Welcome To October Wednesday

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What a mixed up, crazy day yesterday was. It started with Asia refusing to be killed despite huge point losses in Western Hemisphere indexes. Then, the fact that Congress had taken a two day vacation sent the Dow flying. Actually it was more talk of potential changes to the Mark-to-Market accounting standards but its more fun to say markets soared because no one in D.C. was home.  The dollar soared as well which is more understandable as the lack of dilution to the overall dollar count is one for the dollar's near term plus column. If things grind to halt that will likely be reversed rather quickly. And for the final twist, oil recovered about half of the prior day's losses despite the surging dollar. Way to end the quarter which I think explains a lot. Now we just have to get through October, historically one of the most volatile months of the year and downright scariest months of the year.

In the "Stuff We Care About Today" area I added a Presidential Outcome Focus List. I figure we have 34 days until the election and we might as well start looking at which names will benefit based on who wins. Mind you, the names don't necessarily need to benefit...they only need to be perceived as benefiting from a given electoral outcome. Sneaky, I know.  Just so you know, this is not political and is my opinion.  I never get political on the site as it seems a waste of everyone's time but if you can show me a way to make money with politics short of selling bumper stickers I'm all ears. Anyway, some them will be wrong no doubt and some only worth a short term pop but based on the candidates' stated energy positions I'm picking the most obvious candidates for a rally or slump.  This list is short and will grow and I welcome suggestions for consideration. 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today - APC, DVN, HK, CHK & SWN
  5. Presidential Outcome Tables - Today Obama, Tomorrow McCain
  6. Odds & Ends

Holdings Watch: The Wiki Tab Is Updated.

  • (HAL) - Entered (HAL) $35 Calls for $0.78 for a quick trade while listening to the (SLB) analyst day which is pointing to continued strong service market growth.
  • (RIG) - Exited the RIG $140 Oct calls for a dime, down 95%. Still holding the $120s but in the market, I had little faith that those higher strike $140s would be able to wake up before expiration.
  • (CLR) - Out half of the CLR $35 calls for $6.00, up 62% since entry on Monday. Hate to be so quick on the trade but this market is not to be trusted with those kind of quick profits.



Commodity Watch:

Crude oil rallied $4.27 to $100.64 yesterday, flying in the face of a almost unheard of 2% single day rally in the dollar index. This morning the dollar is flattish to off slightly and oil is off a little over a buck.


Natural gas also recovered about half of its Monday losses rising $0.21 to close at $7.44 yesterday, clearly led higher by the movements in the crude market. This morning gas is trading up 5 cents.

MMS Watch: Gulf of Mexico starting to come back in earnest.


Tropics Watch: Nada

Oil Inventory Preview (estimates from the Dow Jones and Bloomberg surveys)

ZComment: OK, let's break this down by the big components:


  • Production Slowly Returning To Normal. As the chart above shows production is coming back. In last week's report  domestic production totaled 3.9 million barrels of oil per day (mm bopd) (normal is about 5.1). This week's number should look more like 4.3 mm bopd so that's going to be a slight add to inventories.
  • Imports. Big wild card. Facilities are fully back on line however Mexico took a break last week as it said it had little demand for crude from Gulf Coast refiners that still had no power. So while I think we see an uptick in imports, I don't see them going back to the pre storm levels of 10 mm bopd just yet.
  • Refinery Consumption: Refiners are known to now be coming back on line from the record lows of last week's report. This could draw as much as 0.6 to 1.2 million bopd more crude away from stockpiles.
  • So, in a nutshelf crude inventories can come in over a wide range. I think this number is less important than some of the following ones highlighted below. The Street is looking for a build in stocks and I think that refining demand is likely coming back faster than production now so I'm looking for a draw down but again, not the most important of this report's numbers


  • Production. Still going to be weak
  • Imports up but not much.
  • Demand probably about flat...high prices are going to once again curb demand in areas where there aren't shortages. This is a pretty important number despite the storm related noise that's still in it. If this falls into the down 6% YoY range gasoline prices will have limited upside despite the low current inventories.
  • Inventories- probably fall in line with or a little less than estimates. We're at 41 year lows but seasonally, this is becoming less of a driver. However, a harsh winter could delay turns and result in a very low starting point next year. And this is how $4 becomes the new $3, just as $3 has become the new $2.


  • Production: should be up slightly
  • Demand: probably easing slightly,
  • Stocks : low stocks of residual fuel oil and higher sulfur distillates need to be rebuilt.



Stuff We Care About Today:

APC & DVN Hit Oil Off Brazil In Aptly Named Wahoo Prospect.

  • Campos Basin, subsalt, 4,650 feet of water
  • Logs indicate 195 feet of pay, similar charateristics to PBR's first subsalt discovery
  • APC - 35% working interest, DVN - 25%.
  • Importance would be a new deepwater arena for the two to play in, allowing them to apply their deepwater skillset and transfer lessons learned from the Gulf of Mexico.

HK Cuts The Budget

  • Cutting Budget by One-Third, shifting to higher return projects (Haynesvile & Fayetteville shale)
  • Reduces rig count by 20 to 25%
  • Reaffirmed guidance for this year (growing 10% per quarter)
  • 2009 production growth set at 25 to 35%
  • Borrowing facility of $1.1 billion is not drawn at this time
  • No plans or needs to access the capital markets
  • They could still grow 15 to 20% with a budget of half a billion...in the words of CEO Floyd Wilson they could cut capex back further, still grow 15% per year if things "got really shitty".
  • Will look at selling Permian assets, not today due to market conditions but at some point
  • Haynesville Shale Update - press release out shortly
    • average cost $5,000 per acre
    • 300,000 acres
    • Will spend $500 million (half of their capex) here in 2009
    • 100 to 125 wells next year based on that $0.5 billion budget here
    • "never seen anything quite like it"
    • have a new well with an IP of 20.1 MMcfepd (Hutchinson 9 #5); last big well they announced was 16.8 MMcfepd
    • "sufficient capital committed to retain all leases"
    • 12 rigs + 6 spudder rigs. Note the drill time is expected to fall from 75 days to 60 days next year. That's like adding three more rigs.
  • Fayetteville Shale Update:
    • "going great"
    • laying their own gathering system (150 miles) due to some infrastructure delays
    • will spend about $400 million
  • In A Nutshell. The writing for capex reductions has been on the wall for a couple of months here and in all the fast growing E&Ps. Production growth is still very strong and they have a lot of financial flexibility. Market may see it as a negative on a bad day but why spend more, growing at accelerated rates when no one cares. I think a dip here today is a buying opportunity for me, market willing of course. Besides this is a pretty painless reduction with no adjustment to 3Q earnings (despite the impact of Ike) and nothing to 4Q (pretty strong results in Haynesville and Fayetteville).

Kinder Morgan Building New 2 Bcfgpd Pipeline Out Of The Fayetteville Shale. Good news for names there which had been worried about takeaway capacity constraints from the basin including CHK, SWN, and HK.  Look for a late 2010/early 2011 completion date. CHK has signed on for 10 years of firm transportion of 0.375 Bcfgpd with an option to add additional volumes. 

Presidential Hit List:  Today I release my Obama list. Not a lot of surprises or detail here but I will be honing it and I think in the couple of weeks before the election, depending on the polls, some of these positions could start to move. In some industries I just threw in the big names as the market will likely gravitate there first. Some names like (CLNE) will appear on both candidate's lists. Anyway, like I said, looking to refine this so suggestions are more than welcome.


Odds & Ends

Analyst Watch: Nada

110 Responses to “Welcome To October Wednesday”

  1. 1
    Sambone Says:

    Obama list – Short Healthcare/Phamas

  2. 2
    zman Says:

    Barclays upgrading XOM on reserve valuation.


  3. 3
    zman Says:

    Nat gas defying crude, up 13 cents and back above $7.50. The tidal wave of capex cuts has started.

  4. 4
    zman Says:

    Senate to vote on their version of the bailout bill tonight, 7:30 EST.

  5. 5
    Sambone Says:

    8:49 am

    Oil Slips On Stronger Dollar


    [Dow Jones] Nymex crude declines as dollar strengthens against the euro and analysts expect gains in US stockpiles in data due out at 10:35 a.m. EDT. A Dow Jones Newswires poll predicts crude inventories rose 3.4 milion bbls, while gasoline stocks fell 1.7 million bbls and distillates fell by 800,000 bbls in the week ended Sep 26. Refinery use is seen jumping 5.1 percentage points to 71.8% of capacity. Nymex Nov crude -91c at $99.73/bbl. (greg.meyer@dowjones.com)

    Reported Earlier
    LONDON — Crude oil futures traded mostly higher Wednesday on hopes that a U.S. financial rescue package will secure lawmakers’ approval later Wednesday and bring the current chapter of financial market uncertainty to a close.

    But thin volumes caused another volatile session, with many participants waiting on weekly U.S. government oil and products inventory data due later Wednesday in addition to the bailout vote. Prices swung between advances of more than $2 to brief dips below Tuesday’s closing levels.

    With market attention largely focused on wider economy concerns, analysts said that — barring a surprise — the weekly stockpile data may garner less attention than is customary Wednesday.

    The U.S. Senate is set to vote Wednesday evening on its version of the emergency financial rescue package rejected Monday by the House of Representatives.

    At 1114 GMT, the front-month November Brent contract on London’s ICE futures exchange was down 23 cents at $97.94 a barrel, retreating from an earlier intraday high of $100.31 a barrel.

    The front-month November light, sweet, crude contract on the New York Mercantile Exchange was trading $0.09 higher at $100.73 a barrel, having earlier touched $102.84 a barrel.

    The ICE’s gasoil contract for October delivery was up $23.75 at $938.25 a metric ton, while Nymex gasoline for November delivery was up 23 points at 246 cents a gallon.

    “The rescue plan soap opera is still getting a lot of focus and will create a continuation of knee-jerk reactions,” said Olivier Jakob, managing director Swiss consultancy Petromatrix. Sluggish trading volumes had contributed to the “extremely high” price volatility in recent days, he added.

    Regardless of the financial rescue plan’s progress, reduced oil demand due to a wider economic slowdown remains a potential source falls in crude prices.

    The latest Tankan survey from Japan showed that the economy there is slowing even faster than expected, while data released Wednesday revealed manufacturing activity in the euro zone contracted for the fourth straight month in September, adding to fears that the euro zone is already in recession.

    “In our opinion, we believe the economic situation could deteriorate further as the turmoil caused by the financial crisis filters through to the wider economy,” said Nimit Khamar, analyst at Sucden Research in London.

    “Therefore, it will take some time before energy demand picks up again and on evidence of data seen recently it appears the demand outlook is continuing to deteriorate.”

    Weekly U.S. government oil and products inventory data is expected to again reflect the impact of the raft of platform shut-ins and refinery closures linked to Hurricanes Gustav and Ike.

    In a Dow Jones survey of 12 analysts, nine predicted U.S. crude stocks built last week, with an increase of 3.4 million barrels the average of all 12 forecasts. Nearly all predict gasoline and distillate stocks fell, reflecting the protracted recovery time for a number of Gulf coast refineries. The average of the survey suggests gasoline stocks fell 1.7 million barrels while distillate stockpiles fell 800,000 barrels. Refinery use is seen increasing by 5.1 percentage points to 71.8% of capacity, with 10 analysts predicting an increase.

    “Lower outputs are a corollary of lower inputs,” said Stephen Schork, editor of The Schork Report. “While we do expect to see a material increase in utilization, we nevertheless expect to see another drop in net products stocks.”

    —By Nick Heath; Dow Jones Newswires

  6. 6
    zman Says:

    Sam – gotta admit that’s a bunk headline. Oil slips on strong dollar? How about yesterday when the dollar was up 2.3% and oil was up 4 bucks plus? Not shooting the messenger but I hate it when this guys just spin the wheel for a headline.

  7. 7
    rseidman Says:

    Z: #6 I second that

  8. 8
    rlogan1301 Says:

    Z – with capex now filtering into the system for Nat gas, is UNG a buy?

  9. 9
    zman Says:

    RL – I don’t own it yet but am slowly warming to the concept. Let me take a look at the numbers for production that came out last night. I saw a quote onshore was up 5.8% YoY which is smoking hot. Will have the monthly natural gas slide show out after the close.

  10. 10
    zman Says:

    anybody have the tickers for Obama and McCain that work on something besides Bloomberg?

  11. 11
    zman Says:

    Bonds not trading worth a flip, market is melting.

  12. 12
    zman Says:

    RIG at new 52 week low.

  13. 13
    zman Says:

    Who would have thought HK could announce a 20 mm/d well in the Haynesville, the biggest released so far and equivalent to 6% of the company’s production for 2008 (I know big declines but just making a point as this is one well and they will drill 125+ of them next year), that the stock would be trading at 5x next year’s numbers on cash flow and sporting 30% production growth, and have a chart that looks like its the end of the world as we know it. The majors need to step up to the plate here. Ya know, “buy low, sell high” ???!!!

  14. 14
    tomdavis12 Says:

    Z: Remind me about the negatives to the RIG story. ’08 earnings estimates 14.39/sh ’09 16.37. Oil goes to $80 there is good rig supply coming into market. There is a stock market that no one is buying. Cash flow should be good. What other negatives am I missing?

  15. 15
    zman Says:

    crude up 4.3
    gasoline up 0.9
    distillates down 2.3

    not good numbers for crude

  16. 16
    BossmanG Says:

    Z, question about 11…what market data are you observing to judge how bonds are not trading?

    ted spreads, treasuries?

  17. 17
    zman Says:

    ZTRADE: DUG $45 October calls for $3.50 on negative inventory numbers.

  18. 18
    mahout Says:

    Z #13,

    Is it OK with you if I foolishly start nibbling on RIG below $100. and CHK below $30? It looks like they are going there. As for HK, the whole company must be just a mirage, a figment of our imaginations! We can’t buy a mirage. That would be stupid.

    Just kidding. What a world.

  19. 19
    zman Says:

    Tom – re RIG …its just oil and now the perception that people won’t be able to fund their programs. I think that’s highly overstated but it depends on your view of how long the global economy is going to slump and how deep. If oil goes $80 then Rig goes $80 too and it apparently won’t matter how locked up they are into the 2000 teens.

  20. 20
    zman Says:

    Bossman – got sent a short piece on that from someone that watches the credit markets closely…they basically said nothing is happening.

  21. 21
    zman Says:

    Harold Ham – CEO of CLR bought 50,000 shares open market yesterday which is what was behind the pop.

  22. 22
    zman Says:

    Those are some mixed up crazy numbers, Sane if you get API today I’d like to see them.

  23. 23
    zman Says:

    Mahout – depends on Congress. New quarter, same story right now. No buying interest in energy…these moves down are mostly on light volume.

  24. 24
    sane Says:


    Crude UP 3.3M
    Gasoline DOWN 557K
    Distillates DOWN 3M

  25. 25
    Sambone Says:

    NEW YORK, Oct 1 (Reuters) – U.S. crude oil inventories rose
    sharply last week while gasoline stocks showed an unexpected
    build, according to data from the U.S. Energy Information
    Administration released on Wednesday.
    Distillate stocks fell more than expected in the week to
    Sept. 26.

    HIGHLIGHTS FROM EIA REPORT (In million barrels):
    – Crude +4.3 (forecast +2.4)
    – Distillate -2.3 (forecast -1.2)
    – Gasoline +0.9 (forecast -1.6)

    Click here for the EIA status report nEIA000471
    Click here for the API status report nAPI000032

    “The EIA numbers are not too far from what the market
    forecast and so people will still be looking at developments in
    Congress about the financial rescue package.
    The market is on a wait-and-see attitude in this regard and
    we might see crude prices fall towards $90, if not today,
    tomorrow perhaps. I still see the financial bailout passing
    Congress, but the House of Representatives’ approving it is the
    tough part. The markets are still keyed on all that’s happening
    in Washington.”

    “Crude and gasoline inventories built, so that was bearish
    for the market overall. Distillates fell — distillate
    inventories usually begin to decline at this time of year.
    “Distillate inventories are at the bottom of the five-year
    range, but they usually begin to drop (around this time of
    year), so it is not as concerning as it might have been a few
    weeks ago. Demand is pretty weak, I think that is what is
    keeping it from being supportive.”

    “The numbers look bearish.
    Recent EIA data about U.S. demand has also been negative.
    This probably continues to weigh on crude prices. But we would
    say that inventories are still relatively low compared to
    five-year averages. Gasoline stocks are near 40-year lows.
    On crude prices, we’re gonna find out … whether demand
    fears can be overcome by federal fiscal bailouts and central
    bank inflation.”

    Wed Oct 1 14:50:19 2008 -GMT

  26. 26
    zman Says:

    Thanks Sane. Hmmm. Weird numbers. I’ll pull that DUG trade back off the table in a bit as I think the refiners coming back on will play more of a roll in coming weeks returning us to a slide in crude stocks. The play may be to buy SUN as heating oil continues to fall just at the wrong time.

  27. 27
    zman Says:

    I disagree with Amanda’s quote above, in that demand is pretty strong for distillates as production has been pretty strong.

  28. 28
    zman Says:

    Sam or anyone, is there a double long and double short for oil? Not DIG or DUG but like the USO only double. Thanks.

  29. 29
    zman Says:

    Reason for inquiring 28 is I have never liked DIG and DUG and today is a perfect case in point of why.

    1) negative, bearish numbers for oil and the group come out of the EIA.
    2) buy DUG calls
    3) oil drops $2 from time of purchase
    4) should be good for DUG calls, right?
    5) maybe, maybe not. Depends on what the Dow does as that impact XOM and XOM is 25% of the holdings of DUG so despite the fact that the energy group took an immediate hit when oil did, XOM treaded water and then improved with the Dow30 because some senator sneezed somewhere.

    Again, thanks in advance for the help.

  30. 30
    BirdsofpreyRcool Says:

    #28 – there are some new ones out there. don’t know which is best (need to dig into the details). but, check out DTO

  31. 31

    BTU !


    I’d like to own BTU shares long. It’s American, it heats our homes, it makes our electricity… King Coal.

    Bastardi at Accuweather says this winter will look like 1985 which was cold early in December. With such a supposition:

    I sold the Oct 40s and bought the Jan 40s. Lock and load.



  32. 32
    BirdsofpreyRcool Says:

    #28 – DTO, SZO, DDG… might be something in there

  33. 33
    tater Says:


  34. 34
    antrimshale74 Says:

    VIX up and over 42.

  35. 35
    BirdsofpreyRcool Says:

    #28 – unfortunately, none of them look very liquid and do not appear to have options behind them.

  36. 36
    zman Says:

    Thanks Bird and Tater. No options I see in those yet but will put on the list.

    Q – good luck with the trade there, probably a good time line. Got to turn at some point although I think the election could turn that group even more volatile…or maybe the election is helping to sink it already. Wonder if names like WLT that produce met coal are just being killed over the perception of a problem in China and nothing real. Have not seen them say shipments stink yet.

  37. 37
    zman Says:

    Wow natural gas up 30 cents.

  38. 38


    In on Oct 70s at 5.50 for another trade.


  39. 39
    nifkin Says:

    any ideas on Nat gas strength today

  40. 40

    WLT is more a stock holding. The options are so thinly traded. Good candidate for buy/writes but I don’t want to hold the stock right now.


  41. 41


    What do you think about rolling down to the Rig 100s from the 120s?

  42. 42
    zman Says:

    Nifkin – probably a combination of the unexpectedly large draw on heating oil (sometimes signals heat demand) although I’d doubt there was much of that but instead pre season tank filling in the northeast. The other reason is likely the HK news. First CHK, HK, lots more to come…

  43. 43
    zman Says:

    Q – I may add the $100s but keep the $120s waiting for congress to “save us”

  44. 44
    nifkin Says:

    u the man

  45. 45
    zman Says:

    Natixis cut HK price from $46 to $42, keeping Buy rating.

  46. 46
    zman Says:

    ZTRADE: Adding HK October $20 calls for $2.70 with the stock off 4.5%. Reasoning for the continued liking of this recently unloved name in today’s post.

  47. 47
    zman Says:

    MSNBC interviewing Pete Domenici (R) senator talking about adding tag ons for wind and solar incentives to the …wait for it… the financial bailout bill. Pete says the tag ons will make the bill more attractive to house democrats, so they see a bigger gain in dems and than they do in losses of republicans.

  48. 48
    elduque Says:

    Question re Baltic Dry Index. I can only find away to get it when it is a day old. Is there away todays index?


  49. 49
    elduque Says:

    re 48. Last sentence should read Is there away to get today’s index.

  50. 50
    zman Says:

    El – D. Not that I know of, at least not for free. Its kind of a weird index (very illiquid). There are comments released in some of the sites that go into pricing it on the transports tab.

    Bill – any thoughts on a live BDI quote?

  51. 51
    zman Says:

    MSNBC reporting that the calls regarding the bailout went from 100 to 1 against to 50/50 after Monday’s Dow Drop.

    Yeah, stick it to Wall Street and then remember you have an IRA.

  52. 52
    antrimshale74 Says:

    Zman re:47, these are not tag ons. Tax bills originate in the Senate. This $700 billion bill is being attached as an amendment to the tax bill that already passed the Senate 93-2. It includes college tuition deduction, AMT exemption stop-gap roll-forward, R&D tax credits, etc. This original bill has been stonewalled by pay-as-you-go Blue Dog Democrats in the House. This entire move by the leadership in Cogress is exceptionally risky and I sure hope it works. The theory is that it gives cover to scared congressmen and women who can cloak themselves in helping 20 million American taxpayers avoid the Alternative Minimum Tax.

  53. 53
    zman Says:

    Antrim – I hear ya, that’s just how Domenici referred to it. I agree its risky and I, as always, marvel out how this stuff is done.

    Clinton now endorsing the “bailout”, maybe that helps bring some democrats on board in the House.

  54. 54
    VTZ Says:

    Z – HOD and HOU on the TSX for double long or short WTI crude.

    I’ve used the nat gas products before. HNU and HND.

  55. 55
    zman Says:

    Thanks VTZ.

  56. 56
    zman Says:

    This rally is coinciding exactly to Clinton’s speech for Obama. Oil rallying to and the group starting to green a little now. NG is up 40 cents. My DUG trade is underwater now and will hold for the next panic the other direction and sell.

  57. 57
    Sambone Says:

    By Arup Roychoudhury
    BANGALORE, Oct 1 (Reuters) – Oil and natural gas producer
    Petrohawk Energy Corp HK cut its 2009 capital budget by 33
    percent and said it was looking to sell some of its Permian Basin
    “It makes sense for the company to scale back its capital
    expenditures in an environment where commodity prices have fallen
    by a disproportionate amount as compared to drilling and
    production costs,” analyst Curtis Trimble of Natixis Bleichroeder
    told Reuters.
    Petrohawk, whose 2009 capital budget is now $1 billion down
    from $1.5 billion, said it will reallocate spending to develop
    projects in Haynesville and Fayetteville shales that it believes
    have higher overall reserve growth potential and internal rates
    of return.
    Advances in drilling technology and high oil and gas prices
    have led to an increase in exploration activity in
    “unconventional” fields like the Haynesville and Fayetteville,
    where oil and natural gas are locked in substances like shale
    that were once considered too costly for drilling.
    Petrohawk also increased its revolving credit facility to
    $1.1 billion from $800 million on Sept. 10 and said that the
    facility is currently undrawn.

    Petrohawk said it was looking to sell some of its Permian
    Basin region assets, which are spread over west Texas and south
    eastern New Mexico, during 2009.
    Natixis Bleichroeder’s Trimble said he expects sale of these
    assets to generate $600 million to $650 million in property sale
    revenue for the company.
    “These assets were slated for spin-out into a master limited
    partnership (MLP) in early 2007. The MLP market for producing oil
    and gas assets more or less dried up shortly after Petrohawk
    filed to spin-out the assets,” he said.
    It makes strategic sense for the company to again revisit the
    possibility of divesting these assets, he added.
    The Permian Basin properties currently produce about 35
    million cubic feet of natural gas equivalent per day (mmcfe/d),
    the company said.
    Trimble said the sale of the company’s Permian Basin assets
    could lead to a production decrease of 8 percent to 12 percent in
    2009, but added that Haynesville Shale could offset the decrease.
    For 2009, Petrohawk said it expects a growth of 25 percent to
    35 percent in production over its 2008 estimate of 305 (mmcfe/d).
    The company reiterated its third-quarter production outlook of
    310 mmcfe/d to 320 mmcfe/d.
    Trimble cut his price target on the stock to $42 from $46, as
    a result of deferred cash flow, while maintaining a “buy” rating.
    Shares of the Houston-based Petrohawk were trading down 14
    cents at $21.49 Wednesday afternoon on the New York Stock
    Exchange. The broader Dow Jones U.S. Exploration & Production
    Index DJUSOS was down 2.98 percent at 581.48.
    (Editing by Amitha Rajan)

    Wed Oct 1 16:51:41 2008 -GMT

  58. 58
    Fiveanddimer Says:

    Z – have you ever considered playing the airlines to profit from weakness in the oil market. I’ve made some money with CAL, which is one of the better managed companies in the sector. Since oil topped at $147, CAL has tripled. I think the options trade decently also.

  59. 59
    zman Says:

    Five – I have thought of it, but often in retrospect. Need to keep a hedge schedule on them…I know LUV has not worked as well and I get emails to go long CAL every once in awhile for those reasons. Thanks for the headsup, will be more on top of that in the future.

  60. 60
    Dman Says:

    OII is being hit as though it’s a land driller or something. Weird.

  61. 61
    Dman Says:

    Yikes, X at $71, BHP cut in half from its peak. These are signalling bad news from China.

    Z – re #36 I read somewhere yesterday about coal piling up at Chinese ports and Chinese importers of a commodity (I forget which, could have been coal) defaulting on contracts with Indian exporters. I’ll see if I can find it…

  62. 62
    zman Says:

    D – hear ya, three days in a row…setting up a good deal but now its just catch a falling knife. Can’t blame window dressing…more likely margin calls. Volume was huge on the 29th, this looks to be follow on. Saw some block trades at $53.23 and then it collapsed. Weird is right.

    Thanks for the China thoughts.

  63. 63
    Sambone Says:


  64. 64
    ram Says:

    If I could get the same deals as Warren Buffett, I might have a good track record too.

  65. 65
    zman Says:

    Warren Buffet ~ “markets face terrible, terrible, terrible problems that necessitate government help now.”

    No doubt Ram, no doubt.

  66. 66
    zman Says:

    Listening to Floyd this morning, he sounded like HK would have a press release updating well results in the Haynesville out any minute. So far nothing but “very shortly” could mean today, tomorrow or next week.

  67. 67
    BirdsofpreyRcool Says:

    z – #66… lol.

    I was once invested in a company that stood to benefit from (what we thought was) a pretty straightforward patent trial, heard in front of a distinguished judge with a good reputation. After spending 2 weeks, hearing both sides, he said that he would have a ruling “shortly.”

    Almost two years later, we finally understood what his definition of “shortly” was.

    In markets, “shortly” means before lunch. In business, it means before the end of next quarter. In government…. well… i have NO IDEA what “shortly” means there anymore.

  68. 68
    zman Says:

    No doubt Bird. Buffet seems to be trying to dry a line in the market’s sand with his last 2 buys, eh?

  69. 69
    BirdsofpreyRcool Says:

    cash is king… all hail, King Buffett!

  70. 70
    Dman Says:

    Comment from Doug Kass today: he is taking a “long rental” in BTU

  71. 71
    zman Says:

    Hard to stay focused on days like today. Sunny outside, can’t feel the air as its at that perfect temperature.

    This is worth a look: HK presentation.

  72. 72
    BirdsofpreyRcool Says:

    Warren Buffett has made some incredible buys lately. Getting below market prices and perpetual preferreds paying 10% from very highly-rated and regarded companies. He is truly an opportunist capitalist (which is why i don’t understand his position on taxes… but, i digress).

    2 years ago, Warren was scouring the globe, looking to put money to work outside the US and shorting the US$. The fact that he has now come full circle should tell us all a lot about the opportunities presented right here, right now. One only need be patient. The mrkt will turn around “shortly.”

    (i.e. next week, next quarter, two years from now… but, it will turn at some point)

  73. 73

    Any chance they can tag-on some additional road and bridge construction money to the Bail-Out bill as well?

    Just wondering.


  74. 74

    Vulcan Materials.

    Keep an eye on it as it drops near 70 again.

    Amazing buy volume support approaching 70 and it will move to 72 and then to 75 and back.

    Check the chart yourself. But, oh, I should save the breath on an energy blog.
    Maybe I should tout STI (45-50 since this am) but no.


  75. 75
    zman Says:

    Q – its no problem to talk about it here. Do you have comps for VMC?

  76. 76
    zman Says:

    Story on the stocks that can’t be shorted:


    Doesn’t this expire tomorrow?

  77. 77
    Dman Says:

    Q – what was driving the VMC uptrend in Jul-Aug?

  78. 78
    Dman Says:

    SD being woodshedded. Any clues?

    NFX down 5.6%

    Rhyme, reason or just chaos?

  79. 79
    Sambone Says:

    #76, yea, but Cox will extend, I bet ya!

  80. 80
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures retreated below $100 a barrel
    Wednesday after a U.S. government report cemented concerns about eroding
    Light, sweet crude for November delivery settled down $2.11, or 2.1%, at
    $98.53 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange closed $3.11 lower at $95.06 a barrel. Brent settlement prices
    weren’t immediately available.
    Mid-session prices fell more than $4 after the Energy Information
    Administration reported domestic oil use in the past four weeks fell 7.1% from
    a year ago, while gasoline demand fell 4.5% to its smallest amount in almost
    three years.
    The reported slump partly reflected the extent to which Hurricanes Gustav and
    Ike slowed refinery output and pipeline flows last month. But it reinforced
    other recent data showing flagging consumption in the world’s foremost energy
    “Demand is just terrible,” said Tom Bentz, a broker and analyst at BNP Paribas
    Commodity Derivatives in New York. “That’s what’s been behind the selloff.”
    Crude imported via the Gulf Coast doubled last week, helping drive crude
    stockpiles 4.3 million barrels higher, the EIA reported. Gasoline stocks rose
    about 900,000 barrels, countering expectations of a drawdown, as refineries
    brought back production. These data also pressured crude prices, which early in
    the session had traded as high as $102.84 a barrel.
    After the EIA released its report, crude slipped as low as $95.95. With oil
    inventories relatively low and volumes light, the market has become
    increasingly volatile.
    “The volatility has just jumped off the charts. A $4 move used to be
    considered a big move and now it’s just doing business on a daily basis,” said
    Stephen Schork, editor of the Schork Report, an energy markets newsletter based
    in Villanova, Pa.
    Oil and other markets are wavering as Congress tackles a $700 billion
    financial-rescue package meant to avert a national economic dive. After the
    House shot down the measure Monday, the Senate is expected to approve an
    amended version Wednesday evening.
    The market “is focusing on what’s going on economically right now,” said Zach
    Oxman, senior trader at commodity brokerage Wisdom Financial Inc. in Newport
    Beach, Calif. “A lot of the money falling out of commodities is just sitting on
    the sidelines waiting to see if there’s going to be some leadership from the
    U.S. government.”
    Reformulated gasoline blendstock, or RBOB, for November delivery settled 9.77
    cents lower, or 4%, at $2.3600 a gallon – the lowest close for a front-month
    gasoline contract since Feb. 8.
    The EIA said in a separate report Wednesday that retail gasoline prices may
    fall to or below $3.50 a gallon by year-end as refineries restore supply and
    demand stays weak. As of Monday they were $3.63.
    On the Nymex, November heating oil settled 4.78 cents lower, or 1.7%, at
    $2.8469 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    10-01-08 1506ET

  81. 81
    Fred Says:

    Z – #76 Midnight Thursday just on Bloomberg. Paul O’Neill is calling the Paulson bailout “crazy” and says that guarantees make more sense.

  82. 82
    zman Says:

    SD – best guess would be they are planning a capex cut that will hit their top line growth expectation pretty good. They are in an area where gas is getting pinched relative to the prices we see.

    See Waha and Permian prices on the following link:

  83. 83
    zman Says:

    More SD – very much an over reaction in my book. I have the common in a couple of accounts quite a bit higher now. Continuing to write calls against it.

  84. 84
    zman Says:

    As recently as 9/19, you had UBS initiating with a Buy and target of $35. Just makes no sense but then a lot of stuff falls in that category right now.

  85. 85
    Dman Says:

    Z – reason I ask about SD is that one of the few things working lately is buying something down 10% and selling it the next day

  86. 86
    zman Says:

    Dman – I hear ya, sad but true. Until we see signs that the economy is turning things may be that way. Job losses are predicted to get a lot worse soon. I can think of at least 535 jobs that should get canned right now.

  87. 87
    hermanmar1e Says:

    Some nasty rumors in OKC about SD!

  88. 88
    zman Says:

    H – saw a story saying people were worried b/c the stock was falling. Got anything to add to that?

  89. 89
    zman Says:

    reason I ask is because we can check it out and if false I will write and disseminate the true to a fairly wide audience.

  90. 90
    Dman Says:

    Z – those job losses wouldn’t help the industrial demand side for NG. But the big fall in oil is all about a downturn and that in turn crunched NG (along with oversupply issues). So it is the downturn already priced into NG or not? I guess the problem with this question is that not all downturns are made equal.

  91. 91
    hermanmar1e Says:

    I think there might be some regret on the explosion of activity out in the WTO play without fully understanding the reservoir, if you can even call it a reservoir. Also, there might be some accounting problems when your own service company performs 85% of the work on your high working interest wells. SD is losing ALOT of folks right now, so something is going on.

  92. 92
    zman Says:

    H – thanks. I’d like to know what the problem is when using your own rig fleet to drill. CHK has the biggest fleet in the US…. like to know what’s improper about that.

    Re losing people…had not heard that, company has not mentioned that I saw. Is that the word around town? Will ask about.

  93. 93
    Pete Says:

    Z, I saw your list of winners under Obama what about losers?

  94. 94
    zman Says:

    D – How do you figure? Less hot air produced by those 535 individuals could mean a colder winter.

    Chemicals going to be your biggest consumer of natural gas on the industrial side, then metals, then it really breaks down to little dribs and drabs. One thing that will hurt is fertilizer company curtailments due to the crunch. Farmers can’t borrow to buy fert and seed now.

    Pete – I just put the Majors and E&P at the bottom. Honestly I think some of the things coming out of the House could put upward pressure on oil prices so it would be a short lived dip. Obama has talked about breaking up Exxon and the democrats are for higher taxes on “oil companies”…do that and watch capex dry up and prices rise, not fall.

  95. 95
    tater Says:

    SU starting to look like SBUX chart

  96. 96
    Wyoming Says:


    Re: Pete

    Capex drops and service companies too.

    Lease sales and royalties less.

  97. 97
    Pete Says:

    I agree, we could be running a gauntlet.

  98. 98
    ram Says:

    So HAL is bad?

  99. 99
    Wyoming Says:

    I won’t comment on their stock @ 52 week low. I get the George Costanza’s of late when prices go opposite of what I think to be true. Leave this to Z and people expert on the money side.

    As a purchaser of services, I will say I will cleave anyway I possibly can to lower my costs. Don’t come to me with a new price book, don’t care about them having to pay for their new equipment. Retention of staff, not my problem. Kind of an extreme example but this is what I experienced on downturns when I worked on the service side. E&P’s sneeze and service companies catch the flu.

  100. 100
    zman Says:

    HAL – I would not say bad, just down capex case priced pretty well in. They are still very busy but right now, market has a 2 minute attention span.

  101. 101
    zman Says:

    Wyoming – absolute defer to and agree with your comment on service catching a cold. Just seems the stocks are in plague territory and the outlook is not that grim. I had stayed largely away and am now playing with fire (maybe the bottom) in the group. If the Senate passes tonight I wonder how big a rally we get and for how long.

  102. 102
    Wyoming Says:

    Absolutely correct, look at HD and the banks right now.

    I will add that if the downturn in energy looks more severe, it takes about 6 months for the ripples to hit the overseas service markets. For example, 6 months after we turf staff in North America, Expats would be repatriated due to slow down in International.

  103. 103
    zman Says:

    Monthly gas slide show posted.

  104. 104
    hermanmar1e Says:


    Nothing wrong with an E&P owned service company performing work for the parent company. However, there is another can of worms that I don’t want to delve into on this website, PM me?

  105. 105
    zman Says:

    H – gotcha – send me an email at zmanalpha@gmail.com

  106. 106
    Dman Says:

    Z – I meant to ask: did you hear anything from SLB yesterday about the impact of onshore US E&P spending cuts?

  107. 107
    zman Says:

    Dman – back to you on that in a little bit.

  108. 108
    mahout Says:


    I am beginning to think the unthinkable, that the House of Rep’s will FAIL to pass Bailout #2 on friday.

    And if the Congress fails, and the White House fails and the Treasury fails to cure the crisis what happens then?

    That would leave basically three power bastions that could deal with the crisis,
    The Fed, the FDIC, and the SEC. I purposely left out “Phony and Fraudy”(I’m sorry, “Fannie” and “Freddy”), since I do not see how they could help. But there are so many other Agencies of the U.S. spawned over the years, maybe one of them could help.

    This is not a rant. I am serious about this. Strangely enough, I think those three, the Fed, the FDIC and the SEC already have enough power to deal effectively with this crisis! And with the failure of the rest of the government, they would be emboldened to act decisively.

    Actions they could take:

    FDIC: Announce that they will make whole and reimburse for all deposits, insured or uninsured, and all bond holders of any bank that fails.

    SEC: Announce that all mark-to-market accounting is suspended until further notice. All securities will be valued at face value until further notice. No further Credit Default Swaps will be allowed. They are outlawed.

    FED: Announce that no major bank will be allowed to fail and liquidity will be supplied as needed to the banking system to all banks in the entire system with the proviso that it may be withheld in case of fraud or other management wrongdoing or gross mismanagement. In such case liquidity could be withheld only with the agreement of the FDIC.

    I believe these dramatic announcements by themselves would stop the crisis in its tracks. Confidence would be restored on Wall Street and Main Street. Runs on banks would immediately stop. And with some injections of liquidity, credit would resume its normal flow. Also, the stock market would sky and people and businesses feel more wealthy, would lose their paralyzing fear and begin to spend money again. Structural changes would remain to be done, but the crisis would be over.

    Am I wrong?

  109. 109
    anchor Says:


  110. 110
    moving companies orlando florida Says:

    moving companies orlando florida

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