Watchful Wednesday

The next big shakeout, after mortgages, will be consumer credit. We have Best Buy saying they've never seen the consumer fall apart the way they have since September so look for this to be a drag on the market this morning and remember we get (WMT) numbers on Thursdaty and Consumer Confidence numbers on Friday. Maybe the holiday season sales combined with lower gasoline prices will get people in cars more so they can drive by all those bargains. I would imagine that the annual migration to Wal-Mart following Turkey day will set attendance records (high or low its impossible to say). No oil inventory numbers until Thursday due to the Veteran's Day Holiday but tomorrow I'll be looking for an uptick in gasoline demand in response to diving gasoline prices.

I remain timid with my dollars as the broad market is in control of prices once again, not news or fundamentals, and everyone is expecting Nov 17th to be D-day for hedge fund liquidations. While you can short into that kind of event the "everyone is expecting" thing usually means the market goes the other way. All hedge funds willing to be interviewed by the talking heads describe themselves as surrounded by piles of cash...how much of this cash goes out the door to meet redemptions remains to be seen.  Either way, the credit market remains deadlocked and volatility abounds trumping reason so this is no time to be a gunslinger.  Some of the best decisions I ever make are the trades I decide not too. Patience is a virtue, yada, yada, yada. 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today - EVEP, DO, DSX (definitely worth a listen)
  4. Odds & Ends

Holdings Watch:  No trades yesterday. The $10KP stands at $14,500, with 52% cash (which is only climbing because of the portfolio's swoon with the market in the last couple of days).

Commodity Watch:

Crude oil go slammed below $60 yesterday, closing down $3.08at $59.33. So much for China's stimulus package or any fear of OPEC; oil traded lower with the U.S. equity markets. Oil is trading off slightly with equity market futures this morning and I expect OPEC to produce sharper rhetoric by next week.

  • Preliminary read on tomorrow's EIA data: Small builds expected.
    • Crude: up 800,000 barrels
    • Gasoline: up 800,000 
    • Distillates: up 500,000
  • IEA Warns About Decline Rates. IEA 2008 Outlook report is out. These are the guys who gripe constantly about high prices, now saying the world is not adding reserves fast enough. Fun quotes:

"Some 30 million barrels per day of new capacity is needed by 2015," and

"There remains a real risk that under-investment will cause an oil-supply crunch in that timeframe."

Looking at the worlds 800 largest oil fields, IEA sees the average rate of decline increasing to 8.6% in 2030 from about 6.7% currently for those that have passed their production peak.

IEA assumed consumers would pay an average of $100 a barrel for oil over the next seven years and more beyond that.

  • China's SPR To More Than Double In Size. Phase I, to be completed by the end of this year has a capacity of 16.2 million cubic meters (138 million barrels). Today China announced a second phase with a capacity of 26.8 mm cubic meters (228 mm bbs) will break ground soon. No word on when China will fill these facilities. Note that the combined size of China's new SPR is roughly have the size of the U.S. SPR.
  • China To Add 10 Nukes. Just adding because Sane and I were talking about nuclear reactors yesterday.

Natural gas had an even worse day, falling $0.54 to close at $6.70. Natural gas chart still looks constructive for a move higher to me. This morning gas is trading flat to slightly green.

Stuff We Care About Today


EVEP 3Q Follow Up

  • Good quarter, would have been spot on with guidance were it not for hurricanes
  • Distribution expected to continue to rise each quarter, smaller rise expected this quarter
  • 19% yield looks safe, given their hedge position and long live reserves (shallow decline rates) for 2009 unless gas prices really crater.

DO Rig Status Report:  On the whole, a good report.

  • Deepwater rates and utilization remain strong with new contracts going for higher $ than current ones.
  • Domestic jackups seen flat with one down rate standing out but overall the day rates remain elevated
  • International jackups remain strong
  • Regional breakdowns remain principally unchanged including Brazil which has been a source of worry. North Sea looks strong and recent announcement from Norway regarding boosted capex in 2009 can't hurt. Med and Asia rates remain strong - few changes this report.
  • Expected downtime in line with previous guidance


DSX Reports 3Q08 Results; Suspends Dividend In Preparation To Pick Off Cheap Ships.

  • Reported revenue of $87.4mm vs $85mm expected
  • Reported EPS of $0.77 vs $0.74 expected
  • Time charter equivalent rate: $48,207. The DSX fleet (21 ships (mix of Capesize and Panamax) is largely chartered long term at what are now very attractive charter rates. See pr for full listing. They made note that in the past they have accepted slightly lower rates from more creditworthy customers.
  • Daily operating costs: $6,240. Current spot rates are below daily cost meaning its a good thing they are on longer term contracts: Capesize day rate: $4,200; Panamax day rate: $6,900.
  • Fleet utilization: 99.9%
  • Cash dividend of $0.95 declared for 3Q but suspends future dividends to preserve M&A ability. So bye-bye 26% yield.
  • Announced authorization of $100 mm share buyback (just under 10% of the outstanding shares were they to buy at current prices).
  • Debt to total cap: 17%. Low for the industry.
  • In a nutshell, positive report. I think you lose some yield investors but the flexibility and conservatism management is demonstrating pays off at times like these.
  • Conference Call: Today, 9 EST

Odds & Ends

Analyst Watch: Zip, nada, nothing.


B of A Energy Conference Starts Tomorrow. I'll have a schedule of which presentations I'll be listening to on the calendar tab later today. This is one of the bigger Fall energy conferences.

153 Responses to “Watchful Wednesday”

  1. 1
    zman Says:

    DSX call in 10 minutes.

    Bill, if you’re up, give a listen if you can, you too Cargo. Small beat on the numbers but the suspension of the dividend going well if the pre-market indications.

    Also note, that panamax rates saw a small uptick, at some point we should get a big bounce. Products have to get to WMT from China somehow and it’s not by dog sled.

  2. 2
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil futures fell to fresh multi-month lows in
    European trade Wednesday as expectations a worsening economic outlook will
    erode demand for oil continued to push prices lower.
    Nymex crude futures dropped more than a dollar to below $58 a barrel for the
    first time since March 2007, while ICE Brent futures slipped to a new 21-month
    low near $54 a barrel.
    Despite global incentives to help unclog the financial markets and trigger
    economic recovery – and increasing signs the Organization of Petroleum
    Exporting Countries will add to the 1.5 million barrel a day production cut it
    announced last month – further negative economic news ensured sentiment
    remained pessimistic.
    “We have pockets of support like economic packages in China, interest rate
    cuts boosting prices here and there, but they have a fairly temporary impact on
    the market,” said Tony Machacek, energy broker at Bache Commodities in London.
    “The expectation for the time being is for the world economy to be in a
    downturn, and therefore for a lack of increase in (crude) demand.”
    At 1215 GMT, the front-month December Brent contract on London’s ICE futures
    exchange was down 57 cents at $55.14 a barrel. The contract had earlier fallen
    to as low as $54.28 a barrel.
    The front-month December light, sweet, crude contract on the New York
    Mercantile Exchange was trading 74 cents lower at $58.59 a barrel, up from its
    earlier low of $57.70 a barrel.
    Ahead of expiry Wednesday, the ICE’s gasoil contract for November delivery was
    down $5.25 at $605 a metric ton, while Nymex gasoline for December delivery was
    down 199 points at 128.60 cents a gallon.
    China’s National Bureau of Statistics reported retail sales growth slowed in
    October as consumer demand eased. Meanwhile, the U.K.’s statistics office
    Wednesday reported the country’s claimant count jobless figure rose at its
    fastest pace for nearly 16 years in October, and Bank of England Governor
    Mervyn King said the U.K. “very likely” entered a recession in the second half
    of this year.
    “It’s just bad news for the economy everywhere,” said Simon Wardell, analyst
    at Global Insight in London. “When you get bad economic news people just
    reconsider the prospects for oil demand. It’s when this thing spreads to the
    real economy it gets most of the hit, although it does also get hit by the
    amount of credit available.”
    Speculation is mounting that OPEC will call another emergency meeting ahead of
    it’s planned Dec. 17 gathering to try and staunch any further falls in crude.
    “With prices threatening to test the key $50 level, we would not be surprised
    to see OPEC get together much earlier than planned,” said Edward Meir at MF
    Global, adding a cut in the region of 1 million barrels a day is thought the
    likely outcome.
    Crude market participants are looking ahead to the International Energy
    Agency’s Monthly Oil Market Report due Thursday, in which further downward
    revisions to global oil demand are expected. Amid expectations of slowing
    economic growth rates globally, “it’s in the cards that IEA will take down
    demand significantly,” said Torbjorn Kjus, oil market analyst at DnB NOR in
    The IEA earlier released its long-term world energy outlook after releasing
    core details in a summary last week. It warned oil project delays due to the
    fallout of the global financial crisis are raising the specter of new crude
    supply problems by 2010.
    Weekly U.S. oil and products inventory data normally scheduled for Wednesday
    will be released Thursday this week, pushed back a day due to Tuesday’s U.S.
    Veterans’ Day holiday.

    -By Nick Heath, Dow Jones Newswires; (Liu Li in Beijing and Spencer Swartz in London contributed to this item)

    Dow Jones Newswires
    11-12-08 0730ET

  3. 3
    Sambone Says:

    IEA Says Oil Delays May Mean Supply Crunch

    Dow Jones Newswires

    LONDON — The International Energy Agency Wednesday warned that oil project delays announced by several companies in recent weeks amid the fallout of the global financial crisis are raising the specter of new crude supply problems by 2010.

    “We see and hear about energy investments being delayed .. This is a major worry and could lead to a supply crunch and much higher oil prices than we’ve seen before,” IEA chief economist Fatih Birol told journalists here as the agency released its long-term global energy outlook.

    The agency, adviser to most of the world’s biggest energy consumers, currently expects world oil demand to begin recovering by 2010 from today’s financial woes, Birol said.

    The IEA released in full its long-term world energy outlook after releasing core details in a summary last week.

    IEA executive director Nobuo Tanaka later told reporters the oil industry risked repeating the mistakes of the 1990s when companies slashed project investment and were unable to bring supply quickly into service when prices and demand increased.

    “The lesson we learned this year during high prices and volatility is that we (didn’t) do enough investment in the 1990s when the price was low and the consequences’ were record, $147 a barrel crude prices in July, Tanaka said.

    “We have to learn the lessons and continue investment even though the price is $60,” Tanaka said.

    The IEA slashed its long-term global oil demand outlook by 10 million barrels a day from its 2007 report. Demand is now seen reaching 106 million barrels a day by 2030 versus 116 million barrels a day, as forecast in its 2007 report. The world currently consumes about 86 million barrels a day.

    But Tanaka said crude consumption was no longer the primary factor alone that should drive investment because many of the world’s oil fields are aging and yielding fewer hydrocarbons and at a faster clip than expected.

    The average annual decline rate globally is on target to reach 8.6% by 2030 from 6.7% today for fields past their peak production although the rate varies according to the size and age of the field.

    Underscoring his point, Tanaka said that even if world oil demand stayed flat for the next 23 years, the industry would still need to come up with 45 million barrels a day in new gross capacity just to prevent output from falling because of natural declines at fields around the world.

    “Decline rates are far more important as an indication of investment needs,” Tanaka said.

    Birol said the world requires about $450 billion a year in oil and natural gas exploration project investments between now and 2015 to keep up with demand, but is falling well below that threshold.

    Last year was an “exceptional” year in terms of oil and gas investments but the industry registered total exploration investments of $390 billion in 2007,well-below what is required annually over the next seven years to keep up with emerging market oil demand, Birol said.

    —By Spencer Swartz, Dow Jones Newswires

  4. 4
    Sambone Says:

    Crude Stockpiles Seen Gaining


    NEW YORK — U.S. crude oil stocks are expected to rise in data due Thursday from the Department of Energy, according to a preliminary Dow Jones Newswires survey of analysts.

    The weekly data, put out by the department’s Energy Information Administration unit and covering the week ended Nov. 7, are due at 11 a.m. EST Thursday. The report is scheduled to be delayed from its usual Wednesday release because of this week’s Veterans Day holiday.

    Crude oil inventories are expected to increase 900,000 barrels, according to the mean of eight analysts’ forecasts. Six of the eight expect a gain, with estimates ranging from a drawdown of 500,000 barrels to an increase of 2.5 million barrels.

    Gasoline inventories are seen growing by 400,000 barrels, according to the analysts’ average. Five of the eight see increases, with estimates ranging from a fall of 1.5 million barrels to an increase of 2 million barrels.

    Stocks of distillates, which include heating oil and diesel fuel, are expected to rise by 200,000 barrels. Five of the eight analysts foresee an increase, with estimates ranging from a decline of 2.5 million barrels to an increase of 2 million barrels.

    Refinery use is seen rising by 0.2 percentage point to 85.5% of capacity.

    The slump in U.S. demand for gasoline and other oil products diminishes the incentive for refineries to process more crude, said Peter Beutel, president of Cameron Hanover, an energy risk management firm based in New Canaan, Conn. That should contribute to a slight rise in crude stockpiles.

    Crude prices for delivery months from now are also higher than prices on the spot market. That is starting to make stockpiling oil for later sale a potentially profitable move.

    “Right now the market is paying people to go and store crude,” Beutel said.

    Analysts’ Estimates
    Analyst Crude Gasoline Distillates Refining
    Alaron Trading +2 +2 +2 +0.5
    Cameron Hanover +1.75 +1 +0.4 unch
    Citi Futures unch unch -1 -0.5
    GA Global Markets +2.5 -1.5 -2.5 +0.5
    IAF Advisors -0.5 +0.5 +1.5 +0.2
    Ritterbusch & Assoc +1 -1 -1 unch
    Summit Energy +0.4 +1.9 +1.1 +1
    Tradition Energy +0.4 +0.2 +0.8 +0.2

    Average Estimate
    +0.9 +0.4 +0.2 +0.2
    Figures in millions of barrels, except for refining use, which is reported in percentage points. Figures are rounded to two decimal places in table, one decimal place in averages and story. For analysts providing forecasts in a range, the average of the upper and lower ends of the range is used.

    –By Gregory Meyer, Dow Jones Newswires;

  5. 5
    zman Says:

    Welcome back Sam…ironic that the same guys who demanded OPEC produce more to get prices down see production falling faster than expected and see that low prices won’t help that.

    DSX conference call can be heard at viavid.net

  6. 6
    Sambone Says:

    As Oil Futures Fall Below $60, Market Looks To Supply Outlook


    NEW YORK — Oil futures settled below $60 a barrel for the first time in 19 months, but December is when large producers make the decisions that determine whether prices might stay there.

    The Organization of Petroleum Exporting Countries will meet Dec. 17 in Algeria, its first gathering since deciding to slice production by 1.5 million barrels a day in October. That’s also when oil companies large and small typically provide guidance on budgets — including exploration and production plans — for next year and beyond.

    A continuation of a trend by oil producers to pare back on investment in both current and new oil capacity against a backdrop of a deep drop in crude prices stands to potentially halt or at least slow the slide, though the effect often happens with a lag.

    Oil prices rose for years on the assumption that demand from fast-growing economies was increasing at a higher rate than new production could be brought on line. Concerns over the resulting scarcity of hydrocarbons propelled crude futures on the New York Mercantile Exchange from $40 a barrel in July 2004 to a record high of $145.29 a barrel four years later.

    Crude has plunged 60% from that peak, as recession fears and the credit crunch in the U.S. economy mounted, and then spread throughout the world. Global demand is expected to grow slowly in 2009, if at all. Even China, seen as the last source of demand growth next year, recently announced a $586 billion economic stimulus plan to bolster domestic demand and help avert a global recession.

    China’s plan initially sent oil prices sharply higher, but the market quickly faded as it became clear that any stimulus would take months to translate into increased energy demand. Oil prices ended at $59.33 a barrel on Tuesday, the first settlement under $60 a barrel since March 2007.

    A global economic recovery is months, if not years away, and so the oil market is looking to production cuts to balance supply and demand. They could come deliberately, by OPEC members, or as a byproduct of lower spending. But if oil prices are to recover in the first half of 2009, the decisions that make it happen will come before the end of the year.

    “At present, most people are thinking about what’s happening in the near future,” said Ehsan Ul-Haq, head of research with JBC Energy in Vienna. “In the end, lower inventories are likely to result in higher prices, but it will take time.”

    Reversing Course

    OPEC cut production by 1.5 million barrels a day at an emergency meeting in October in an attempt to bring supplies in line with declining demand. The move was seen at the time as too small given the scope of the economic downturn — U.S. demand alone is already down 1.4 million barrels a day from a year earlier, according to the Department of Energy. Oil prices have fallen 12% since the cut was announced.

    OPEC has a better chance to put a floor under oil prices at its next meeting, scheduled for Dec. 17 in Oran, Algeria. By that point, the oil market will have had three months to process the financial sector meltdown that precipitated the global economic slowdown. Consuming nations will also have begun to feel the impact of the cuts with tightening inventories.

    “Certainly, before any sustained recovery in crude prices is seen, markets must see evidence that OPEC members are actually cutting production,” wrote analysts with PFC Energy, a consultancy.

    OPEC officials have hinted that they would like to pare production further, though a consensus from the cartel on cutting in December — actual cuts would come to market most likely in February — is by no means a given.

    The oil market has often dismissed OPEC changes in export quotas, only to react strongly months later. Oil prices traded down to $50 a barrel in January 2007, one month after the group agreed to a cut, but futures rallied to record levels near $80 a barrel starting in February, when the reduction took effect. Similarly, prices rose in June of this year after Saudi Arabia said it would raise production, but some believe the decision to increase output over the summer contributed to oil’s fall.

    “To somehow think that these major changes in oil production levels are irrelevant to price movements is basically pretending that the laws of economics don’t apply,” said Tim Evans, an analyst with Citi Futures Perspective.

    Delayed Reaction

    Publicly traded oil companies have little incentive to cut output, even at sub-$60 oil, but nevertheless, next month many are likely to head in that direction.

    Most companies, ranging from small producers to international giants such as Exxon Mobil Corp. (XOM), release guidance for the upcoming year’s budget in December. With oil prices down one-third from the same time a year ago, producers are expected to spend less on everything from searching for new fields to shoring up output at existing wells.

    No publicly traded oil company has the production capacity of a major exporter such as Saudi Arabia. But smaller budgets would have a similar effect on supplies as an OPEC cut, perhaps in a matter of months. Older fields, in particular, require constant maintenance known as workovers just to hold production steady. Executives with oilfield services companies like Schlumberger Ltd. (SLB), the recipients of producer spending, estimate that budgets cut today would result in lower production within 18 months.

    That ultimately should push prices higher.

    “If you cut too much now, you’re going to be in trouble in a few years,” said Phil Weiss, an analyst with Argus Research. “As a nation or as a world we’re in trouble as well.”

    The biggest producers have large cash reserves and mostly take on projects that would be profitable with oil below $60 a barrel. These companies also say they learned their lesson from the last two price downturns, in the early 1980s and late 1990s, when many companies slashed budgets during periods of low oil prices. When prices rebounded, producers found it difficult to ramp back up to take advantage.

    Total SA (TOT) Chairman Thierry Desmarest calls maintaining investment in the late 1990s “one of the best decisions that we have taken.” The company’s chief executive, however, recently said that long-term oil prices below $60 a barrel would result in the cancellation of some projects.

    (Adam Mitchell in Paris contributed to this article.)

    —By Brian Baskin, Dow Jones Newswires

  7. 7
    Jay Reynolds Says:

    FWIW -from a couple of letters I get..

    “Wednesday, November 11th, 2008

    Dear Energy and Capital Reader,

    After tomorrow, the world energy markets may never be the same.

    That’s when the independent International Energy Agency (IEA) will release its World Energy Outlook.

    And it’s going to alter the way we invest in energy forever.

    You see, a leaked draft of the report essentially turns Peak Oil theory into fact… by declaring that future oil demand will severely outstrip supply.”

    and the S&M version from Stephen Leeb:

    “As for our portfolios…

    We know it sounds ridiculous to keep saying β€œDon’t worry, be happy,” yet that really is your best course of action. Either the tidal wave of cash will find its way into the financial system, to the considerable benefit of our gold and energy holdings, or the mother of all depressions will result in the end of civilization as we know it, in which case the pessimists will suffer as much as the optimists. It’s that simple. So given those two stark choices, you may as well be an optimist….”

  8. 8
    zman Says:

    Jay – thanks much. IEA has been saying for years (every year) that decline rates are accelerating. They then say companies and NOCs need to invest more. They then say with oil prices low, this may not happen. They then work to get prices low. I’d say only in France but that’s not true, happens in U.S. too.

  9. 9
    rlogan1301 Says:

    regarding #6…with the point being made that it takes about a month after a cut to see reflection in prices, would a Jan or Feb call on USO be something to look at? is USO the right vehicle when looking at increasing oil prices?

  10. 10
    Sambone Says:

    My question is: Will Obama hold the “Prince’s” hand when we need to increase production next time around?

  11. 11
    zman Says:

    The announcement of a cut will have a more immediate impact on prices, depending on its size so you don’t necessarily have to wait on the change in volumes. USO is ok, there are other vehicles as well that might have more leverage to oil like SU.

  12. 12
    BirdsofpreyRcool Says:

    After taking the day off in observance of Veteran’s Day, the bond market is back in action. Well… not really “action”… but it’s open.

    IG started at 197, +8 from Monday’s close. It’s gotten somewhat worse from there, currently at 198 1/2, but the trading desk is not anticipating a move above 200 (which would be really bad).

    So, weaker credit market, automotve debt trading wider (instead of tighter) even in the face of a “bailout.” The 200 level remains a psycho-level for short-term trading.

    All of this is just intra-day chatter, tho, as there has been NO THAW in credit. So, basically reporting about little bits of the iceberg breaking up or forming on the margin. But the credit iceberg is as large and dangerous as ever.

  13. 13
    zman Says:

    Oil off $1.75 at $57.50. Looking like a run on $55 and a shot at $50 possible near term as momentum builds. Needs to find a bottom before I get aggressive on longs leveraged to oil.

  14. 14
    BirdsofpreyRcool Says:

    IG 199 now. Headed the wrong way into the stock market open.

  15. 15
    zman Says:

    Bidding near month, NTM FSLR calls.

  16. 16
    zman Says:

    ZTRADES: Both pretty risky FSLR trades with the stock down $11 at 119-$120 range.

    $10KP Trade: Bought (2) FSLR November $135 Calls (QHBKG) for $5.

    Regular account – added FLSR November $140 calls (QHBKH) for $3.80.

    These are quick trades for a leveraged bounce in the broad market. Unlikely to get a bounce here without one in the broad market over the next week.

  17. 17
    zman Says:

    Thanks for the credit updates as always Bird. What time does Paulson speak on the health of TARP?

  18. 18
    Sambone Says:

    9:52 am EST

    Oil Extends Decline On Demand Worries

    By Gregory Meyer

    NEW YORK — Crude oil futures traded solidly below $60 a barrel Wednesday in a market gripped by concerns supply will outpace demand that’s weakening in an economic downturn.

    Light, sweet crude for December delivery was recently down $1.63, or 2.8%, at $57.70 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange traded down $1.40 at $54.31 a barrel.

    Nymex crude last traded lower on March 20, 2007. It has fallen nearly $90 from its all-time trading high of $147.27, reached July 11.

    Oil’s sharp turnaround came as demand slumped in industrialized countries and investors sold off commodities to raise cash as they face a worldwide financial crisis. It has stayed lower as forecasts for the world economy darken, with some analysts suggesting world oil demand could contract next year for the first time since 1983.

    In China, a bulwark of world demand growth, the government this week reported oil product imports in October fell to their lowest level in at least two years.

    “You have some supportive news, but instead the market continues to focus on the negatives,” said Tom Bentz, a broker and analyst with BNP Paribas Commodity Derivatives in New York. Among the news the oil market seemed to look past was a report that Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, had test fired a new type of ground-to-ground missile, Bentz said.

    “We’re caught up in the same old bearish mood — economic concerns and weaker demand. The market is not showing any signs of a bottom yet,” Bentz said.

    Lower prices have pressured national budgets in a number of key oil exporters. Members of OPEC, which produces about four in every 10 barrels the world consumes, have started talking about a meeting before the group’s scheduled Dec. 17 gathering in Algeria. Last month OPEC agreed to curtail output by 1.5 million barrels a day, to 27.3 million barrels a day.

    Oil’s slide threatens to derail long-term investments in new supply. The International Energy Agency, an advisor to 28 industrialized countries, on Wednesday warned oil project delays recently announced by several companies raise the specter of new crude supply problems by 2010.

    “We see and hear about energy investments being delayed .. This is a major worry and could lead to a supply crunch and much higher oil prices than we’ve seen before,” IEA chief economist Fatih Birol said as the agency released its long-term global energy outlook.

    Front-month December reformulated gasoline blendstock, or RBOB, fell 2.69 cents, or 2.1% to $1.2790 a gallon. December heating oil fell 5.84 cents, or 3%, to $1.8706 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  19. 19
    zman Says:

    From the DSX call:

    Letters of credit are starting to be accepted by banks, none were as of 2 weeks ago. This is what gets cargoes moving.

  20. 20
    bill Says:

    dsx is the best position of all bulker stocks getting creamed today for suspending dividend. I agree with the move and it shows conservative nature of mgt. To cushion the blow they will buy back 100 m shares.

    I missed the sonf call but will listen to the replay.

    Fundamentals really stink and even the best company is not immune from being hammered.down 16 % as of this writing

    Im staying out of all bulker stocks until rates recover ( although im still in some and cant get out)

  21. 21
    rlogan1301 Says:

    R #19 – are you looking for a position? i had EXM at one point and luckily got out only losing 20%…

  22. 22
    bill Says:

    # 19 that would be good news as letter of credit issue has halted all ship movement

  23. 23
    zman Says:

    Bill – still on that conference call. Very good breakdown of their view of the macro.

    The buyback is authorized but they have no plans to buy stock at this point. They are looking to harbor capital for eventual ship buying.

  24. 24
    Bleemus Says:

    Long ago set alert for BEXP at $5 just triggered. Interesting.

  25. 25
    BirdsofpreyRcool Says:

    z – don’t know when Paulson’s talk is. I can’t imagine the information will be particularly uplifting.

    The TARP has been expanded to encompass way more than it was ever intended to do. Laws of Inintended Consequences at work. The TARP was never supposed to be a “lender of last resort” to every part of the economy. But, it’s starting to look like congress is thinking that way. There is not enough money in the world to prevent an economic slowdown. So, Paulson and Bernanke have one of two choices to make: 1) expand the “TARP” (which is unsustainable in the long run), or 2) just say no. Both outcomes will be received badly by the market.

    The time for innovative govt involvement in the market was this summer. There were a lot of proposals and ideas that would have worked. Unfortunately, what passed through the congressional sausage mill was the wrong end of the pig (so to speak). “Just say no” is the best outcome for the American Taxpayer in the long run… but, who in Washington is ready to suggest that kind of tough love?

    Until some other entity (other than the US Govt Taxpayer) starts buying credit (like distressed debt funds), we will continue on the downward spiral. Throwing more taxpayer money at it is like trying to save water by pouring it into a sieve.

    Sorry to be such a ray of sunshine. But, there you have it.

  26. 26
    zman Says:

    RL – not yet, still listening. When the group recovers this is probably my name although EXM is not a bad one either.

  27. 27
    zman Says:

    B – I remember. Everything working well there as of update 2 weeks ago pre earnings. Lots of good wells in the Bakken. This is trading off with oil, plain and simple and people are squawking about Bakken not being economic sub $60 which CLR and EOG refuted but there you have it.

  28. 28
    zman Says:

    Watched a UTex prof say the TARP should be expanded beyond $B to $T’s a this point. Also looking for another stimulus package. What the U.S. needs to do is pound the $ down…not very helpful up here.

  29. 29
    bill Says:

    drys at 9 today

    what a sad story

  30. 30
    BirdsofpreyRcool Says:

    z – that UT professor is a well-known socialist.

  31. 31
    zman Says:

    Bird – that may be but it looks like the direction we are headed. TARP will be expanded to cover anyone with a finance company, big 3, GE, etc. Gotta add $ to cover that. And a stimulus package will get passed after the inauguration if not sooner.

  32. 32
    rseidman Says:

    Z: What’s your current view of your TAN bet?

  33. 33
    zman Says:

    Argentina cutting taxes for oil producers to get them to boost output and for refiners who agree to increase capacity. The program is designed to boost tax revenues in total while reducing imports. Wow, what a concept.


  34. 34
    zman Says:

    Re TAN. I’m obviously not happy with 38 days to run on the Decembers, its asking a lot to get a double to the $15 strikes. I’ll reposition into lower strikes soon and take the hit on the $15s next bounce. Still no problem with the concept but it falls with the prices of oil, coal, natural gas and also with the fear of economic doom. The easy argument is “why would people bother with solar on their houses when they can’t afford presents under the Christmas tree?” The answer is that most of these programs are government subsidized and the subsidies are not going away. Many are at the utility level and those are not in jeopardy either (at this point I’ve seen no cancels or delays). In Europe, where the bulk of the contracts are originated, the subsidy programs are seen as providing jobs and are green, two things that are still pretty popular over there. I expect the dollar to ease in the medium term which would be a help to currency translation concerns which have hit the group of late.

  35. 35
    zman Says:

    ZTRADE: Regular account. Added to the FSLR $140 calls for $3 with the stock off $13 so average cost on those now $3.40.

  36. 36
    BirdsofpreyRcool Says:

    z – re: #31. yep. That’s the reality of the situation.

  37. 37
    zman Says:

    Paulson: Priorities

    1) continue to reinforce financial system (size expanding comment)
    2) consumer credit outside financial system also needs help. Currently ground to a halt.
    3) reduce risk of foreclosure

  38. 38
    zman Says:

    Listening to Paulson reminds me of a dispassionate discussion of your heath while you sit unresponsive to physical stimuli in the emergency room. Sounds like they are trying anything and everything to prevent a flat line.

  39. 39
    mahout Says:

    BOP #25,

    My friend, don’t ever be sorry for telling us the truth.
    The only way we are going to get out of this tough market and economic situation is to see it as it really is, not how we want it to be. It’s difficult to do, but we need to look at everything objectively, search hard for the truth and try to take emotion out of our thinking. We need to recognize any personal biases such as being somewhat overly optimistic all the time(i plead guilty to that one)and discard them. Let’s try to get at the truth even if it’s cold and hard.
    Your postings are very valuable to me.
    Keep it up please.

  40. 40
    BirdsofpreyRcool Says:

    bond mrkt ain’t buying it.

    IG 201. Back to “oh sh*t” levels.

  41. 41
    zman Says:

    My sense is that the equity market will take its cue from the bond market and is currently holding its breath waiting for Paulson to stop talking before moving hard in one direction or the other. I have not heard anything so far that would warrant screamingly higher equity prices. No “ah-ha!” so far.

  42. 42
    BirdsofpreyRcool Says:

    mahout – your words mean a lot to me. thank you. I’ve been too optimistic too. Still am, if you can beleive that. But, there is now nothing the US Govt can do to “make” the consumer spend. Frankly, the consumer needs to “save” at this point. Cutting cap gains taxes would help, encouraging investment would help. But, that is not the path we seem to be headed down.

    Add to all this the totally non-productive — but enormous — cost of trying to “fight” global warming… but, as an ex-scientist, i digress (badly).

  43. 43
    zman Says:

    First $350 billion almost drawn down.

    Paulson has no time line for going to congress to get the second $350 B.

    Still comfortable that $750 B will do it.

    Lame duck treasurer not eager to head back to Capitol (or is it Capital) Hill.

  44. 44
    BirdsofpreyRcool Says:

    (by the way, “fighting global warming” is NOT the same as “pursuing alternative energy.” One is a waste of money, the other is a necessity.)

  45. 45
    zman Says:

    Tudor made a great point on the CHK transaction yesterday. Good news not rewarded. Story of the last five months continues.

  46. 46
    BirdsofpreyRcool Says:

    z – yeah, agreed. I thought that observation about CHK said a lot about this market. If the mrkt won’t reward “good news,” then it’s best to sit on the sidelines untill it does.

  47. 47
    bill Says:

    ng down 75 cents in 2 days

  48. 48
    VTZ Says:

    This is getting pretty disgusting…

  49. 49
    rlogan1301 Says:

    yeah…no buyers and no reason to be buying..

  50. 50
    Wyoming Says:


    IEA flawed. From #3, say there needs to be $450B/yr investment. Not at these commod prices. It should be $225B/year and rig prices have to drop. They need to whack their cost basis in their model. That means service co’s could go down tubes. That is a whole other mess for infrastructure to the industry.

    Playing chicken with tractors. We will repeat 1990’s. Drill on Wall St. !!

    Don’t get me wrong, I do not want to see this happen, just a little bit maybe.

  51. 51
    BirdsofpreyRcool Says:

    z – i didn’t listen to Paulson (should of, but didn’t). But reading some commentary about his speech, one thing really pops out. I guess he mentioned the potential of a “matching investment program” in which private capital would invest alongside the TARP? That would be HUGE. Great idea! Anything that draws private money into the debt mrkt (and not just taxpayer money) is a step in the right direction. Go, Hank!

  52. 52
    bill Says:

    what does this mean to our gassy stocks


  53. 53
    zman Says:

    Wyo – I agree with you, only dabbling in select service names and only after they get crunked. The IEA is flawed in many ways in my book. They argue for lower prices and then crab about a lack of investment. Can’t have it both ways.

    Market clearly finds lack of progress on TARP to get credit moving and lack of specificity from Paulson regarding future plans troubling.

  54. 54
    zman Says:

    Bill, its not news. Should serve to reduce differentials for Rockies gas to Henry Hub. Seen as a help for names like BBG, could be helpful to names like PXD and NFX to a lessor extent as well.

  55. 55
    zman Says:

    Bill when I say its not news I just mean the overall market knows very well about the date of the pipeline and the incremental gas supply. It is part of the gas bubble fear already.

  56. 56
    zman Says:

    BOP – what do you think of the concept going around that hedge funds have “tons of cash sitting on the sidelines”? That could be the money that “goes along” with the TARP or flows back into equities. Do you think hedge managers still have lots of cash or is that what you say to forestall investors from yanking the funds?

  57. 57
    zman Says:

    OPEC now has November 29th meeting scheduled. This will be the second meeting scheduled before the regular meeting on December 18.

  58. 58
    BirdsofpreyRcool Says:

    z – thanks for the question. I know how I would answer… but, let me use the opportunity to sniff around a little and get some new mrkt info.

  59. 59
    BirdsofpreyRcool Says:

    z – one thing that does pop to mind… any global macro HF that has been playing the short side of the structured finance mrkt has made a lot of cash. But they know that trade won’t last forever. So, they will put that cash to work on the other side of the trade (go long the cheap stuff that isn’t going to BK) at some point.

    I would not underestimate the amount of cash that is sitting on the sidelines, looking to invest in the “distressed debt” play. As hard as it is to believe, debt levels have not fallen low enough for the distressed guys to deploy cash. We will need to see some Chapter 11s for that to happen. With all the crappy covenant-lite bonds issued the last few years, chapter 11s are a little slower in coming, this time around (vs the last cycle in 2001-2003).

    Perhaps a GM BK filing would have the perverse influence of pulling cash into the debt market. At some point, the distressed debt investors will get off the bench and onto the playing field. They are warming up, as we speak. But, they are a fairly patient group.

  60. 60
    Sambone Says:


  61. 61
    zman Says:

    ZTRADE: Regular account:

    Added DO December $80 calls with the stock at $73.75 (DOLP) for $5.50. Going back to the deepwater trough on continued evidence of a solid forward contracts (see post) and strong numbers/comments in their recent 3Q report.

  62. 62
    zman Says:

    Thanks for the exec sum Sam.

  63. 63
    zman Says:

    ZTRADE: $10KP Trade

    DO – Added (2) DO December 80 calls (DOLP) for $5.40.

  64. 64
    Sambone Says:

    Get Ready For Another Food Crisis


    NEW YORK — Just when you thought the food-price crisis was dead and buried, it’s time to start girding yourself for a new one.

    If top policy wonks at the United Nations are right, the problem of food being affordable enough to eat could be back soon like a recurring nightmare.

    The problem? The current “low” prices of grains might cause next year’s harvest to fall.

    It’s funny in a peculiar sort of way because low food prices were exactly what some people, mainly politicians and activists, wanted a few months back when the price of some grains hit record levels.

    But in a strange irony, the recent collapse in the price of basic agricultural commodities like corn, wheat and soybeans may actually sow the seeds of another food crisis as early as next year, according to an October-dated report from the Food and Agriculture Organization of the United Nations.

    Wheat prices pulled back to about $5.12 a bushel recently from $13 earlier in the year. Corn is down to $3.65 from the year’s high of $8, and soybeans are selling for $9 a bushel from $16.

    Such prices “could mean a cutback in plantings followed by reduced harvests in major exporting countries,” says the report, “Crop Prospects and the Food Situation.”

    “Given continuing low grains stocks, this scenario could lead to another turn of record food prices next year — a catastrophe for millions who by then would be left with little money and no credit,” according to the report.

    To clarify, no less a source than the U.N. thinks high food prices could be back with a vengeance, and soon.

    Grain stocks are low by historical standards. Recent estimates by Mike Woolverton, an agricultural economist from Kansas State University, projects that by the end of the current growing season, inventories of corn in the U.S will total about 33 days of consumption, far below the more normal 44 days. The story is similar with soybeans, where stocks are at 26 days consumption, compared with about 37 days.

    Woolverton considers wheat inventories, at three months, adequate, but cautions some of the inventory is inferior-quality material good only for livestock rearing, leaving the wheat used for bread and baking in relatively short supply.

    Farmers know inventory levels are relatively low and yet will likely do economically what the low prices of grains are telling them to do: Produce less.

    “We are creating market signals that will cut supply greater than any destruction in demand” due to the economic slowdown, says Bill Tierney, head of North American research at consulting firm LMC International.

    In particular, lower prices of the crop and relatively high prices for the input variables such as fertilizer, weed killer and diesel fuel mean that profit margins for farmers will be thin.

    What’s likely is that farmers will plant less acreage. That alone may not have a huge impact, but likely not as much fertilizer will be used. That will reduce yield. The compound effect of lower yield and acreage could be to reduce the size of next year’s crop, perhaps substantially.

    As if that isn’t bad enough, consider this: the increases in food prices at the retail level still haven’t caught up with the surge experienced earlier in the year.

    “The government’s inflation data clearly indicate that food manufacturers, restaurants and livestock producers have been absorbing significant costs that are likely to be passed on to consumers in 2009 and beyond,” Bill Lapp, a principal at commodities research firm Advanced Economic Solutions in Omaha, said in a recent note.

    Or more simply, expect dining to cost more going forward, whether at home or in a restaurant.

    This should a cautionary word for policy-makers: Be careful what you wish for, you just may get it.

    (Simon Constable, commodities columnist at Dow Jones Newswires, muses regularly on the commodities sector.)

  65. 65
    BirdsofpreyRcool Says:

    some HF comments:

    Some funds really do have cash on the sidelines. “How much” is tough to say.

    There are a lot of funds that still have significant short positions on.

    Given redemptions requests and the market illiquidity, these first two items might offset eachother. (Shorts having to cover at higher prices vs. longs having to sell at lower prices vs new cash buying). The affect of redemption requests is really really tough to call on a daily basis.

    But, here’s a new twist to worry about… No one talks about the Fund of Funds. Those are leveraged vehicles that invest in HFs. Very few (if any) keep cash on the sidelines. Redemption requests at the FoF level will have a magnified affect on HFs. So, it’s actually the FoFs that are the real problem (and mystery) right now. And the FoFs don’t have cash….

    Does any of this make sense? If it doesn’t, it’s because there are too many moving parts to conclude what the affect will be, starting Nov 17th.

    Bottom line: Cash has been paid to be patient. Don’t think that will change any time soon.

  66. 66
    Sambone Says:


    11/12 12:26 *DJ EIA: China 09 Oil Use Seen At 8.34M B/D, +340,000 B/D On 08

    11/12 12:24 *DJ EIA: Growth In ’09 World Oil Use Seen At Just 40,000 B/D

    11/12 12:24 *DJ EIA: ’09 World Oil Use Revised -990,000 B/D To 85.93M B/D

    11/12 12:21 *DJ EIA: ’08 World Oil Use Revised -250,000 B/D To 85.89M B/D

    11/12 12:20 *DJ EIA:4Q World Oil Use Seen At 86.99M B/D, +50,000 B/D On ’07

    11/12 12:18 *DJ EIA: 4Q World Oil Use Revised -690,000 B/D Vs Oct Forecast

    11/12 12:13 *DJ EIA: Heating Oil To Avg $2.75/Gal This Winter, Dn 17% On Yr

    11/12 12:12 *DJ Galp 3Q Sales EUR3.97B Vs EUR3.24B

    11/12 12:12 *DJ EIA: US Diesel To Avg $2.73/Gal In ’09, Down 28% From ’08

    11/12 12:11 *DJ EIA: ‘Weak Market Conditions Could Delay’ OPEC Expansion Plans

    11/12 12:10 *DJ EIA: OPEC Output 31.3M B/D In 1Q ’09 From 32.3M B/D In Oct ’08

    11/12 12:10 *DJ EIA: Weak Economy To Weigh On Gasoline, Diesel Prices

    11/12 12:09 *DJ EIA Sees WTI Crude In $62-$65/Bbl Range In 2009

    11/12 12:09 *DJ EIA: Projecting OPEC Will Cut By 1M B/D, Vs 1.5M B/D Target

    11/12 12:07 *DJ EIA Revises ’09 Retail Gasoline Forecast Down $1.19/Gal

    11/12 12:07 *DJ EIA: Assuming Better-Than-Normal OPEC Oil Cut

    11/12 12:06 *DJ EIA: Retail Gasoline At $2.37/Gal In ’09, 28% Less Than ’08

    11/12 12:05 *DJ EIA: ’09 US Avg WTI Crude Price To Be 37% Lower Than ’08

    11/12 12:02 *DJ EIA Cuts ’09 WTI Crude Forecast 43%

    11/12 12:02 *DJ EIA: 4Q US Oil Use Seen At 19.6M B/D, -4.8% Vs Yr Ago

    11/12 12:02 *DJ EIA: WTI Crude To Average $63.50/Bbl In ’09

  67. 67
    zman Says:

    Thanks for the color Bird. I used to be involved in Fund of Funds management and we did not keep cash…that was the fund’s implicit task. Fully invested, yada, yada, yada…and very tough in times like these.

    I take it when you say cash has been paid to be patient, you are referring to a lack of loss of principal and not return, as you can roll the 1 month 12 times and get paid a whopping 0.11% right now. How exciting.

  68. 68
    Sambone Says:

    NEW YORK (Dow Jones)–The U.S. on Wednesday revised downward its estimate of
    OPEC’s oil output in 2009, saying that the sharp decline in oil prices would
    lead to “compliance that is above historical levels.”
    The U.S. Energy Department also dropped its projection that demand for crude
    produced by member countries of the Organization of Petroleum Exporting
    Countries would outstrip supplies well into next year.
    The revisions to its OPEC forecasts, promulgated by the Energy Information
    Administration in a monthly report, come amid the EIA’s 43% downgrade to its
    price estimate for benchmark light, sweet crude, which is expected to average
    $63.50 in 2009.
    The EIA is largely playing catch-up to commodities analysts at banks who have
    drastically cut their oil price outlooks. The scale of the EIA’s changes
    underscore how U.S. government agencies failed to capture the potency of the
    credit crisis as it devolved into a widespread economic slump.
    “The extent of actual OPEC compliance to its new production target is
    uncertain,” the EIA said. “This Outlook assumes that the recent sharp decline
    in oil prices will lead to compliance that is above historical levels.”
    Oil prices have dropped below $60 a barrel despite OPEC’s Oct. 24 decision to
    cut production by 1.5 million to 27.3 million barrels a day, among the 11
    members subject to the quota. There remains some doubt among market
    participants that OPEC countries will adhere to the new quotas.
    The EIA said it expects OPEC oil output will decline by about 1 million to
    31.3 million barrels a day in the first quarter of 2009. EIA predicts OPEC
    production will stay relatively stable through the end of 2009.
    OPEC is set to wait for its most recent output cut decision to come into
    effect before it moves to slice production even more, a person close to the
    group’s president told Dow Jones Newswires on Wednesday.
    The person said it’ll take about four to six weeks to know if the decision has
    been implemented by members. A bulk of the cuts will come in oil-producer’s
    December crude volume allocations to their customers, according to PFC Energy,
    a consultancy. These allocations are finalized in mid-November.
    In a report released earlier this month, PFC said OPEC, including leading
    member Saudi Arabia, is showing “reasonably good compliance.”

    -By Anna Raff, Dow Jones Newswires (Benoit Faucon in London and Gregory Meyer in New York contributed to this

    Dow Jones Newswires
    11-12-08 1243ET

  69. 69
    zman Says:

    Those headlines come out of the short term energy outlook, or STEO. The STEO follows trends and is a statistical nightmare of a model. It never catches a turn, always extrapolates current price and demand trends. Was predicting high gasoline prices all summer and into fall …until it was no longer doing such.

    The comment about OPEC plans to comes directly from OPEC last weekend.

    Funny how Iran firing a new Israel reaching STS missile gets no note in energy press these days.

  70. 70
    BirdsofpreyRcool Says:

    z – did you use any leverage at your FoF?

  71. 71
    zman Says:

    Nothing like these kids today.

  72. 72
    BirdsofpreyRcool Says:

    z – understood. and, used correctly, leverage can be a wonderful thing.

  73. 73
    zman Says:

    Yes, people don’t mind it when things are moving up and to the right.

  74. 74
    BirdsofpreyRcool Says:

    given that shorts will have to be covered (while longs are being sold) to meet redemption requests… i wonder if the services sector will rally next week, relative to the E&Ps. Will be interesting to watch for… especially the land drillers, i would think.

    just noodling.

  75. 75
    zman Says:

    It’s a thought, man, what about the refiners?

  76. 76
    zman Says:

    Nevermind, the refiners are fairly lightly shorted. Only one there out of line is WNR with 18% and you won’t catch me owning those guys.

  77. 77
    Dman Says:


    EIA cutting “demand” in 2030 to 106 from the 116 number in their 2008 report. Wow, pretty amazing considering there’s no chance that either of those numbers can be supplied. But how did their fantasy number drop by 10% since last year, considering it’s 2030 we’re talking about? Don’t tell me they are modeling the economy 20 years out ….how about they try 20 days?

  78. 78
    BirdsofpreyRcool Says:

    z – got a coupla HF answers for you. The answer is YES. A lot of HFs have a LOT of cash on the sidelines. One very large one (which will go unnamed) is sitting on 90% cash. Another is 50% cash and only trading large, liquid ETFs on a daily basis.

    The equity HFs are all watching the debt market now. And, since the debt mrkt pretty much rolls up the carpet and calls in a year around mid-Novemeber, there doesn’t seem to be a catalyst to get these fund mngrs to spend their cash.

    One very very well-known fund mngr has let all his PMs go, with the caveat that he will bring them back on Jan 2nd, if it looks like the mrkt will bounce back. On the other hand, I am still hearing about other funds that are folding shop and shutting down, permanently.

    So, the equity market seems to have no where to go but down… on light volume. This will make for some really really fugly pricing on some stocks before the end of this year.

    Unless something changes in the debt market. That is the catalyst here.

  79. 79
    zman Says:

    Dman – I’ve spoken in the past to the guys who run the models here. Call them, their name is on the doc on the EIA website. They’ll talk to anyone and they will tell you that the model is a complete trender, which extrapolates current time frame view forward. I have another name for it but I try to keep the language around here pretty clean.

  80. 80
    Sambone Says:

    (Updates with interview on CNBC)
    T. Boone Pickens confirmed news reports Wednesday that falling energy prices
    have forced him to delay plans to build a massive wind farm in western Texas.
    “Things have slowed down, but, no, the (turbine) order has not been canceled,”
    the energy investor and former oil magnate said on CNBC. He said he still
    expects to take delivery of the project’s 2,700 turbines in 2010, as originally
    planned, but that their installation might be “slowed down a little bit” until
    wind is more competitive economically.
    The Associated Press also reported Wednesday that Pickens has decided to cut
    spending on his multimedia renewable-energy campaign to between $40 million and
    $50 million from an initial budget of $60 million, due to the falling price of
    Pickens, chief executive of Dallas-based hedge fund BP Capital, told CNBC the
    firm remains entirely in cash, as it has been since July, and doesn’t plan to
    return to equity investing anytime soon. “Patience is what we’re practicing. We
    think it’s going to get worse, and there will be better opportunities,” he
    said. The fund is down 62% since June.
    “We’re in a global recession,” said Pickens, who believes a bottom in oil
    prices is near. He had predicted a price of $150 a barrel last summer, only to
    see a retreat after $147. “Within a year from now, we’ll be back above $100 a
    Futures of light sweet crude were trading Wednesday on the New York Mercantile
    Exchange at $56.91 a barrel, a 21-month low.
    Web site: http://www.cnbc.com

    -Dow Jones Newswires

    Dow Jones Newswires
    11-12-08 1316ET

  81. 81
    zman Says:

    Interesting BOP. So the cash angle appears to be true and its just a willingness to spend problem. At least that is better, than a no cash situation. The bite on those PMs will be a small bonus which will flow through to the luxury goods makers this Christmas. Not just no GI Joe with the Kung Fu Grip under the tree, but no Rolex either.

  82. 82
    BirdsofpreyRcool Says:

    yeah… no visits to that luxury resort near Yellowstone either.

    oops. it went BK on monday anyway….

  83. 83
    Sambone Says:

    #74 – Bird, Noodling?


  84. 84
    Sambone Says:

    NEW YORK (Dow Jones)–Global oil demand will barely grow in 2008 and 2009, the
    U.S. Energy Information Administration said Wednesday, in the face of the world
    economic slowdown.
    EIA sees world oil demand in 2008 at 85.89 million barrels a day, a gain of
    just 80,000 barrels a day from a year earlier. That’s a downward revision of
    250,000 barrels a day from the month-earlier projection. Last month, EIA
    projected oil demand growth in 2008 would be 330,000 barrels a day.
    For 2009, EIA cut its demand forecast by a steep 990,000 barrels a day, or
    1.1%, to 85.93 million barrels a day. That puts demand growth at just 40,000
    barrels a day.
    Following global demand growth of 860,000 barrels a day in 2007, the 2008-2009
    outlook would be the poorest two-year growth performance since demand fell in
    1982 and 1983.
    In the current, fourth quarter 2008, EIA sees demand averaging 86.99 million
    barrels a day, up 50,000 barrels a day from a year ago. But that’s a sharp
    690,000 barrels a day cut from the month-earlier forecast. Nearly all of that
    decline comes from a 650,000 barrels a day downward revision in U.S.
    fourth-quarter demand. EIA sees U.S. fourth-quarter demand at 19.6 million
    barrels a day, the lowest since 2001 and a drop of 980,000 barrels a day from a
    year ago.
    EIA said China’s oil demand in the current quarter will average 8.29 million
    barrels a day, up 5.3%, or 420,000 barrels a day from a year ago. That’s a
    modest 50,000 barrels a day cut from the October forecast.
    For all of 2008, demand in China, the second-biggest oil consumer after the
    U.S., is expected to average 8 million barrels a day, also up 420,000 barrels a
    day from a year earlier, and down 20,000 barrels a day from the October
    First-quarter 2009 demand in China was revised down by 80,000 barrels a day
    from the October forecast to 8.07 million barrels a day, a rise of 4.5%, or
    350,000 barrels a day from a year earlier.
    For all of 2009, China’s demand is expected to average 8.34 million barrels a
    day, down 80,000 barrels a day from the October forecast, but 340,000 barrels a
    day, or 4.3%, above the revised 2008 level.
    – By David Bird, Dow Jones Newswires

    Dow Jones Newswires
    11-12-08 1329ET

  85. 85
    BirdsofpreyRcool Says:

    sambone – phew! you worried me there… thought it might mean something WORSE these days!!

    LOL πŸ˜‰

  86. 86
    Sambone Says:

    Worse? Well sticking your hand under stumps in water you can’t see, waiting to get bit by a 30 pound fish? You know Water moccasins hide in them cubby holes also. I think those guys must drink alot of white lightin to do that is all I can say!

  87. 87
    zman Says:

    Re 84.

    How can the EIA get that granular on Chinese oil demand? Answer, not possible. Note that its not coming down much which is probably right but the Chinese are incredibly secretive about oil and coal volume projections so its a bet on getting their GDP forecast right. That’s about as likely as economists pegging the unemployment numbers.

  88. 88
    Sambone Says:

    In regards to the Chinese, you better believe that they are buying all the oil they can get to start filling their SPR!

  89. 89
    BirdsofpreyRcool Says:

    without the white lightin, where’s the point??!

  90. 90
    zman Says:

    Speaking of white lightnin’, I will be out of the office Friday, November 21 for the Haynesville Shale Expo and will buy rounds for ZEB subscribers at the Shreveport Horseshoe Casino that night.

  91. 91
    BirdsofpreyRcool Says:

    shoot… in this mrkt, who needs the catfish? jest gimme the white lightnin’… straigh up.

  92. 92
    BirdsofpreyRcool Says:

    (can’t spell to save my life today… i think “straight” usually ends with a T)

  93. 93
    BirdsofpreyRcool Says:

    IG 201. no relief for the weary.

  94. 94
    Sambone Says:

    By David Bird

    NEW YORK (Dow Jones)–Responding to sliding global demand, OPEC began scaling
    back oil output just days ago. With prices continuing to fall, further cuts
    seem very likely next month.
    The Organization of Petroleum Exporting Countries agreed on Oct. 24 to slash
    its oil output ceiling by 1.5 million barrels a day from Nov. 1 as the global
    economic crisis has bit deeply into oil consumption. OPEC’s de facto leader,
    Saudi Arabia, the world’s largest oil exporter, and other members have notified
    customers of reduced supplies.
    But as crude oil futures on the New York Mercantile Exchange settled below $60
    Tuesday for the first time since March 21, 2007, pressure is building for
    further cuts when ministers convene on Dec. 17 in Algeria. Nymex
    December-delivery crude oil futures settled at $59.33 a barrel, down 4.9%, or
    $3.08 a barrel on Tuesday. On Wednesday, prices hit the lowest level since
    March 2007, at $56.35 barrel.
    There’s an urgency – some would say panic – within OPEC to take oil off the
    market to avoid a sharp rise in worldwide oil inventories that would keep
    prices depressed even when the global economy recovers. Already, depressed
    world oil demand means that the typical fourth-quarter drawdowns in consumer
    inventories won’t occur this year, analysts said.
    By the time OPEC meets next month, some analysts see oil trading near $50 a
    barrel, forcing further output cuts. Crude prices last settled around that
    level in January 2007 and haven’t settled below $50 since May 2005.
    Still lower prices would tighten the vice on exporters’ budgets, and OPEC’s
    high-stakes struggle to rein in falling prices provides little room for error.
    In the downturn, OPEC has avoided setting a target price for crude.

    Risks Of Further Cuts

    Market bears would feast on signs of OPEC disharmony or doubts about whether
    cuts will be made, sending prices into a further spiral.
    Antoine Halff, analyst at Newedge USA LLC in New York, cautioned that “deeper
    cuts would be twice as difficult to enforce on a sustained basis.” The more
    prices fall, the tougher it may become to convince some exporters to tighten
    the taps. As lower prices punish budgets, some sellers may be tempted to sell
    more at today’s prices than to hold back on the hope of higher prices down the
    The success of further cuts, as always, depends on Saudi Arabia’s willingness
    to shoulder most of the reduction and hinges on the mystery over what level of
    prices the secretive Saudis see as appropriate for crude amid the global
    economic turmoil.
    On the other hand, overtightening the market could trigger a price jump
    injurious to the fragile global economy.
    The group’s 48-year history is marked by boom-and-bust cycles for oil prices.
    Ten years ago in Jakarta, OPEC lifted output quotas by 10% as the Asian
    economic crisis and an unusually warm Northern Hemisphere winter were
    unfolding. OPEC’s stuttering response over the ensuing months saw oil prices
    chopped in half to near $10 a barrel and it took 20 months for the market to
    recover to previous levels.

    Echoes Of 2006

    Michael Wittner, head of global oil market research at Societe Generale in
    London, said he sees OPEC in a similar situation to 2006, when prices fell
    sharply from record highs in the summer and OPEC responded with output cuts at
    October and December talks.
    Prices aren’t expected to begin to recover until the impact of lower exports
    is seen in consumer inventories, in December or January, he said.
    If prices take a similar trajectory as in 2006, average monthly crude oil
    prices would respond to OPEC’s balancing efforts and by September 2009 would be
    trading above last July’s average of around $133.50 a barrel. That may be a
    tall order, given that the current global economic crisis is viewed as the
    worst since the Great Depression, but the International Energy Agency expects
    the average price of crude oil imports to be averaging $100 a barrel by 2010.
    Wittner said he expects OPEC will opt to cut the output ceiling by a further 1
    million barrels a day at next month’s talks. He said he expects to show
    compliance of about 70% to 75% on previously agreed cuts and the expected
    December cuts.
    Crude oil prices have fallen nearly 60% from a record high of near $145.29 a
    barrel in July and current low prices are ringing alarms in consumer countries,
    despite year-to-date average prices that are nearly 50% above a year ago.
    The International Monetary Fund said in a regional economic outlook published
    last month that Gulf oil producers need an average price of around $47 a barrel
    for their 2008 fiscal accounts, not far from current levels. IMF said Iran,
    OPEC’s second-biggest oil exporter and a major price hawk, needs a price of
    around $90 a barrel for its budget. Iranian President Mahmoud Ahmadinejad is up
    for reelection in June 2009.

    (David Bird, senior energy correspondent for Dow Jones Newswires, has covered
    global oil markets for more than 20 years.)

    Dow Jones Newswires
    11-12-08 1347ET

  95. 95
    BirdsofpreyRcool Says:

    IG 202 +14 for the day.

  96. 96
    nifkin Says:

    mastercard data out…. GAS demand down 4.2%

  97. 97
    zman Says:

    Thanks Nifkin, that’s inline with the EIA weekly data. Hearing more people referring to having “filled up” for low total cost. Still waiting to see a price based uptick in demand roll through to the demand numbers.

  98. 98
    nifkin Says:

    b of a schedule for tomorrow: 13-Nov-08
    8:00 AM APC SE WFT
    8:40 AM CLR HK
    9:20 AM ATO BAS EOG
    10:00 AM BHI CXO STR
    10:40 AM APA PDC SD
    11:20 AM CLB UPL WLL
    12:30 PM ESV PXD SWN
    1:10 PM BEXP PKD RRC
    1:50 PM GMET HOS NBL
    2:30 PM BBG NFX PTEN
    3:10 PM COG GLF LNG
    3:50 PM DVR FTI NXY
    4:30 PM STO WMB XTO

  99. 99
    bill Says:

    what word can a use for todays action?

    Major drop?

    im thinking id be better off in bulker stocks lol

    hk loser of the day down 15 %

  100. 100
    bill Says:

    re 96

    is demand down 4 % or gas purchase down 4 %

  101. 101
    zman Says:

    Bill – I believe Master Card using measures gas purchase transactions.

  102. 102
    BirdsofpreyRcool Says:

    z – isn’t there some sort of rule, that markets can only sell off for 3 days straight, before they have to rebound? I thought I read that in an MBA textbook, years ago…

  103. 103
    zman Says:

    BOP – I have stacks of textbooks I’m planning to burn for heat this winter. If it was not written in October 2008 or later forget it.

  104. 104
    zman Says:

    Oil down $3, just killing names with higher LOE like DNR. Steam floods pretty costly at these prices.

  105. 105
    Sambone Says:

    NEW YORK (Dow Jones)–Production of natural gas from the Gulf of Mexico
    increased Wednesday from last week as energy companies worked to restore output
    that was shut in by Hurricane Ike, while crude oil output rose only slightly,
    the U.S. Minerals Management Service said.
    The agency reported that 18.8% of crude oil, or 245,032 barrels a day,
    remained shut in. Last week, MMS reported that 18.9%, or 246,103 barrels, were
    off line.
    The production figures are estimates based on reports of what operators expect
    their output to be, MMS said.
    Natural gas output of 2.062 billion cubic feet a day, or 27.9%, also remained
    off line. Last week, 28.9% of natural gas production was shut in.
    The Gulf of Mexico produces about 1.3 million barrels of oil a day and about
    7.4 Bcf of natural gas a day, the MMS said.
    Workers remained evacuated from 62 production platforms, or 8.9% of the 694
    staffed production platforms in the Gulf of Mexico, the MMS said. Last week, 71
    production platforms, or 10%, remained evacuated.
    Hurricane Ike made landfall on the Texas Gulf Coast Sept. 13 as a Category 2

    -By Christine Buurma, Dow Jones

    Dow Jones Newswires
    11-12-08 1430ET

  106. 106
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures sank to a 22-month low Wednesday,
    pummeled by relentless speculation that petroleum demand will stay weak.
    Light, sweet crude for December delivery was recently down $3.33, or 5.6%, at
    $56.00 a barrel on the New York Mercantile Exchange. That was the lowest
    intraday price for front-month Nymex crude since Jan. 31, 2007.
    Crude extended earlier declines after the U.S. Energy Information
    Administration projected flat world demand growth next year, adding its voice
    to a slew of demand revisions over the past month.
    A decline in stock markets also added negative sentiment for oil traders
    nervous that supply will outpace demand in coming months.
    “With the global macro situation looking pretty lousy, we probably shouldn’t
    be looking for a material rebound in oil prices until some time in 2009,” said
    Bart Melek, global commodity strategist at BMO Capital Markets in Toronto.
    Lower prices have pressured national budgets in a number of key oil exporters.
    Some members of OPEC, which produces about four in every 10 barrels the world
    consumes, have started talking about a meeting before the group’s scheduled
    Dec. 17 gathering in Algeria. Last month OPEC agreed to curtail output by 1.5
    million barrels a day, to 27.3 million barrels a day.
    OPEC is set to wait for its most recent output cut decision to come into
    effect before it makes a new decision on production, a person close to its
    president said Wednesday.
    Oil’s slide threatens to derail long-term investments in new supply. The
    International Energy Agency, an advisor to 28 industrialized countries, on
    Wednesday warned oil project delays recently announced by several companies
    raise the specter of new crude supply problems by 2010.
    “We see and hear about energy investments being delayed … This is a major
    worry and could lead to a supply crunch and much higher oil prices than we’ve
    seen before,” IEA chief economist Fatih Birol said as the agency released its
    long-term global energy outlook.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    11-12-08 1427ET

  107. 107
    orion Says:

    A taste of FSLR on that drop. ‘casino trade’ very small.

  108. 108
    BirdsofpreyRcool Says:

    IG 199… bonds a tad better. maybe the stock market will sit up and take notice. Back down from the 200-oh-sh*t level.

  109. 109
    Sambone Says:

    NEW YORK (Dow Jones)–Despite fluctuations in oil prices, Chevron Corp. (CVX)
    plans to maintain a high level of investments in oil exploration and
    production, Chief Executive David O’Reilly said Wednesday.
    The company generally announces its capital spending for the coming year each
    December. O’Reilly wouldn’t estimate the company’s expected spending for 2009,
    but said falling oil prices wouldn’t cause Chevron to scale back.
    The executive spoke Wednesday to the Council of Foreign Relations.
    “We’re not swayed by the ups and downs at the market,” he said. Oil has fallen
    from highs above $145 a barrel this summer. However, O’Reilly said the price
    remains inline with that seen several years ago, when Chevron first planned
    large projects like Blind Faith, in the Gulf of Mexico, which came online
    “Generally, we’re committed to trying to invest,” he said. O’Reilly said the
    company approves only those projects that are viable even if oil prices drop
    O’Reilly didn’t disclose a minimum price below which Chevron would cut
    Chevron, based in San Ramon, Calif., spent $22.9 billion on capital projects
    in 2008.

    -By Jessica Resnick-Ault and Isabel Ordonez, Dow Jones Newswires

    Dow Jones Newswires
    11-12-08 1447ET

  110. 110
    zman Says:

    SUN – only thing on the energy watches up most of the day.

    Orion – yep, small bites only on a name like that.

  111. 111
    zman Says:

    Bird – S&P and DJIA within a day’s move of their October lows, so its either bounce soon or …

  112. 112
    tater Says:

    The stars are not wanted now; put out every one,
    Pack up the moon and dismantle the sun,
    Pour away the ocean and sweep up the woods;
    For nothing now can ever come to any good. -Auden

    GOOG sub $300

  113. 113
    zman Says:

    Tater – got any levels for the broad market?

  114. 114
    tater Says:

    You want the swear words in or out?

  115. 115
    zman Says:

    Oil back to trading penny for penny with the Dow move, even in the after NYMEX market.

  116. 116
    zman Says:

    Just the levels, thanks.

  117. 117
    tater Says:

    I have to defer to Nicky on that stuff. I’m in the middle of learning a bunch of new TA and my head already exploded. From my old way of looking it seems like an obvious bet that we have to touch down to the lows. Fundamentally, I think that everybody should go back and look at the article from this past Saturday’s Wall St. on the op-ed page bottom right hand corner titled How Far Will Deleveraging Go? Pretty much says that we are not in a good place for at least another half year.

  118. 118
    ram Says:

    Where is NICKY?

  119. 119
    zman Says:

    Nicky had family in town last I heard.

  120. 120
    zman Says:

    Volumes very light today. Big moves down in a vacuum of trading.

  121. 121
    ram Says:

    It is very predictable to see the order of who will get bailed out. It is public information on which PAC’s give to which politician. UAW gave Pelosi $100K – fact.

  122. 122
    tater Says:

    I’ve been watching that oil in step with S&P trading. Says that many funds still have their fingers where they shouldn’t. I really want to see that stop before I attempt to purchase “bargains”. I also believe that once these weak hand types are out, the manipulators will rush back in to do what they do best.

  123. 123
    Alhambra Says:

    xom just fell under 70

  124. 124
    zman Says:

    yep, DJIA just dropped to target 8,300. XOM is actually outperforming (which provides no comfort to me but it is true).

  125. 125
    Popeye Says:

    Enough – ring the bell already

  126. 126
    tater Says:

    Wyoming and Z had some very helpful things to answer a question I had about shutting in production at E&P’s. How hard is it to stop and start at an oil sands facility? Little vs. big have anything to do with it as well?

  127. 127
    zman Says:

    Came within a hair of bidding some DUG calls but am not for now. The last time we saw selling on light volume like this the bounce (within about 3 days) was pretty impressive. And I usually get the DUG trade wrong. So I’m going to stay half cash and ride this out for a bit longer.

  128. 128
    zman Says:

    In reading this afternoon the press and analyst and fund manager reaction to the about face for the TARP Paulson comes off like a man without a plan to me and the market despises that kind of uncertainty. Gasparino just said the TARP was flawed from the start and could not work anyway as an asset buying vehicle.

    If you’ve never taken a look at an E&P balance sheet, you might want to know that they routinely operate with a negative working capital balance (current liabilities > current assets). Not normally a cause for pause but you have to be able to keep that accounts payable account operating. Just a thought as the service co’s get more stressed and pressured to reduce prices.

  129. 129
    zman Says:

    3rd day of losses, 2nd to close at or very near LOD.

  130. 130
    zman Says:

    SUN closing flat to slightly green. Appointed temp CFO but there must be a takeout rumor there.

  131. 131
    BirdsofpreyRcool Says:

    z – if that textbook (from the 1950’s i think) is right, tomorrow we should see a rebound.

    IG went out at 201. Not much (any?) good news out there…

  132. 132
    zman Says:

    FST on the tape with a reduction to its planned Rockies asset sale price. $258 drops to $200 mm due to the drop in gas prices.

    more deets in a second.

  133. 133
    BirdsofpreyRcool Says:

    Some insider buying at HK. Nice to see.

  134. 134
    zman Says:

    deal falls in value from $3.20 per Mcfe which seemed high at the time at 9/30 to $2.47 which is still a very good price in this market, especially for Rockies gas. Its not common, however, for these deals to be repriced. And that’s a hefty haircut. The buyer was never disclosed but this does not say good things about the transactions market at this point as it was obviously a case of take the lower price or we don’t have a deal. In my way of thinking, this makes CHK’s deal even more positive (as there are no proved reserves attached and we are talking about billions) and their hedges all that much more valuable. Market could care less right now but when the dust settles CHK is one of the few who in the current gas price environment (if you held it flat through 2009) will show CFPS growth next year.

  135. 135
    zman Says:

    Bird – saw some at CHK yesterday. Director buying a little at $24. Did not see any at HK. My question is when does Aubrey buy back in?

  136. 136
    Wyoming Says:

    When the banks clear his account for margin trading…. I know bad joke but I have too much time on my hands working on repairs rather than new wells ……

  137. 137
    zman Says:

    Wyoming – are you seeing / hearing about workover deferrals yet? Not You specifically, but in general.

  138. 138
    antrimshale74 Says:

    TCK a real train wreck today. Market is coming to grips with the fact that 1) they over paid for Fording Canadian Coal and 2) they should absolutely positively not done a cash transaction. Stock for stock deals are the safest these days for the acquirer, regardless of dilution (which really isn’t dilution when all stocks are trading at these levels).

  139. 139
    Wyoming Says:

    No, just the opposite. Workovers are the quick easy way to boost cash flow, small investment for increased productivity. Sometimes that can increase your reserves if you are moving up hole lets say.

    I did hear the other day that some operators are trying to get invoiced in ’08 and then have the work done in ’09, not us. I don’t know how anyone can do it with Sarb-Ox but I am sure they will find a way. Basically, these operators know they will have their Cap-Ex cut in ’09 and can’t spend what they have left in ’08.

  140. 140
    Wyoming Says:


    Will check for any necessary replies later tonight, got T-Ball practice.

    Screw you guys, I’m going home.

  141. 141
    zman Says:

    Oil numbers only tomorrow, gas inventory put off until Friday due to Veteran’s Day.

  142. 142
    zman Says:

    Thanks Wyo – Just pacing where we are in the cycle. Things get bad enough and the workovers get tumped too.

  143. 143
    VTZ Says:

    Hey tater, sorry to reply so late… got caught up.

    There’s 2 kinds of oil sands extraction: the mine operations and the well production.

    In order to shut down the well operations if you are using steam you have to accept low production for an extended period of time because the reservoir needs to remain heated in cyclic steam injection (CS) or steam assisted gravity drainage schemes (SAGD).

    In order to shut down a mine/upgrader would be a fairly big deal if for no other reason than the amount of people it employs and the risk they are taking on regarding technical staff not coming back.

    Additionally it takes a few days to shut down safely then you need to flush all your units and clean all the lines to prevent corrosion or coking or a whole lot of other problems.

    All things said, it is NOT EASY to shut down an oil sands facility and they are still all breakeven above 40 bucks anyways.

  144. 144
    zman Says:

    Oil down 61% in 4 months to a 22 month low, down 10% in the last 2 days, and CNBC interviews a guy who is short oil and the oih who surprising says oil is going lower, maybe to $45 by year end or even this month. He goes on to say that OPEC, especially Saudi, really is not cutting production and China is probably growing 4%, not 12%.

  145. 145
    VTZ Says:

    It’s far easier to shut in wells than the mine/upgrader operations for sure.

  146. 146
    VTZ Says:

    One comment is that if things got bad enough some companies might consider taking a turnaround for a portion of their facilities before it would normally be scheduled. Turnarounds would generally last around 30 days.

  147. 147
    Jay Reynolds Says:

    VTZ –

    At what depth do your sands wells typically produce, both SAGD and CS. More or less than 1,000?

    Is corrosion more or less of a problem than with typical production with no thermal componet?

    What is the average temp of your produced fluids through these two methods.

    Just noodlin’ around an idea and will discuss with you offline depending on answers above.

    Much oblidged in advance.

  148. 148
    zman Says:

    INTC warned about their 4Q. Futures tumbling. Oil just over $55 in AH, down another $1 and falling.

  149. 149
    zman Says:

    JR – surface mined.

  150. 150
    kyleandy Says:

    FREE Has conf call at 4:15 tomorrow. used to be bill’s favorite.

  151. 151
    Jay Reynolds Says:

    RE 149

    Wasn’t inquiring about the surface mining (dig it up, move it, wash it, etc) but in situ methods. SAGD and CS (huff n’ puff). With respect to the latter wondering if they are cyclic through the same well or clustered in some pattern such that the injector is not also serving as a cyclically producing well.

    Sorry for the confusion, see you at the Horseshoe.

  152. 152
    TEXWS6 Says:

    re #90:

    will be fraccing a Haynesville well, might just have to take you up on the offer!!!

  153. 153
    VTZ Says:


    Lots of the wells are ~1000m, some are more shallow at 500m depths, some are even less shallow than that but there are also some >1000m.

    Regarding your question about the CS huff and puff, it depends on the operator but lots of people use the same injector and producer. Others use dedicated injection and producers. It depends on the company and when they were built.

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