Thursday – Lucky No. 7?

Six straight day, 15% plunge for the Dow. Maybe today we finally get that good old fashioned "bailout and rate cut" rally. But I'm still not holding my breath that this is the bottom and today is the day. As Paulson said, it is going to take time to free up the credit markets. During that time, certain entities will still go broke and certain other entities will be forced to sell things they normal would not. Honestly, I'm another plunge day or two from getting genuinely neutral to slightly bullish.


In Today's Post:

  1. Holdings Watch
  2. Commodities Watch
  3. Natural Gas Inventory Preview
  4. Oil Inventory Review
  5. Odds & Ends

Holdings Watch:

  • (BEXP)  - Picked up a little BEXP November $7.50 call position (QBJKU) for $0.90 with the stock around $6.50. Strong well results in the Three Forks Sanish in North Dakota yesterday and the stock not following the slightly move up in the group today. This a bit of an “enough is enough” trade as this stock was around $10 at the beginning of the month and $14 mid September.

Commodities Watch:

Crude oil fell before and more after the weekly EIA report showed bigger than expected builds in oil and gasoline inventories. At the end of the day, crude ended down $1.11 to close at $88.95 despite an increasing chorus of OPEC member voices calling for a production cut prior to the group's regularly scheduled meeting in December. This morning crude is trading flat to slightly up and will likely track the broad markets today.

  • VLO Houston Refinery Fire. Causing a slightly better bump in gasoline futures, no word yet on damage.

Natural gas fell 3 cents to $6.74 yesterday. See Zcomment next section for gas thoughts. This morning gas is trading up slightly in advance of the weekly gas inventory numbers. 

Natural Gas Preview

  • My Number: 90 Bcf (by the way, 91 Bcf was the record injection for this week set way back in 1996)
    • Last Year: 68 Bcf
    • 5 Year Average: 69 Bcf
  • Cooling Degree Days: 22 ... fading away, in line with "normal" levels for this time of year
  • Heating Degree Days: 38, vs only 20 last year (this is starting to matter now)
  • Production: probably up 5 Bcfgpd (35 Bcf per week) from year ago levels,
  • Imports: down 2 Bcfgpd (14 Bcf per week) from year ago levels,


  • Street Estimate: 85 Bcf Injection

ZComment: It's put up or shut up time for gas. A big, fat triple digit number here (could happen) and gas will have to await truly cold temps for a meaningful rally. That or more curtailment announcements. So far that arena has been pretty bare bones if you haven't been paying attention. Lots of Capex cuts, some rigs being laid down, and companies saying they will grow less but that's still growth and a mild early winter could see injections go on for weeks past their normal time, especially if part of the problem is actually a demand issue. I'm still warming to a natural gas rally in the very near term, don't take my apprehension for anything more than market related jitters but I will say that it will be less of a rally and make take longer to begin if gas keeps posting near record late season injections.

Oil Inventory Review

CRUDE OIL - much bigger than expected build in inventories. A rebound in imports and the beginnings of a recovery in production more than offset higher demand from refiners.

Utilization and Inputs: Utilization bounced to 80.9% yielding a 1.57 million bopd rise in crude demanded by refineries to 14 mm bopd which is still low for this time of year due to the storms but on the mend. ----

Imports jumped nearly 1.4 mm bopd last week. Three thoughts here: 

  • First, big imports are a function of pent up shipments and
  • Second, the long term chart below shows the trend in imports has been relatively flat for awhile now begging the comment, "if OPEC is producing more crude at this time this year than last year, it must be getting absorbed by non-OEDC regions" and
  • Third, OPEC can point to those fullish looking import figures and the rising crude storage (this week anyway) and say bigger builds in U.S. and OEDC stocks are on the way, so look out production.

Production rose by nearly 600,000 bopd week to week in the wake of Ike.

Crude Stocks See Big Rally, Still 5% Year Ago Levels, Now In Line With The Five Year Average. OPEC warned of the possibility of a strong 4Q build in global oil stocks at their September meeting. They could point to this rise as the start of that.

GASOLINE  - Also another bigger than expected build as production and imports bounce.


Imports rise to offset slack U.S. Production. This happens every time there is a significant storm related Gulf Coast refining capacity outage (note the shape of the envelop below) and probably won't last long.


Gasoline Stocks - Rebounding from recent lows but I would not expect this kind of build to last for long as production shifts to greater distillate production and demand finds a baseline level as prices fall.

DISTILLATE - Smallish withdrawal, in line with expectations. Stocks remain low.

Distillate Demand On Trend After Gulf Coast Disruptions.


Stuff We Care About Today:

Reserves table - to be added shortly after the open.


Odds & Ends

Analyst Watch: BMO cuts N. American E&P names to market perform (little late there guys).

Weekend Reading: Alternative energy topics from Marketwatch.



164 Responses to “Thursday – Lucky No. 7?”

  1. 1
    Sambone Says:

    7:58 am EST

    Oil Steadies As Market Mulls Rates, Stats, OPEC

    By Nick Heath

    LONDON — Crude oil futures prices steadied in European trade Thursday as market participants took time out to digest Wednesday’s flurry of developments.

    Prices were supported by stronger European equity markets and anticipation of a possible emergency meeting of the Organization of Petroleum Exporting Countries in November which could yield production cuts.

    But prices continued to encounter headwinds from concerns over the health of the global economy — despite the coordinated interest rate cuts announced by a number of central banks Wednesday — in turn sponsoring fears of looser demand for crude and refined products. Demand fears were hardened after U.S. government data Wednesday revealed U.S. crude consumption continues to fall.

    “Market participants are still very much concerned that demand will continue to dwindle as global economies continue to slow sharply. However, increased expectations that OPEC may hold an energy meeting and cut output is underpinning the market,” said Nimit Khamar, analyst at Sucden Research in London.

    At 1117 GMT, the front-month November Brent contract on London’s ICE futures exchange was down 17 cents at $84.19 a barrel.

    The front-month November light, sweet, crude contract on the New York Mercantile Exchange was trading 6 cents lower at $88.89 a barrel.

    The ICE’s gasoil contract for October delivery was up $9.75 at $801.25 a metric ton, while Nymex gasoline for November delivery was up 22 points at 203.20 cents a gallon.

    “Interest rate cuts were very bullish, the (U.S. inventory) stats were bearish,” a London-based crude oil trader said. “The market has a lot to digest after yesterday.”

    While burgeoning demand worries were swelled further Wednesday following the publication of the U.S. inventory data — revealing surprisingly large builds in crude and gasoline stocks, as well as a year-on-year 8.6% drop in demand over the past four weeks — that prices closed near opening levels, and well above their intraday lows, helped steady the market Thursday.

    “Market sentiment is still very nervous, but the fact that the large U.S. stock builds reported yesterday did not result in a large price fall is positive for the market,” said Torbjørn Kjus, oil market analyst at DnB NOR in Oslo. While the risk of further downside remains heightened, prices could stabilize in the coming days, he said, one of many market participants reasoning that recent falls may have been too much, too soon.

    OPEC officials said Wednesday that the organization is considering an emergency meeting in November to arrest the recent tumble in crude oil prices. Should such a gathering take place, analysts said OPEC faces a dilemma: while reducing output may in the near term arrest further price falls and preserve members’ incomes, any fresh strength in crude prices amid struggling economic conditions could lead to further, and more lasting demand destruction.

    “Much will ride on the Saudis, and whether they will agree to restrain their massive production,” said Edward Meir, analyst at MF Global in New York. “We suspect they will resist sharp cutbacks, as the last thing they want to see is the world tipping into recession on account of surging crude prices; that inevitably leads to prices crashing to the floor a short time afterwards.”

    Further fundamental oil market and global macroeconomic drivers are anticipated to emerge as the week draws to a close with a meeting of G7 finance ministers and central bankers in Washington Friday and the publication the International Energy Agency’s monthly report also due. The latter is expected to be closely watched for an update on the outlook for global demand.

    —By Nick Heath, Dow Jones Newswires

  2. 2
    Sambone Says:

    As Oil Use, Price Slide, OPEC’s Hawks Fret


    NEW YORK — Right on cue, OPEC’s price hawks are calling for an emergency meeting as the price of the group’s reference basket of crudes hits $80 a barrel for the first time in a year.

    The clamoring from Libya, Venezuela and others comes amid indications that even already deeply reduced expectations for global oil demand next year still may be too high, given the widening financial crisis.

    Officially, the Organization of Petroleum Exporting Countries hasn’t scheduled talks before the Dec. 17 session in Algeria, but talk was swirling Wednesday of a possible meeting Nov. 18 meeting.

    An early OPEC session, coming after the U.S. Nov. 4 presidential election, would focus on the divisive issue within the group over what oil price level to defend by cutting oil output.

    OPEC’s price hawks would try to bring pressure to bear on Saudi Arabia, the world’s biggest oil exporter, to lead an output cut and, effectively, a bailout of producers seeing prices slide from record highs.

    The Saudis, the de facto OPEC leader, wouldn’t welcome the spotlight. Prior to OPEC’s September meeting, Saudi watchers said the kingdom favored letting prices drop from record highs near $150 a barrel to as low as $80 to give the global economy a boost.

    As the price of global benchmark North Sea Brent crude fell below $100 early last month, OPEC pledged to adhere to previous output restraints. The move implied a steep Saudi cut from a unilateral increase in the summer directly ordered by the Saudi king, to curb soaring prices.

    But the Saudis made it plain before leaving last month’s OPEC talks they had no intention of aggressively cutting output and would continue the policy of meeting customer demand.

    Deepening Crisis May Steel Saudis

    In the weeks following OPEC’s talks, the U.S. banking crisis deepened and morphed into a worldwide crisis that stirred major central banks to take the extraordinary step of coordinating a cut in their target interest rates in an attempt to ease strains on the global financial system.

    Given the crushing weight of the crisis on global economies, the Saudis may be even less likely now to want to prop up oil prices.

    Analysts said OPEC price hawks such as Venezuela and Iran start to have budget difficulties with oil prices below $90 a barrel.

    Renewed pressure on oil prices, from a global credit crunch, comes as demand is falling sharply, but may still be overestimated.

    Oil demand in the U.S., the world’s largest oil consumer, fell 124,000 barrels a day to 18.341 million barrels a day in the week ended Oct. 3, according to data released Wednesday by the Energy Information Administration. That’s the lowest demand level since Sept. 21, 2001, in the wake of the 9/11 attacks on the U.S. The demand drop was a massive 11.8%, or 2.45 million barrels a day, from a year earlier.

    In the last four weeks, a period covering two major hurricanes that hit the Gulf Coast region, demand was 18.66 million barrels a day, the lowest for any four weeks since June 4, 1999, and a fall of nearly 1.8 million barrels a day, or 8.6% from a year ago.

    Year-to-date U.S. oil demand is down 4.9%, or more than 1 million barrels a day below a year ago, at 19.69 million barrels a day.

    EIA on Tuesday tripled the size of the projected drop-off in U.S. oil demand for the current quarter, and said it expects a full-year 2008 decline of 830,000 barrels a day, the biggest fall since 1981.

    Following 2008 oil demand of 19.85 million barrels a day, the lowest since 2002, the U.S. appetite for oil is expected to dip further in 2009, to the weakest rate since 1991.

    Revisions Need Further Revisions

    The global picture is just as gloomy. EIA revised worldwide oil demand in the current quarter down to growth of just 0.85%, from an expected rise a month ago of 1.3%. The rate of demand growth for all of 2008 was cut in half, to just 0.4%, while the 2009 forecast was slashed to 0.5% growth from 1.1% growth expected a month ago.

    But no sooner had the impact of the deep cuts rippled through the market, then EIA said at a Washington, D.C., press conference that its downbeat forecast may still be too optimistic because assumptions about core economic indicators are outdated, given the escalation of the financial crisis.

    EIA’s Tuesday forecast was based on U.S. economic growth of 0.8% in 2009, a revision from 1.2% growth in its month-earlier projection.

    But the International Monetary Fund said on Wednesday it slashed its own 2009 forecast for U.S. economic growth to just 0.1% from an earlier 0.8% projection in July.

    If U.S. economic growth increases by just 0.1% in 2009, as the IMF projects, this would be the weakest full-year economic performance since 1991, when the U.S. showed negative growth of 0.2%.

    IMF also cut its global economic growth outlook to 3% for 2009, from 3.9% earlier.

    But some analysts believe that figure still is too high.

    Adam Sieminski, chief energy economist at Deutsche Bank Global Markets in Washington, said his bank’s projection calls for global economic growth of just 2.3% in 2009, saying even the lower number from the IMF “may be overly optimistic.”

    Deutsche Bank’s projection of $85 U.S. crude oil for fourth quarter 2008 and first quarter 2009 holds up unless global economic growth deteriorates further, he said.

    Nymex November-delivery crude oil futures traded to an intraday low of $86.05 a barrel Wednesday, the weakest since level since Dec. 6, 2007, before settling down $1.11 at $88.95 a barrel. The intraday low marks a 42% drop from the intraday record high of $147.27 a barrel hit four months ago on July 11.

    Oil, Money Taps Open

    Sieminski said that the Saudis, by keeping output high, are acting as oil’s central bankers, while the Federal Reserve, the European Central Bank and others are keeping the money flow taps open as well.

    “The Saudis are likely explaining to the oil price hawks that OPEC must help stem the economic crisis in order to keep oil demand from falling away rapidly as it did in the early 1980s,” he said.

    At $85, most oil exporters are balancing their budgets, Sieminski said, “but the difference between $105 and $85 on an annual basis is the equivalent of a $635 billion injection to oil consumers globally,” based on demand of 87 million barrels a day.

    That, he noted, is close to the value of $700 billion U.S. rescue package.

    “In our view, the Saudis want to see financial markets stabilizing before they talk about stabilizing oil prices,” he said.

  3. 3
    Nicky Says:

    Morning all. Dman I replied to your questions late last night in yesterdays posts.

  4. 4
    zman Says:

    Nicky – saw your response last night, thanks and not too rambly for me either.

  5. 5
    zman Says:

    That’s a heck of an opening. I’d like to see these levels hold following the gas number.

  6. 6
    tomdavis12 Says:

    Z: CSFB upgraded earnings numbers for RIG by just a few cents for ’08, ’09 and ’10. Also poured water on fear that rig users will reneg on contracts.

  7. 7
    zman Says:

    Thanks Tom – need a firehose to douse that level of fear but I may nibble a little down here, but only in November calls. This broad market is not to be trusted. DO moving nicely too.

    BEXP getting a majority of yesterday’s losses today, those Nov options not really moving yet.

    Anyone see any news on SWN.

    Will have a table of reserves as valued by the market before lunch.

  8. 8
    Sambone Says:

    Hmmmm, this may be the reason that the overall market has sucked this week.


  9. 9
    zman Says:

    Market still has no staying power.

  10. 10
    Nicky Says:

    Broader market. Filling the gap from yesterday’s close. Some support at the 970 SPX area – stronger support at 945.

  11. 11
    zman Says:

    Thanks for #8 Sam, makes a lot of sense. What do you think happens to the e-trades and schwabs of the world when they report 3Q? I’d say ugly trading accounts, not nearly as many trades in 3Q and 4Q as people get cautious. I’m sort of doubting e-trade’s commercial about adding 1,000 new accounts a day, not anymore pal.

  12. 12
    zman Says:

    Morning Nicky – looks like OPEC does nothing before the elections. So that frees oil to trade with technicals for awhile. You think $80 then bounce?

  13. 13
    Dman Says:

    Thanks Nicky!

    I agree it is weird that gold isn’t up more. Although the gold miners were up huge yesterday.

    At some point I would think the $ will fall apart & gold is the traditional hedge.

    OTOH: gold is a lot nearer its highs than energy, so does that make energy a better hedge?

    OTOOH: is gold a good hedge during a recession, i.e. not so much stagflation as recessflation?

  14. 14
    Sambone Says:

    This aint good!


  15. 15
    Fred Says:

    Z – Number is 88 Bcf

  16. 16
    zman Says:

    Miss by 2 Bcf!

  17. 17
    mahout Says:

    Sambone #8,

    Thanks for “Banks prepare for CDS pay-outs”.
    My fear is with $54 Trill.(and perhaps even more) of those CDS guys out there, the $400B that must be paid right now is only the very tip of the iceberg that the shortsighted and very foolish CDS selling banks are sailing into. If so, it will indeed be difficult to get them to lend money normally because they must hang on to every scrap of cash they can scrape up.

  18. 18
    zman Says:

    NG handling the number well so far…that’s the second largest injection for this week in history and the record holding was milder weather. Doesn’t really tell you much about where gas is going but it does tell you that we need weather soon or injections are going to stick out wide and to the right of the normal track which is bad for gas prices.

    NG up 1 penny.

  19. 19
    Sambone Says:

    My thoghts on the overall market

    BULL MARKET — random market movement causing an investor to mistake himself for a financial genius.

    BEAR MARKET — 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

    VALUE INVESTING — The art of buying low and selling lower.

    P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

    BROKER — What my broker has made me.

    STANDARD & POOR — Your life in a nutshell.

    STOCK ANALYST — Idiot who just downgraded your stock.

    STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.

    FINANCIAL PLANNER — A guy whose phone has been disconnected.

    MARKET CORRECTION — The day after you buy stocks.

    CASH FLOW — The movement your money makes as it disappears down the toilet.

    YAHOO — What you yell after selling it to some poor sucker for $240 per share.

    WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.

    INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a outhouse.

    PROFIT — An archaic word no longer in use.

  20. 20
    zman Says:

    Nicky – S&P approaching your 970 level.

  21. 21
    Fred Says:

    Sam – thanks for the laugh!

  22. 22
    Fiveanddimer Says:

    Mahout, re 17: I know a well-known investment advisor who recently recommended that his clients go to their bank and withdraw enough cash to run their household for a month. He fears a temporary sieze-up of the banking system, due to CDS-related problems. In such case, credit-cards and ATM’s would not work — you would have to have cash. I’m sure the government would quickly step in with a massive liquidity injection, but it might take a few days to work its way through the system.

    I’m not smart enough to know whether this is nonsense or not. But it doesn’t cost much to follow his advise, and it just might be a smart thing to do. Let’s be honest — these are the most extrordinary times any of us have ever experienced. Its hard to say that anything is impossible in this environment.

  23. 23
    Nicky Says:

    Brilliant Sam!

    Z I think 85 is important psychological support! May overshoot on the downside which is why I have given it some room.

    I don’t believe the bottom is going to fall out of the oil market right now. Sentiment is way too overbearish and we are going to see a rally to freak everyone out.

  24. 24
    zman Says:

    Five – I hear ya. One of y dad’s agency notes was called and for the first time in a long time I told him to sit on it and not roll it into a another callable issue. One, yields stink and two, the level of systemic risk is too high to play outside the government realm now (maybe within it as well). Why not wait a month and see how green the grass is (or is not) then.

  25. 25
    zman Says:

    Nicky – Thanks for the tech on oil. I pretty much concur. I don’t see demand picking up yet (duh) so its up to the tanker tracker reports which have been pretty benign of late. OPEC won’t likely meet until after the election and I’m torn as to which outcome is better for higher oil prices. Obama win = bad for oil prices is the obvious answer but I think only very long term and then only maybe. More probable is that an Obama victory will lead to higher prices near term as a united administration and congress enact choke hold policies on oil companies forcing them to respond by cutting capex. The U.S. may be the biggest consumer of oil at around 20 mm bopd but it still produces a quarter of that. Penalize the oil companies and see how fast oil production in the Gulf of Mexico falls.

  26. 26
    zman Says:

    Market: Last verse same as the first.

  27. 27
    Fiveanddimer Says:

    Z – re 24: I live in Virginia, a state (commonwealth) that has always had an excellent credit rating. I have a portfolio full of high quality muni bonds to support me in my old age. Yesterday, I needed some cash, so I asked my broker to sell one of the bond positions. I was shocked to learn that he was unable to get a bid on the bonds. I was a stock broker for 13 years, and never experienced this situation. A lesson for everyone — don’t make any assumptions about what can or can’t happen with these markets.

  28. 28
    mahout Says:


    Congratulations on coining a valid new word, “recessflation”. It seems to fit these times better than I would like.

    If I may comment:
    Gold should by rights be much higher than it is now which is evidence that the market is controlled and suppressed.
    Most governments tend to hate gold and want to ban it or keep the price artificially low. Gold ought to be a wonderful hedge but alas it can’t be counted on. IMO, energy will prove out in the long term to be a better hedge than gold during a recession particularly if by means of ownership of well positioned deeply discounted companies such as the dance partners.
    If one does go the gold route, it would seem wise to me to go the large gold producers, not the gold itself.

  29. 29
    Sambone Says:

    Good thing I don’t own any MS. Looks like that one is the next to go out. My question is – Who can buy them? Oh I know, The US Government.

  30. 30
    zman Says:

    Wonder when the next stimulus package passes. My guess is next week.

  31. 31
    Nicky Says:

    Gold – if indices are going to chop around for a few days then likely gold does the same.

    Its a difficult call but I think we are in b down for a wave 4 sideways correction on the indices. If this is correct we should see another shot to the upside once this downmove is over.

  32. 32
    zman Says:

    Very weird day, Majors getting shelled , service up, E&P mixed. At least it is all not lock limit down. Still sitting on hands.

  33. 33
    zman Says:

    mahout – 28 scary.

  34. 34
    Fiveanddimer Says:

    Re 28: I agree with your thoughts on gold. Based on the news flow, the price should be far higher. It is ironical that despite these prices, just try going to a gold dealer to buy gold or silver, either in coin or bullion form. Your too late! There is virtually so supply at the retail level. This is true no only of the US, but throughout the rest of the world.

    Have you seen a current graph of the explosion of the Fed’s balance sheet. It looks like a moonshot. The dollar is being debased at a rate that is unprecedented is our history. Obviously the gold futures market is not watching, but someday, and probably sooner than later, there will be a terrible price to pay in terms of inflation. I know that sounds stupid, because right now deflation is all we can see. Do you hear that sound of Ben’s B-52s reving up their engines? More massive money drops are on the way.

  35. 35
    zman Says:

    COP and CVX down 5%; new lows.

    COP now at 4.9x this year and next years earnings. That’s at least a 10 year low on Fwd PE multiple for them and a tie on the trailing low.

  36. 36
    Fiveanddimer Says:

    Ref my 34: not only can I not type worth a darn, I don’t even proofread very well. I should have stated: There is virtually no supply at the retail level. This is true not only of the US,…


  37. 37
    zman Says:

    Five – ABC nightly news ran a story about gold parties, where the guests bring old gold jewelry and leave with a check last night. Look at EZPW for another way to play gold.

  38. 38
    john11 Says:

    The Joe Bastardi winter forecast info I posted the other day seems incorrect, accuWeather posted his forecast on their site this morning and it refers to a warmer than normal winter. Here is link http://www.accuweather.com/news-weather-features.asp?partner=accuweather&traveler=1:
    Sorry about the confusion.

  39. 39
    mahout Says:

    Sambone #19,

    Sam, you’re a genious. Those are all quotable quotes and believe me I’m going to use them. People will think I thought ’em up. Ha!

    Five #22,

    I think that’s very good advice. I have a few thou, uh wait a minute my wife’s been at it, I keep a few hun, uh wait a minute, I keep a few quarters on hand for emergencies myself.

    As far as the ATM’s and over the counter bank tellers are concerned, it is important in my judgement to have your account with the right bank. It seems obvious to me that the FED has already annointed 4 banks that they will move heaven and earth for and will not allow to freeze up. B of A, JPM Chase, UBS, and Wells Fargo. They probably would do the same for Citibank also, but it’s not as sure to me. I would advise, be in one of these banks, keep a wad of cash safe in the house (hidden from spouse, Ha Ha Ha!), a bunch of canned goods and a lot of water, and sleep better.

  40. 40
    Fiveanddimer Says:

    Z re 37: don’t mean to sound testy, but I’m not interested in “playing gold.” At this point, there is no substitute IMO for owning gold itself. Gold is the only form of “money” that has no counterparty risk and is no one else’s liability. I would use oil as a substitute for gold, if I had a swimming pool and the local POA would allow me to fill it with crude. Since this is a no go, I have to stick with gold.

  41. 41
    zman Says:

    John 11 – thanks and no problem, the headlines are often misleading. I have ignored Bastardi at my own peril in the past (shorting gas) when he said it would get cold. We shall see. For now, ng is probably not discounting a really warm winter but it is certainly not very optimistic about cold. One thing about that forecast is that it is bell shaped with cold ends and we need that early cold to roll the injection numbers lower.

  42. 42
    zman Says:

    Five – just provided for info flow.

  43. 43
    zman Says:

    Odd reactions in products today.

    Gasoline holding up well despite the fact of the big build in inventories yesterday and the fire at VLO Houston being a non-event.

    HO on the other hand understored for winter and demand remains strong…and down 2% on the day, worse than crude.

    I may add more TSO exposure soon along with a new position in SUN and maybe VLO. 0 expectations for the quarter, a better than expected quarter on the way likely. That goes for FTO too but the very small names are not going to be as resilient in this market.

  44. 44
    mahout Says:

    Five #34,

    Yes, I have seen that graph of the explosion of the FED’s balance sheet. It’s shocking. But the truth is: because of the fostering of extreme overleveraging in the U.S.financial sector by the federal government (including its regulatory and active market participating agencies and quasi independant entities such as the FED), the FED’s emergency actions which result in the Treasury printing awesome amounts of new dollars, is now, the only thing between us and the 1930’s repeating. Ben knows this and will not repeat the tragedy of the FED’s inaction then.

    What does this mean? It means inevitable serious inflation for the U.S. I don’t see any way around it. But that’s better than the 1930’s over again.

  45. 45
    rlogan1301 Says:

    Z – thoughts on pbr

  46. 46
    rlogan1301 Says:

    the stock…not the beer. hehe..of course i could use one right now

  47. 47
    zman Says:

    Just looking at NG, to me it looks like preparation for a bounce is in place by traders…just waiting on the markets to comply. In other words, I think gas will likely rally with any regaining of confidence in the rest of the market. I base on the fact that that injection was fat and oil is down $2 and gas is still up a nickle.

    Looking at the storage situation, we are at 3,198 Bcf in storage and there are 4 weeks left in the traditional injection season. My target for some time now has been 3.4 Tcf (3,400 Bcf). I still think that can happen but we could easily slide to 3.5 Tcf with mild weather. Last year the last 4 weeks saw 170 Bcf of injections and the record is 174. We could break that this year and end up with 3.5 Tcf pretty easily if Fall does not arrive and breaking this threshold would likely put a lid on gas prices until the first really cold blast of air hits. When I say put a lid on them I mean limit the upside in what I see as a coming rally (broad market willing) to only $8 between now and Thanksgiving.

  48. 48
    Sambone Says:

    LONDON (Dow Jones)–The Organization of Petroleum Exporting Countries on
    Thursday said it will hold an emergency meeting Nov. 18 in Vienna to determine
    whether it needs to make additional production cuts to stem the roughly 40%
    slide in oil prices since July.
    The group, in an expected announcement, said it was concerned about the
    escalating credit squeeze that had turned into a “deep financial crisis” and
    vowed to ensure the global oil market is kept in “balance”.

    -By Spencer Swartz, Dow Jones Newswires

    Dow Jones Newswires
    10-09-08 1205ET

  49. 49
    zman Says:

    PBR tied to oil price, right or wrong as that may be. Substantial risk to their development schedule as financing dries up. I like them in a oil bounce environment and for the long term. If that’s too basic I can get on something more specific but I don;t see a rush there or much of anywhere. I don’t have a clue why its higher today unless comments earlier about RIG are being extrapolated to conclude that PBR is going ahead with plan for now.

    Local pizza joint sells PBR by the can for a buck. 3 years ago it was 50 cents…there’s your inflation!

  50. 50
    zman Says:

    Sam – yep, one month early but after the election. They don’t want to give the candidates more fodder for green initiatives.

  51. 51
    Dman Says:

    An “emergency” meeting in …. mid November. Wow, glad they don’t run the ambulance service.

  52. 52
    rlogan1301 Says:

    Thanks Z…appreciate your insight in NG (#47)…was looking at adding UNG…maybe november or january calls are the best play

  53. 53
    zman Says:

    RL – yep, I’m thinking of doing a spread. Sell the far, buy the near re UNG.

    There is some selective buying going on in the very gassy names here in and there. See COG today. In that case I think you have to look at Gulf Coast, Louisiana up to Appalachia producers. Out west prices stink and names like BBG could be hurt by pipeline restrictions. Rockies express announced another delay yesterday and as that Rockies gas piles up with no place to go prices drop like its new coke.

  54. 54
    Dman Says:

    Z – that winter forecast was not encouraging but if the early winter is going to be cold, as suggested, then that pretty much means November, which would start to show up in short-range forecasts in mid to late October…which is sorta almost upon us. So this suggests a move up for NG between now & mid November but only for a trade if the overall warmish forecast pans out. As you say it does look like NG is itching for that move.

    If the market as a whole is recovering somewhat during that timeframe then it suggests unhedged E&Ps would be better than UNG to play the move (?).

    On a slightly longer timeframe the warm forecast makes CHK’s hedges look pretty good.

  55. 55
    zman Says:

    Re 54. Exactly. Better said than I did in fact.

    With the unhedged comment in mind and the size and lack of leverage comments from yesterday you have to be thinking EOG. Almost repeatable like a mantra.

  56. 56
    1520sbroad Says:

    z – i have been doing some basic valuation work on some of the E&P stocks. I like to break things down to their simplest form. Let me know your thoughts on the following example – this is simplistic but so far the results have been interesting (i think) – an example:

    Current total capitalization (@12.50/sh)
    = 1.84billion in debt + 2.80billion in common shs = 4.64billion total

    Total acreage that HK has – according to their 10/6 OGIS presentation (various stages of production here – some proved, some not touched etc.) = 575,000

    Divide 4.64billion by #of acres 575,000 = roughly $8,000 per acre.

    Also interesting that they had roughly $400 million in cash at the end of last quarter. – take this out of the total cap and the price per acre drops to $7370 per acre.

    Does this make any sense?

  57. 57
    Dman Says:

    Z – on your thesis in #47 that the market will in fact recover confidence over the next month or so, I think the action in service names today, despite crude being off 1.5%, speaks to that notion. The moves are nice (eg. DO up 5%) but not crazy like the +/- 15% moves of recent times. At some point a few days of that in a row will occur & that would be a rally as opposed to a gyration.

  58. 58
    zman Says:

    Isle – I’ll get to that in a second.

    Hearing T Boone is liquidating positions in at least one of his hedge funds. Reliable source, trading floor in Dallas. Hopefully have more details this afternoon but this could either alleviate pressure from the commodities or increase the sense of no confidence. Will try to scope that out as well.

  59. 59
    rlogan1301 Says:

    Z- what are some la, gulf producers (regarding #53)?

  60. 60
    Nicky Says:

    Z – re #58 – you reckon thats due to clients needing the money out or because he thinks the market goes lower? Latter doesn’t make a great deal of sense in light of his recent comments.

  61. 61
    Dman Says:

    #58 Looks to be a high volume day in XCO, a company TBP has mentioned from time to time.

  62. 62
    Dman Says:

    Nicky, I think that like all energy funds, TBP has got investors jamming the doorway trying to get out. What surprises me is that they aren’t already out, but I guess it depends if they follow the markets or just wait for the statements.

  63. 63
    john11 Says:

    Ken Peak ceo of MCF (Contango Oil and Gas) gave another his great presentations yesterday at OGIS in SF. In the course of it he highlited that they have 22mcfe of proved developed
    reserves per share. No debt and $100 mil sh buyback underway. Worth a listen or at least a look at the slides.

  64. 64
    Dman Says:

    Scratch that comment (#61) on XCO volume. I’m not seeing straight or something.

  65. 65
    zman Says:

    Isle – When looking at the company on an assets vs market value basis I use Total Enterprise Value. Mkt Cap plus Debt less working capital. Looking at the value this places on the HK acreage, $7,500 is no bargain, not now, not unless it was all in the Haynesville. Prices there are down from $25 to $30K two to three months ago to $7,500 to $8,000 as of this week. Everywhere else prices are lower.

    Thankfully, we don’t have to value them on acreage alone. A combination of undeveloped acreage and reserves makes a little more sense. If you take last years reserves and throw a growth rate of 20% on them which they can probably do that brings the proved only category up to about 1.4 Tcfe. At $3 per Mcfe that yields a value of just over $4.2 billion. EV was $4.155 yesterday. $3 was where deals were going this summer and its probably more like $2 to $2.25 now. $2 / Mcf gets you to a number close to $2.9 B. So let’s call that proved.

    That leaves $1.2 Billion in value to come up with. Given their probably and possibles (non proved reserves are probably between 6 and 10 Tcfe) we can get the $1.2 billion pretty fast. This takes into the account the value of the acreage at a paltry $2000 per acre. Over way less than $1 per Mcfe (like $0.20 to $0.12) undeveloped. That’s a cake walk. Problem is, no buyers are ready to step in yet.

  66. 66
    zman Says:

    Thanks John. Ya gotta love those guys. Will have a look.

    Dman – that is a very good thought on XCO.

    If TBP gets done that could lift them and SU (which has been bashed) and maybe names like CLNE. His liquidation explains a lot.

  67. 67
    1520sbroad Says:

    #65 – thanks. Do you make any adjustments to working capital or just take current assets and current liabilities and call it a day?

    Also – do you assign any value in this type of calculation to the special assets/property/equipment that a company may hold?

  68. 68
    Nicky Says:

    Heavens when you have this headline on gold on the BBC web site it seems a bit like Trump being on the front of Time Magazine saying go all out into Real Estate. ie time to sell?


  69. 69
    elduque Says:

    Is there any explanation for the underperformance of chk?

  70. 70
    zman Says:

    1520 – just call it a day unless there’s been a deal since the last Q. I don’t give gathering or processing a lot of value.

    ElD – not that I know of. It outperformed slightly much of yesterday. Looks like someone just has to sell. There are those rumors about Aubrey selling but I doubt the veracity of them in the extreme.

  71. 71
    1520sbroad Says:


  72. 72
    Sambone Says:

    October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.

    – Mark Twain

  73. 73
    isleworth Says:

    Z- that wasn’t me asking the questions. It was 1520sbroad.

    I just got off a plane in NH – looking at the beautiful foliage here sure beats watching my monitors 🙂

  74. 74
    zman Says:



  75. 75
    zman Says:

    Woops, been a long week, apologies for the switch up of Isle and 1520.

  76. 76
    Dman Says:

    Nicky, that headline does make it a bit problematic to be a gold bull. But it makes it even more problematic to be an equity market bear right now.

    BTW, continuing from #62, TBP made an interesting comment on TV when crude was at around $110. He said (something like) “it might be good to just stand aside and watch for a while”. That was good advice but alas his funds weren’t doing that.

    As for his current short-term outlook on commodities: I haven’t heard anything but he always factors in economic conditions and they are obviously short-term negative.

  77. 77
    tomdavis12 Says:

    Z: CHK was or is a large holding for TBoone

  78. 78
    Dman Says:

    It’s increasingly clear that UNG is trying to move up and the E&P’s try to follow & get squashed by redemption selling.

    Bought some CHK down 7% & now it’s down 9% but I feel OK about the buy. I don’t know about anyone else but I’m finding stocks a lot easier than options in this environment.

  79. 79
    Dman Says:

    #77 yup, suspected as much

  80. 80
    zman Says:

    Re TBP: Hearing down 95% YTD in commodity fund and liquidating what’s left (which is not much).

  81. 81
    Dman Says:

    Z – If it isn’t TBP selling equities then I guess there are still plenty of hedgies being forced to sell energy names. At some point they have to run out of inventory (I think).

  82. 82
    tomdavis12 Says:

    Z: The government today announced that it is changing its national symbol to a condom because it more accurately reflects the government’s political stance. A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pr#cks, and gives you a sense of security while you’re actually being screwed.

  83. 83
    zman Says:

    Dman – I’d bet the other one is going too, I just don’t know it for sure yet.

    Tom = LOLOLOLOL!!!

  84. 84
    ellwodo Says:

    TBP is director of XCO, doubt that his fund trades in it.

  85. 85
    Dman Says:

    Z – do you have a view on why service is so green today?

  86. 86
    zman Says:

    I’m told by a friend of the site XCO has a $300 mm note due December. I did not check everyone’s debt schedule but I did not CHK does not have any due until 2013.

  87. 87
    zman Says:

    XTO getting hammered too. Been weak since the opening trade and has been building momentum.

  88. 88
    zman Says:

    Picken’s last known holdings as of June 30.


  89. 89
    zman Says:

    CHK below $20.

  90. 90
    Sambone Says:

    There she goes!

  91. 91
    zman Says:

    Dman – re 85. I waited a few minutes so I would not have to answer that one. Ugh.

  92. 92
    Dman Says:

    Z – where does one find a debt schedule?

  93. 93
    zman Says:

    If you go to sec.gov, then search for 10K its in there. Some companies put it in the 10Q but not sure all do. Definitely in the S-1 and the proxy (def-14A)

  94. 94
    Nicky Says:

    Dman I agree re equity bear and gold bull. v of iii down underway in broader markets right now. Either that or a more complex wave 4 abc correction. We are on track for 8 down days in a row….if they can’t turn this.

  95. 95
    zman Says:

    CHK down 14% to 19.20. Wow. Panic in the Streets on no news.

    Majors all down 5 to 6% now.

  96. 96
    Sambone Says:

    Off subject – Poor squirrel


  97. 97
    nifkin Says:

    Michael Lynn on the tape saying that LEHMAN sold 10Mln units in 3 days.. also said that the company may slow drilling to save cash for acquisitions.

  98. 98
    zman Says:

    Nifkin – which stock?

    See only a large block trade that just went at 19.42 on CHK.

  99. 99
    BossmanG Says:

    I wonder what aubrey is thinking right now about his stock…?

  100. 100
    Nicky Says:

    Support on the SPX is wide 945 plus and minus 10 points.

  101. 101
    Popeye Says:

    There went $19.

  102. 102
    zman Says:

    I’m sure he cannot believe it.

  103. 103
    Nicky Says:

    Possible target area for Dow is 8998.

  104. 104
    1520sbroad Says:

    i have Aubrey’s loss today at about 125 million

    From top to bottom it’s about 1.7billion

  105. 105
    Dman Says:

    I thought Lehman were out of biz. What am I missing?

  106. 106
    Nicky Says:

    Anyone else feel they could turn this some time very soon?

  107. 107
    Dman Says:

    Z – as a practical matter, what happens to XCO when they have to find the $300M in Dec?

  108. 108
    antrimshale74 Says:

    Volume very light again today by my numbers.

  109. 109
    reefguy Says:

    bp Cap fund as of 6/30/08
    CHK 1,838,129 shares

  110. 110
    ellwodo Says:

    XCO’s F/S don’t show any big debt coming due this year. Do you have any corroboration?

  111. 111
    zman Says:

    Dman – they normally would roll it into another piece of long term debt. Probably impossible right now as even the U.S. can’t float new debt easily. By December who knows. Alternative, pay it off with their revolver if they can (don’t know where they stand on that vs borrowing base) or do an equity offering (again, no appetite).

  112. 112
    zman Says:

    Elwo – I did not check it. He’s usually accurate though. What date filing did you look at?

  113. 113
    reefguy Says:

    111- I think the fallback was TBP would backstop the 300MM with his personal line

  114. 114
    antrimshale74 Says:

    Nicky, was this the turn you were looking for?

  115. 115
    antrimshale74 Says:

    Did you mean a turn down?

  116. 116
    Nicky Says:

    Antrim – we need to see a huge reversal to the upside….

  117. 117
    zman Says:

    Elwo – I don’t see it in their Q

  118. 118
    antrimshale74 Says:

    Nicky – I understand, but there never seem to be any buyers around these days.

  119. 119
    Dman Says:

    Thanks Z. OK so worst case would be dilution of their market cap at the time. Currently $1.5B, so dilution of 20% at current cap. The current market cap is severely down due to this issue, but who knows how low it goes with an unwelcome offering. Hmmm.

  120. 120
    Dman Says:

    UNG still green (!)

  121. 121
    Nicky Says:

    Need to get back above 71/75

  122. 122
    tater Says:

    Very telling moment with CLR as it tests yesterday’s low at 21.79 coming up here into the close. So far it seems like it has a good chance of holding up. 40 more minutes though…

  123. 123
    Dman Says:

    VXO back in 70 territory

  124. 124
    Nicky Says:

    If 940 fails next support 925

  125. 125
    tater Says:

    Don’t get me wrong there though. I don’t feel CLR or anything is an automatic buy. CLR could always get killed tomorrow. I am only saying that I am seeing signs that we could (COULD) see at least a temporary turn around here, similar to the high today that could have been sold due to the same indicators. Not suggesting anybody buy anything.

  126. 126
    reefguy Says:

    good news!- bought VLO premiun for $3.54

  127. 127
    Dman Says:

    Z # 117 er … does that mean it doesn’t exist or could be lurking in another filing?

  128. 128
    arodeen Says:

    I wonder what the odds of CHK (or anyone else) selling some of their hedges to buy back stock here.

  129. 129
    Dman Says:

    LOD for CHK $17.98. I must be on another planet.

  130. 130
    antrimshale74 Says:

    VIX around 60 now.

  131. 131
    antrimshale74 Says:

    We would need a 2100 point rally in the DJIA just to get back to where we were two weeks ago.

  132. 132
    antrimshale74 Says:

    Not sure that 925 is going to hold Nicky. I recall that Marc Faber had an 800 target, but he wasn’t expecting that just right now.

  133. 133
    zman Says:

    Dman – just means I don’t see it but I trust my source. They have the cash to pay it I’m told as well.

  134. 134
    zman Says:

    SPX and Gold set to cross.

  135. 135
    antrimshale74 Says:

    We’ve got a 700 point range in the DOW today.

  136. 136
    Fiveanddimer Says:

    POG just turned green.

  137. 137
    zman Says:

    From this morning’s opening para in the post:

    “Honestly, I’m another plunge day or two from getting genuinely neutral to slightly bullish.”

    Still applies.

  138. 138
    Nicky Says:

    No easy way to say this but if support here fails no real support until 768 on spx.

  139. 139
    Sambone Says:

    Ok troopers here is my starting point to buy my energy names. I’m putting in GTC at these prices;
    RIG – Under $80
    PBR – $25 then $21
    HAL – $21 then $7
    CHK – $16 then $7.50
    BTU – $18

  140. 140
    tater Says:

    CLR didn’t hold the low.

  141. 141
    antrimshale74 Says:

    Some real violent moves here at the end.

  142. 142
    reefguy Says:

    xom- down damn near 12% with 40B in bank.

  143. 143
    tater Says:

    Heck, I’m going to have to switch over to GE. If you get stuck holding a trade you can always collect the 6%.

  144. 144
    Fiveanddimer Says:

    I’m watching CNBC. Maria’s voice is starting to crack. No tears yet.

  145. 145
    Dman Says:

    Looking at the 5 year NBR chart, I’m inclined to invent a new chart pattern. I’m calling it “lightning strike”

  146. 146
    Nicky Says:

    I think my heart stopped watching the last half hour and still it tanks after the close. Gold telling us everything!

  147. 147
    reefguy Says:

    New Problem: Smart hedging types like CHK,xto, xco cannot count on cash flow from high priced swaps! There is a growing counterparty risk!

  148. 148
    Nicky Says:

    Are the markets closed next Monday?

  149. 149
    zman Says:

    Nicky – only the banks are closed for Columbus day.

  150. 150
    Nicky Says:

    Oil at support.

    Broader market seems to me to be in v (always gut wrenching and they can say that again!).

  151. 151
    Nicky Says:

    Thank God – can you imagine the set up if we had a Bank Holiday on Monday ie remember January.

  152. 152
    zman Says:

    Big hedge fund blow ups coming, no doubt.

    NG ends green vs $4 off in oil. More evidence it wants to go up now.

  153. 153
    reefguy Says:

    chk at these levels in Feb of 05

  154. 154
    zman Says:

    Reef – in part a victim of their own success. Haynesville Shale = Austin Chalk?!?!

  155. 155
    AAA Says:

    Z,Any thoughts on CHK’s cash position? Could they be facing liquidity issues?

  156. 156
    john11 Says:

    CHK analyst days next weds and thurs. should be fun interesting.

  157. 157
    zman Says:

    AAA – ostensibly they have no cash position. Yes to the second point but cash flow is massive and they will likely be matching cash flow to activity in the near term until things free up. On the counterparty issues, they deal with > 20 parties on the hedges so unless they all go belly up …

  158. 158
    zman Says:

    Weekly chart on Dow, 1 year ago exactly all time peak. Wow.

  159. 159
    ram Says:

    ZMAN – Did CHK sell hedged gas to hedge funds or investment companies that are blowing up now?

  160. 160
    Nicky Says:

    Tomorrow setting up to be totally wild.
    Nikkei opened down 11%! Dow futures immediately collapsed 200 points. Everything try to get up off its lows.
    Wachovia up 30% since the close. Chevron up.
    Big question is do they reverse this ahead of the G7 when I feel there is absolutely bound to be intervention.

  161. 161
    Nicky Says:

    Gold hit resistance at 926 and has now backed off to 913.

  162. 162
    rlogan1301 Says:

    it is just nuts…i limped into some positions today and etfs…looks like i may have been 1 day early!!..i’m sick of this.

  163. 163
    Nicky Says:

    rlogan – I think the chance of a low in the market by no later than Tuesday is high (with a retest to come later) – what is far more uncertain is how low we are going to go first.

  164. 164
    zman Says:

    Japan down 11%, Europe down 9% on average. Crude down $4 to $82.

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