Short Attention Span Friday


Short post for a day which shouldn't and doesn't really matter. Despite weak looking retail numbers, index futures are pointed higher but I don't think its too much to get excited about. While the dollar is slightly weaker (again, the poor selling season) Japan is reporting a horrible industrial output drop . I'll be around most of the day but I don't expect much in the way of big news or moves. Happy Holidays to you if I don't see you in the comments section.

In Today's Post:

  1. Commodity Watch With Oil and Gas Abbreviated Reviews
  2. Stuff We Care About Today
  3. Odds & Ends

Commodity Watch:

Crude oil traded back above $36 overnight, a day after getting pounded yet again on more weak economy news and a less than thrilling oil inventory report. Oil is off by one-third for the month of December and will likely post its worst annual loss ever so at some point you have to wonder when somewhat bloated inventories (see next table) and slightly weaker product demand are already factored in to crude prices. The pendulum has swung too far.

Oil Inventory Review - the nutshell version.

ZComment: Crude at Cushing, OK hit a record high at 28.7 mm barrels...small part of the U.S. storage complex determines the benchmark price for world oil, crazy but true. Refining in the mid-west U.S. was lower again due to weak margins due to weak gasoline demand.

Natural gas traded off 2 cents to close at $5.89 yesterday.

Gas rallied sharply this week first on word that the long prophesied "gas-OPEC" was actually coalescing and then on a bigger than expected storage withdrawal.

Natural Gas Storage Review:

ZComment: Storage remains a bit elevated for this time of year but that's not the problem for gas prices. Up until 2 weeks ago, every analyst on the planet was citing massive industrial demand destruction as the cause of a series of abnormally small gas storage withdrawals. Then, without the weather really getting all that much colder, withdrawals fell into line with something more approaching normal levels. Hmmm. At the same time, the financial incentive to store gas dried up and blew away as the contago for the next six months flattened out. Withdrawals are still highly dependent on weather, too true, however now, the concept that less rigs = less supply in 3 to 4 months is dragging up the front month and pushing down the Spring months, and well, suddenly you get those normalish withdrawals. I say "more" because just based on the weather, the withdrawals should have been bigger.

But demand is off and supply is still high, at least domestically speaking. Several forecasts are point to a milder January and that will serve to restrain withdrawals, just as they come up against difficult comps for next year.

Stuff We Care About Today

FMC made a small acquisition, not normally newsworthy but an acquisition anywhere, especially in oil service or E&P land is noteworthy.

  • acquiring 45% interest in a robotics company that makes ROV and ROV systems for $116 mm,
  • the partially acquired is privately held so no asset or earnings based metric available there other than FMC says the deal will be accretive for 2009, however, it does speak well of FMC's faith in continued strong demand for subsea operations in the deepwater arena, probably a good nod for the business of OII.

Odds & Ends

Analyst Watch: Looks like no energy analysts drew the short stick with the research directors for post holiday obligatory note duty.


20 Responses to “Short Attention Span Friday”

  1. 1
    Nicky Says:

    Morning Z.

    I gather there was zero volume on that last minute puke for oil on Wednesday. Not exactly encouraging as I would be looking for a high volume move for signs of a real reversal.

    Everyone seems to think $25 is on – not convinced myself.

  2. 2
    zman Says:

    Morning Nicky. Yep, lot of same guys were convinced $200 was next stop when we closed in on $150. We could go there but it will mean more pain when the global economy eventually rights itself. New projects already being put on hold now.

  3. 3
    Nicky Says:

    I can only think that the funds are going to be falling over themselves to get in as we fall which is likely going to fuel the same bubble over again.

  4. 4
    nifkin Says:

    Good morning all- any thoughts on the weakness in the ETFs that track crude? USO down 4%, DXO -10%- while crude is up? I know these dont work well in a contangoed mkt, but this seems way off

  5. 5
    zman Says:

    Just a guess but if most of Wall Street adopts a $25 target for 2009 it does not go there. More likely we see a dead cat bounce into the $40s and maybe $50+ by end 1Q09 as some signs of global recovery show up, maybe a quarter early there. I think the bubble comes back into play in 2010.

  6. 6
    zman Says:

    Morning Nifken. Re ETFs, best guess is tax loss selling, will dig about for a better answer.

    I’m pretty sure its not this article regarding ETFs and capital gains since those ETFs don’t have any this year.


  7. 7
    Bob Says:

    Re: 4 We had an unusual situation Wed where the stock market closed 30 mins before NYMEX. Oil plunged just before the NYMEX close at 1:30 and the etfs followed suit in the “afterhours” market. DXO was at $1.70. The etfs are actually up today in relationship to their after hours prices, but below their 1 PM close.

  8. 8
    zman Says:

    UAE getting serious about supply cuts, joins Saudi in tell customers less is on the way.


  9. 9
    zman Says:

    Thanks Bob.

  10. 10
    nifkin Says:

    Thanks Bob- thats a great heads up

  11. 11
    elduque Says:

    Does anybody have any idea who is the head and who is the tail in crude. That is, is the USO leading or is Feb. Crude?

    Wed. action would suggest that support is coming from USO and that negativity from the futures market. Which I guess lends some credence to the Cushing story.

  12. 12
    zman Says:

    The USO is designed to roughly track the movements of crude. So the Feb contract is going to determine the general direction and magnitude of the crude contract less expenses, fees, and the problem with buying into a higher contract every month as they roll to the next one which hurts the ETF’s performance over time.

  13. 13
    zman Says:

    Pakistan massing troops on border. Between this and Israel/Hamas and renewed threats from MEND in Nigeria it feels like the terror premium is rising again.


  14. 14
    zman Says:

    Market watching today is about as interesting as paint drying. I’ll be around on BB but am honing my boxing skills on WII vs my 5 year old. Pretty embarrassing the beat downs I’ve already taken this morning. May switch to tennis. Have a great holiday weekend.

  15. 15
    Nicky Says:

    John Kilduff earlier on CNBC saying the lows are in for oil and that its overshooting on the downside. That guy is such an idiot. Really looks like it the way it is now tanking again!

    I seem to remember he was one of those talking $200 oil in July.

  16. 16
    Wyoming Says:

    New motto / theme for 2009:

    Less is more.

    RE 13 – Who cares…as per oil that is.

    Wii – remember to keep the strap on (sound funny) but more importantly, keep your spacing. One triplet had to go to the ER when he was hit in the head by the sisters remote. BTW – she won and did not miss a stroke.

    Great weekend to everyone unless I get more fuel for sarcasm.

  17. 17
    VTZ Says:

    Z – Anecdotal note on my world is that this is the first time I have ever heard people considering the decision of shutting down once xx$/bbl is reached.

    My opinion is that no production will be cut until the temperatures get warmer so that a shutdown/restart is less troublesome, but if prices hit 25-30$ and stay low in the late spring/early summer there will certainly be shutdowns in order to do work.

    Factors preventing shutdowns:
    -weather and shutdown complications
    -downstream refinery margins (Petro-Can, Imperial Oil, Shell and Suncor Sarnia refineries are all fed by these synthetic crudes)

    I also wouldn’t be surprised to a wave of shutdown announcements if prices stay low (in order to make a point).

  18. 18
    zman Says:

    Nicky – I think the Kilduff and co crowd are going long for their 2009 predictions on oil price so they talk it down until they are in and then start changing their tune. I happen to agree with him that its over shot the mark.

    Wyo – had to warn the aunt multiple times yesterday about that with regard to my daughters head and the proximity of it to her backhand. Almost got into a really good Christmas day fight. My house, my rules.

    V – I noticed that those kinds of stories started showing up just after you said they would not be likely to cut back on production. I’ve seen the same for some conventional production in the States as well.

  19. 19
    ram Says:

    Have a great weekend everyone – you too ZMAN. I will see how desperate these retailers are with sales on the good stuff. ZMAN, you can never take too many pictures. Hopefully all is well.

  20. 20
    zman Says:

    Crys – I’ve sent a couple of feelers out on your question at the end of the Wednesday comments re rigs. If anyone missed it, here it is again as I don’t have that access:

    Does anyone subscribe to this service which tells the up to the miniute location of Drill Rigs?

    Am seeking to determine the exact location of Pride Cabinda [shallow water jack,up last reported @ North Ebouri offshore Gabon], and GSF Adriatic VI [also a shallow water jack,up last reported @ Vaalco Ebouri platfrom offshore Gabon] .

    The current locations of both rigs is an extremely important tell on whetehr Vaalco has made a siginificant strike.

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