Tuesday Morning (In Progress)

Posted on by zman

 

 

In Today's Post:

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

Holdings Watch:

(SWN) - $10KP Trade - Added (2) SWN January $30 Calls (SWNAF) for $1.55 with the stock at $27.30.

Commodity Watch:

Crude oil fell $2.45 to $39.91 yesterday. Blame weak eco news out of Japan and a lightly attended market. This morning oil is trading  flat.

  • MEND Watch: Remember the Movement for the Emancipation of the Nigerian Delta? They used to move oil prices on a weekly basis. They are threatening to step up attacks in the Delta again if former rebel leader Henry Okah is allowed to die in custody from torture and a kidney ailment. MEND has severely impaired Nigerian production to the tune of one third of Nigeria's current 2 mm bopd production capacity and is threatening to shut down the remainder.

 

  • China Production & Refining Capacity Rises: China said it will pump 3.77 mm bopd in 2008, up 1.1% from 2007 figures. Unlike the U.S., Chinese oil production has been slowly but steadily rising each year since 1981. They noted refined product capacity is up a whopping 16% on a YoY basis (not good news for U.S. refiners who had saved their bacon this year by exporting diesel).

Natural gas fell 4 pennies to to $5.29 yesterday despite record or near record cold that gripped the vast majority of the U.S. The forecast shows a moderation for the south and southeast beginning today which won't get too many people excited about gas prices however the temps, though warmer, will still keep heaters on pretty constantly. Having looked over the data for tomorrow's storage number I'm still thinking we see a number close to 150 for the withdrawal, which is slightly smaller than the year ago number but better than the five year average. This morning gas is trading up slightly

  •  Gas OPEC Watch: Here's another acronym to get used to: (GECF) - Gas Exporting Countries Forum. The group will be based in St. Petersburg and will originally consist of Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Trinidad and Tobago, UAE, Qatar, Russia, Venezuela and two observer members -- Equatorial Guinea and Norway.I don't see them having the same clout with natural gas prices as OPEC does (from time to time) with oil prices, at least not in the U.S.. For Europe, this is very likely a headache and it could be mean firmer global LNG prices.

 

  • Rig Count Watch: Rigzone article looking for 1,000 off from the peak, (the talk has migrated from 100 to 200 a few months back to 800 and now to 1,000 see the article here.  I still expect the numbers to start to be affected in the Spring.

 

  • Where Has All The Gas Production Growth Come From? Answer, everywhere. However, if you look at the most recent production update on the natural gas tab you can see the big driver have been Texas and Wyoming with decent sized producers like Oklahoma inching higher.
    • Texas onshore rigs down 14% (133 rigs) since the end of August,
    • Wyoming down 14% since mid September,
    • Oklahoma down a whopping 23% (hello nasty basis differentials); that's 50 rigs since October.
    • Even Lousiana, the new land of gas and honey has seen rigs decline by 8% (though admittedly those will be all conventional rigs and not ones hunting in the shale).
    • Total U.S. land rigs down 13% (264 rigs so far) over the same time frame.

 

Crack Spread Update: Small rebound. Nothing to write home about and with the bankruptcy of one smaller private refiner yesterday you have to be seriously concerned about over leveraged names like WNR (mkt cap = $527 mm, debt = $1.3B, EBITDA = $370 mm this year (if they're lucky) . Anyway, I may play around in the survivors early in the new year (the big threesome of VLO, SUN, TSO) but I do expect a public company or two to go under in the next 6 months if cracks don't make a drastic recovery.

Price Deck Update: Estimates falling fast, not fast enough for natural gas. Analysts are tripping over themselves to slash their 4Q and 2009 oil and gas price estimates. The only thing that has fallen faster in the price of natural gas. I expect the decline in gas prices to moderate and reverse in the next month or two at the most. As rigs tumble, so too will the number of high initial production wells being drilled and with those goes the growthy part of production.

Odds & Ends

Analyst Watch: TBA

96 thoughts on “Tuesday Morning (In Progress)”

  1. OPEC on the tape talking about calling for an extraordinary meeting mid January if prices continue to fall. Next regular meeting is set for March.

  2. “By 12 January, if we see that prices are still going down, we will call the meeting and call non-Arab members like Venezuela, Angola and Ecuador to come to that meeting and make a decision when (to meet),” OPEC President Khelil said.

  3. From Reuters – Khelil is speaking at Moscow’s gas OPEC meeting outlined in the bullet in the post.

    Khelil said Opec was disappointed in Russia’s lack of commitment to cut oil production.

    “Well, they (Russia at the meeting in Oran) proposed everything except for a reduction… And maybe the reaction of the market was negative because of that,” he said.

    “But wait… If there were no Opec reductions in September and October, I think we would have seen prices today at maybe $20 (per barrel). So it was because of Opec that revenues for Russia were at $40 now not at $20…,” he said.

  4. Wyoming – I think the analyst crowd has nothing in their numbers for the benefits E&P is about to reap off the backs of the Oil Service sector’s coming woe.

  5. I’m here now, kind of tlike the gopher heads at Chuck E Cheese, hit it here and they pop up over there.

  6. Seeing several articles about investor sentiment being at new lows. No kidding. Days like yesterday where there is no volume but a company can lose 15 to 20% of its market value on no news can do that to people. At some point, fund managers will re grow their spines.

  7. Just off linear budgeting. Service is priced @ $100+ oil, revenue for E&P is now based on $40. Service revenue (cost to E&P) will have to come off 50-75%. Thus the SLB re-org, closures, layoff. Their fixed costs will have to come in line to expected revenues and they can’t go down the street and pawn off a wireline truck or frac pump. Of course the service side will get bitter @ the E&P and the cycle begins all over.

  8. Just thinking out loud but in this environment, I’m not sure if its better or worse for E&Ps that own their own rigs. Seems like you miss out on putting the screws to the driller if you own the rig.

  9. 8, the AFE effects are too great to be worried about it. Besides, the crews are already on the books, E&P will pay the costs anyway.

    Remember my scenario with CHK and PXP deal. CHK could basically get the drill for free. They charge market, PXP picks up their share, CHK charges themselves cost only.

  10. By Angela Henshall
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)- Crude oil futures traded broadly unchanged Monday in thin
    liquidity ahead of the holiday period.
    However, fears of a prolonged global recession are slowly becoming “the
    primary driver” in the energy complex instead of the U.S. dollar, said a broker
    at ODL Securities, adding that dollar weakness in recent days had largely
    failed to lend support.
    “Oil looks set to stay on the same bearish course in the absence of additional
    bullish fundamental news,” the broker added. At 1211 GMT, the front-month
    February Brent contract on London’s ICE futures exchange was up 16 cents at
    $41.61 a barrel.
    The front-month February light, sweet, crude contract on the New York
    Mercantile Exchange was trading 9 cents higher at $40.00 a barrel.
    The ICE’s gasoil contract for January delivery was down $6.50 at $434.50 a
    metric ton, while Nymex gasoline for January delivery was up 58 points at 89.20
    cents a gallon.Energy prices started the holiday-shortened week on a sour
    note, with the Nymex crude contract closing below $40 a barrel Monday, posting
    its seventh decline in a row.
    Traders earlier in today’s session were busy repositioning ahead of the
    Wednesday’s inventories data, expected to show a record build in inventories at
    Cushing, Oklahoma the delivery point. The contango structure of the futures
    market – where near-term contracts are cheaper than long-dated – encourages
    the storage of oil, but the high cost of imported crude relative to domestic
    blends, as well as fog on the Houston ship channel last week, should prevent a
    large inventory build, analysts with JPMorgan Chase & Co said.
    The weekly inventory data is expected to show a rise of 200,000 barrels for
    crude stocks, according to the mean of nine Dow Jones analysts’ forecasts,
    while gasoline inventories are seen rising by 1 million barrels and stocks of
    distillates, which include heating oil and diesel fuel, are seen unchanged.
    Although there may not be a great deal of trading going on this week, there is
    still a raft of economic data to look out for. The oil market looks head to
    final third-quarter US gross domestic product figures and home sales data out
    1330 and 1500 GMT respectively Tuesday, which are expected to underscore the
    country’s ailing economy and may upset the dollar.
    Although oil looks oversold, prices over the coming months look vulnerable to
    further weakness, as “sentiment continues to plummet on a weakening demand
    backdrop”, said Mark Pervan analyst at ANZ Bank. A further Organization of
    Petroleum Exporting Countries output cut and a potentially coordinated Russian
    supply response could slow the price declines, but “with focus clearly on
    demand conditions, tightening supply will unlikely create much price support,”
    Pervan said, adding concerns about U.S. growth are still the biggest worry in
    the market.
    The outlook for physical supply meanwhile is mixed with increased exports of
    Iraqi crude oil exports in recent months set to weaken Mediterranean crude
    differentials while continued disruption of Nigerian output lends support.
    -By Angela Henshall, Dow Jones Newswires (Sherry Su in London and Brian Baskin in New York also contributed to this
    article)

    Dow Jones Newswires
    12-23-08 0739ET

  12. Oil Stock Build Expected

    Dow Jones Newswires

    NEW YORK — U.S. crude oil stocks are seen rising in data due Wednesday from the Department of Energy, according to a Dow Jones Newswires survey of analysts.

    The data, put out by the department’s Energy Information Administration unit and covering the week ended Dec. 19, are due at 10:35 a.m. EST Wednesday. The weekly inventory reports will be released at 10:30 a.m. EST starting Jan. 7.

    Crude oil inventories are expected to rise by 200,000 barrels, according to the mean of nine analysts’ forecasts. Five expect a build, three a draw and one no change, with forecasts ranging from a 2.5-million-barrel draw to a 2.8-million-barrel build.

    Gasoline inventories are seen rising by 1 million barrels, according to the analysts’ average. Stocks of distillates, which include heating oil and diesel fuel, are seen unchanged. All but one analyst expect a build in gasoline inventories, with the ninth forecasting no change. Forecasts range from no change to a 2-million-barrel build. Five analysts foresee an increase in distillate stocks and four a decrease, with forecasts ranging from a 1.5-million-barrel draw to a 2.1-million-barrel build.

    Refinery use is seen decreasing by 0.1 percentage point to 84% of capacity, with two analysts predicting an increase, three a decrease, three no change and one not offering a forecast.

    The structure of the futures market currently encourages the storage of oil. But the high cost of imported crude relative to domestic blends, as well as fog on the Houston ship channel last week, should prevent a large inventory build, wrote analysts with JPMorgan Chase & Co. (JPM) Analysts’ Estimates Analyst

    Analysts’ Estimates
    Analyst Crude Gasoline Distillates Refining
    Cameron Hanover -1 +1.25 -0.75 -0.25
    Citi Futures -2.5 +0.5 -1 unch
    GA Global Markets -2 +1.2 -1.5 unch
    IAF Advisors unch +0.5 +1 +0.1
    JPMorgan +0.9 +1.3 +0.6 n/a
    Ritterbusch & Assoc. +2.8 unch -1.5 -0.5
    Societe Generale +1.2 +2 +2.1 unch
    Summit Energy +1.1 +1 +0.8 +0.5
    Tradition Energy +0.9 +1 +0.6 -0.5

    Average Estimate +0.2 +1 unch -0.1
    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 Brian Baskin, Dow Jones Newswires

  14. SD, funny, I looked it up this AM while we were going back and forth. It is so low, you can barely see a price pattern. I was thinking of putting some in the IRA, took my loss much higher from here.

  15. Got this from a friend of the site last night:

    Spoke to Jeff M @ CHK this afternoon. To clarify Aubrey’s stock position. He can buy at any time if he pays higher than what his stock was sold for. If he pays lower the difference goes to the company and should be excluded from buying for 6 months. They have nothing to report about weather any asset sales will happen before year end. His time frame is 3 -5 months before a noticeable reduction in supply will occur if many rigs continue to fall off. He would not comment on weather CHK is vulnerable to some other company’s advances.

    That 3 to 5 months for a noticeable impact on gas storage and production is in line with my thoughts and I’m sure they have mathed it a lot more than I have.

  17. Crys – yep, see my thoughts in the post. Medevey/Putin saying it won’t be for price manipulation like OPEC but why else do you form a cartel, ahem, forum, than to figure out how you can get the most $ for your gas? Poor Europe, poor Ukraine. Russia has no trouble turning off the gas in the dead of winter if their check is late.

  19. ElD – not surprised by that…lot of cold air spread over a very large area. I track them on a weekly basis as that seems to work pretty well for the gas numbers. This winter, we just aren’t getting the normal seasonal cold snap spikes, going to take a lot of consecutively cold weeks to work down storage and help to firm up prices.

  21. I seem to remember something about the Saudis increasing their refining capacity in very large way going forward. Wondering what that will do to our “get off the foreign oil tit” rhetoric over time (5 years or so) as we become even more addicted to foreign production of products. Trying to extrapolate where this all goes. Less refining capacity here as it becomes costly vs. areas of the world that are free to pollute. Or the tariff hungry politicians that move to support the home team?
    Seems to me that this could create a very large problem to our economy in the long run if we ruin our home based refining industry. Very troubling.

  22. Tater – I think you have it. Very troubling. Don’t let U.S. firms find it or process it, but bailout the car makers with the lowest fuel efficiency. Your tax dollars not at work.

  23. OII chart looks different to eg SLB, RIG, NOV.

    Any thoughts on why there seems to be less pain for OII?

  24. You know that the Refiners were going to have a head wind when our Leader stated back in January on the campaign trail that the refineries should increase their utilization and insure the American public was well supplied with gasoline. Now, he neglected the observe that VLO, TSO, FTO etc.. were almost bankrupt. He has no concept of business or the manufacturing process, whether it be the raw material costs of a crack spread or labor costs for building cars.

    But I digress into the political realm.

  25. D – Not really. I understand why it might be off less than a run of the mill service name that has onshore exposure. But for them to be down less than RIG does not make a lot of sense. They should do about as well as or maybe a tad better than the deepwater names.

  26. (refining cont.)
    So this could be seen as a Green victory as we get rid of those nasty refineries. “Yea team!” Then the taxers implement their beloved higher road taxes to get back at those nasty importers (even though there is no ready alternative, gas and solar being years away still). Too late as home refiners damage already done. Then home production (E&P) falls off even more as there is no place to go with the unrefined stuff? Export crude to be refined?

    I know I am exaggerating, but even if my idea train proves true to some degree small degree, then what? Increased crude prices due to taxation, lack of home production, etc. Or is it lower crude prices, and higher products prices going forward as crude is everywhere, but products are dear?

  27. Wyoming – I opened the flood gates yesterday for the holiday season.

    Ya know, demand is really not that bad right now in the U.S. but the cracks are pricing something akin to the end of driving. And regulation looks to be getting heavier, as you are suggesting.

    One thing is certain, the anti-energy sentiment is rising at a time when refiners can barely afford to spend maintenance dollars, let alone conduct upgrades needed to refine the changing crude being sent to the U.S. (heavier, dirtier). Congress, in its infinite wisdom, will end up sending the domestic independent refiners under, consolidating domestic capacity in the hands of the Majors who have little interest in buying any indie refiners that are not in BK and maybe not even then. Energy used to be a matter of national defense.

    I want an electric powered hover car too but there’s a large void between here and that plug and drive future filled with the need for many breakthroughs in solar, wind, geothermal, smart grid etc. Those don’t happen overnight or in a first or even a second term. Recall that $4 gas occurred when the Gulf Coast was slammed by Hurricanes shuttering production and that it wasn’t just high oil prices that caused the spike at the pump. Remove that capacity now and see what happens. Gasoline demand has not fallen off a cliff despite the economy and “changed driving habits.” Apologies for the rant.

  29. Msr Tater,

    Re 26. The discussion is for not. Worry about the refining industry future would imply that the US economy will actually grow. We know this is not true as Msr joe K on CNBC this morning observed that crude went from 33 to 43 with the change in futures and that gasoline consumption was declining even with the pesky liquid dropping below $1.5 per gallon.

    On another note; What will the Integrated CEO’s say in 2 years (maybe less) when the Democrats summon them onto the hill for the donkey BBQ?

  30. I guess it’s back to the cave. (I like the Msr. Makes me feel fancy.) I guess I’m early to buy into USO. Already down 10%. Luckily I’m averaging in. Yeah. That’s it. I’m averaging in.

  31. All the big-box bargains good for sentiment? Half-joking.

    Since we are the Great Depression II, I’ve tried to imagine going back in time to the Great Depression, when people couldn’t afford, well, anything and explaining to them how bad things are in Great Depression II. For example, things are so bad that people are reduced to buying cheap sat-nav systems for Christmas. I think I’d want to be beamed back to 2008 pretty quick at that point.

  32. I did work for a French company for almost 20 years (a salute to a sinking ship) …. but you actually do deserve the distinction for thought process and charting endeavors.

  33. whats the take on sd going forward? even the refiners have moved up more. their 2009 forecast look bad

    thanks & merry christmas

  34. Weirdness Watch:

    CHK

    Mkt Cap: 9.4 billion. TEV 22.3 billion
    2009 E Sales: 10.5 billion
    2009 E EBITDA: 5.4 billion

    FSLR

    Mkt Cap: 10.7 billion. TEV 10.2
    2009 E Sales: 2 Billion
    2009 E EBITDA: $772 million

    so FLSR is growing faster and has a little cash on their balance sheet. CHK certainly has the EBITDA generation to service their debt and has reserves in the ground that will easily support a much higher $/share figure even at fire sale $/Mcfe pricing.

  35. ets – lackluster for now while gas price realizations remain depressed in the West and the credit markets remain frozen. Probably gets sold into year end. Reserve growth will likely be retarded this year by prices. Long term good company, lots of gas under their leases but need higher prices to see it move up. I think their forecast (cut twice so far) is a good call for them as you don’t want to be seen even coming close to outspending cash flow right now. If they don’t recover when the financial markets do they might prove to be a nice gassy snack for someone like COP or APC.

  36. RE 34. Not weird, formation of the alt. energy bubble. Reason why we don’t drill, low asset values. I’ll shut up now.

  38. A few thoughts but the two weeks over Christmas are notoriously difficult to trade. That said I am expecting that we see a bit more of a rally. Cycles are pointing up into early January and then we ‘should’ see the final leg down into middle/end of January before a more tradeable rally into the Spring. Then it all rolls over again!

  39. Wyo- please don’t shut up.

    Nicky – hello! Welcome back. Any EW comments re oil would be welcome I’m sure. I’m just busy researching which games for the WII I can argue are actually for my kids.

  41. Oil???? Likely we test the January contract’s lows imo but again the energy cycle is due to put in a low in January and I do think (!!!) we are getting close to a low – i have said that a few times now to no avail!! We are in wave v but the internal structure is not easy to count. We are now on our 8th day down in a row.

  43. Z – yes although they can’t take it to zero can they. Sentiment feels so bearish that something has to give. Likely all these markets turn together and indices and energy bounce together.

  44. N – yep, too bearish I think. Normally asset values in energy land would not have been allowed to fall so far as you would have had consolidation already which would have supported them. With the equity and debt markets essentially closed and people hoarding cash the free fall continues.

  45. Dennis Gartman last night on Fast Money said it was too soon to go long oil. But Tim Seymour was going long the USO today. You have to figure you aren’t going to get the bottom tick but its starting to look interesting.

  46. It seems to me that some of you guys want it both ways. More oil and gas coming to market AND higher prices. We seem to be betting on higher prices here at Zman. Somehow demand and price increase as supply declines.

  47. C-cult,
    Noooo, opposite. Less production means higher commodity pricing, less inventory means less work/drill which means services get back in line and cash flow increase to capex reductions. Be less than demand. When we hit growth mode, then we want both.

  49. Nicky – your favorite person Sharon Epperson is saying $38 is a key level for oil.

    Cargo – I just think at this point the pendulum has swung too far in terms of drops, especially for oil. Natural gas really should not gotten into double digits with the growth is has been exhibiting. At this point, would just like to see both commodities stop going down. Oil does need to recover to the $50s to $60s (probably about there) to inspire investment in significant projects or we will see a sharp rally when the global economy recovers.

    For gas, the differentials to Henry Hub are bad right now and many plays are either uneconomic or marginal at best. The first half of the 2000s has seen rampant service company inflation. So far, it has peaked but rates have really not fallen much. That changes in 2009 to the effect that what once was a 25% IRR at $8 gas will again be so at $6 gas.

  50. Z – XOM jan85 calls…still liking those? i believe they expire before earnings…is it realistic to think it can go up $5/10?

  51. Pearl – they do, that’s not an earnings play, more a return to energy, household names first play. Don’t need to get to intrinsic value on them but I’d take closer to the money calls if I were doing it today. $75s or $80s.

  52. Z – also, is the 10k portfolio holdings updated? it looks like last update was in late november.

  53. Cargo – another thing, in looking at the fact that the bigger guys like CHK, XTO, DVN are pulling back on the production ramp, it makes me like names like GMXR all the more for their ability to grow high double digits, stay within cash flow, keep low debt and do so with very low lease operating costs. They stay busy and reap the benefits of the other guys slow down, both in terms of higher commodity prices down the road and in those lower service costs.

  55. Z-do you have an opinion on PDS-they are completing an acquisition of Grey Wolf, yield is high (so far) but it is a driller and naturally is affected-it does seem to be excessively sold off by the merger activity.

    Thanks.

  56. Choices – I’m staying away from them/GW, BRNC, UDRL, NBR for now. Coming rig count drop may be priced in but 1) I really don’t think so, and 2) it will be a weekly reminder of how bad things are for these guys.

  57. Just noticed natural gas up 31 cents, 6%. Could be the gas OPEC news, could be thoughts about a big storage number tomorrow. Stocks not noticing it at all.

  62. From Art Cashin

    ‘Tis the day before Christmas
    and at each brokerage house
    The only thing stirring
    is the click of a mouse
    Down on the Exchange
    the tape inched along
    Brokers bargained and traded
    as they hummed an old song
    This year has been dreadful
    ask Lehman or Bear
    And Madoff made off
    with a Ponzi affair
    Iraq’s still a topic
    though the surge seemed to work
    While that guy in Iran
    still behaves like a jerk
    Barack got elected
    a new day he will dawn
    Yet there’s a Bush in the White House
    and the tree’s on the lawn
    McCain went for Palin
    who stirred up the press
    When she ran up a Saks bill
    to buy a new dress
    That Illinois Governor
    said seats are not cheap
    The rest of his comments
    the press had to bleep
    First housing, then finance
    began to implode
    Then the guys in Detroit
    said “we’re on that same road”
    Sure, newspaper headlines
    were awful this year
    But it’s Christmastime, Alice
    and Santa is near
    So stop looking backwards
    have a cup of good cheer
    And kiss you a loved one
    raise your hopes for next year
    And amidst all the trading
    Christmas themes we will heed
    And share our good fortune
    with some families in need
    For today we’ll all pause
    as we wait on the bell
    To sing a tradition
    a song for old “Nell”
    Don’t let this year’s problems
    impede Christmas Cheer
    Resolve to be happy
    throughout the New Year
    And resist ye Grinch feelings
    let joy never stop
    Put the bad at the bottom
    keep the good on the top
    So count up your blessings
    along with you worth
    Your still living here
    in the best place on earth
    And think ye of wonders
    that light children’s eyes
    And hope Santa will bring you
    that Christmas surprise
    So play ye a carol
    by Mario Lanza
    Unless you are waiting
    to celebrate Kwanzaa
    Now Hanukah’s started
    But Ramadan’s gone
    Different folks, different holidays
    may their spirit live on
    Whatever your feast is
    we hope you all still
    Find yourself just surrounded
    by folks of goodwill
    This day, as the bell rings
    hark to your heart’s call
    And as Santa would shout
    Merry Christmas to All!

  64. if more and more getting bullish on oil, are calls on USO the play or DIG or DXO, if it is still around?

  65. Reuters survey says 139 Bcf withdrawal tomorrow. Range of 113 to 162 Bcf.

    Last year: 153
    5 Year avg: 132

    Reuters also noted:

    In the previous four reports, total stocks fell 321 bcf, or
    80 bcf per week, versus an adjusted 331 bcf slide for the same
    one-month period last year and a 295 bcf five-year average
    decline for that period.

    That’s really not that bad considering the extra production and the poor economy

  66. Pearl – I’ll be more likely to play an oily producer, unhedged preferably than to play an ETF. At this point I think “more bullish” simply means an end to the cliff dive and instead more of a flat line after a short bounce. That favors a company over the commodity or an ETF. If I were to pick one of those three, with that in mind it would be DIG but that one is 1/4 XOM so then you have to ask yourself, why not just take on XOM, which is one of the first places investors return to when they decide to start liking traditional energy again anyway.

  67. UNG – En Fuego, I think that is how you spell it. Let’s try this one On Fire, yea, a little better.

  69. Nicky
    What’s likelihood of SPX reaching the 11/21 lows and would that drag the O&G group to the the same lows

  70. HK not feeling the love, what is your opinion on the $15’s? Not the reco varity, just the strategy of dropping to a lower strike.

  71. HK not alone in the lack of love, XNG down another percent with pretty much only EOG and XTO green on my screen. I’m going to hold my $17.50s but if I was entering today I’d take the $15s. I have stock around $18 and may write some $20 calls against it on the next rally. I do think they have news relatively soon, definitely before expiration. Whether they rally from here to $18 or from $10 to $12 on it its pretty hard to say. Tomorrow will be a pretty key day for gas…need to confirm that cold weather still matters and that last week wasn’t just a fluke.

  72. Hi MD, I think the lows are likely to be tested if not exceeded. Looking at the EW count it looks like the indices are in a wave iv sideways consolidation which has been playing out for some weeks now. This means we still need to see wave v down which could truncate and fall short, just retest or make a lower low. And yes likely will mean O and G names lower as well which may coincide nicely with the bigger cycle low that is due for energy in January 2009.

  73. MD – that is ‘big picture’ so bear in mind we can still see a year end rally in the indices and also a bounce in O and G in the interim.

  75. No reason for strength in EOG today except that it was up and as we have seen the bounce in natural gas, now up a whopping 53 cents or 10% (crazy as the weather starts to warm up but it was overdone on the down side as well)it has strengthened. If anyone should see a big run over a move like this in gas it is SWN, up a non-whopping dime as I type this.

  78. Emailed in question:

    Z: I wanted to try and rank your love for these names. NBR, NFX, EOG, GMXR and HK. My guess is 1. EOG 2. HK 3. GMXR 4. NBR 5. NFX. Close?

    Pretty spot on. I might move EOG down a notch and flip HK and GMXR if oil does not start to bottom here as they are unhedged, and inching up their exposure to oil in their production profile, a move that will be seen by some on the Street as regrettable as the decision was made when oil was higher and which will mean some of EOG’s up and coming oil plays, the five oil shale plays, are only marginal. Also, EOG saw no need to hedge oil over $100. Oops. In a nutshell, I like them, they are economic at $50 in the Bakken, not sure if that holds for the new Barnett oil shale play though.

    I’d throw SWN and CHK in ahead of NFX. I like NFX a lot, especially management and in a $7 + gas environment I think they do well but right now they are getting crushed in the mid continent as the basis differential to henry hub has opened up. Rigs falling off the map in OK (down 23% from summer) highlight the econ problem, then you have the black wax issue of yesterday. Also, they are new to the Bakken just as oil falls apart. Could be a tough ride for them there. I plan to revisit this story soon and will talk through some issues with their IR guy. Pains me to say it but I have to put them on my personal hold and don’t buy list. As common stock goes, I put them way up on the list in terms of names that get bought out because they are simply too cheap in 2009. I have no trouble holding the stock but from an options standpoint, that’s a pretty tough one.

    As to NBR, if you made me buy a land focused driller, that would be the one. I think it has discounted much of the coming fall in rigs, much more than the other OIH components has but I reference an earlier comment that I think the constant rigs are falling environment will act as an anchor until they are down by at least half of the total decline in rig count.

  79. Choices – Street median for 2009 natural gas is currently $7.85. TPH is a good firm but has taken the end of the year as an opportunity to throw in the towel on prices. Leaves room to kill your stock ratings now and then raise them with prices, if appropriate in the future. They’ve basically marked their 2009 price deck to market (2009 strip was 5.82 as of this morning). Will look at the story re coal switch to gas now, thanks.

  81. I only had it in an email, did not come off of a website. Unless you know a way I can post it somewhere.

  86. 10 to as much as 20% depending on the time of the year. Right now the U.S. produces about 55 Bcfgdp, 8 to 9 comes down from Canada and another 0.7 to 1.0 comes via LNG. So right now about 14% is imported.

  89. Of that 0.5 to 1.0 Bcfgpd gets shipped to Mexico for gas-fired electricity generation just over the border and the rest gets stored / consumed. Demand still largely cold season based but less so as gas-fired generation in the States takes market share and electricity demand grows.

    Trying to decide if a Gas-OPEC matters to prices here? My thought would be, not so much. Certainly not enough to warrant a rally in gas futures today although I’m sure those will be the headlines of tomorrow. It might serve to keep prices higher in the international markets and thus keep LNG on hiatus from the States and that’s helpful to prices but there is a lot of capacity coming on line next year and this group does not control it all.

  90. BB – I was just about to run through that process. Initial thought is that refining may slide a bit more which would boost crude in storage. Flip side is the Houston Ship Channel experienced some down time last week due to fog so we could see a hiccup in imports. Generally fog can knock imports for a loop although I’m not yet certain how much down time there was. Will try to pin that down tonight. Street is looking for relatively flat crude inv. change.

    On gasoline, a concerted effort to bring down production has (finally) begun. At the same time, prices hit a 5 year low last week and we have started to see an uptick in demand. The mastercard spending pulse survey has gas demand jumping sharply last week which seasonally is normal as people shop last minute. I can confirm the stores are all of the sudden flush with shoppers. The Street is thinking we see a 1 mm barrel gas build…that might be light. A big jump in gasoline demand (still down 3% YoY would do wonders in stabilizing crude prices if anyone is paying attention tomorrow).

    Distillates – very cold, oil weighted HDDs launched to their highest level of the year. Problem here seems to be exports finally tailing off due to global weakness. We may yet to see a second bit of primary winter demand but this last week of weather may do it. Street looking for a tiny draw (100,000 barrels for the week), could be a bit bigger.

  96. Yep, wonder how they feel about replacing falling Cantarell production with increased spending at Chicontepec at these prices.

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