Fallout Friday

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OPEC Bailout Watch: Production Cut 1.5 Million Bopd. Cut to implemented by November 1 which is fast by Cartel standards. OPEC President Chakib Kehlil said,  "We're prepared to meet more often to stabilise the market. If a further decision has to be made, it will be made and we will not necessarily wait for the Oran (December) meeting,"

Sentiment Watch: Absolutely horrible open on tap. Asia and Europe got crushed overnight and a full scale U.S. equity market capitulation appears set for the open (if not through the close). You know it's bad when one of the top stories on MarketWatch deals with circuit breaker levels. For the completely risk immune, the open will likely represent a fantastic buying opportunity in many energy names as even the biggest of the big caps are set to open down 10% as determined by a few 10s of thousands of pre market shares. Dramamine a must.


Big Thoughts From Yesterday Watch: Offshore drilling, especially in the deepwater segment, has been largely unaffected by recent slide in oil prices and by the freezing of the credit markets: 

  1. New rig contracts continued to be signed
  2. Day rates remain elevated are are not showing signs of slippage
  3. Contracts between rig owners and operators are stronger than the buy and sell-side think
  4. Little to no incidence so far of renegotiations of contracts
  5. NOCs (National oil companies), Majors, and U.S. Large Cap E&Ps are still taking the long view with regard to oil prices
  6. M&A opportunities are approaching
  7. Nutshell: this comes from three conference calls (CLB, NE, and DO) and I didn't come away feeling like I'd been sold a package of goods.

In Today's Post:

  1. Holdings Watch - added DO calls to the 10KP
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Odds & Ends

Holdings Watch: Holdings Wiki and 10KP Tabs are updated.

  • Added (5) DO December $80 calls (DOLP) for $2.75 at the open with the stock up $3 on earnings and a hike to their special dividend and on the heals of a big drop in the last few days.

Commodity Watch:

Crude oil inched up $1.09 yesterday to close at $67.84 in advance of OPEC's decision. This morning crude is trading down $4+ in connection with equity market futures and despite OPEC's cut.

Natural gas fell like a stone yesterday despite a smaller than expected storage injection. Gas ended down a whopping $0.36 (5%) at $6.61. Selling started prior to the number's release and my best guess is that the forced liquidation boogeyman came to visit multiple hedge funds as the November expiry on 10/29 approaches. The 12 month gas strip was off nearly 4% to 6.92, its first close below $7 since 2006. This should prompt more high profile capital budget reductions as the general accepted level for healthy vs non-healthy strip pricing had been thought to be about $8.


Natural Gas Storage Review

  • EIA reported an injection to gas storage of 70 Bcf (I was looking for 70 and the Street was at 75).
  • Storage now stands at 3,347 Bcf.
  • There are three weeks left in the injection season and given the weather forecast we still look set to peak around 3.4 Tcf.


Odds & Ends

Analyst Watch: (RRC) upped to Buy at Stanford Re, (DO) upped to Buy at Deutsche Sec., Argus keeps (VLO) at Buy, cuts target from $42 to $24. (NOV) cut to Neutral at JPM,


104 Responses to “Fallout Friday”

  1. 1
    zman Says:

    Entire DO move from yesterday called back (set to open down 10%) on a 100 share pre market trade. Now that’s panic.

  2. 2
    Sambone Says:

    Going to be interesting today. You know I don’t have a bubble head TV in my office, but today I wish I did. I betcha that the money honeys might cry. Anybody want to bet a chicken bone on it?

  3. 3
    tomdavis12 Says:

    Z: Do you know what the strip pricing for NG is in Japan and Eur? Bill’s question about Sabine Pass exporting LNG. Has any of the CC’s addressed a time frame guestimate as to when approval might happen? Maybe we should ask Aubrey next week.

  4. 4
    Sambone Says:

    VIENNA (Dow Jones)–OPEC’s decision to cut oil production against the backdrop
    of a global financial crisis immediately sparked a backlash from large oil
    consumers Friday.
    “In these economic times, producers should be looking to reassure the global
    market place that energy supplies are affordable and dependable, lest they
    prolong or deepen the challenges we now face,” said Healy Baumgardner, a
    spokeswoman for the U.S. Department of Energy. “We need more supply in the
    market, not less.”
    She said the cut showed OPEC was using energy as a “strategic tool.” The
    International Energy Agency, the energy adviser to the Organization for
    Economic Cooperation and Development, said the cut will worsen the global
    economic situation.
    Lower oil prices have represented a rare bright spot on an otherwise bleak
    global economy.
    The IEA said it was “concerned that reductions in supply may ultimately
    exacerbate what remains a fragile global economic situation.”
    “We urge all suppliers to keep a close eye on the impact of their actions on
    the global economy,” the Paris-based agency said.
    “While the trend in global oil demand has been weakening, there remain
    considerable uncertainties over upcoming winter demand levels and potential
    non-OPEC supply outages,” it said.
    Eager to rein in a dramatic slide in oil prices, OPEC decided Friday to make a
    deep cut in oil production, taking 1.5 million barrels a day off global markets
    as it embarks on the challenging task of managing prices amid a potential
    global recession. Oil prices slid further in reaction.
    -By Benoit Faucon and Ian Talley, Dow Jones Newswires

    Dow Jones Newswires
    10-24-08 0849ET

  5. 5
    zman Says:

    Sam – agreed, I will tune in today. National City just got bought.

    Tom – I don’t but can look, still much higher than the states, not even close. Have not heard a time frame but I would expect all of the new capacity to apply for liquefaction status. It takes awhile to build a liquefaction train (maybe a year) and quite a bit of capital.

  6. 6
    Sambone Says:

    Sliding Oil Prices Threaten Capacity Expansion


    VIENNA — Sliding oil prices threaten the implementation of new projects needed to boost global crude production capacity, a risk further exacerbated by the global credit crunch.

    This risk partly prompted the Organization of Petroleum Exporting Countries to cut production by 1.5 million barrels a day at an emergency meeting Friday, as the group seeks to offset a complete collapse in the price of oil.

    “Oil prices have witnessed a dramatic collapse — unprecedented in speed and magnitude,” OPEC said in a statement following its meeting. Prices are “falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply change.”

    Major development projects such as Canada’s Athabasca oil-sands development or deep-sea schemes will need sustained high crude prices to ensure they proceed, said Chakib Khelil, OPEC president.

    “Athabasca tar sands needs $90 and Angola deepwater projects, I think, they need around $70,” Khelil said.

    Light, sweet crude futures continued to decline Friday, heading below $65 a barrel on the New York Mercantile Exchange, down more than 50% from highs near $150 a barrel hit as recently as July.

    If oil prices remain below $70 a barrel for a sustained period, there would be little incentive for oil producing nations to invest in multi-billion-dollar developments to drill for oil at gas aimed at stemming natural depletion and boosting output, analysts say.

    “This is one of the messages that OPEC may be trying to convey now: these low prices, if they keep sliding, may give short-term relief or a little boost to the global economy, but in the long term they will starve the industry of future supplies,” said Sadad Al-Husseini, a consultant to bank Morgan Stanley and former Saudi Arabian Oil Co. executive.

    The potential halt in new project development could have long-term implications for global oil prices, which may climb to new record highs in coming years as a lack of new oil production capacity leads to a crude supply shortfalls.

    “Projects currently under threat include Canada’s oil sands, deep-water offshore and alternative fuels projects,” said Vienna-based consultants JBC Energy said. “Many investment programs are being delayed due to surging investment costs.”

    The vastly changed environment for oil prices, as well as access to credit, also potentially puts refinery expansion at risk. “We need at least an $80 a barrel price to continue refining capacity expansion” in Venezuela, said the nation’s Oil Minister Rafael Ramirez. Tight global refining capacity has been a major force behind soaring oil prices in recent years.

    Although most OPEC countries are among the world’s lowest-cost oil producers, new field developments that are technically more demanding such as Kuwait’s planned Lower Fares heavy crude project or Adnoc’s Upper Zakum oil field development, are more costly to implement. Higher cost for equipment, raw materials and labor in the past three years have added further upward pressure to project costs.

    With oil prices trading below $70 a barrel, many projects will come under greater financial pressure. That’s despite a gain of some 20% of the dollar against the euro during the same period, which has buffered some of the oil price drop for OPEC states.

    The oil price slide has come amid deep fears that the global financial crisis will morph into a binding global recession, taking a major bite out of demand for oil. OPEC ministers said Friday they hoped the production cut would help to stabilize oil markets.

    State oil firms such as Saudi Aramco and Abu Dhabi National Oil Co. usually use dollars generated from crude sales to finance their upstream projects. However, with oil prices falling, their capability to invest may be constrained.

    Speaking in Vienna, Iraq’s Oil Minister Hussein al-Shahristani warned that the latest oil price slump may lead to spending cuts on energy projects because the country’s budget was based on an oil price of $80 a barrel. “We may have to reconsider our proposed budget for 2009 — we don’t know where the (spending) cuts will be,” he said.

    JBC estimates that OPEC states need an oil price in the range of $80-100 a barrel to keep most new project developments alive.

    The situation is made worse by the unfolding world financial crisis, which has rendered it more difficult for international oil companies to raise funds for their investments from international banks.

    “The global banking crisis will negatively affect new oil-development projects and is already forcing many companies to drop oil projects,” said Khelil, who is also Algeria’s oil minister.

    Canada’s second-biggest oil-sands producer, Suncor Energy Inc. (SU), said Thursday it would put its C$20.6 billion ($16.5 billion) Voyageur expansion project on hold, the first confirmation of cutbacks in Canada’s oil sands due to financial market stresses and plummeting crude-oil prices.

    Petro-Canada (PCZ) also said it would postpone a similar project for its Fort Hills development after estimated costs recently jumped 50%.

    —By Oliver Klaus, Dow Jones Newswires

  7. 7
    zman Says:

    I’ll be browsing this morning in the regular account for positions in big caps like XOM and CVX in near term contracts for a quick day trade or two or three.

  8. 8
    Sambone Says:

    Heating Oil Distributors Fear Tough Winter Amid Credit Freeze


    NEW YORK — The tight credit market is forcing weak links in the heating oil supply chain, from wholesale suppliers to homeowners, into the cold.

    Borrowed cash infuses nearly every step of the supply networks that bring heating oil from refiners to individual homeowners and businesses. For wholesale suppliers and door-to-door distributors, loans cover the weeks or months between when fuel is purchased and when it is sold to the next step on the chain.

    Most companies managed to secure fresh loans to carry them into winter, despite the global credit crisis that has made it difficult for even solid businesses to borrow. But evidence is emerging that not every company succeeded.

    “A lot are starting to bounce checks,” said a trader at a wholesale heating oil supplier, who requested anonymity to protect the supplier’s standing in the physical fuel market. “Credit lines are definitely strained.”

    In the Northeast U.S., heating oil’s biggest market, hundreds of dealers, ranging from single-truck operations to publicly traded corporations, bring the fuel to customers.

    The fractured system, which stretches back decades and includes many multigenerational family owners, connects into a global market through the heating oil futures contract on the New York Mercantile Exchange, which in turn acts as a global benchmark for other products, including diesel and jet fuel.

    The credit market severely contracted in September, as major banks failed or required rescue after heavy losses in mortgage-backed securities. Remaining lenders have become more choosy about who they allow to borrow, presenting both small and large dealers with new challenges even as prices fall.

    “It’s a changing industry, and there will be somewhat of a shakeout,” said Michael Ferrante, president of the Massachusetts Oilheat Council, a trade group. “Some [distributors] will not be here at the end of winter.”

    Scaling Back

    Companies that weren’t able to secure additional credit have had to scale back. Castle Oil Corp., a large distributor that also owns a heating oil storage terminal in the Bronx, had an operator of a midsized fleet of fuel trucks recently scale back orders for the winter due to an inability to secure a large enough credit line, said Paul Conley, Castle Oil’s chief financial officer.

    “The customer intended to .. sell fewer gallons and try to sell them smarter to customers that are going to pay,” said Conley, who declined to name the company. “They don’t want to run out of [credit] lines in the middle of winter.”

    Heating oil distributors across the Northeast said they expect the tight credit market to weed out troubled competitors, a group that could include up to 20% of the companies, said Ken Williams, president of Scott-Williams Inc., a distributor in Quincy, Mass.

    “Creditors are just being more picky, and if you don’t have a strong balance sheet, you’re not going to get it,” Williams said.

    Banks continue to lend to distributors, however, and balance sheets are looking better than they did just three months ago, when record heating oil prices had the industry staring down disaster. Prices began to rise last winter, leading to an increase in customers who skipped payments or defaulted entirely. That made it difficult for distributors to predict cash flow from month to month, which complicated credit applications with banks and wholesale suppliers.

    Banks demanded that distributors purge their rolls of risky customers, which has angered some consumers but left heating oil companies in better financial shape. When energy prices continued to rise into the summer, many heating oil distributors applied for extensions to their credit lines to pay for more-expensive inventories. Now that prices have fallen back, many distributors have more credit available than they need.

    “Last year [credit] kind of caused some problems because oil was running from $2 to $4 a gallon,” said Kathy Newcomb, who operates two trucks in the Albany, N.Y., area. “We upped our credit line. Hopefully if it stays like this, then we’re fine.”

    Relapse Possible

    Distributors could quickly see hard-won financial stability, and available credit, crumble again this winter.

    The weak economy has pushed heating oil prices lower along with other types of fuel and crude oil. While heating oil distributors usually welcome lower fuel prices, a recession would again make it more difficult to predict which customers would be able to pay.

    “The jury is still out on where the consumer is going to be; it’s a big concern right now,” said Andrew Heaney, president of Heat USA, a New York group that buys heating oil in bulk on behalf of consumers.

    Heating oil prices are also not guaranteed to continue falling. Residential heating oil cost $3.23 a gallon in the week ended Oct. 20, 12% less than it did at the start of the month, according to the Department of Energy. That price is still 35.7 cents higher than a year earlier, even after heating oil futures dropped by nearly 50% over the last three months.

    Inventories are about 25% lower on the East Coast than they have been in recent years, increasing the likelihood of regional shortages and sharply higher prices in a cold snap.

    “It seems to me if there was the smallest hiccup we’d see a price spike,” said Steve McGrath, chief financial officer at Downeast Energy & Building Supply, which distributes heating oil to 40,000 customers in Maine and New Hampshire.

    (Rose Marton contributed to this article.)

    –By Brian Baskin, Dow Jones Newswires

  9. 9
    Garyinhou Says:

    Epperson needs a valium

  10. 10
    zman Says:

    ZTRADE: Bought FSLR $125 November Calls QHBKE with the stock at about $110.50 for $12. The stock is at what looks like support having fallen from the high $130s yesterday. Fast trade, not a lot of money on the line.

  11. 11
    zman Says:

    Should have called #10 a wildz.

    Gary – could not agree more, can’t stand having here scream her reports from the floor.

  12. 12
    zman Says:

    ZTRADE: $10KP Trade

    Added (3) XOM November $70 Calls (XOMKN) for $3.90 with the stock down 7% at just under $66.

  13. 13
    zman Says:

    Art Hogan on CNBC saying higher lows and higher highs in the offing, does not see a big ending drop today. Mark Haynes called him the John Wayne of Wall Street which is a little unfair in that it implies gunslinger but he’s been right and I trust his instincts. I used to work with Art and consider him a cool character who understands the markets very well.

  14. 14
    zman Says:

    Well the new FSLR trade is working.

  15. 15
    tater Says:

    Don’t mean to be so cynical, but this overnight move really seems to have such a contrived and “convenient” feel to it. Kind of like somebody needed to see us test the lows right now, before market was really ready for it. I am sure that it’s just me, but the huge panic that it was supposed to have create didn’t really register. Seems kind of more like surprise than “oh no!”. Long day left though.
    Fib retracements now point (actually always did) to a target on $WTIC oil of $51.80. I know I sound late to the dance on that, but it is still tradeable.

  16. 16
    zman Says:

    Tater – I hear ya on that, the recent drops have been less transparent in terms of reasoning than the ones of prior weeks. Feels like a “created event” as players dumped positions into technical points. Does not take a lot of dollars to do.

    On oil, yeah, I think late. Note on technicals, I leave that to you and Nicky but on fundamentals, the sentiment worm is turning at least half in the direction of positive. OPEC and Russia are about to get a lot more active. I suspect MEND is too.

  17. 17
    zman Says:

    May not be a late trade to short the tankers though. Less demand, less traffic, equals down rates. FRO at the front of the names list.

  18. 18
    Garyinhou Says:

    Interesting to see clr holding up best in my oil e&p list.

  19. 19
    Sambone Says:

    9:46 (Dow Jones) Brazil’s Petrobras (PBR) shares plunge 9.5% to 20.54
    Brazilian reals ($8.66) in early trading, while Vale (RIO) falls 6.4% to
    BRL21.80. Story remains the same — traders say problem is ongoing recession
    fears and falling commodity prices. Main Ibovespa index recently down 8.4%.
    9:42 (Dow Jones) Electricity utilities will see pension expenses rise as drop
    in stock and real estate markets cuts value of funds, Bernstein says. Hit to
    utilities with deregulated power plants will be harder than elsewhere since
    they can’t pass on costs through rates as easily as regulated companies. “As an
    older, regulated industry with strong union representation, utilities tend to
    have defined benefit retirement plans and relatively generous other
    post-retirement benefits,” firm says. Consolidated Edison (ED), CH Energy
    (CHG), DTE Energy (DTE) and PPL likely to face largest cost increases,
    Bernstein says. (MMP)
    9:36 (Dow Jones) Diamond Offshore’s (DO) decision to increase quarterly
    dividend by 50% in this negative environment is a strong vote of confidence in
    its ability to generate cash, Deutsche Bank says, and upgrades DO to buy from
    hold. “With an 11% cash yield, limited (<15% of EPS) exposure to jackups, net
    cash on the balance sheet … we see opportunity for income and/or value
    investors,” firm says, and raises DO price target to $79 from $70. Shares off
    8.1% to $67.79. (EBW)

  20. 20
    zman Says:

    Market going for a morning low retest.

  21. 21
    zman Says:

    Gary – shhhh. I see it too, not sure if its random, hopefully no one notices, lol.

    OPEC tone very different than after prior moves, very much more reactive to price in their statement. Normally they shy away from mentioning it. Now they say the reaction of demand and price will be key to what they do next. As demand will likely stay soft and price is linked to the equity markets (at least directionally and somewhat loosely) it seems they will be ready to cut again if oil does not get back up over $70.

    Thanks for 19 Sam.

  22. 22
    zman Says:

    At least one successful morning low test under our belt.

  23. 23
    zman Says:

    Gary – you can add HK to the list of names “outperforming” if you can call it that.

  24. 24
    Nicky Says:

    Morning all. Far too much time this morning for CNBC to build the drama of a 2000 point fall at the open – needless to say it didn’t materialise!

    That said I am with Art Cashin – I really want to see a huge washout rather than everyone stepping up to buy it every five minutes!

    The ‘wave’ count says we are in 5 down and most likely the bounce we are seeing from the open is a ii and we ‘should’ roll over in iii of v down. I say ‘should’ because I really don’t see any other viable count right now but that said there seems to be no panic selling which I would expect to see in a 5 down. A thousand point fall at the open would have been great and I am just hoping this wave v gets going and we can complete the downside and see what will then be an amazing rally. But not feeling it right now!

    $63 oil did support for now. I am still looking at the 55 – 56 area which I think we will see if the broader market does tank.

  25. 25
    zman Says:

    Thanks Nicky. I think.

  26. 26
    tater Says:

    I’ve really been having more than my fair share of success trading in and out of CLR this week. I have a chart that is working for me on the middle of page 2 at the link


    Take a quick look at the 15 min chart (third CLR chart) and take note of both the red line and the Fib scale in purple at the far right side. The action this morning flew back up to close the gap on the open, which was then sold into the .38 Fib line. Respect 21.16 to the downside and the red line to the upside. Can easily break through those lines, but that would mean it “should” be off to the races in the direction of the break. Hope that’s not too garbled of an explanation.

  27. 27
    zman Says:

    Fun chart: monthly of FSLR. 280 to 100 in the last 2 bars.

    2009 EPS estimates as of 9/22 (one month ago): $6.98

    with the stock at $222.65

    We are $100 lower right now with the EPS estimate at $6.71.

  28. 28
    VTZ Says:

    What about POT with an earnings beat and EPS next year of ~18 bucks at 82 (in CAD). Dropped from a peak of 220 bucks.

  29. 29
    zman Says:

    Thanks for the CLR chart Tater.

    In past down turn periods for energy, the buyside has contracted to the Majors. With XOM’s cash position and $0 debt, you can see them start to really outperform the rest of the energy names. Same goes for the less leveraged names in large cap E&P like EOG. Managers still will want exposure or to gain exposure when things settle but will come back to the bigger names and to holding few names. As comfort spreads, names in the mids and smalls eventually rally. And when I say rally, I’m talking about sustainable moves. The former hot names will pop too initially but will suffer more than the big names when angst returns.

  30. 30
    zman Says:

    VTZ – yes, I think that’s one of the kind of names people return to (see 29) when they return. Right now with credit still frozen farmers can’t get loans for fertilizer or seed. When things loosen there will be names like that, with very solid management that run fast and furious.

  31. 31
    zman Says:

    Much more improvement in the broad market and CLR and HK will be in danger of a green move.

  32. 32
    VTZ Says:

    Z – What is your opinion of RDS relative to XOM or CVX or BP? They have a 7% dividend here AND they are repurchasing ~500,000 shares a day.

  33. 33
    zman Says:

    VTZ – don’t really have one on Shell or TOT or REP, just not familiar enough with the goings on their. With XOM I know not to expect anything, lol. I think BP buys back shares every day too and they are being smart by buying into the US shale plays at low prices for what its worth. Just from a 10,000 foot view I have nothing against Shell either.

  34. 34
    rlogan1301 Says:

    Z- thoughts on your dec UNG calls…at .85 right now..i know we have some time, but just wanted to know your expectations with ung

  35. 35
    zman Says:

    RL – Re UNG, holding, not ready to add yet, want to see next week’s injection (should be quite a bit smaller). I took longer dated calls for the possibility that it would not work itself out quickly. I see today’s move by OPEC as backstopping crude and that as things settle (yes, I expect them to settle) crude will find a home above current levels for a time and this should lend support to gas. Then you have winter weather. Then you have a gas-directed rig count which will start dropping pretty soon as rigs are released after they completely their current well. Many traders and some analysts expected to see an immediate drop to rigs but they are going to finish the well they are on, then get stacked. Ya don’t quit turning to the right half way to TD.

  36. 36
    elduque Says:

    For a read in the credit markets. The muni market just experienced its largest drop in yields in one week, 65 basis points on the GO curve, since 1982

  37. 37
    doc Says:

    I was reading in your comments that natural gas prices were down 5%. Does that mean the price does not reflect demand or or market manipulation?

  38. 38
    Nicky Says:

    As the market did not fall apart this morning then the alternative possibility is that a B wave completed this morning and we have a C wave rally to come up to the 950 – 1000 region.

  39. 39
    BossmanG Says:

    Bird, any readings you have on the credit market?

  40. 40
    zman Says:

    Doc – I just think it was forced selling on the part of funds. Long and even medium term the price of gas is dictated by perception of incremental supply, demand but the short term swings are dictated by buyers and sellers. No buyers yesterday with any conviction.

    Bird is on vacation today, completely out of radio contact.

  41. 41
    zman Says:

    FSLR flat. Hmmm.

  42. 42
    Fiveanddimer Says:

    Big comeback in the gold market. Traded as low as 682 in the access market; now at 725. Mining stocks showing green pretty much across the board. AEM, for example, up 13% today.

  43. 43
    VTZ Says:

    Fallout Friday oil sands update is that essentially no oil sand project is going to go ahead if it’s not in construction now… In the same way that the gas companies are announcing reductions in capex expect all of the oil sands projects to flat out cancel all expansions that aren’t currently in construction (CNQ, OPC/NXY) or significantly reduce the scope or extend the timelines.

    I’m sure this is obvious to most people but I just want to clarify that at these prices existing operators don’t have problems but no new supply is even close to being economic.

  44. 44
    zman Says:

    VTZ – couldn’t agree more. Thinking time is coming when I want to be long SU.

  45. 45
    zman Says:

    BTU doubles buyback reauthorization to $1 B. At current prices that would take in about 12% of the float. COO also on the tape buying stock.

  46. 46
    VTZ Says:

    There’s lots of things that I plan to be long on at some point, but it’s a shame that I’ve been pillaged so bad that I don’t have much to go long with.

  47. 47
    VTZ Says:

    Also, I have no clue how SU is where it is considering their cash flow over the last few years and their level of existing production.

  48. 48
    zman Says:

    Hear ya V, but the stock has discounted much lower oil prices than we are close to right now, at least that’s the sentiment from the covering analysts.

    Epperson pointing out that wholesale gasoline now below year ago levels. Demand going to get interesting…maybe people will drive around a lot looking for bargains for Christmas. Obviously its going to be weak but the lower gas price should bump demand.

  49. 49
    zman Says:

    Out for 20 minutes.

  50. 50
    antrimshale74 Says:

    Coal stocks relatively stronger today.

  51. 51
    VTZ Says:

    Five – John Embry of Sprott Asset Management (he is a well respected gold expert) has raised the possibility of a December gold futures contract default due to the inability to physically fill paper contracts.

  52. 52
    VTZ Says:

    Also, I’m not saying that’s why gold is going up… just commenting on physical availability.

  53. 53
    VTZ Says:

    ~675-680 is technical support before 625 as well.

  54. 54
    zman Says:

    Last hour going to be wild today.

    Very quiet on the energy news front. Refiners and a lot more E&P names report next week. Expectations set a 0 so plenty of upside potential.

  55. 55
    Fiveanddimer Says:

    V – I’ve quit trying to come up with explanations for the movements in the gold market. When you consider how strong the market for physical gold is (just try to buy a gold or silver bullion coin from a dealer — it’s either impossible or your waiting time for delivery will be several weeks or maybe months), the weakness in the paper (futures) market is vexing.

    I’ve also heard the stories about a default in the futures market. We’ll see. I continue to hold to this conviction: the US government is manufacturing trillions of fiat dollars that it does not have. There will be a price to be paid for this, and it’s called inflation. I don’t think any of the markets are factoring this in at the moment. They can’t see past the current bout of asset deflation.

  56. 56
    zman Says:

    Fiver – agreed, re your last, so far the dollar is ignoring the printing presses running 24/7/365. They won’t forever.

  57. 57
    VTZ Says:

    All I know is that it won’t last… but really I don’t know much.

  58. 58
    VTZ Says:

    tater… I just looked at your TA for the first time in a while and you should get a gold star for keeping that up.

  59. 59
    zman Says:

    Tater – I second V’s comments and would thank you more often but don’t want to embarrass you. Top notch, great comments. When I say VooDoo by the way, it is not a slight.

    XOM at HOD

  60. 60
    zman Says:

    Market headed for another test of the day’s lows.

  61. 61
    tater Says:

    That’s very nice of you all, but I’ve actually pulled many of the names. Tried to do too much and would up doing very little. Let me know if you want to look at something particular and I’ll get it on the posting file. I’m trying to work less names with more attention, and maybe learn to be expert at a couple. I’m also learning a new Fibonacci methodology (wow, I bet that Tater is a real hoot at a party!) and it is kind of like re-tooling your golf swing, everything goes all to hell. Don’t want to post crap while I am getting the hang of it.

  62. 62
    zman Says:

    20 banks to get funds from Treasury


  63. 63
    VTZ Says:

    Slow day. This happened right around my work today… people are saying there are fatalities. AT Plastics is an ethylene plant.


  64. 64
    VTZ Says:

    http://www.nationalpost.com/news/canada/story.html?id=906301 better article

  65. 65
    VTZ Says:

    http://www.nationalpost.com/news/global-video/index.html?video=3161226 video

  66. 66
    zman Says:

    market looks poised to rip one way or other. Money is on up but impossible to say. Longer terms there is more upside than down.

  67. 67
    PackMan Says:

    Nicky – A 2,600 point Dow drop for October w/ VIX at all time record highs doesn’t qualify as enough panic selling for ya ? (not meaning to pick on you, but I am finding this volume bottom /reversal talk a bit silly at this point).

    How about 1000+ points over the past couple of days ?

  68. 68
    PackMan Says:

    Nicky, btw I like and appreciate your input and analysis; just ticked off at the market and talking heads.

  69. 69
    zman Says:

    Pack – I hear ya and am not picking on her either but a capitulation that takes place over months, then accelerates in the last few weeks and really accelerates last few days amounts to the same to me in terms of valuation. Why it needs to happen in the same 24 hour span is a bit of a mystery to me but that’s what the talking heads want.

  70. 70
    PackMan Says:

    Z – I remember back in Sept the talking heads wanted FNM and FRE to fail or be taken over, so the bull can take off once again. that’s what “the market” wanted then.

    These guys know nothing; best to just turn off the TV.

  71. 71
    zman Says:

    CNBC trotting out the Oppenheimer technical analyst bull this afternoon who was so bullish on Fast Money on Monday. He dodged the volume question (said volume is the most important factor in the buy decision and then they told him it was weak and he shrugged and just said its time to buy. Sheesh, ugh, grrrr. Everybody watching charts, nobody talking about fundamentals except to say that the E in PE is far from certain but then they won’t quantify it. Don’t get me wrong, I appreciate the TA but it seems like they all just nervously watch each other and don’t have a clue where things should be valued given prospects or historical relationships. I think its important to understand that there are dangerous levels when not to buy issues because you need to know what the other heard of guys is doing but at the same time I’ve got to wonder if we have not more than discounted the E factor in the PE and that when credit unfreezes, as it will eventually, things will start to discount a recovery, as they do well in advance of its arrival.

  72. 72
    tater Says:

    I get a snicker out of your #71 because you are so right! It seems like everybody has the same education these days, whether it be economics, or banking, or investment analysis. All these TA guys learned their methods from the same brokerage house schools.
    You are no better than your results, no matter what the plaque on the wall says.
    I will say it one more time (as my plaque on the wall says I won the Pinewood Derby in Cub Scouts back in the 70’s), the down-swing in this market will not end with a bang (capitulation). It will end after a very long and boring wash out. It will end well after you get convinced that it’s all fixed. It will end when everybody is so sick of Wall St. and Washington and mortgage payments and bailouts and waiting in line at the doc’s office and driving an old car one more year, etc.
    It won’t be over until people just don’t even care. Then it will be time to play Warren Buffet. Until then, just trade it.

  73. 73
    VTZ Says:

    hk fighting for green again

  74. 74
    Sambone Says:

    Z – Two things. The overall market is like a guy in a dark alley with a gang of thugs around him just beatin the livin daylights out of him.

    The second thing is the good news. The smart money is sitting on the sidelines in cash or T bills. Most Hedgies I talk too are at least 50% cash. They are just waiting patiently for the gang to stop kickin the guy in the alley.

  75. 75
    zman Says:

    XOM thinking about it too.

    Tater – I may just post your comment 71 as the weekend post and leave it at that, lol.

    Sam – the hedgies I talk to are very worried about being employed on December 24.

    Group is greening premature to the market.

  76. 76
    bill Says:

    well i kicked off the late afternoon rally by selling 2000 hk at 14.50

    hk low today 12.30 now green

  77. 77
    tomdavis12 Says:

    Z: The latest from the stars. Panic lows have historically occured on the 27/28 of the 7th lunar cycle, which are this Sunday and Monday. The panics of 1857/1907/1929/1987/1997 all marked their lows on these days in October! Maybe horoscopes are as good as our technicals this time. Fibonacci only for steady markets?

  78. 78
    zman Says:

    Howard Weil cuts DO target to 125 from 145. DO at $70. Weil (pronounced wheel for the uninitiated) is one of the preeminent energy focused brokerages out there.

    Cut NE to 50 from 70. NE at 25.

  79. 79
    zman Says:

    Hey Bill, any short thoughts on the tankers? This is just round 1 in my opinion from OPEC. I was thinking FRO puts.

    Tom – wow. I’m floored by the fact that someone tracks that stuff, lol.

    Barclays cuts NE target from $61 to, wait for it, $59. Stock still at $25. Contracts are take or pay, don’t take or don’t take those rigs, welcome to court.

  80. 80
    bill Says:

    I think its time to get out of tankers and agree with buying puts on fro

    The dry bulker market is abysmal…i think there will be bankrupcy announced soon

  81. 81
    Sambone Says:

    2:35 pm EST

    Oil Falls As Poor Demand Overpowers OPEC Cut

    By Gregory Meyer

    NEW YORK — Crude oil futures Friday fell to their lowest point since May 2007, with concerns of a global recession overwhelming an Organization of Petroleum Exporting Countries decision to trim output.

    Light, sweet crude for December delivery was recently down $4.38, or 6.5%, at $63.46 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange fell $4.19 to $61.73 a barrel.

    Nymex crude is off more than $80 from July’s record highs. Oil’s speedy reversal pushed OPEC to convene an emergency meeting in Vienna early Friday, where the cartel pledged to cut 1.5 million barrels a day from its production quota of 28.8 million barrels a day, effective Nov. 1.

    Oil prices fell regardless, as traders focused on prospects for weaker consumption growth as the world economy hangs on the brink of a recession. Global stock markets tanked. The Dow Jones Industrial Average opened more than 300 points lower.

    “It’s simply being overwhelmed by this demand deterioration theme,” said Jim Ritterbusch, president of Galena, Ill.-based energy trading adviser Ritterbusch and Associates. “As we see global equity markets continue to plunge and see the U.S. dollar continue to rise against the euro, these items easily overshadow the impact of this production cut from OPEC.”

    Amid the malaise, large consumers said OPEC was dragging the economy down further. A spokeswoman for the U.S. Department of Energy said “we need more supply in the market, not less.” The International Energy Agency, an energy watchdog for the most industrialized nations, said it was “concerned that reductions in supply may ultimately exacerbate what remains a fragile global economic situation.”

    OPEC said the market has been oversupplied “for some time” as oil demand slows down. In a press release, the group said oil’s decline “may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

    Past OPEC production cuts haven’t immediately stoked higher prices. Some analysts say the group is powerless to arrest oil’s price decline, at least in the short term.

    “You have to appreciate that there are two drivers behind commodity prices, supply and demand,” said Stephen Schork, editor of the Schork Report energy markets newsletter. “OPEC cannot affect demand.”

    Front-month November reformulated gasoline blendstock, or RBOB, fell 12.09 cents, or 7.7% to $1.4569 a gallon. November heating oil fell 9.99 cents, or 4.9%, to $1.9298 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  82. 82
    zman Says:

    $8500 per day for a Capesize, down from $230,000 over the summer. What a windfall for China.

  83. 83
    bill Says:

    The ceo of drys sold off 9 capes (from his personal holdings (to drys) at record hi prices of 135 m each 2 weeks ago.. Really criminal imho

    8500 day covers the crew with no cash flow to cover the debt

    Drys could go belly up if Long term charters default

  84. 84
    zman Says:

    XOM trying green.

    Energy sector volumes look very light.

  85. 85
    cargocult Says:

    Glad to hear the talk about getting out of tankers. It could be almost time to get in. Cost for FRO is $9000 a day to operate a VLCC.

  86. 86
    zman Says:


    I was thinking of shorting the tankers and sniffing around in the drybulks. Probably do nothing for another week or two on the drybulks, last I checked they did not yet have all the dates for 3Q out yet.

  87. 87
    cargocult Says:

    Bill, the sale to DRYS was for stock not cash. Does that make you feel better. I think it is more like the same relationship SFL has to FRO where they put the deal together then lease or sell the ship with the financing in place to another company.

  88. 88
    rlogan1301 Says:

    this market can’t sustain anything…gets to about -170 and then loses it…frustrating.

  89. 89
    cargocult Says:

    When credit markets unfreeze there will be a lot of cargo wanting a ship all of a sudden. Lots of stuff just sitting on the docks waiting for letters of credit as I understand it.

  90. 90
    zman Says:

    Cargo – reading my mind. When thing free up, the BDI launches and takes the bulkers up with it.

    I have never thought much of CEO Economau’s (sp?) personal vs company dealings. Even if for stock just seems wildly dilutive if they sold to him at above market valuations which I think was the case. If anything, he should have taken a haircut to market value for the good of the shareholders, like Tom Ward did at SD with his working interest’s sale to the company. There is a general sense of impropriety that shadows DRYS…pretty sure it will run with the others if the BDI bounces but I’ll pick someone else for the ride.

  91. 91
    zman Says:

    RL – roger frustrating. Tear eyes off the minute chart, unless you are day trading does not matter.

  92. 92
    zman Says:

    Interesting what’s up in energy land.

    XOM – no debt, boat load cash
    EOG – very low debt, going to be no debt mid next year as per plans
    RRC – conservative (boring) call yesterday
    XTO – ok, lot of debt, don’t really get that move

  93. 93
    cargocult Says:

    I liked his move into drilling rigs and the deal on the ships was a long time in the making not just a quick unloading of assets. They are fully financed and and leased profitably as well. Or maybe I just drank the kool-aid.

  94. 94
    zman Says:

    Thanks for the color Cargo…need to check some other names in the space soon.

    More green on the screen than at any other time today.

  95. 95
    teomax Says:

    I just heard that IG reached around 240 today.
    One guy on another forum post about reason for IG and credit markets frozing this:

    “The first backstops (FED guarantees) caused rushes into those instruments. This starved another area, which then had to be backstopped. That in turn made the guaranteed base bigger, which starved the rest even more severely.

    Now we’re the point that a significant part of the credit market in the US has a backstop and as that universe gets bigger the starvation gets more acute. This doesn’t necessarily cut off credit, but it makes it ruinously expensive.

    If you can only earn 6% on capital but need to pay 10% for that capital, you’re fucked and dead.

    That’s the essence of the problem.”

    he directly connect FED backstops as cause of capital flight out of the emerging economies.

  96. 96
    teomax Says:

    so unintended consequences are really big and threating to take down few countries…

  97. 97
    ram Says:

    Wow, that was very eye opening teomax. Nicky, 8500 didn’t hold today, therefore…..

  98. 98
    zman Says:

    Ok, I’m done for the day. Have a good weekend gang. Given the predictions on the day I fell pretty fortunate we didn’t get utterly killed.

  99. 99
    elduque Says:

    Re dry bulk carriers. I have spent more hours on this area than anything else. I view them as a true bargain, providing that the cos. charters are medium term. So far the best of the bunch is NMM, PRGN, EGLE and OCNF. In the case of NMM all the charters are insured (conference call yesterday). Bill is right that the charters could blow up, but it seems to me that the market doesn’t distinguish between term charters and the spot market. Whether the ships are old or new. The spot market is the BDI and it is probably going to take the better part of the next month to get the credit lines loosened up. After all, the treasury hasn’t distributed the money to the major banks yet. Once the BDI starts to move up the good stocks will have doubled. In the meantime you get anywhere from 20% to 35% to sit and wait. Which by the way is just about what you get to sit with EVEP and some of the Canadian Energy Income Trusts.

    Yes, there is the risk that the charters may blow up, but again do some due diligence and look at when they were originally placed and at what terms. Yes, it is true that the economy is going to go into the worst recession ever. However, the last two recessions started with interest rates significantly higher and they certainly didn’t have a government that has expanded the money supply to this degree. I think that the one thing that will bail out the economy will be a good bout of inflation. To that end commodities will once again be in vogue.

    Ok, I am finished. Have a great weekend.



  100. 100
    mahout Says:


    I know I’m late, been woikin. And you know woikin is for saps.

    Loved your # 72 and just wanted you to know my plaque says: Graduated Magna Cum Lousy.

    Your “long and boring wash out” end to the bear makes sense to me. And makes me think, maybe Roubini is right when he says it will not be a “V” or a “U” but probably an “L” bottom. Time will tell. As to driving the car one more year, my old hoss suburban is 10 years old this month. You mean I have to wait another year? Have mercy.

  101. 101
    bill Says:


    no it doesnt make me feel better..

    it was for stock and assumption of debt and it was priced at 135 m per ship which is 50 m more than the current market

    ed..i was the largest bull in this sector.. there is a time to be in and a time to be out.. Now is the time to be out

    aside from the charter party risk
    no bank is lending
    a glut of ships
    cratering demand
    cratering rates
    will cause bankrupcy
    which will ripple thru the industry
    there are people on the wrong side of the ffa trade that will also default

    and who is insuring the charters aig?? lehman?? some foreign bank that might go belly up??

    someone in the us thought they had insurance with credit defaults swaps

    dont get mesmerized by the dividends, they will all get pulled and or slashed next year imho

    the best bet for survivors are the firms with low debt like dsx..anyone that has 50 % debt to equity is already underwater as asset prices have fallen 40 to 50 %

    NMM has no equity they have a negative net worth

    asset impairments charges to come as these firms bot ships at hi prices when rates were hi

    debt covenants require equity to be a certain level

    this is like mark to market accounting

    very similar to the bond mess


    unless you are hoping that this mess will suddenly go away

  102. 102
    Nicky Says:

    Packman – as Z would say I hear ya! Unfortunately according to the Elliott wave count this just ain’t done!

    Simply put I have two counts on the table right now. My preferred says that five minutes before the close today we started iii of V down. If so expect huge downside starting on Monday. Targets are 790, 768, 747 or the low 600’s on the SPX (the latter highly unlikely until next year and with a big intervening rally) Dow obvious targets are the 2003 lows around 7200 and then 6800 or 6300. Wave 5’s are fear driven and gut wrenching.

    The alternative count says a b wave finished at the lows today and we are embarking on a c wave to the upside which should finish at around 1050 on the SPX, 9400 Dow before we turn lower and still have to do the fear driven gut wrenching wave 5!

    Sincerely I hope its the former and we can get this over with and start what will be a multi month long rally and be a huge shot to the upside. I think I have said on here before that everyone will at that point think that the worst is behind us and we are starting a new bull market – that will not be the case. But it will be a bear market rally so in fact much more vicious than a bull market rally. Likely it ends March/April 2009.

    I disagree with the comments made today on here regarding everyone now following technical analysis – it seems to me quite the opposite listening to CNBC who continue to scoff at any sort of technical analysis particularly fib levels and Elliott wave – at their peril may I say. If many of them had watched it this would be coming as no surprise and they could have been better prepared. Sure they wheel out people like Roubini and Schiff as they have been proved to be right but they would hardly give them air time 6 months ago when they were warning of all this.

    USD by the way looks to be about to go parabolic and I am sticking by my previous target levels of 91 – 92 before this is is done. Again a bear market rally.

    Anyway just my two cents worth – I am looking forward to the rally myself and there will be plenty of time to get on board.

  103. 103
    PackMan Says:

    Nicky; not a big believer in Elliott Wave, if I may say w/out scoffing.

    I don’t know where this goes; but a) I can’t wait for October to end; and b) I think that massive unwinding of hedge funds and other positions is largely behind this, and notwithstanding a recession scenario, this has gone too far (but can go farther).

  104. 104
    Nicky Says:

    Packman – each to his own so to speak. To be honest it really doesn’t matter what fundamentally is behind the count – you just need to know the count and you can see what is ahead. Bull or bear this has been exhausting and the endless falls are very depressing! I have to agree with Art Cashin – this moment in time is likely to be talked about for generations as will the coming rally.

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