Tuesday Fed Rescue Bounce


Sentiment Watch: Relatively boring trading yesterday as people hold their breath for some sign from the Fed and then gave up and pounded stocks for a very ugly close. Overseas markets bounced mightily last night and futures are called up in the U.S. equity markets and in the commodity markets as well. I remain long with longer dated calls than is normal for me and in larger more liquid names (for the most part) than I generally traffic. In the event of a modest to goodly sized bounce I remain confident that the industry stalwart names will receive more attention from market participants as everyone at this point is gunshy and no one wants to step in (with volume) into smaller names where they don't see a hundred or so of their counterparts stepping in as well.

In Today's Post:

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

Holdings Watch: No Changes.

Commodity Watch:


Crude oil fell 0.93 yesterday closing at $63.22, having given up early gains like everything else. Price moved in relation to the broad markets and on no real news. A number of stories sited the potential for a second emergency OPEC meeting but traders are completely enraptured by the equity markets. This morning, crude is up between $1.50 and $2.00 per barrel with equity futures and as the dollar is actually off today.  While the dollar has been going ballistic in recent weeks (and pressuring crude) I have to think that large interest rate cuts and a flood of dollars being injected into the financial system spell reversal when the credit market do, in fact, thaw. This could lead to a rapid and large bounce in crude, especially if we have a priced based demand response around the world.

Natural Gas fell $0.12 to $6.12 yesterday in fairly quiet trading. The November contract expires tomorrow and it promises to be a volatile last session. This morning gas is called up slightly.

  • Imports:
    • LNG shipments last week were 0.8 Bcfgpd, 0.1 Bcfgpd higher than year ago levels. This is the tail end of the season and not a meaniful rise.
    • Canadian imports average 8.4 Bcfgpd last week, down 1.4 Bcfgpd from last year.

Crack Spread Update: Timber!!!! But 4Q08 is so far still ahead of pathetic levels seen at the end of last year.

ZComment: Untenable spreads on the Gulf Coast and Mid-Continent, going to be listening to VLO this morning at 11 EST for their thoughts.


Refiner Multiple: How many toes do I have to lose dipping into this pond that perpetually seems cheap. I do think that when credit thaws, this group will bounce and bounce hard. But so will lots of things. Given that, I think I want to watch on only take quick in and outs here. Noting the substantially higher margins in the Northeast I have to take a look at SUN but need to comb through the groups balance sheets before jumping into anything here. I will be listening closely to the VLO call which is relatively alone on the roster of as far as energy names go today and should get lots of attention.

Stuff We Care About Today:

VLO Reports 3Q Earnings

  • EPS of $1.86 (ex gains) vs $1.54 expected
  • Net debt to cap of 15.8% (that's low to the group)
  • Cutting Capital Budget:
    • 2008 falls $800 mm to $3.0 billion
    • 2009 falls $500mm to $3.5 B
  • Stock Repurchase: bought 8.3 mm shares in October and 23 mm shares YTD (about 1.5% and 4.3% of shares outstanding respectively)
  • Financial Picture Comment: buy back stock, reduce debt and hold more cash than normal while investing in growth projects.
  • Key Quote: Looking at market fundamentals, a key item in the third quarter was the sharp drop in the price of crude oil, and this decline has obviously continued so far in the fourth quarter. The price of WTI light sweet crude oil began the third quarter at approximately $140 per barrel, but recently closed below $65 per barrel. Although the fall in crude oil prices has not translated into higher margins for all of Valeros products, the lower crude oil prices have led to substantially lower retail pump prices, which is positive for consumers and demand for our products." ~ CEO Bill Klesse.  And I'd add should lead to a price based demand response.
  • Refining Margin Comments: gasoline was very volatile in the quarter while distillate margins remained very good throughout the quarter and most importantly "we continue to expect excellent distillate margins even though worldwide economic activity is slowing"
  • Hurricane Comments: 4 refineries shut during the storms, no major damage
  • Conference call at 11 am EST

NBR CFO Quits. No reason given, 18 year NBR v eteran in his 40s quits just after the 3Q release. Hmmm.

(WLT) - Releases after the close and I am strongly considering playing today.

(SWN) - Announces results Thursday night for a Friday morning call and I will likely add some exposure today there too.

Odds & Ends

Analyst Watch:

  • Rodman Renshaw starts (SWN), (REXX) and (RRC) with outperform ratings.
  • Citi cuts FSLR target from $450 to $205 and maintains Buy rating. That kind of cut always makes one wonder what the analyst was thinking in the first play since estimates are not falling but it is more of a "getting in line with reality" cut than it is a downgrade and a number of analysts have been doing the same here with the effect being a price target that is closer to $200 (with the stock at $108).
  • Carris cut their (FSLR) target to $170 from $350.
  • UBS cuts solar names (STP), (ESLR), (SOLR), (ENER) from Buy to Hold. This sector is setting up for some nice gains as the analysts give in and give up. Note he didn't cut his rating on big dog in the pathc FSLR, analysts are playing fewer names here just like I suspect will happen in the traditional energy patch. 



105 Responses to “Tuesday Fed Rescue Bounce”

  1. 1
    Nicky Says:

    Good morning.

    Broader market. Dragged up from the edge of the abyss overnight thanks to Asia. I do not think the lows are in.
    SPX could trade as high as 929 but resistance is at 867, 883 (this has been a key resistance number in the a last few days), 886, 896, 902,910. The open is being pumped and there is good chance the forced buy programs will be done in the first 15 minutes.

  2. 2
    zman Says:

    Morning Nicky – appreciated your thoughts on that article, will pass along to the sender. You might want to share your thoughts on doom on the Street vs complacency of Joe six pack. I thought those comments were spot on.

  3. 3
    BirdsofpreyRcool Says:

    IG currently at 217, -10 from yesterday’s weird, wide close.

    Credit is watching stocks, but is reluctant to follow them any further it seems. Credit thinks stocks are going lower, but the moves are very random right now. Very little is trading and the CDS desk is waiting for “the next 10 bps move to hurt someone.” That said, they are not sure which direction that will be.

    Parting words from the CDS desk: Mines everywhere, watch your step.

    [Sorry… can’t take much direction — or comfort — from those comments this morning. Will update as we move along.]

  4. 4
    zman Says:

    …And then, everything was better…lol.

    Nice moves in everything. Especially liking the majors.

    Going to add some WLT on the morning pullback, probably $35 December calls.

  5. 5
    zman Says:

    Thanks Bird, passed that piece along to your other email address.

  6. 6
    BirdsofpreyRcool Says:

    Strong sectors this morning: energy/refining, gold, metals, general merch stores, broadcasting, auto mfg, coal and comsumable fuels, construction and farm machinery, alumimun, and multiline insurance.

    Weak sectors: building products, household appliances.

    So, yes… suddently (almost) everything is better. (until lunch, that is… who knows?)

  7. 7
    bill Says:

    ng turns negative

  8. 8
    BirdsofpreyRcool Says:

    Consumer confidence just reported… 38… a record low.

  9. 9
    zman Says:

    Think they were looking for 52 on confidence, down from 58 right. ouch

  10. 10
    zman Says:

    Bill – yep, NG is marking the move in crude. If the equity markets can shrug off consumer confidence which is a measure of the past and get on with feeling good with Ben’s next move, (big if I know), then oil will come back up pulling NG into the green. We need to see that big drop I’m anticipating in this week’s injection materialize. We are much colder this week than the last in the south, tipped at freezing last night, so at least the weather is helping.

  11. 11
    rlogan1301 Says:

    the action in ung lately has been disappointing…i hope the statement in today’s post is correct about late volatility in november…my dec ung calls are not looking good.

  12. 12
    zman Says:

    From Reuters ~

    OPEC’s secretary-general, Abdullah al-Badri, said today that if prices continued to fall, Opec would call another meeting.

    “If circumstances dictate we have to have another meeting, we will have a meeting before the (December) Algerian meeting,” Badri told Reuters on the sidelines of a conference in London.

    Attending the same conference, Libya’s most senior oil official Shokri Ghanem said Opec could need to reduce output further.

    “Talking about the recent cut, we have to wait to see how the market behaves in the coming weeks … If the price continues to deteriorate, it’s going to affect everything,” Ghanem said.

    Last week’s emergency Opec meeting in Vienna was swift to reach agreement on the need for an output cut. Opec president Chakib Khelil of Algeria said the group – which has often been accused of disunity in the past – had stood firm.

    “All the countries agreed (in the meeting). There were no discussions, no conflict, not with Saudi Arabia or with Venezuela,” Khelil was quoted as saying in Algerian newspaper Liberte.

    “Either the market believes us and the prices stabilise. Or it doesn’t, and then we’ll have to do things so that the market believes we are serious.

  13. 13
    zman Says:

    RL – mine either, when I went in I wanted enough time for winter to kick and with the thought that I would add more.

  14. 14
    BirdsofpreyRcool Says:

    fwiw, there is no way stocks can hold up after a confidence number like that… but, this mrkt seems to move in the direction of maximum pain. maybe everyone got short yesterday, 20 mins before the close.

  15. 15
    BirdsofpreyRcool Says:

    being told there are 3 reasons stocks are doing so well:

    1) a poor confidence number was priced in
    2) fed is forced to cut rates
    3) it’s month end…

    that said, the credit desk is recommending to sell stocks here and get flat. [just passing along credit desk comments, I have no dogs in this hunt today]

  16. 16
    BirdsofpreyRcool Says:

    IG 219

  17. 17
    Jay Reynolds Says:

    New presentation by Matthew Simmons, looking at the high risk of demand softening masking supply drop.


    Freezing mah arse off in the NW LA oilfield wondering how other stripper well operators are faring.

  18. 18
    zman Says:

    RL – further, we are 10 days into a trade that does not expire for another 53 days. The market has acted like complete junk since entry so while UNG has not acted well, its not alone and being influenced strongly by the downward spiral in crude.

    On crude note comments in 12. OPEC is setting itself strongly against further price drops. For months near the top they talked price down, especially the Saudis…now they are flipped to talking it up and I think will be much more proactive from here on out. The other day, their president basically said don’t blame us for the global economic mess, we will do what we want as oil prices won’t matter to the financial situation.

  19. 19
    BirdsofpreyRcool Says:

    IG 220

  20. 20
    BirdsofpreyRcool Says:

    IG 221

  21. 21
    BirdsofpreyRcool Says:

    IG 222

  22. 22
    zman Says:

    Jay – thanks, still going through it. His comment about nothing in this crisis working to add production is very pertinent. Ya gotta think Pemex, which has been under pressure budget wise and decline wise will have a bigger problem growing at 60% off oil. Projects are getting delayed, that’s clear. The key point is that demand can react much more quickly than supply. Not just in the U.S. but in developing countries. The drop in oil is a big boon to consumers in Asia, India, and Africa where per capita consumption has been rising. Counterbalance that with delayed large scale oil projects and you can see oil zooming right back from whence it came over the next 2 years or so.

  23. 23
    zman Says:

    Slides 11 through 13 of presentation in #17 definitely worth your while if you’ve never looked at a Matt Simmons piece before. Can be a bit eye opening.

  24. 24
    BossmanG Says:

    Bird, appreciate your credit comments…very much thanks.

  25. 25
    zman Says:

    Bird, market doing its best to shrug off consumer confidence. Oil following markets, natural gas following oil.

    WLT back to flat from early up $3, still thinking to add some before close.

  26. 26
    BirdsofpreyRcool Says:

    IG stopped widening, back to 221

    Think the market is on hold, ahead of the Fed’s announcement tomorrow at 2:15 EDT. If we close up a lot today, market will sell off on a Fed decision tomorrow… and the reverse holds true. The minefield analogy holds.

  27. 27
    zman Says:

    Be careful what you wish for watch:

    IEA sees project delays due to low oil prices. These are the guys who kept demanding that OPEC produce more, now they see a risk to long term supply growth as projects are delayed or canceled.

    Quotes from the IEA head:

    “We may see lots of impact on small upstream projects,” he said.

    “There have been some talks that big projects may also get delayed. We are concerned about it.”

    “Supply will become very tight again in next several years.”

  28. 28
    BirdsofpreyRcool Says:

    IG 222

    back to the wide for the day

  29. 29
    BirdsofpreyRcool Says:

    IG 223

    tension between bad consumer fundamentals, upcoming election, and a move by the Fed tomorrow. any direction is possible in the short run. But, credit is pointing to a lower stock market now.

  30. 30
    BirdsofpreyRcool Says:

    IG 225

  31. 31
    Sambone Says:

    LONDON (Dow Jones)–Oil prices are expected to remain depressed amid a global
    economic slowdown but will also provide a deterrent to industry investment,
    ultimately paving the path for higher longer-term prices, economists at the Oil
    & Money conference in London warned Tuesday.
    “What one should expect is a period of low oil prices for 12 to 18 months
    until the economy starts to recover, and then the price will start going up
    again,” said Christof Ruehl, chief economist at BP PLC (BP.LN).
    In the longer term, the combination of market tightening due to capacity
    constraints on the supply side, and the continued rise of emerging economies on
    the demand side will likely propel prices higher, he said.
    Oil demand growth in 2009 may be flat or negative, but oil demand has staged a
    “structural shift” to non-OECD countries, and away from mature Organization for
    Economic Cooperation and Development economies.
    “The non-OECD demand will not go away,” Ruehl said.
    The staggering decline of oil prices in recent weeks could become a “major
    problem” in the future if oil producers don’t invest in production capacity,
    said Fatih Birol, chief economist of the International Energy Agency, who also
    warned that the resilience of emerging market demand shouldn’t be
    Guy Caruso, senior adviser at the Center for Strategic & International Studies
    and former administrator of the U.S. Energy Information Administration, said
    investments might be hampered if investors can’t see a floor for prices.
    Meanwhile, Edgard Habib, chief economist at Chevron Corp. (CVX), said weaker
    growth was unlikely to tip the world into a full-blown depression, largely due
    to capital from Asia and the Middle East, which can be deployed during the
    financial crisis.
    “I believe we will not have a world depression,” said Habib, adding that
    economic growth in China was unlikely to dip below 9%.
    By Lananh Nguyen, Dow Jones Newswires
    Dow Jones Newswires
    10-28-08 1042ET

  32. 32
    zman Says:

    Bird – odd how market watch is running a story titled credit freeze thawing. http://www.marketwatch.com/

    When you click through the headline the story offers no support for the claim however.

    Energy sector back to mostly read with only the big caps and names with news remaining green.

  33. 33
    BirdsofpreyRcool Says:

    IG 226

  34. 34
    BirdsofpreyRcool Says:

    There is no thawing of the credit markets. None. Some benchmark rates have come down, but no one should confuse that with debt issuance actually getting done. We are frozen as tight as we have ever been.

  35. 35
    zman Says:

    I know Bird, another case of a report using his rolodex headline selector without a license.

  36. 36
    BirdsofpreyRcool Says:

    IG 227

  37. 37
    zman Says:

    Bird, spot on with your “market can’t ignore” consumer confidence number. Looks like a horrible Christmas for the retailers is set up.

    Getting close to WLT buy in, its getting pounded.

  38. 38
    BirdsofpreyRcool Says:

    IG 229

  39. 39
    BirdsofpreyRcool Says:

    z – #35. i know you know.

    it’s just my knee-jerk response to observations that profess to describe an elephant by examining it’s toenail.

  40. 40
    BirdsofpreyRcool Says:

    IG 228

    so, taking a breather.

  41. 41
    zman Says:

    ZTRADE: Added SWN $25 November calls SWNKE) for $3.50 with the stock at $24.60 and earnings on Thursday evening.

  42. 42
    zman Says:

    XOM 2nd best performer on the Dow list after BA, and not counting GM.

  43. 43
    BirdsofpreyRcool Says:

    IG 227 1/2

  44. 44
    BirdsofpreyRcool Says:

    IG 227… unch’d for the day, now, but struggling to stay there.

  45. 45
    Nicky Says:

    Interesting BOP – wonder if the fact that the credit markets are still frozen is having a bigger influence on the indices. There is talk that the banks are sitting on the money given to them and using it for acquisitions and not lending!

  46. 46
    BirdsofpreyRcool Says:

    There is only so much any govt can do. At some point, real investors have to come back to the credit markets. Whether banks actually have the capacity to lend that money (or if it just shores up minimum capital requirements), I don’t know. But I do know that if banks lend what money they have, they are not sure how to replinish “the goods on the shelf,” if you will.

  47. 47
    Nicky Says:

    SPX really needs to take out 839 during market hours rather than globex. I still expect it to happen…

  48. 48
    BirdsofpreyRcool Says:

    Basically, people have to wake up one morning and say “gosh darn, I think it’s time to move out of 3 month t-bills and into a corporate bond fund. 0.76% just ain’t gonna make enough money to keep up with the cost of living!”

  49. 49
    zman Says:

    VLO conference call:

    “our company is financially solid, we are going to weather this storm that is going around the world, we will continue to increase cash, increase dividend (yield now at 4%).”

    NG up a dime by the way.

  50. 50
    zman Says:

    VLO CC: they were exporting over 20 cargoes a month of distillates during 3Q. Lots still going to Western Europe.

    They see future as exporter of distillate long term. Will be adding to cargoes going to Latin America in the winters, says LNG cost for generation down there is very high.

    Ethanol comment: ethanol is taking market share from oil refiners. 590,000 bopd now and climbing next year, tax incentive is huge which the consumer pays for and it does nothing for the environment. VLO opened up the prospect of investing in ethanol. Wow. That’s like dogs and cats getting married.

  51. 51
    zman Says:

    November natural gas at $6.246 up 12+ cents, that’s just a hair below those 6.28 CHK October knockouts.

  52. 52
    zman Says:

    Friend of the site sent me a piece on infrastructure needs:


    Makes a lot of sense to look at Quarryman’s VMC as it hits fresh 52 week lows. There has been talk about another round of federal incentives and one option has been to invest in infrastructure which would then trickle down to companies like VMC and CAT.

  53. 53
    zman Says:

    VLO CC:

    They won’t quantify how much more cash they plan to hold than normal. Street does not like that as it implies a potential for even lower capex than they announced this morning which implies lower growth. I think its probably ok to take some common on and I own FTO as a better run proxy of the industry now but in listening to this I am not going to play VLO. I may go ahead and get some SUN as they seem to be better positioned (geographically) for stronger earnings.

  54. 54
    zman Says:

    FSLR getting crushed again. Nice. Deutsche adding to the target price cut today dropping theirs from $330 to $200. And so the stock falls $10 to below $100. It’s like people only read the first half of sentences these days.

  55. 55
    zman Says:

    These are pretty priceless.


  56. 56
    zman Says:

    Dow up 255, any news out for the rally or just the typical run into a vacuum?

    Bird, any IG comments?

  57. 57
    BirdsofpreyRcool Says:

    comments from the credit desk are along the lines of “we can’t believe stocks are rallying.”

    there can be long (months) periods of time where stocks trade out of sync with bonds. frankly, that is one of the ways the Credit Freeze will end, with a stock rally pulling money into bonds. But, not today, i think. If we rally hard into the close, then we will sell off hard, post a Fed decision tomorrow (if past is prologue).

  58. 58
    ram Says:

    Exxon has been dethroned by VW?

  59. 59
    zman Says:

    Seems that the Fed/Treasury are out of ideas as to how to get lending going again. I don’t see how a 100 bps cut does anything to jump start things when there is no confidence out there. Everything is done on credit and it appears trade has ground to a halt with it.

    Ram – how so?

  60. 60
    zman Says:

    Talk about a flight to size in energy:

    XOI: up 3.9%
    XNG: flat
    OIH: down 1.6%

    with oil off a buck

  61. 61
    ram Says:

    Market Cap. VW is going through a major short squeeze.

  62. 62
    BirdsofpreyRcool Says:

    z – you can lead a horse to water, but you can’t make him drink (if he thinks there might be alligators).

    The Govt/Fed is indeed outta ideas. But, leaving interest rates where they are is a bad idea. Lowering 50 bps won’t really help, but not doing it would really hurt.

    It’s a Confidence Game now. And Confidence got it’s fingers burnt once too often (the LEH collapse was the last straw, to mix metaphors). What will make the US Bond Market confident again? A sustained stock market rally. But, will probably have to get through Christmas and a few months into next year before that can honestly happen (at the earliest). JMHO.

    IG 225

  63. 63
    zman Says:

    Saw it going up. Hard to get one’s head around those kind of numbers. Let’s see:

    XOM Annual Sales: $700 B, EPS of probably $9 this year.

    VW Sales of 37 B euros. hmmmm.

  64. 64
    BirdsofpreyRcool Says:

    IG 226… not a lot of volume, tho

  65. 65
    zman Says:

    Hey Bird, just let me know when we can have a full 3 days in a row of upside on the broad markets, seems like not a lot to ask at this point, lol.

    Also seems the dollar is due for a fall but only if credits starts unfreezing. Lot of chick and egg stuff here.

    On, down another dollar and potentially testing yesterday’s low (17 month low) OPEC sounds ticked and I would not be surprised at all to see them call a mid November meeting with the intention of another 1 mm bopd cut.

  66. 66
    antrimshale74 Says:

    BOP – I’m thinking the Fed/Treasury comes in and closes the markets right now so that we can end with an up day!

  67. 67
    antrimshale74 Says:

    I saw Dennis Gartman on CNBC the other day saying he wouldn’t be surprised to see oil eventually hit as low as $30. These days nothing would surprise me at all.

  68. 68
    zman Says:

    Antrim saw Shork saw $50 possible, $80 fair value. 2 weeks I ago he was say $25. Sense a change in sentiment for oil from guys like him. $30 shuts down oil sands production in Canada.

  69. 69
    BirdsofpreyRcool Says:

    as74 #66 – These days nothing would surprise me at all. (lol)

  70. 70
    antrimshale74 Says:

    I think it really speaks to the fact that nobody has any idea about anything right now. And that is very understandable. I was just in Alberta two years ago and they had over $100 billion of capital projects in the pipeline. I remember thinking that they would be SOL if the bottom fell out on oil prices.

  71. 71
    antrimshale74 Says:

    I don’t think I can stomach another downdraft at the close.

  72. 72
    teomax Says:

    Credit Crunch May Block 20% of Deep Oil Rigs, Slow Petrobras
    Credit Crunch May Block 20% of Deep Oil Rigs, Slow Petrobras

    By David Wethe

    Oct. 28 (Bloomberg) — As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades.

    About half of the 20 rigs in question are rented for when they’re completed in two to three years — no longer enough to ensure financing for units that can cost $800 million to build, said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston. The drillers building those rigs are mostly fledgling contractors and may lack enough cash to satisfy lenders amid a global credit crunch, he said.

    Norway’s Sevan Marine ASA has lost 70 percent of its value this month amid concern it won’t get financing for two drilling units. Houston-based Atwood Oceanics Inc. said Oct. 16 that it won’t exercise an option to build a deepwater rig at Jurong Shipyard Pte. Ltd. in Singapore. New rigs were being ordered to ease a shortage of deepwater gear needed to exploit offshore prospects like Brazil’s Tupi, announced in November by Petroleo Brasileiro SA, or Petrobras.

    “Petrobras would probably be the dominant oil and gas company that gets hit by this,” Uhlmer said.

    Jose Sergio Gabrielli, chief executive officer at state- controlled Petrobras, said the Rio de Janeiro-based company may need to help find financing for some of its suppliers. “We are concerned about the supply chain of products for Petrobras,” Gabrielli told reporters at a conference in Houston last week.

    `Supply Chain’ Vital

    Chief Financial Officer Almir Barbassa, speaking on the sidelines of the same conference, added that some suppliers are affected by the loss of trust by lenders.

    “This causes much more problem to our supply chain, as Mr. Gabrielli said, than to ourself directly, but we cannot survive without our supply chain,” Barbassa said. “We feel that they are going to find some way to finance themselves.”

    Executives at Noble Corp., the third-largest U.S. offshore oil driller, were quizzed about financing availability in the industry on their earnings conference call Oct. 22. “A number of companies” recently awarded letters of intent, known as LOIs, by Petrobras may have difficulty getting rigs financed, CEO David Williams told investors and analysts on the call.

    “While we don’t believe it’s likely that we or other contractors would be interested in stepping into those agreements due to the low day rates contained within the LOIs, it has opened up some dialogue with Petrobras for additional opportunities for Noble,” Williams said.

    Brazilian Rigs

    Petrobras plans to add 63 deepwater rigs by 2018 to develop so-called pre-salt fields in the region that includes Tupi, the company said Aug. 13. Gabrielli said in a May interview that the company is leasing most of the world’s rigs that can drill in more than 3,000 meters (9,800 feet) of water.

    Tupi and four to seven similar prospects off Brazil’s coast may hold 50 billion barrels of oil and may cost $240 billion to develop, according to Peter Wells, director of U.K. research firm Neftex Petroleum Consultants Ltd. Even after crude prices tumbled more than $80 a barrel from the all-time high set in July, that much oil would be worth more than $3 trillion.

    Noble, Transocean Inc. and other large U.S. drillers may be poised to take advantage of the credit crunch by using their large cash balances and access to credit to buy sought-after rigs at a discount, said Adam Miller, a debt analyst at Fitch Ratings Inc. in Chicago.

    Those companies would likely go after rigs that were being built on speculation because they wouldn’t be tied to day rates signed in the past that are lower than today’s rates, Miller said. Anadarko Petroleum Corp., Exxon Mobil Corp. and other producers have leased advanced deepwater rigs at $600,000 or more a day because of a shortage of such units.

    Progress Payments

    Drilling companies typically must make so-called progress payments to the shipyards building their rigs at certain project phases. Some drillers rely on debt to make those payments and pay back the money when the rigs enter service and start generating income.

    National Oilwell Varco Inc., the world’s largest maker of oilfield equipment, said last week that one of its customers was past due on progress payments. Chief Financial Officer Clay Williams declined to identify the customer or what equipment was ordered. He said the project represents about 1.5 percent of National Oilwell Varco’s $11.8 billion order backlog.

    “In view of that, we’ve stopped work on their project and we’re working with them to try to get paid and get back on track,” Williams said in a telephone interview. “Most of the credit impact we’re seeing so far isn’t on our existing book of business, but rather on the prospects out there.”

    Drilling Seen Slowing

    National Oilwell Varco limits its risk by requiring down payments of at least 10 percent on the derricks and other major pieces of equipment it builds for customers, according to Marshall Adkins, an analyst at Raymond James & Associates Inc. in Houston.

    The number of oil and gas rigs active around the world climbed in September to 3,557, the highest since 1985, according to a count by Baker Hughes Inc. U.S. rig counts will drop by about 400 as producers cut spending amid declining natural-gas prices and tightening credit, Barclays Capital Inc. analyst James Crandell said this month in a note to clients.

    The shortage of deepwater rigs brought inexperienced contractors to the industry in the past several years, and those are the drillers now in jeopardy of failing to deliver on new rigs, said Jeffrey Chastain, vice president of investor relations at Pride International Inc. Houston-based Pride, which has lost 71 percent of its market value since the end of June, has four offshore rigs on order.

    “Being new, they don’t have the history of operating rigs,” Chastain said in a telephone interview. “They’re challenged by having to set up an infrastructure that includes hiring qualified personnel to run the rigs once they’re delivered.”

  73. 73
    Sambone Says:

    HOUSTON (Dow Jones)–Output of crude oil and natural gas from the Gulf of
    Mexico increased Tuesday, as energy companies worked to restore production that
    was shut in by Hurricane Ike, the U.S. Minerals Management Service said.
    The agency reported Tuesday that 27.8% of crude oil, or 361,913 barrels a day,
    remained shut in. Thursday, MMS reported 32.3% was still off-line.
    The production figures are estimates based on reports of what operators expect
    their output to be, MMS said.
    Natural-gas output of 2.476 billion cubic feet a day, or 33.5%, also remained
    off-line. Thursday, 34.5% was still off-line.
    The Gulf of Mexico produces about 1.3 million barrels of oil a day and about
    7.4 Bcf of natural gas, the MMS said.
    Workers remained evacuated from 71 production platforms, or 10% of the 694
    staffed production platforms in the Gulf of Mexico, the MMS said, citing
    numbers it gathered by 11:30 a.m. CDT Tuesday. It could be six months before
    some facilities are operational.
    The agency no longer provides daily output updates, and instead reports on
    Tuesdays and Thursdays.
    All of the rigs in the Gulf are staffed.
    Hurricane Ike made landfall on the Texas Gulf Coast Sept. 13 as a Category 2
    -By Susan Daker, Dow Jones Newswires

    Dow Jones Newswires
    10-28-08 1411ET

  74. 74
    zman Says:

    Teomax – nice find on 72. I think the prospect of the deepwater drillers buying rigs on the cheap is still a few weeks or months away and if RIG does it they will pay with their stock price given their backlog under construction and big debt on balance sheet.

    Bird – here’s to hoping you are wrong on that comment re markets close up b4 fed and sell down with the decision. No offense.

    UNG trading in parity with December NG futures today, up 1.4%.

  75. 75
    BirdsofpreyRcool Says:

    z – i don’t want to be “right” on that one either! at some point, the pattern has to change. it always does.

  76. 76
    zman Says:

    Dow and S&P up 4%

    XOI (Big Oil) up 6%
    XNG (gassy stocks) up 1.6%
    OIH flat

    Interesting moves in DO vs RIG. Glad to be long DO. Not ready to add RIG but at some point…

  77. 77
    zman Says:

    Bid WLT earlier, missed, may play nearer the close but a nearly 3 point swing off the bottom with earnings tonight may have me just sit out.

    Dow suddenly up 4 hundred. Majors loving it.

  78. 78
    zman Says:

    Bird – market needs high colonic, just not sure what the mechanism will be. Saw one of my E&P research buddies of yore no longer employed. Bet Street head count shrinks a lot before Christmas which may leave some smaller cap names with no/scant coverage. This is a time for diligence.

  79. 79
    BirdsofpreyRcool Says:

    lol… following are comments from the CDS trading desk at a major NY bank (priceless):

    “wow… those equity guys are just inflicitng pain to each other today… took out the shorts and then puked out… then took out the longs and rallied it… and then ran through the cycle again. Guess the perfect ending would be a sell off in the last 10 minutes? who knows and who cares. stupid stocks”

    IG 224

  80. 80
    BirdsofpreyRcool Says:

    z re78: Credit Suisse just announced a 500 job cut this morning. And CS is one of the “safer” banks.

    Don’t think i would buy any co-ops in the City for a while. prices bound to come down.

  81. 81
    zman Says:

    Bird, oh yeah well that whole thing about gentlemen preferring bonds is bunk. Maybe for guys who like to do their transactions in dark alleys, lol. I prefer the bright light of freely trading equity markets. And if we see that swing reversal like yesterday again, I’ll toss the Majors and buy them back on the close.

  82. 82
    BirdsofpreyRcool Says:

    IG 220… tightening quickly now.

    i’d make the comment that this supports a stock market rally, but

    1) that would jinx the rally, and

    2) i tried that yesterday (and look what happened).

    just reporting the facts, m’am.

  83. 83
    BirdsofpreyRcool Says:

    Vail Plaza Hotel (completed just 10 months ago) just filed for bankruptcy.

    Between laid off bankers and lower oil prices, guess they aren’t predicting a very strong ski season.

  84. 84
    BirdsofpreyRcool Says:

    IG 222

    what is the direction of “maximum pain” for stocks right now?

  85. 85
    zman Says:

    I would imagine everyone is looking for an end of day sell down, could be quite the panic monkey event (like a black swan but with less apparent reason behind it). Aside from the Majors, the showing on the part of energy is pretty pathetic today with banks outscoring E&P by more than 2 to 1. Finger on the sell button on CVX and XOM, I can always buy them back.

    Bird – hard to say, awful lot of puts on cheap energy names open right now.

  86. 86
    isleworth Says:

    PQ acting terribly into this strength…….Any ideas Z?

  87. 87
    zman Says:

    Isle – see 76. That and I think its what I’ve been talking about regarding large safe, “household” names in Energy.

    Also, the “strength” is not to be trusted and is seen that way by those few buyers out there who are willing to commit capital for shorter and shorter time periods. Traders and fund managers are exhausted, take it from me as I’ve talked with several in the last few days and so getting in on value is not high on the priority list right now. They want liquidity and no surprises. Hence, XOM up 10%.

  88. 88
    BirdsofpreyRcool Says:

    IG 218

  89. 89
    elduque Says:

    Is there any new out on APL?

  90. 90
    zman Says:

    APL – none that I see, no.

  91. 91
    zman Says:

    15 point swing on FSLR

  92. 92
    bill Says:

    energy underperform by about half of the market move

    dow up 600 but i will take it

    first bulker stock to go under today
    they will default on 85 chsarter in ships

    dwt more to come

  93. 93
    BirdsofpreyRcool Says:

    IG 217

    bonds being dragged higher with stocks… guess there were a few shorts put on, thinking a repeat from yesterday was in the bag. SURPRISE! Max Pain.

  94. 94
    zman Says:

    Thanks for the bulker comment, bill, got any particular thoughts on who else is vulnerable there?

    Depends on which energy market you look at.
    XOM up 12%, CVX up 11% vs 8% for the broad market.

  95. 95
    BirdsofpreyRcool Says:

    IG 216

  96. 96
    ram Says:

    ZMAN – Any thoughts on selling the majors into strength?

  97. 97
    john11 Says:

    Z..what is knock-out deadline date for CHK end of month? for that 6.28?

  98. 98
    Popeye Says:

    Holding up well into the close.

  99. 99
    zman Says:

    John. Tomorrow, yes, $6.28 on the November strikes as far as I understand it. NG/X8 now trading 6.223 so we are right on the bubble. It won’t be the end of the world if they get knocked out, something like a $120 mm hit to revenues sounds about right in the 4Q.

    Ram – with 7 minutes til the close I am going to hold. The smarter move is to punt with both the CVX and XOM calls up 90% on the bid from my purchase. Going with a bit o gut on this.

  100. 100
    zman Says:

    Dow closed up 890. When I woke up this morning I did not think I’d type that. Maybe with “down” in place of “up”. Either way, 5 more of those and everything will be better, lol.

    10KP closed at 12,185 with about 15% cash (too low in my book).

    Beer thirty.

  101. 101
    Popeye Says:

    I’ll drink to that.

  102. 102
    etswd Says:

    -now i feel like an idiot, sold xom &cvx into rally. i know earnings will be good, but forward will be into headwinds. election, economics, etc maybe i was a day or two early or just plan scared. when i saw those pps, i jumped. any chance for a pullback on the big energys, zman ?

  103. 103
    mahout Says:


    Three things to make the energy shares happy today:
    1. Prospect of rate cut tomorrow.
    2. Prospect of another deep cut in production by OPEC surely coming soon.
    3. Fed and Treasury FINALLY sending big money to the 9 banks and gearing up to send to other banks and institutions as well.

    There are time lags in almost everything.
    In #1, time lag till it’s effect is played out in various rates, decisions and actual actions by banks and others. In #2, even when they announce a cut in production it is for a later date in time. How long does it take for a tanker to travel from the Strait of Hormuz to Louisiana, about 21 days? The effect is actually felt later. 3. We are finally getting action on the “Bailout”. Up to now it has been mostly talk. There will be a healthy time lag on the effects of the $250B as it is played out in many bank and commercial decisions.

    My point here is Time lag, Time lag, and Time lag. When things don’t get better as fast as we want, we don’t consider the time lag factor. It’s now or nothing with us. This is not realistic. It takes time to turn an ocean liner around. For almost the first time, today we can see the prospect of, perhaps, some real improvement. I know it’s iffy, but now a few positive things are about to have an effect on a hugely oversold and undervalued energy market.
    I felt strongly that today would be an up day for energy but did not have the guts to post it. And I wouldn’t be surprised if it continues up tomorrow.
    Hope springs eternal.

  104. 104
    zman Says:

    ETSWD – gotta run to dinner but don’t beat yourself up. I never, ever beat myself up over a “sold too early variety” trade. Once its in the can I take it out of my spreadsheet and take the option symbol off my marketwatch. Done is done.

    I watch a lot of stocks (see the ZEB Screens here):
    and this gives you perspective on how your names are moving in relation to their peers, putting the market aside for a moment (I’ll have market comments as it relates to the energy groups tomorrow). Looking at the big caps you sold it could have gone either way. I think that given their size they would be flocked to during this most uncertain time of times. So in a down market they fall less in an up market they outperform. Only in the insane up action of the last half hour did the smaller more speculative names catch up to the XOM’s of the world. Tells you something about the nature of this rally. Volumes were nothing to write home about either although I have not taken a tour of all the subsectors to confirm that yet. My point is, yeah I’m getting to one, yes, they will pull back, before or after earnings I don’t know. Each person has to make his own choices and I just tell you guys what I do as you know. This rally had less to do about earnings in those names and a lot more to do with things looking so bleak it was time to throw the smug shorts on the bonfire as Bird was saying earlier regarding max pain.

    Oil trading at 65.10 this evening, up 2.37 on the day. Gee, I feel better.

    FWIW, November NG is up 20 cents at $6.385. Tomorrow is going to be interesting.

    Mahout, respectfully, energy shares is a bit of a misnomer in that the label covers a broad array of names which performed very differently on the day and do in general (Majors, E&P, oil service, refiners). End of day results not withstanding, I would not call it a happy day for shares as they lagged the market on the whole even through the close. OIH up nearly 8% looks great until you see its 3% off the S&P. Selectivity is key. I do understand the lag comments but there is also a method to OPECs statement methodology. Sometimes their statements of bullish or bearish nature have an almost self sabotaging underlying current to them. At present, they are 100% bullish with no undercurrent. They mean it about price and are going to defend it aggressively as the dollar peals back (and yes, that’s coming too, can’t give away free money at the discount window for long without imploding your currency so when credit does free up, bang zoom down with the $ and then they (OPEC) literally have to have a higher price).

  105. 105
    mahout Says:


    You are quite right on all counts.
    I should have been more specific and was thinking E&P when I said Energy. Probably because that’s what I look at on my inventory. I have no Refiners now, had one but got out in time. No Majors, but I think COP is a heck of a buy (I used to own it). And only one Service company. As to the term “happy”, any green at all these days is “happy” to me. LOL.
    Better days are coming. OPEC is shrewd. They will get it pretty much where they want it I think. And if the FED/TREAS. program is going to help, the money first has to actually go to the banks. Which starts in a big way this week.
    I know you understand lags. I was thinking in general terms about how markets work and get it wrong so to speak, by way overpricing and way underpricing.

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