OPEC Wednesday

132 thoughts on “OPEC Wednesday”

1. Saudi Minister Says OPEC Agrees On 2M B/D Cut

   Dow Jones Newswires

   ORAN, Algeria — OPEC agreed Wednesday to a record cut in oil output of 2 million barrels a day, Saudi Arabian Oil Minister Ali Naimi said.

   “There is a consensus on a cut of 2 million barrels a day,” Naimi told reporters as an OPEC meeting got underway here.

   The OPEC cut — not yet officially decided — would be its largest ever and could be complemented by combined reductions from non-OPEC members Russia and Azerbaijan of 600,000 barrels a day. This would take 2.6 million barrels a day of oil off the market.

   OPEC ministers called the meeting here to take action against a steady slide in oil prices, which are now 70% off their highs of $147.27 a barrel in July, as demand dries up in recession-hit industrialized consuming nations.

   At 1133 GMT, benchmark January light, sweet crude futures on the New York Mercantile Exchange were up $1.35 at $44.95 a barrel.

2. “I’m out all day today for the birth of my son”

   Congrats early Big guy!

3. By Lananh Nguyen
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures were steady in London Wednesday as
   demand concerns counterbalanced expectations the Organization of Petroleum
   Exporting Countries will agree to rein in production by 2 million barrels a day
   later Wednesday at its meeting in Oran, Algeria.
   Prices gave back earlier gains as market participants warned any output
   reduction by OPEC would be overshadowed by a collapse in oil demand from
   recession-hit economies.
   “The attention is so heavy on the demand side and at the moment that’s where
   the real problem is…the whole consensus of the market is just so negative,”
   said Ole Hansen, manager of futures and fixed income trading at Saxo Bank in
   Copenhagen.
   At 1249 GMT, the front-month February Brent contract on London’s ICE futures
   exchange was up $0.40 at $47.05 a barrel.
   The front-month January contract on the New York Mercantile Exchange was
   trading $0.25 lower at $43.35/bbl.
   The ICE’s gasoil contract for January delivery was up $8.25 at $475.75 a
   metric ton, while Nymex gasoline for January delivery was up 149 points at
   105.49 cents a gallon.
   The OPEC summit takes place amid a steep decline in oil prices – which have
   staged a 70% freefall in recent weeks – and slowing global growth rates.
   Several OPEC officials, including Saudi Arabia’s Oil Minister Ali Naimi, said
   Wednesday they expected the group to announce a rollback of crude output by
   around 2 million barrels a day.
   “We think the scale of today’s likely cut indicates OPEC’s desire to preempt
   further demand weakening and draw a line under recent price weakness,” said
   analysts at Collins Stewart in London.
   While a potential 2 million barrels a day cut was already factored into
   prices, participants were waiting to see if any other non-OPEC oil producers
   would also trim output in concert with OPEC. Russian Deputy Prime Minister Igor
   Sechin said earlier Wednesday the country is ready to cut its oil output by
   around 320,000 barrels a day if prices continue to fall.
   “A supply response from Russia could be the wildcard – and if coordinated with
   an OPEC cut, could see prices rebound near term,” said Mark Pervan, head of
   commodity research at ANZ Bank in Melbourne. However “the weight of negative
   economic news, importantly out of China, is likely to keep any recovery short
   and mild,” Pervan said.
   Other participants were skeptical Russian compliance levels could be
   adequately monitored.
   “I feel there is a lot of politics going on, but supply and demand always win
   out in the end…the recession is biting and I feel desperation in the need for
   cuts,” said Glen Ward, joint head of commodities at ODL Securities in London.
   “(It) will be bullish if they do cut but in reality the falling demand is more
   important, hence the need to cut in the first place.”
   In other fundamental news, the U.S. Department of Energy will also release its
   weekly inventory snapshot at 1535 GMT. Analysts surveyed by Dow Jones Newswires
   expected crude inventories to rise by 100,000 barrels, gasoline stocks were
   seen rising 1 million barrels and distillate inventories were expected to be
   900,000 barrels higher.
   Bache Commodities broker Tony Machacek said he expected the market will revert
   back to tracking equities and the U.S. dollar once OPEC and DOE announcements
   emerge.
   “I think the OPEC cut should go some way to bringing support back to the
   market (but) it’s difficult to know how much…there’s a lot of bears still
   around” who think demand erosion will outweigh supply trims, Machacek said.

   -By Lananh Nguyen, Dow Jones Newswires

   Dow Jones Newswires
   12-17-08 0809ET

4. Off subject

   Yesterday I mentioned a certain company who missed their numbers badly and the stock went up. Today another comapny in the same business lost big time and it’s down premarket. Another bloody scalp again from scratching my head.

5. For those who missed the post market annoucement from SD, they cut rig count from 47 to 12 between Sept and Dec. Cut capex for 2009 by 50%. (They had already cut by 50% in Oct. Tom Ward expects 10% growth in 2009. Annoucement includes hedges:

   http://library.corporate-ir.net/library/19/196/196066/items/318620/SandRidge%20121608.pdf

6. Great news about junior z!
   Congratulations!

7. Congrats Z

8. Congrats Z!!!

9. Morgan Stanley’s results are out… and Moody’s only cut their long-term rating 1 notch, to A2 (versus the 4 notch smack-down dellivered to Goldman Sachs yesterday).

   while equities might not like what they see this morning, light trading in credit has seen more buyers than sellers.

   IG 236 -6bps from yesterday’s close.

10. Happy Birthday, Little Z!

11. Z,

    Congratulations Zman. How soon will the new intern get to work with you. We need all the help we can get. LOL

12. Market update

    Dow down 97.25 to 8826, S&P down 12.83 to 900. Oil patch mostly red with some green. Crude at 43.35 down .35, Ngas up .04 to 5.79

13. IG 235

    There are a couple of large accounts moving this index today. The Street is asking: “what do they know that we don’t?” Clearly, most investors want this market to rally, but have to look past some pretty awful economic data points and political and structural (Madoff) uncertainty to get there.

    Still, yields (and spreads) in corporate bonds are so compelling that someday, sometime, someone is going to step in, buy, and not get eaten by the killer whale (the “you-go-first-penguin-theory” of investing).

14. when do we get the opec announcement?

15. Trading Desk saying they think we see a morning rally into lunch… then “tighten stops.”

16. E – Not sure, but I’m guessing either this afternoon or in the morning.

17. By Hyun Young Lee
    Of DOW JONES NEWSWIRES

    OTTAWA (Dow Jones)–Crude oil futures fell Wednesday as OPEC is expected to
    cut back output by 2 million barrels a day while the market is tempered by a
    bleakening demand outlook.
    The market was also watching out for the weekly U.S. inventory data, which are
    expected to show increases in both crude and oil products stocks.
    Light, sweet crude for January delivery was down 44 cents, or 1%, at $43.16 a
    barrel on the New York Mercantile Exchange. Brent crude on the ICE futures
    exchange was 44 cents lower at $47.09 a barrel.
    While not yet official, there is “a consensus on a cut of 2 million barrels a
    day,” Saudi oil minister Ali Naimi, the group’s de facto leader, said Wednesday
    as the meeting got underway in Oran, Algeria.
    “It’s a wait-and-see attitude until the final number comes out – oil’s been
    trading sideways between $42 a barrel and $49 a barrel for the past three weeks
    now,” said Morgan Downey, Standard Chartered Bank’s Head of Commodity Trading
    in New York. “OPEC is signaling that if prices go lower they’re going to take
    even more barrels off the market…but the market’s not testing OPEC’s resolve
    yet.”
    Non-OPEC members Russia and Azerbaijan are also attending the meeting and
    could agree to rein in production by a combined 620,000 barrels a day, though
    their oil fields are already in natural decline.
    The expected cut is already factored into prices but confirmation from OPEC
    could temporarily boost oil above $50 a barrel, Downey said, from where the
    market could try to get a better handle on demand levels over the next couple
    of months.
    The barrage of worsening economic indicators over recent weeks has kept a firm
    lid on any attempts by oil to push higher. The Federal Reserve’s decision on
    Tuesday to slash benchmark interest rates to a 0%-0.25% range has boosted stock
    markets while hitting the dollar, which sank under Y90 for only the third time
    in 13 years as U.S. rates fell below Japanese rates. But the aggressive measure
    suggests further pessimism about future demand.
    “If oil can’t rally on a falling dollar, then OPEC’s cut is a sign of demand
    weakness,” said Phil Flynn, a broker at Alaron Trading Corp. in Chicago. “This
    market is focused on demand destruction and cutting production will not change
    that.”
    Adding to the gloom, the International Monetary Fund it expects to cut its
    2009 forecast for global growth from 2.25%, “perhaps substantively,” First
    Managing Director John Lipsky said Wednesday.
    Meanwhile, oil market participants are watching out for the weekly U.S. oil
    inventory data, to be released at 10:35am. Crude stockpiles are expected to
    increase by 100,000 barrels a day, while gasoline and distillate levels are
    seen climbing by 1 million and 900,000 barrels a day respectively, according to
    a Dow Jones survey of 13 analysts. Refinery use is expected to fall 0.2
    percentage points to 87.2% of capacity.
    Front-month January reformulated gasoline blendstock, or RBOB, was up 51
    points, or 0.5%, to $1.0451 a gallon. January heating oil was up 2.81 cents at
    $1.4884 a gallon.
    -By Hyun Young Lee, Dow Jones Newswires
    Dow Jones Newswires
    12-17-08 0953ET

18. EIA Inventory Prediction from another all-energy research desk:

    Oil inventory preview ($42.90/bbl) – 10:35EST. Street looking for bearish numbers compared to seasonal norms…following trend of recent weeks inventory underperformance. Expectations of mogas build (+1.3mmbbls) in-line with norms but crude oil (+0.6mmbbls) and distillate (+1.5mmbbls) builds significantly out-of-phase with normal draws (2.6mmbbls and 1.7mmbbls respectively).

19. Z-Heir has entered the building! Congratulations!

20. congratulations to z family

21. OPEC agrees to cut output by 4.2mm barrels from september quotas…

22. Awesome Z … congrats !

23. 4.2M cut.

24. Since OPEC announced a 1.5mm bbl cut in November, i think this means this cut is actually 2.7mm.

    It’s worth noting, however, that the November cut only resulted in 0.9mm bbl/d in compliance. So, if they could just get everyone to behave… we might see oil prices find a bottom.

25. Congratulations.

26. Bird,

    Well get a knee-jerk reaction to the number until everyone digests that is is actually only 2.7 which means only about 1.8 will actually go into effect.

27. EIA release
    CL UP 525.00
    Gasoline Up 1,295.00
    Jet fuel DN (1,399.00) Distillates UP 2,936.00

    Resid. DOWN (2,107.00)
    Propane DN (2,357.00)
    Unfinished(927.00)
    Other Oils Down (700.00)

    Total DOWN (2734)
    Product Supplied this week 20192 thats a big jump
    4 wk 19607

28. CNBC saying 2.2 cut from current OPEC is the best at confusing everyone

29. 2.7 mmbpd is still a good number. but it almost doesn’t matter… even more than seeing actual compliance with the annouced quotas, the world is looking at oil demand. Until we get a sense of where the global economy is going… and how much oil it needs to get there, it’s tough to manage for a price on the supply/demand curve.

    So, right now, I think global eco-numbers trump OPEC statements. That said, still glad to see a number over 2mmbpd announced.

30. i might be missing an annoucement in the intrim… or mis-calculating overages.

    z just emailed that he thinks it amounts to a 2.4mm net cut. I’ll go with his numbers.

31. z just pointed out that this current move by OPEC is “more of a stabilizer than a v-shaped mover.”

    So, just stopping the decline in oil prices will be deemed a success at this point.

32. ORAN, ALGERIA (Dow Jones)– The Organization of Petroleum Exporting Countries
    Wednesday announced it is to cut its oil production by a further 2.2 million
    barrels a day.
    The new cut is effective from January 2009 Iraq’s oil minister said, and
    brings OPEC’s total announced supply reductions to 4.2 million barrels a day
    since August.
    The cut was slightly more than anticipated, as ministers looked to send a
    strong message to world oil markets that the group wants to shore up its
    fledgling effort to halt the plunge in crude prices.

    -By Spencer Swartz, Dow Jones Newswiresy.

    Dow Jones Newswires
    12-17-08 1106ET- – 11 06 AM EST

33. BOP,

    Agree about world demand reduction being the key to Cl prices.
    Some confusion here. Is it 2.7, 2.2 or 2.4 net?

34. EL D
    Whats the ETF for Dbl Lng Oil again

35. Yes DXO

36. mahout – my original guesstimate at 2.7 was too high, i didn’t include 0.3mm of production overage. z says 2.4. dow jones says 2.2. for now.

37. I am reading 2.2 net on top of what they SAID they would cut before (2 million), although they never cut the full amount. If they do cut the full amount it increases.

38. Z
    Forget Cramer, Opec etc.
    The market is awaiting your return

39. out of my dec HK calls, don’t trust this afternoon. Rolled CHK to Jan.

40. ORAN, Algeria (Reuters) – OPEC oil ministers agreed on Wednesday to remove a record 2.2 million barrels per day from oil markets in a race to balance supply with the world’s rapidly crumbling demand for fuel.

    The 12 members of the Organization of the Petroleum Exporting Countries were also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel.

    The cut comes on top of existing reductions of 2 million bpd agreed by OPEC at its last two meetings. It lowers the group’s supply target to 24.845 million bpd.

    Oil showed little reaction to the deal reached after four hours of talks, with prices trading just above $43 a barrel.

    Saudi Arabia, the world’s biggest oil exporter, has led by example — reducing supplies to customers even before a cut has been agreed to help push prices back toward the $75 level Saudi King Abdullah has identified as “fair.”

    Ali al-Naimi, the kingdom’s oil minister, was first to publicly call for curbs of 2 million bpd ahead of the meeting.

    “The purpose of the cut is to bring the market into balance and avoid the gyrations of the price,” he said. “The cut may lead to higher prices or may not.”

    Others in the group that pumps more than a third of the world’s oil said at least two million barrels needed to go from daily output to prevent a massive build in inventories.

    “A minimum of two million we think needs to be cut so we can balance the market,” Iraqi Oil Minister Hussain al-Shahristani told Reuters.

    The cut, the third this year, brings a total reduction in OPEC supply to 4.2 million bpd, nearly a five percent cut in world oil supplies.

    OPEC has encouraged other producers to cut back too. Russia and Azerbaijan are attending the Oran meeting as observers and have said they could rein in exports in future, but stopped short of am immediate pledge.

    Leading a high level delegation, Russia’s Deputy Prime Minister Igor Sechin said in a speech to OPEC that Moscow did not plan to join in coordinated output cuts and did not want to join the group.

    Oil below $50 is uncomfortable for all producing nations, but especially for OPEC members Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programs.

    NOBLE CAUSE

    It is hoped that a sharp supply cut will put oil on the path toward $75.

    “You must understand the purpose of the $75 price is for a much more noble cause,” the Saudi Oil Minister said. “You need every producer to produce and marginal producers cannot produce at $40 a barrel.”

    “Therefore we believe that $75 is probably more conducive to marginal producers to continue so we don’t have a shortage in the market and we avoid the future sky-rocketing of prices.”

    Analysts said a limited recovery in prices would put a bit more strain on a recessionary global economy, but it may help pull the world back from the brink of deflation — a growing source of concern.

    The influential Saudi Oil Minister clearly outlined the kingdom’s route to lower production.

    It is pumping 8.2 million bpd against 9.7 million bpd in August.

    “The difference is 1.5 million barrels per day — that is what we’ve done,” Naimi said.

    Saudi Arabia’s implied output target is about 8.477 million bpd under existing OPEC curbs.

    To have a lasting price impact, any OPEC deal must to be strictly observed.

    According to independent observers cited in OPEC’s monthly report on Tuesday, the group’s compliance in November to existing cuts was only just over 50 percent.

    Analysts said deeper cuts would further test discipline in the group. That restraint would be needed to slim down growing world oil stocks.

    A slump in consumption has lifted oil inventories in OECD industrialized nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.

41. NoblPEC

42. could someone with real-time energy quotes post oil prices for z here? he’s monitoring from off-site.

43. headlines: “Nymex oil futures fall to lowest since July 2004”

44. md,

    According to ETF Guide.com, There is another double x oil ETF: UCO. They say with UCO there is no credit default risk like there is with DXO. It might be a better way to go and worth checking out. UCO has a little more annual cost, but it might be worth it.

45. Jan 09 crude trading at $40.60, off 6.8%-not a good reaction

46. Q.What would be chances for default in DXO. How is it that its trading at below $3 and the high was $30. compared to UCO trading at $14 vs. a high of only $29.

47. While The EIA prime numbers were bearish the total inventory was bullish and produt suuplied is indicating considerably higher consumption.
    2.2 or 2.7 cut will affect the prices just as consumers were going to the pumps

48. The one weekly product supplied numbers shot up for all categories except other oils. Winter has arrived for Dist. propane

49. Trading Desk pointing out that MS has gone positive. Could pull financials up… and the rest of the mrkt with it.

    Just passing along the comments.

50. Alternative energy is on fire today ENER, CSIQ,FSLR,JASO,YGE, CLNE

51. crude Jan 09 coming off lows, now $41.47
    contracts out from Jan 09, Feb, Mar, Apr holding up much better, off 1% or less.

52. thanks, choices.

    z might be out, doing very important things… but nothing can separate him from his blackberry. he appreciates the updates.

53. z pointed out that 1.8mm of the OPEC cut is going to be shouldered by Saudi Arabia… that’s 43% of the targeted 4.2mm cut. So, lends some credibility to the announcement.

54. BOP,

    Thanks for the reply. I’m still a little bit unsure but it does’t matter much.

    I read the FED’S cut as not too much effect on the dollar but just adjusting to existing reality. It should help some with the ARM’s. What we sometimes forget about the US dollar negatives and weakness is that the other currencies many times are bad news also. They can all go down together. And that means commodity prices will go up.

    I read OPEC’S cut as not exciting and fairly neutral as to Cl pricing. They didn’t cut enough before, so part of this cut is just catch-up dating back to October. What’s left of today’s cut will IMO barely cover the drop in demand since October and leaves little if any to deal with world reduction in demand from today to the next cut.
    Therefore, assuming world economic decline and reduction in demand has not suddenly stopped, but is continuing (and what is going to stop it?) i wouldn’t be surprised to see Cl bang up against $41 and then break thru into the $30’s. If so (a big if admittedly), that will be the bottom, some where in the $30’s and my trigger point for aggressive buying assuming credit is showing signs of unfreezing. I don’t think our new FEDERAL NATIONAL BANK LOL will be able to handle all future loans and bond issues. (I knew this was coming, it had to come the situation is so bad).

    Just rambling along a little bit. Am i making any sense?

    Appreciate your valuable info and comments very much.

55. cop 54.35 +.22
    xom 82.20 -.94
    gmxr 26.54 +1.36
    chk 16.39 +.17
    hk 17.06 -.28

56. mahout – thanks for pointing that out. You are correct. The Fed’s cut just brought the cash fed funds rate down to where the futures rate was trading. So, just validating market prices.

    Sure hope it helps. All this effort should pay off someday. Just need to get the corporate bond buyer back into the market. Near-zero rates on treasuries should help.

    Seeing some buying in single-name bonds today. And the bank loan market is rallying. So, credit moving in the right direction today. In spite of equities.

57. our english friends are having a harder time than we are… just saw that the British pound has weakened to 93 pence per euro for the first time.

58. Z: I may be in the better late than never zone, but CONGRATULATIONS!!

59. md #46,

    I haven’t bot UCO or DXO or researched it in depth as yet, so i can’t answer that but when it comes to credit default risk you can never tell when they pull the rug out from under you. Remember Lehman? For myself i think better safe than sorry.

60. xweto – it’s not too late at all. Just received from the z-berry:

    “Contractions about 2 min apart, I’m betting we are an hour or two from TD”

61. TD = Touchdown?

62. “total depth”

    z is the consummate energy-geek, i’d say.

63. lol touchdown

64. Any idea on XOM’s prospects before Friday?

65. noon mrkt commentary from a NY trading desk:

    Overview

    · SPX dn ~4pts to 909 – Equities move to highs of the day as noon passes – may be considered a victory after yesterdays sharp rally).

    · A lot of the action is happening outside of equities: Crude down over 2 bucks to below $42/bbl as OPEC cuts production in line with expectations (crude even approached $40, and contango is hitting new extremes,), the dollar continues to get clobbered (DXY dn another 2% today), Euro surging (a combination of the FOMC statement from yesterday and relatively hawkish comments out of ECB officials), plus, big focus today is the US treasury market: as noon passes we are off extremes of the day, but the 30 tsy was up a full 3pts at one point today (cut those gains in half now), and the 10yr yield was approaching 2%!!! Gold up 10 bucks to $868/oz, VIX dn 1% even as stocks decline.

    · The equity desk says that despite the run up, it’s hard to argue against buying the market when MS is able to rally into positive territory after a terrible Q; while downside risks are well understood, people are still very afraid of blinking and SPX is at 1000. On technicals, the sp500 cash broke up above the 50day MA yesterday and that level (today stands at 900.5) is prob. support to watch in near-term; SP futures held the 890 level this morning and SP cash holding ~900; for now those levels are strong support, though sellers/profit-taking may come out if we breach those levels. Note just now, the Nazz breaks up above 50day (recall it didn’t do this yesterday)

    · The stock surge from Tues (on back of the very important Fed statement) is being met with some selling pressure today. Some cautious headlines out of Europe (BNP Paribas and Deutsche), as well as a larger loss from Morgan Stanley, gave some excuses for selling at the open, although equities are climbing off worst levels (MS moves into the green). Some bond deals to note today re DIS, SFY. The “big” catalysts are out of the way for the most part (broker earnings and Fed decision), and now the next big events to watch will be the SP/Nazz/Russel re-bal and quad-witch this Friday. There are a bunch of big earnings tomorrow, although outside of ORCL, most of the scheduled reports have already preannounced. We are still waiting on some auto resolution, which could come as early as this Friday (at this point, aid is widely anticipated, although the big question is whether Treasury/White House will demand a pre-pack).

    · Sectors in Focus – Energy stocks remain mixed following the OPEC decision, tech opened very weak, led by AAPL, but rallying off worst levels (AAPL still heavy); financials also weak (although after huge up day yesterday); real estate heavy (NAR out with a negative commercial real estate outlook…..also this space had a big rally on Tues as well). To the upside, transports strong (especially the rails…note FDX reports tomorrow) and retailers in the green also.

    · OPEC cuts 2.2M b/d from production (mostly in line – not really 4.2M b/d) – Crude down 3 bucks to below ~$41/bbl following the decision (contango widened to all time highs – now at ~17 on 1st to 12th month futures – previous high was ~14). From our London energy team: OPEC deliberately ominous with their numbers suggesting a 4.2mb cut vs. September production. We have September production for those under quota at 29.3 mbd – with a 4.2 mbd cut this takes us to 25.1 mbd, which is only 2.2 mbd below the level they were supposed to be following before anyway. Our NY desk continues to point out that regardless of OPEC’s decision today, they cannot control the demand side of the equation and that there will be continued concerns of countries cheating on the production cuts. It is important to note that at $40, 11 of the 12 face budget deficits with only Qatar showing a surplus. Extremes are Iran and Venezuela which need $90 oil to more or less breakeven while Qatar can manage at just $24 and Saudi Arabia at $55

66. I’m probably WAAY late on this but congratulations, Z.

    Best to the Z family.

    Tom

67. mahout at 30$ oil expect all the oil sands players to shut down and perform maintenance taking another 750,000 bpd off the market.

68. Also, grats on the new intern. Decide on a name yet?

69. Total Depth, hmmm

    “The planned end of the well, measured by the length of pipe required to reach the bottom”.

    or

    “The bottom of a particular hole section, where drilling is stopped, logs are run and casing is cemented before starting the next, smaller diameter hole section”.

    I’m tryin to figure out how “Brith’n a baby” can come close to Total Depth. Looks more on how to make a baby to me. Z must bleed crude, I guess.

70. Question to anyone who might have some background or undestanding of the analysts “target price.” I own SLB (way underwater now) but yesterday some analyst reduced the target price from $71 to $40. SLB is currently trading at $42. Does the reduced target price imply that the analyst does not expect any upward movement at all from $40? I usually ignore these calls but this seems strange to me.

    Thanks in advance,

    Tom

71. C or T
    Target is where the ANALyst thinks the stock will be in 12 months. What this cat is saying is that it’s “Dead money”!

72. Thanks, Sam. Not good news but do not know the reputation of this analyst.

73. choices – from the z-berry:

    In short, yes. Those tp’s are generally for 12 months so he sees little upside based most likely on foward pe multiple. I think its just more analysts throwing in the towel on 2008 so they can have things to upgrade in 2009.

74. watching a remarkable — and still unexplainable — rally in the IG idex today. Seems like only last week, we touched 292… now

    IG 226 1/2

    the craziness continues!

75. Choices according to Yahooooo the median target is $65.

    http://finance.yahoo.com/q/ao?s=SLB

76. Another crazy thing. The TSX is broken all day on one of the biggest commodity trading days of the year…

77. Macy’s amended it’s credit agreement this morning and retired some 2009 debt. Look at the affect on the stock. seeing some retail names in credit rally on this news too.

    Good news! For once.

78. Here ya go: UYG going green. Stocks might be waking up to the mini-rally we are seeing in credit.

79. IG hanging in there at 226 1/2

80. You know it’s bad in NY for revenues, but “Goodness, gracious, great balls of Fire”!

    Santa Gets Parking Ticket While Delivering Toys

    Wednesday, 17 Dec 2008, 7:33 AM EST

    NEW YORK — Santa Claus has added a New York City traffic agent to his naughty list after she gave him a ticket while delivering gifts to children.

    Chip Cafiero says he’ll fight the $115 ticket he received in Brooklyn on Black Friday when he was dressed as Santa.

    The 60-year-old retired schoolteacher was riding a horse-drawn carriage and handing out toys and candy canes. An SUV carrying the toys and protecting the horse from traffic was double parked next to him.

    Santa says he yelled “Ho! Ho! Ho!” to get the traffic agent’s attention because the SUV wasn’t blocking traffic. But in his words, “This grinch just went ahead and fined me.”

    Local politician Martin Golden calls the parking ticket “ridiculous.”

    Police won’t comment on it.

81. Thanks, Z, Popeye.

82. I just wish Santa would buy my HK Dec’s.

83. IG 226 … shorts are crying (for now)

84. Retail sector bonds are screaming… must be a few shorts caught with their tails in a crack. Fun to watch the rally.

85. IG 225 yep, the shorts are on the pointed end of the stick today. have no idea if it will last, but seeing a heckova rally in credit today.

    HY 75 5/8 great rally from monday’s wides!

86. BOP- Could the rally be because Bernanke has essentially indicated that he will endlessly create as much liquidity as is required, regardless of the quantity, to free up the credit markets?

87. vtz – perhaps. It’s that. But, more importantly, with yesterday’s move, for only the 3rd time in this easing cycle, the Fed actually GOT AHEAD of expectations. Only in Sept ’07 and Jan ’08 have they done that. So, there is belief (hope?) that they finally get it.

    Credit got us into this fine kettle of fish… credit has got to pull us out.

    U.S. Balance Sheet be damned (for now)… we have GOT to get credit flowing. How many companies have the cash flow to support rolling their 7.5% debt at 16.5%? Not many. Not many at all.

88. BOP,

    Do you think there is a mentality amongst the lending facilities, where they are battening down the hatches until the end of the year? Once that comes they might loosen up on lending again? Something has to give.

89. Trading Desk saying that the “pit is looking at a line of buy stops starting at 919 up to 926 and will try to run them. Also looking for 950 to 960 by Friday night…”

    just passing along comments.

90. Yeah, I agree credit needs to be freed up, but I’m of the opinion that everyone has to realize that the USD is going to be blasted into oblivion as a result which is why I find it completely strange that people are finding security in the 30 yr. Am I misunderstanding the bond situation?

91. James Grant is one of my favorite market commentators. His combination of lucidity and humor is hard to match. Here’s a Bloomberg video of his comments on the SEC and the credit markets. He calls the SEC irrelevant and hopeless; says we would be better off without it.
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=au0AASUSP7M8

92. nomad – it’s not really the lending facilities themselves that are blocking the credit pipeline. It’s people like you and me, who have pulled their IRA funds out of regular money market accounts, corporate bond funds, and equities to go into all-Govt-Treasury funds. Well actually, you and me AND all the foreign money invested in U.S. assets.

    Once you start to hear your friends and neighbors say, “geez… I can get 8% from my high-grade bond fund in my 401(k)… why should I just sit in my govt money market fund at 0.02%… think I’ll shift my allocation today.” THAT’s the backbone of lending. Banks need capital to be able to lend. The U.S. govt doesn’t have enough capital to do it single-handidly. We all have to come out from under the bed and start to act like rational investors again.

    That is what a credit thaw will look like.

93. BOP
    Do you know what the symbol is for the 2x s&p and does the XLF somewhat follow the S&P index?

94. Pete – SSO. Let me run a plot and get back to you on the 2nd part of your question.

95. thanks

96. Keep in mind, however… unless an equity rally can break the massive dam keeping credit from flowing, any rally — be it 2 days or 2 months — will end in tears.

97. VTZ #67,

    True, i’m sure. And around the world other planned production and actual production will grind to a halt also. And together with the considerable rate of depletion of existing fields (IEA latest was 9.1% according to Matt Simmons)is why $30 Cl can’t last long at all. I actually would be surprised to see it reach $30, would expect it to reverse somewhere in the middle $30’s. But, who can tell? We know prices of most asset classes overshoot on the upside and overshoot on the downside. I expect the overshoot effect (a momentum of sorts) to carry Cl way below where it should be considering “supply destruction” as well as “demand destruction”. I hate that term destruction but that’s what they call it.
    If it does dip into the $30’s i think it will then commence a classic escalation that no one can stop and will sail right thru $147. over time.

98. Pete – over the last 3 yrs, the XLF and S&P500 track somewhat closely. However, over the last year, XLF has exhibited a lot more volatility. In a down-market, that means that XLF has gone down more than the S&P. Doing a quick regression, the XLF has a raw beta of 3.8 with a 74% correlation to the S&P500.

99. VTZ #90,

    Agree with you: Why would anyone buy 30 year treasuries at these yields, it’s nonsensical. The only thing i can think of is they plan to be in and out and not hold it too long. As for the USD being blasted into oblivion, its a real possibility. Hard assets are the way to go for the day of reckoning. Have you seen what’s happening to gold lately?

100. IG 222 -21 bps on the day.

     this is pretty massive capitulation in the credit markets. all sellers of CDS and no buyers… like everyone has decided they don’t need bond insurance. As an indication of sentiment, this is very positive. That said, light volumes and need to see follow-through. But, IG at 222 is a massive improvement from IG at 292.

101. Seeing a lot of bond deals being announced today. The fact that high yield spreads yesterday narrowed the most in more than 6 weeks (while investment grade spreads were basically unch’d) has brought a flood of companies running to see if there is any water starting to thaw from the credit spigot. The first two weeks in January will be just so KEY as to where we are headed.

102. What the heck is wrong with the TSX? How can you have a major exchange unexpectedly shut for an entire day because of technical errors? Isn’t this what was supposed to be solved when they merged everything together a few years ago? Geez!

103. thanks again . With the floor put under the financial s somewhat by Ben help smooth out volatility in the tracking ?

104. Any ETF specialists
     Q1. SKF options indicate financials bearish.
     BOP
     What’s your thought on Buy SKF C Jan 125
     Sell SKF C Jan 135

     Elduque suggested DXO. Mahout and ETF guide cautioned re: credit risk. It’s Deustsche Bank product.
     Also, It seems that it took a bigger thrashing than the CL X 2
     and USO x 2. Why would that be.

105. BOP – I’ve been long gold ever since I was frequently askign tater for gold charts in the low 700s due to the USD story.

     One energy story that got no press today because the TSX is broken is the fact that Nexen bought 15% of the Long Lake oil sands project off of their JV partner OptiCanada for 735 million.

     Kind of a big story, in my opinion:

     “CALGARY, Alberta (Reuters) – Nexen Inc NXY.TO agreed on Wednesday to acquire a majority interest in its Long Lake oil sands project, buying an additional 15 percent stake from embattled joint-venture partner Opti Canada Inc OPC.TO for C$735 million ($612 million).

     The agreement boosts Nexen’s share of the C$6.1 billion project to 65 percent from 50 percent, gives it operating control of the 60,000 barrel per day upgrader run by Opti and will boost its 2009 oil production targets by 5,000 barrels per day (bpd) to a range of 225,000 to 240,000 bpd after royalties.

     The Long Lake project officially opened this year but the upgrader that had been operated by Opti is still starting up and not yet fully operating.

     Opti, whose major asset is its Long Lake stake, has seen its shares pummeled in a downturn for oil sands stocks that hit smallest companies the hardest. Its stock, which traded at C$25.40 in June, has fallen 93 percent since then as oil prices tumbled, making it vulnerable to a takeover.

     Now Nexen no longer has to worry about having an unwanted partner in the project but the purchase may make Nexen more attractive to any potential buyer.”

106. Grant Says Forced Sales Create Opportunities in Bonds (Update1)
     2008-12-17 18:07:47.631 GMT

     By Carol Massar and Gabrielle Coppola
     Dec. 17 (Bloomberg) — Investors seeking safety in Treasuries may be missing out on opportunities created by forced selling in credit markets, according to James Grant, editor of Grant’s Interest Rate Observer.
     Investment-grade corporate bonds are paying record yields relative to benchmark rates, “in this time of zero yield elsewhere,” Grant said today in a Bloomberg Television interview. Residential mortgage-backed securities and bank loans secured by assets are also attractive now because money managers forced to dump the securities to meet investor redemptions have made them artificially cheap, he said.
     Yields on investment-grade bonds relative to benchmark rates have hovered near record highs as investors shun all but the safest debt in the deepest economic crisis since the Great Depression. The Federal Reserve cut its benchmark interest rate to as little as zero yesterday, further reducing yields on Treasuries, to try to ease the yearlong recession.
     “Of course there’s trouble, that’s why there’s a bear market,” Grant said. “But that’s when you’re supposed to be interested in value. It’s not when everyone’s happy.”
     The average yield over benchmark rates on investment-grade corporate bonds was 651 basis points yesterday, 5 basis points shy of the record high set Dec. 5, according to Merrill Lynch & Co.’s U.S. Corporate Master index. A basis point is 0.01 percentage point.

     Market ‘Anomalies’

     Forced selling may be distorting prices for secured bank loans. Senior bank loans that are higher up in the capital structure of a bank, meaning owners of the bonds would be paid before other debtors in the event of a default, are trading at lower levels than junior portions of the structure, he said. That means safer loans are cheaper than their riskier counterparts.
     “All these anomalies are part and parcel of the liquidation in the credit market,” Grant said. “That’s why we’re bullish on credit, because so many things simply don’t add up.”
     Grant is the founder of Grant’s Interest Rate Observer, a financial journal. He was a columnist for Barron’s before founding the Observer in 1983.

107. BOP
     Any particular opportunities that Grant mentions

108. vtz – thanks so much for your analysis on the OptiCanada transaction. I saw the headlines this morning, but am not familiar enough with the lay of the land there to understand the implications. So, it’s kinda like a company buying it’s own stock back… any way you look at it, Nexen was saying “cheap assets, time to add more,” eh?

109. md – i don’t get Grant’s newsletter… but, he’s basically saying that bonds and bank debt of good quality companies is trading so outta whack, it makes your head spin. If I had just raised cash for a $5B bond portfolio (like the old days), I would be a kid in the candy store here with corporate bonds.

110. Yup… it was extremely opportunistic.

111. Pretty bad close here on oil and even refined products today.

112. comments on uym please. it has been flying. due to dow or obama play?

113. Pete – when markets turn around, you WANT to have higher vol than the index. That’s when it outperforms the SPX.

     md – I have no call on the outlook for SKF from where we sit right now. The first few days in January will give us a glimpse into what the future will look like. If corporate bond issuance ticks up, financial stocks will outperform. If the corporate bond market stays frozen, the Bears will gladly step in and eat whatever end-of-year-rally-lunch we may have.

114. hk 16.89 -.45
     chk 16.40 +.18
     xom 82.18 -.96
     djia 8918 -6
     s&p 913.3 +.15
     gmxr 27.03 +1.85

115. anyone have a consensus for the NG draw tomorrow?

116. HK seems to be the weaker of the E&P’s. Pre pinning for the 17.5’s?

117. one way to play both sides (debt and equity) of the energy mrkt would be to buy the cheapest bonds of large companies with good cash flow who are cutting capex (and therefore YoY cashflow and EPS is exected to be lower). And then to buy the stock of the smaller e&p’s who are expected to grow EPS YoY due to projects coming on line in 2009.

     You could even lever this strategy by buying bonds and using the cash flow from those bonds to buy long-dated call options on those equities. It would be like a synthetic convertible bond portfolio, but with less dowside risk (as you have more company diversification picking bonds of one company and stock of another).

     Just a thought.

118. BOP — the article in Bloomberg was taken from the interview with Grant that can be seen in the link at #91. No specific recommendations given.

119. Jan crude very weak, broke below $40 and now at $40.30(-7.5%)-other months also weaker, off over 3%.

120. fiveanddimer – thanks!

     Grant doesn’t usually recommend specific securities, does he? He is usually a great big-picture and interest rate/money flows/currency strategist. right?

     I used to get his stuff. But, haven’t had access for the last 5 yrs.

121. OK… i’m wrong. Got this summary of Grant’s latest. He (or his team) does mention specific stocks:

     Pfizer, Tiffany Are Stocks Ben Graham Would Buy, Grant’s Says 2008-12-10 20:32:09.696 GMT

     By Eric Martin
     Dec. 10 (Bloomberg) — Pfizer Inc. and Tiffany & Co. are among eight stocks that Benjamin Graham, the father of value investing and Warren Buffett’s mentor, would buy, Grant’s Interest Rate Observer said.
     Cooper Industries Inc., Nucor Corp., Cintas Corp., Archer Daniels Midland Co., Molex Inc. and RadioShack Corp. also meet the seven criteria Graham presented in 1973 for stocks that a “defensive investors might buy with confidence,” according to the latest issue of Grant’s, which was released today.
     “That there are as many as eight is a notable fact,” the newsletter said. “In March 2003, near what would prove to be the bottom of the post-Nasdaq washout, Grant’s could identify only two that met the grade.”
     Graham favored companies that have “adequate size;” current assets that exceed liabilities by two times; 10 straight years of profit; 20 years of uninterrupted dividends; 10 years of earnings growth exceeding 33 percent; a price-to-earnings ratio of less than 15; and a price-to-book ratio that’s less than 1.5, according to Grant’s, an investment newsletter founded by James Grant in 1983.
     “Security Analysis,” published in 1934, provided a road map for value investors including Buffett, the chairman of Berkshire Hathaway Inc.

122. etswd – i would think the UYM is an Obama/infrastructure play. But, that’s just my opinion. Maybe someone else has a different thought. On the other hand, it’s down an amazing 82% year-to-date. Could be overdue for a rebound.

123. By Hyun Young Lee
     Of DOW JONES NEWSWIRES

     OTTAWA (Dow Jones)–Crude oil futures fell below $40 a barrel in Wednesday
     trading, before closing at the lowest level in four-and-a-half years, spurning
     OPEC’s announcement of its biggest-ever production cut.
     Light, sweet crude for January delivery settled down $3.54, or 8.1%, at $40.06
     a barrel on the New York Mercantile Exchange, the lowest level since 13 July
     2004. Brent crude on the ICE futures exchange settled $1.12 lower at $45.53 a
     barrel.
     Crude price are now languishing more than 70% below the all-time high of
     $147.27 a barrel reached in July, brushing off concerted efforts to halt the
     plunge as the recession grips ever tighter in the U.S. and beyond.
     Following its meeting in Oran, Algeria, OPEC announced it was reining in
     output by a record 2.2 million barrels a day from Jan. 1, breaking the previous
     record output cut from March 1999. Despite its size, however, the reduction was
     largely in line with market expectations, and the initial rally wore off
     quickly and sharply.
     “We’ve talked about it so much for the last couple of weeks that it’s the
     usual case of buy the rumor and sell the fact,” said Mike Fitzpatrick, a broker
     at MF Global in New York. “Everybody was waiting for 2 million barrels a day
     plus, and that’s the number that came up.”
     The cartel has now agreed to cut 4.2 million barrels a day since September and
     the 11 members with output quotas will produce some 24.8 million barrels of oil
     a day in January, OPEC President Chakib Khelil said.
     Non-OPEC members Russia and Azerbaijan, which sent high-level delegations to
     the meeting, could also contribute an additional 600,000 barrels a day of
     cutbacks, though their oil fields are already in natural decline.
     While the cuts would appear to balance the market in January, stockpiles could
     start to build again as the low-demand “shoulder season” kicks off in February,
     said Lawrence Eagles, head of commodity research at JP Morgan.
     “That means that prices will come under pressure at least by the end of
     January, if not before,” Eagles said in a note, adding that prices would likely
     push below $40 a barrel. “Any significant improvement in prices will have to
     wait until the world economy gets back onto a growth path, and works off
     current high stocks and the spare capacity that is being created – a task which
     will take some time.”
     Just before OPEC’s announcement, the Energy Information Administration
     reported that U.S. crude rose 525,000 barrels in the week ended Dec. 12 to
     321.3 million barrels, more than five times the amount analysts had expected.
     Gasoline and distillate inventories also racked up bigger-than-expected gains
     of 1.3 million barrels and 2.9 million barrels respectively.
     But despite the market gyrations on each new headline, oil prices have mostly
     stayed within $40 and $50 a barrel all month, MF Global’s Fitzpatrick said,
     Wednesday’s brief dip to $39.88 a barrel notwithstanding.
     “It looks like the market’s starting to look for a bottom,” he said. “It
     doesn’t really matter if the bottom is $36 or $38 or $40. The process has
     begun.”
     Front-month January reformulated gasoline blendstock, or RBOB, settled down
     3.45 cents, or 3.3%, at $1.0055 a gallon. January heating oil settled 1.78
     cents lower at $1.4425 a gallon.
     -By Hyun Young Lee, Dow Jones Newswires
     Dow Jones Newswires
     12-17-08 1526ET

124. Sam #123,

     $40.06 after an heroic cut! Somebody is going to be unhappy in OPEC land.
     They act like this is just a normal cyclical downturn not an unwinding of years of massive overleveraging worldwide.

     Going back into my cave now.

125. Congrats Z

126. Z,

     A few fun prices:

     CHK 16.09 -.13
     GMXR 27.00 +1.82
     HK 16.51 -.83
     NFX 20.92 +.17
     RIG 55.06 -2.03
     SD 6.40 -.18
     XOM 81.06 -2.08

     All winners in my book when the time comes.

     My best to you and your growing family.

127. cheers Z – best to all

128. BOP – i read today that US gov’t has to auction over $2trillion in new issuance in 2009. That works out to 200 days worth of auctions i read on bloomberg today. That sounds like an awful lot of gov’t debt – how does that compete?? with new corporate issuance that will undoubtedly have to occur in 2009? Sort of a random question but i continue to struggle with how the market for treasuries can go anywhere but down in price and up in yield?

129. bop – thanks for posting the james grant info too. interesting stuff.

130. 1520 — you have just described the “crowding out theory.” Whereby massive issuance of govt debt causes the rise in treasury yields while, at the same time, makes it harder for non-govt entities (including home mortgage borrowers) to raise debt.

     This is also why the govt backing of selected sectors and companies is so troubling. Those with govt backing get to raise debt. Those without backing face conditions that are tougher than if the govt had just stayed out of the game completely.

     The less the govt involves itself in the private sector, the faster we can get to some sort of new “normal.” The Fed/Treasury had to backstop the banking system… we were just a breath away from a global run on the banks and a complete breakdown of our financial system. Beyond that, the govt is being asked to pick winners and losers. That is not what govts are for (or good at).

131. 1520 – actually, Fiveanddimer posted the James Grant stuff originally. I just found the print article that summarized it. When James Grant speaks, I always love to listen.

132. BOP #130,

     Amen to what you said in your last paragraph.

     Talk about “so troubling”, our FEDERAL RESERVE BANK is becoming THE NATIONAL BANK of the United States and the only bank that will lend. This must stop. But i don’t hear much in the way of complaints about it. Where in the world are we going?

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