEP at 52 week lows on the headline list. One fear is an inability to keep distributions up but last I checked they hedge heavily each time they make an acquisition which is how they grow. There should be more asset packages on the market or at least the owners of the ones with data rooms open should no longer be so proud of them in terms of asking price. Buyers market and these guys are buyers. Toying with adding it to the kids account.

    Oil up $6+ into the close. Group noticing.

    Bossman G – I’m pretty long now. Not willing to trust much more $ to the market at the moment. I can wait for sanity…if I’m not all in.

  140. 140
    zman Says:

    Those DIG calls now 4.20 bid. Nice return, tempted to cash and do it again…and again.

  141. 141
    antrimshale74 Says:

    IV allows for some nice plays on covered calls and/or naked puts. Have at it.

  142. 142
    BirdsofpreyRcool Says:

    no borrow on shorting SKF… that is a good sign.

  143. 143
    zman Says:

    Right Bird, big cover on the way. Energy equities now trading up but in tandem with broad market.

  144. 144
    zman Says:

    Part of what has oil up:


  145. 145
    Fred Says:

    z – just took a $19 to $25 trip with CEG. It’s headed back down again. Thanks!

  146. 146
    zman Says:

    Don’t thank me, thank LEH!

  147. 147
    antrimshale74 Says:

    You guys have nerves of steel with CEG!

  148. 148
    Bob Says:

    My broker stopped allowing trades in CEG around 1 PM. Did same thing yesterday

  149. 149
    antrimshale74 Says:

    ZMan – Any thoughts on WNR?

  150. 150
    md Says:

    EVEP earnings per share -10.21 ?? (MSN Money)

  151. 151
    zman Says:

    Re – WNR – Not a big fan of management, don’t trust them. Saw it was upgraded today and it is one of those names that will make a run based on rumors and then flag out on you. If you like small stuff, I much prefer management and asset mix at FTO. One thing that might run a bit against that story is the narrowing of spreads between heavy and light crude. The larger the spread, the better they do since they process the heavy stuff and sell it into market that are supporting prices from the lighter oils. As WTI has fallen, the spread between the two contracts and their high margin advantage comes in a bit. Don’t own it now but like it 10x better than WNR.

  152. 152
    zman Says:

    md – Its an MLP so they pass everything through. Makes for a small tax bill and high earnings.

  153. 153
    tater Says:


    One pair almost new Nike Shox. Slightly puke stained (twice). Best offer

  154. 154
    zman Says:

    One other thought in MLP land is the natural gas distribution MLPs. They make money by gathering and moving gas from the wells to the markets and storage. More gas volumes generally better than less gas volumes. They have been beat up too. Just thinking out loud…don’t know the names and we E&P analysts generally loath the pipeline guys (a boring group on the whole) but it may be the play of the day for yield going into next year.

  155. 155
    md Says:

    Here’s the monthly electrical report for May NG consumption 473 BCF
    NG consumption is lower by 80 BCFPM then was reported for that month in NG Monthly(553).
    Supply- Consumption was up slightly YOY.

  156. 156
    md Says:

    Is EVEP ok for foreigners.

    and what is meant by IV

  157. 157
    zman Says:

    md – I used to deal with the EIA as part of my job. Believe me, the left hand has little idea (or concern) about what the right hand is doing. The Natural Gas Monthly may be working off a survey of gas suppliers while the Electric Power Monthly does the same for utilities and non-utilities. Or, for more recent, months, they could be using electricity and a universal turbine heat rate. You can be sure of one thing, that neither of their numbers is accurate.

  158. 158
    zman Says:

    Don’t see why not on 156 and IV is implied volatility of the underlying issue. Fatter IV yields bigger option premiums.

  159. 159
    Dman Says:

    md :

    IV=Implied Volatility (a number in the option price that determines how pumped up the premium is)

  160. 160
    Wyoming Says:

    Probably a short term twist on it all, but we are starting to have issues with supplies (pipe and such) for our rigs out of Houston.

    We are also going to start completing our Barnett wells without pipelines ready for sales. This is generally frowned upon from a well performance issue but acceptable risk.

  161. 161
    Nicky Says:

    Tater – re 153 – ROFL!

  162. 162
    Pete Says:

    Any reason for PQ outperforming the group?

  163. 163
    antrimshale74 Says:

    Sharon E on CNBC mentioning Gulf fears of more extensive storm damage than originally though as possibly juicing natural gas today.

  164. 164
    zman Says:

    For once I think Sharon is partially right, although I’d argue its the onshore damage to processing plants that the bottleneck, not the offshore stuff, not yet anyway.

    Pete – They have positive results on a well. 85 feet of pay in their Bluffs prospect. Don’t know the predrill EUR there but they operate and it wold be one of their gulf coast, I think transition zone wells. Will look at and get back.

  165. 165
    zman Says:

    That PQ is old news being re-released by the minority working interest owner.

  166. 166
    zman Says:

    From MMarkk earlier in response to my M&A question:

    I expect the big guys (Integrated intl’s like XOM, BP, etc.) to at least think about some potential purchases given a) lack of opportunities, b) poor production growth over the last few quarters, and c) boat loads of cash they are still generating. BP’s two deals with CHK raise a few eyebrows…why not just buy the whole company?? Although it would be tough to get Aubrey to sell!! I think the companies with large, high quality holdings in the resource plays would be on the top of the lists of candidates. But all acquiring companies risk the negative reaction from Wall Street analysts, but I’m guessing most of them are worried about other things right now…like their jobs! As an investor, I still like EOG and CHK. Also XTO. If I had more to spend, probaby DVN and a little HK for a flyer!

    By the way, his Bio has been added to the Bios tab at upper left.

  167. 167
    ram Says:

    ZMAN – Any sense of comfort in recent price action in the E&P group?

  168. 168
    zman Says:

    Um, not much. I like how natural gas is acting although as usual they will take it up too far so we will be in for some big swings. I’d be a lot more comfortable if you could tell me what the broader market is going to do. Complete prozacville over there is bleeding into the oh so cheap energy names.

  169. 169
    tomdavis12 Says:

    Z: Re 128. CHK large debt to be rolled over does not start til 2013. Page 30 of the most recent investor presentation.

  170. 170
    zman Says:

    Tom – I assumed he meant interest charge coverage. As far as debt goes they will just swap it for more as always and I would not anticipate them having any problem doing that.

  171. 171
    zman Says:

    Abysmal close on the broad market.

  172. 172
    Popeye Says:

    I don’t want to hear about hangovers tomorrow so everyone take it easy. K

  173. 173
    zman Says:


  174. 174
    zman Says:

    Ram – circling back on 167, 168, honestly I do feel a little better about the group now. It seems like it wants to go, it has already been bashed but the equity market in general keeps pulling it down. When people look around when the dust settles I think it will be one of the few places to fell safe about.

  175. 175
    Nicky Says:

    Interesting thoughts from a fellow trader:

    The Fed stood pat on the Fed Funds target, its hands tied by the fact that
    even a $70 billion cash injection yesterday could not push Fed Funds
    anywhere near the current rate, let alone a rate lower than that. Last night
    Fed Funds were still trading at 2.64, even after the $70 billion injection,
    and repo rates at the Feds Open Market Operations went into the stratosphere
    yesterday. Today, they came back to earth, helped in part by the massive
    Treasury paydowns this week. But this may be as good as it gets. The
    Treasury will need to start pounding the market with supply again as soon as
    next week, especially if they have to start raising the money for all of the
    bailouts, backstops, and rescues they are committing to. Given the level of
    panic into Treasuries, at current levels, I suspect that Treasuries may
    represent the greatest short selling opportunity in the history of the
    Universe since the Big Bang. So let’s call this Big Bang II or BBII for

  176. 176
    jsaun14 Says:


    FDG down 16%+ today…What a trade if the deal closes.

  177. 177
    VTZ Says:

    yeah crazy… didnt see… have been gone for a few hours.

  178. 178
    ram Says:

    Thanks ZMAN.

  179. 179
    Nicky Says:

    Yikes – gold up another 20 – hit the 61.8% retracement level on the nail at 893 – is that it? Looks unlikely although a pullback is in order as $ looks like it has further to fall.
    Nat gas – confirmed an upside breakout imo. Oil too but could pullback to 96 first.
    Broader market – likely to see a bounce tomorrow before a final leg down. A move below about 10480 would signal a more bearish count but I am not expecting it – this has been far too choppy for a wave 3 and we would have fallen thousands of points by now.

  180. 180
    zman Says:

    Especially impressive if a little confusing rebound in natural gas tonight too, trading at $8.10, up another 20 cents. Maybe the stocks notice tomorrow.

  181. 181
    zman Says:

    Hang Seng down 10% tonight, down almost 25% this week. Wow.

  182. 182
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