Monday Morning

111 thoughts on “Monday Morning”

1. By Nick Heath
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures maintained their strong start to 2009
   Monday as supply-related issues distracted market participants from their focus
   on demand fears linked to global economic slowdown.
   Fears that violence in the Gaza Strip may prompt reaction from regional oil
   producers continued to spur crude, while a spat over natural gas prices that
   has halted gas flows between Russia and Ukraine fostered anticipation that a
   search for alternatives to natural gas could lead to increased demand for crude
   oil products.
   Crude prices climbed to three-week highs earlier Monday and were expected to
   retain support as long as geopolitical tensions persisted, analysts said.
   “Prices are likely to remain firm as the global political uncertainty should
   outweigh economic gloom,” said Rob Laughlin, analyst at MF Global in London.
   At 1155 GMT, the front-month February Brent contract on London’s ICE futures
   exchange was up 60 cents at $47.51 a barrel.
   The front-month February light, sweet, crude contract on the New York
   Mercantile Exchange was trading 60 cents higher at $46.94 a barrel.
   The ICE’s gasoil contract for January delivery was up $45.75 at $473.50 a
   metric ton, while Nymex gasoline for February delivery was up 260 points at
   113.65 cents a gallon.
   An Iranian military commander Monday called for Islamic countries to cut oil
   exports to supporters of Israel in protest to the invasion of Gaza. But while a
   Gulf-based Organization of Petroleum Exporting Countries official later said
   the organization was unlikely to discuss the call, nervousness surrounding the
   conflict persisted.
   “It’s all about uncertainty over the Gaza developments. It’s about how it
   could be treated by the international community – it’s the main issue and has
   been enough to drive this market higher,” said Ole Hansen, manager of futures
   and fixed-income trading at Saxo Bank in Copenhagen.
   “It’s having no implications for supply at all, it’s the repercussion that the
   market is worried about.”
   Some European countries reported decreased natural gas flows from Russia
   Monday, four days after Russia’s OAO Gazprom (GAZP.RS) halted deliveries to
   Ukraine, a key transit country for Russian gas flows to the European Union.
   The halt came after talks to negotiate a new supply contract for 2009 broke
   down due to a dispute about price. While other key customers, such as
   Germany, reported full supplies Monday, the oil market remained wary that
   possible future disruption, or even planning for such, could boost demand for
   oil products as an alternative for heating and power generation purposes.
   “If there is a serious interruption to natural gas flows, this could provide
   support to oil markets through the substitution impact on fuel oil, naphtha,
   and gasoil,” said Olivier Jakob, managing director of Swiss consultancy
   Petromatrix.
   Firmer Asian and European equity markets, as well as news that the U.S. is to
   resume oil purchases for its Strategic Petroleum Reserve, bolstered the case
   for higher prices Monday, which saw Nymex futures build on last week’s climbs
   to a three-week high of $48.68 at one stage Monday.
   However, any reminders of the ongoing difficult global economic climate could
   recalibrate the psychological balance between demand and supply factors, market
   participants said. A raft of macroeconomic data is due out this week, including
   closely watched U.S. December non-farm payrolls Friday.
   “They’re not going to be that pretty,” Saxo’s Hansen said. “The focus has
   turned a little bit to the supply rather than the demand side, but a few bad
   numbers could turn the sentiment again.”
   -By Nick Heath; Dow Jones Newswires

   Dow Jones Newswires
   01-05-09 0721ET

2. By Jessica Resnick-Ault
   Of DOW JONES NEWSWIRES

   NEW YORK (Dow Jones)–Gasoline demand, which took a historic tumble in 2008,
   is unlikely to recover in early 2009, as the weak economy coupled with seasonal
   driving patterns keeps motorists wary of frequent fill-ups.
   Once bitten by retail gasoline prices that breached $4 a gallon in July 2008,
   consumers are shy about returning to old habits, such as driving sport utility
   vehicles and taking long roadtrips. Gasoline demand fell by more than 3% in
   2008, hitting a notable low in November, which saw the lowest gasoline demand
   for that month in 9 years. Americans’ newfound austerity combined with seasonal
   patterns – fewer miles are driven in winter when road conditions are
   treacherous – likely will depress demand even more through January and
   February. And prices could fall further from today’s average of $1.626 a
   gallon.
   “We think it’s very possible the nationwide average could fall to around $1.50
   a gallon during the next two months,” said Geoff Sundstrom, a spokesman for
   AAA, the largest automobile club in the U.S.
   A gasoline price decline of more than 50% during the second half of 2008
   hasn’t been enough to lure drivers back onto the road. A financial crisis that
   spread to the broader economy and low consumer confidence were largely
   responsible, as unemployed drivers no longer needed to commute and those with
   jobs reined in expenses related to discretionary trips behind the wheel.
   Gasoline station owners, who are able to observe consumers’ behavior on a
   day-to-day basis, say they’ve noticed a change in fueling patterns, even in
   rural areas with few options for public transportation. As a result of these
   habit changes, they expect the average price of gasoline to remain depressed
   below $2 a gallon through the first quarter of 2009.

   ‘The Worst Of It’

   In regions where consumers have few public transit options, demand declined
   slightly later in the year, as consumers had time to react to global financial
   issues.
   Due to the lack of options, consumers in parts of Texas, Arkansas, Louisiana
   and eastern Oklahoma, kept driving close to normal levels until October, said
   Sonja Hubbard, chief executive of E-Z Mart Stores Inc., which operates 302
   gasoline stations and convenience stores. Eventually, she said, consumer
   confidence lagged, leading drivers to cut back on fueling up.
   “We did see a very strong volume reduction in October, November and December,”
   said Hubbard. Demand at her stores fell nearly 10% from year-ago levels, she
   said. That decline will likely be sustained in months to come.
   Drivers who have adopted new patterns will quickly become stuck in the routine
   of using less gasoline said Hubbard, a 22-year veteran of the retail gasoline
   industry. She expects consumers to reduce gasoline consumption about 5% during
   this winter.
   “We’re going to see the worst of it early in 2009,” she said.
   The National Association of Convenience Stores, a trade association
   representing gasoline retailers, said it expects gasoline consumption to remain
   low.
   “With gas, consumers are creatures of habit,” said Jeff Lenard, a spokesman
   for the Association. Lenard said drivers have notably shifted their behavior,
   reducing overall spending and opting to use the least-expensive fuel grades
   possible. Over the last decade, premium and mid-level gasoline sales have been
   cut in half, Lenard said, pointing out one area where customer’s habits have
   changed and not reverted, despite price swings. While gasoline sales fall when
   prices rise, they don’t necessarily return to previous levels when prices go
   down, he said.
   As a result, the lower prices that AAA and others have projected for 2009 will
   not necessarily bring improved demand, Lenard said.

   Wobbling Price

   While years of consistent seasonal trends have retailers expecting lower
   gasoline demand for the first few months of 2009, they expect demand will
   remain subdued throughout the year.
   Consequently, the average gasoline price is likely to stay below $2 a gallon
   for the first quarter, and remain below $2.50 for the rest of the year, said
   Hubbard. Some of her peers project even lower prices. Economic collapse could
   cause prices to fall below expected levels, while major fluctuations in crude
   futures could pierce the ceiling that Hubbard and others see.
   Dramatic swings in the price of crude, like those seen in 2008 could spur a
   gasoline price hike. But pending a sharp move, retailers expect to keep “1” and
   “2” numerals available to use as the front number for their price signs.
   “As long as we don’t have anything that will clamp down on the flow of oil
   from overseas, I don’t see the price of gasoline wobbling too much,” said Jay
   Ricker who operates 52 stores in central Indiana.
   Some who observe the industry from a greater distance agreed. “Most of the
   moves between now and the spring are going to be largely due to crude price,”
   said Jim Williams, an energy economist with WTRG Economics in Arkansas.
   Economic collapse could lead gasoline prices below $1, but the shift would
   need to be massive, said Sundstrom of the AAA. “$1 gasoline would be a
   harbinger of really bad things elsewhere in the economy, not only in the U.S.,
   but worldwide.”

   -By Jessica Resnick-Ault, Dow Jones Newswires
   Dow Jones Newswires
   01-05-09 0736ET

3. Westport Finds Favorites In Hard-Hit Oil Patch

   By DAVID BIRD
   Of DOW JONES NEWSWIRES

   NEW YORK — Crude oil prices hit a record high near $150 a barrel in 2008 and ricocheted down near $30 a barrel at year end, bedeviling energy-sector investors.

   Amid that volatility, Edmund Nicklin, who manages the Westport Funds, asks: “Why would any sane person” want to invest in oil stocks?

   The answer lies in the future and not in the past, says Nicklin, who, far from having his sanity questioned, has been praised as a savvy stock picker.

   Though down on the year with many others amid the global economic turmoil, Nicklin’s Westport Fund (WPFRX) was ranked in September by analysts at Lipper as one of the top 10 performing multi-cap funds, based on one-year performance.

   Year-to-date, the fund was down 31.4% on Dec. 30, but that’s 6.5% better than the Standard and Poor’s 500 index, according to Morningstar. The three-year performance was down 4%, but that’s 4.8% better than the S&P 500.

   Oil and gas is the biggest sector holding among the three dozen or so stocks held by Nicklin in the small but highly regarded fund, which has assets of around $118 million and has a five-star rating by Morningstar.

   The fund seeks out undervalued shares of midcap companies, generally with a market value of $2 billion to $10 billion. Westport’s strategy doesn’t focus on dividend payouts, instead emphasizing a company’s potential for capital growth.

   Nicklin, who has managed the Westport, Conn.-based fund since 1997, notes that the forward curve in the energy futures market rises progressively, suggesting higher oil prices ahead.

   That, he said, bodes well for Anadarko Petroleum Corp. (APC), EOG Resources Inc. (EOG) and Forest Oil Corp. (FST), which have strong records for adding to their oil and natural gas reserves.

   Nicklin said he expects demand for natural gas to rise at the expense of coal, as the incoming Obama administration has signaled tougher environmental policies. He said the companies have strong North American assets, which is attractive at a time when so-called resource nationalism has driven some international companies out of overseas operations.

   Anadarko, one of the world’s largest independent oil and gas exploration and production companies, had reserves equal to 2.4 billion barrels of oil at the end of 2007. Based in The Woodlands, Texas, the company has sizable U.S. oil and natural gas holdings, and promising prospects in Brazil and Ghana, Nicklin said.

   Houston-based EOG Resources is one of the nation’s largest independent oil and gas companies, with 85% of its output in natural gas and 67% of its gas reserves located in the U.S. Forest Oil, based in Denver, has natural gas holdings throughout North America.

   Nicklin said the fund doesn’t hold any other commodity-linked companies, and he sees crude oil and natural gas markets recovering when the economy improves.

   He noted that when oil prices surged in the shocks of the 1970s, vast new production in the North Sea and on the North Slope of Alaska came on line. In the most recent runup, “nothing close to that much new supply has come on.”

   “What we see today is not the future,” he said, referring to crude oil prices hovering around $40 a barrel, and noting that he expects them to average closer to $50 next year, and higher beyond that. “Unless the downturn is much longer and the economy is depressed longer term, it’s safe to say we’ll see an increase” in oil prices, he said.

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

4. Oil Curve Steeper Than ’99 Shows Possible Gain in ’09

   Bloomberg

   http://www.bloomberg.com/apps/news?pid=20601103&sid=a1Ab6lUay5TE&refer=us

5. z – Thanks for a wealth of tables and summaries to start the new year.

   Credit Comments: The last 2 weeks of the year saw the Credit Market do what it usually does… go on vacation (so I did too). But, the tone was better (as it was practically a physical impossibility to get any worse). Although very little was trading in the cash bond market, the indices and high yield ETFs all moved signigicantly higher, indicating traders/hedge funds were buying (as opposed to the buyers we really need to see, the bond funds themselves). Recall when the Investment Grade Index (IG) widened to 293 and the High Yield Index dropped to 78? Well… I do. Hope we never, ever see those levels again. The “reality” those indices represented was much much worse than the Dow at 7,450 or the S&P at 741… I’ll just leave it at that.

   We are not out of the woods. But, for now, we rally. Enjoy the show. 2009 will be a year to either trade, or bide your time to buy low, then go on vacation (not watch). For anyone under the age of 75 or so, it will be the worst economic conditions they have ever experienced. But, I will save that for another day. For now, we rally.

   IG 201 to start the year

   High Yield 80 1/4

   Things we see going on in credit this morning:
   – seeing buyers of almost all sub bank/finance paper (specifically CFC and BSC)
   – seeing a seller of GE 10yr in good size
   – seeing buyers of life insurers
   – seeing buyers of most on-the-run issues (this is the best news of the bunch as this says that real buyers — the fixed income funds — are buying; this is where a real rally in credit always begins)

   The articles in Barron’s this weekend basically screamed that any bonds other than US Treasuries are at close-your-eyes-and-just-buy level. Hopefully, money will come out from under the mattress (and in the cave) and move into income-generating bond and money market funds (as opposed to non-income-generating US Treasury-only funds).

   So, for now, we rally.

   Happy 2009!

6. SD – CEO Tom Ward sold 8.9mm shares in a private transaction to raise about $50mm for “debt service and tax planning needs.” I assume he means his own personal debt service.

   Another margin call, Tom?

   Anyway, I don’t think it says much about SD (good or bad) itself.

7. Glad to have you back Bird! Thanks for the debt comments, much appreciated.

   Re SD, I think it says a lot about Ward not to pound the stock lower in open market during a low volume period. Re the stock, probably doesn’t have much impact.

   GST may be right up your alley. They’ve been working the deep Bossier for years, I remember when they took acreage from APC back in the early 2000s in that Hilltop area of E. Tx. and then found the original Belin well to be wrought with mechanical problems but that they were confident they could get it right. Well, here ya go at 40+ MMcfepd. They have several more prospects in the general vicinity (will drill 4 this year on their 15,000 acres there).

8. z – CRK on the tape with 2009 spending. They say they have the best acreage in the heart of the Haynesville. Any comments?

9. z – re: GST, thanks! I recall proposing a deep Bossier wildcat in the late 80s… was gonna cost something like $15mm to drill. An almost unheard of sum for onshore in those days. But, with IPs in the 40’s, guess our geologist had it right.

10. I like CRK, they’ve done a good job over the years, don’t know where they stand with Boise’dArc these days. That’s a big claim, not sure how they back that up with no wells announced or have I missed some?

11. http://news.yahoo.com/s/ap/20090105/ap_on_re_us/fatal_helicopter_crash

    Sobering Monday.

12. Saw that last night Wyo. That sucks.

13. Re GST, opened up big at $0.55, going to wait for a little selling myself.

14. Energy opening nicely green despite the market. Could be its the sector of the month.

    Exception is OHI which is off slightly, probably due to the rig count, which people may have noticed is falling off a cliff.

15. SU on the cusp of a 3 month based breakout. Those $22.50 calls are a little better than a double now. Will hang on a little longer but may add Feb calls there soon as I think it has a little running room.

16. SU breakout in progress

17. IG 202… the index is a tad wider… but, more importantly, seeing continued buying in individual names. The stock mrkt might be taking a breather today, but the bond market is seeing a pretty nice rally.

18. Oil up 1.40 to 47.75 on much better than average volume for this time of day. Pretty strong action given the move oil has already had.

    XOM trying to break through that critical level of 82 again.

    CHK doing well post VPP #4 news.

    HK – could have news any day re Eagle Ford and some of the last 5 wells of the year in the Haynesville Shale.

19. KOG – should have some sort of press on the status of their first Bakken well, any day now. Assuming they were able to meet their original timetable. Would hope they put out some sort of “Yay for us, we hit TD and can SMELL the oil.” Any further info won’t be forthcoming (like well testing) until after they drill the second well, then complete and frac the first well. Guesstimating, sometime in the first half of March to know the details on the economics of the first well.

    Question for anyone who might know: before logging the well, would KOG have any idea how thick the Bakken is? Would they be able to tell this during the drilling process?

20. Mahalo for all your work over the weekend.

21. Hi Z – any new thoughts on BEXP in light of recent commodity behavior (i.e. looks like a floor is in)?

22. Dman – ah, you noticed they aren’t moving, too. I am looking at it for tomorrow’s post and for the S.D.M. piece.

    BOP – I doubt they could or would spring for logging while drilling but they may have a general idea of where they are at, have put the question to a couple of guys who will have a better answer for you.

23. 19-Bird- The nearby electric logs will give KOG a good guess as to the thickness of the Bakken. There are a number of publications that also have an isopach(thickness map) available from these existing well penetrations. Z can you post that one of the Middle Bakken Member I sent you?

24. FSLR liking the higher oil prices.

    XOM through 82.

    HK approaching a base breakout

    SWN moving up nicely now

    CLR looks like its making a move to fill a gap from around 29 with the stock now at 24.

    Have to point out that volumes, while better than the last two weeks in most names, are still pretty light looking.

    Reef – I can, when did you send it.

25. Re thickness:

    1. Known before from seismic survey. Analysts read squiggles, smoke some dope and viola … X feet thick.

    2. A vertical pilot will tell you the thickness in the general vicinity. Obviously when you get about a mile away, it is speculative. One way is to take the horizontal Gamma Ray and correlate it back to the vertical results and say you are x feet above or below target. Realize that the horizontal bed is dipping and possibly folding. Once again, dope smoking and squiggle lines. I went out on some geology field trips as a student …

26. z – i know they are not going to log the well during drilling… they want to get the first 2 drilled as fast as possible. Just wondering what estimates can be drawn from, let’s say, the cuttings. And how accurate those estimates are.

27. Correct me if I’m wrong but they don’t have a lot of well control here, right? This being on Indian land?

28. Z,

    Solar stocks are moving up

29. SU at $23, time for me to take half of that $22.50 position off the table, much better run from it than from oil which is the way it is supposed to work and why I like playing them better than I do USO, but maybe I need to look into the DXO a little more.

30. http://money.cnn.com/2009/01/05/news/companies/exxon_buy/index.htm

    Big fish (XOm) and little fish(XTO/CHK..)

31. Pete – yep, I’ve still got my little position in FSLR, not doing too well with it and will rebook on next downdraft. Nicky commented that the market feels like its running out of steam and with that oil probably has a fade to the mid to low $40s as well. That will take Solar stocks down a notch after a pretty good run. FSLR has nearly doubled since its late November low.

32. Everyone logs while drilling. They may not have MWD (Triple Combo etc..) but they definitely have a Gamma Ray. Like buying a car without a steering wheel. If they don’t use GR then I would short those suckers, bunch of Cowboy’s if so.

    There would be no way other than cuttings at the surface to tell them if they were still in zone.

33. thanks, reef and Wyoming. I was a geofizz in my prior life, so i know about the squiggle stuff… and you hit that nail on the head. I’ve never seen the seismic for the Bakken, so don’t know what kind of boundaries show up (for example, is there a significant impedance boundary between the upper, middle, and lower Bakken members? Not all geologic boundaries are capable of generating an individual seismic response… that’s why we have well logs and geologigsts, eh?). Also, this first well is about 5-6 miles (can’t recall exactly) from the nearest existing well… but, reef, you’re right… it’s all about “extrapolation-ology.”

    Guess i’m asking what can be concluded by a close study of the drill cuttings… if anything.

    thanks again for the responses.

34. Wyoming – thanks for 30. I have a lot of respect for Gheit (smart, reality based, old hand analyst). I think he’s probably off on the CHK possibility but APC is a real thought there. XOM just dumped its Barnett acreage over its detestation of the U.S. natural gas market so have to wonder at them subsequently buying back big into any U.S. gas players but APC has some keen international ops. I think they will move at a snail’s pace, having had this big pile of cash for a long time. I don’t see them adding to refining assets given the current political and economic environment.

35. Wyoming – unlike you… i was not invited to the engineering/production field trips. I’ve been on drilling floors (and dog houses), but don’t know what is considered “normal” for every well. Thanks for filling in the blanks.

36. I don’t get oil…what has changed in the last 3 weeks for the sudden run up? is the war in israel really that big of a deal with oil? same for coal stocks…what is the reason for the buy today vs 2 weeks ago?

37. BOP, How does TBT look to you over the next few months?

38. BOP,

    Eng/Prod had no field trips. Well, one afternoon to see a cable rig and another to shoot a fluid level. No the Geology part of the curriculum had the week long field trips to dig up trilobites and crinoid stems. As and Eng, they always tried to fail you unless you converted, attending the trips helped limp along to a C.

    We call it close-ology.

    Re the drill cuttings, nothing other than verifying you are probably screwed. If you see at surface you have porpoised out of zone, you are too late by the time it gets to surface. You may not be able to get back into the sweet spot before you run out of lease.

39. Pete – just got into TBT…the action over the last couple of weeks have been pretty nice…i got stopped out at 36.50 and wanted to wait until I saw TLT weaken..which it has alot.

40. Pearl – a few things.

    The geopolitical risk factor is up a bit but not terribly so.

    OPEC cuts are gaining some believers

    Demand for gasoline in the U.S. has leveled off.

    Crude inventories are up but not to the level many had predicted 3 months ago.

    Crude was, for lack of a better term, over sold and is getting a bounce as institutions rotate into less treasuries and more equities and commodities.

    Dollar has weakened.

    Many long term projects have been canceled and the oil directed rig count here and abroad has fallen in response to low prices.

    I don’t want to see a big V shaped bounce in crude but just a cessation of the week after week pounding of crude that was overdone even with a lousy economy.

41. pearl-I got back in it last wk and hoping it has legs to run a while.

42. Pete – thanks for asking.

    What I know: corporate and high yield bond funds are cheap. They should be bought here. Which one, depends on your risk tolerance. Personally, i think a good high yield fund will see close to 30% total return for 2009. No one should be sitting in a US Treasury-only fund, getting close to zero interest.

    What I don’t know: just like gold, people buy (and sell) US Treasuries for a variety of reasons. In general, those yields will have to go up, at least in the short end of the curve, over the next year or so… but, the US govt bond mrkt is still (for all it’s flaws) considered to be a safe-haven. So, while i think TBT should go up (as treasuries go down) over the longer run, I can’t call the short-run. And I am still worried stiff about deflation.

    So, Pete, just like everything else, it depends on your investment horizon. US govt yields should move up… I just don’t know when. And I am worried that we still have one heck of a market downturn at least twice this year, before it’s all over. I don’t want to be short treasuries when that happens.

    All that said, i think TBT might have a good couple of weeks. I just like going long corporate credit better than I like shorting the US govvie mrkt.

43. BOP, thanks for your insight. This market has changed my time horizon so a good couple of weeks sounds long term right now.

44. Wyoming – “close-ology”… you’re right! Always liked that term.

    Liked digging around for trilobites, rugose coral, and fossil fish too. Crinoid stems never held much interest… too much like puka shells.

    So, drill cuttings not much good other than for an “ooops-indicator,” eh? Thanks for the continuing education.

45. ZTRADE:

    SU – Sold half of the SU $22.50 January Calls (SXHAX) for $1.70, up 312% since entry on 12/29.

46. Pete – it all comes down to the first two weeks in January… whether real investors (corporate bond fund managers, distressed-bond hedge funds) will buy indiviual issuers here. And if new deals can get placed. So far, today is seeing a nice rally… but, needs to last. The good thing is that we don’t have long to watch, to tell if the credit market is thawing. We will know in two weeks.

    So, change “coupla weeks” to two weeks, for now.

47. ZTRADE:

    HK – added HK January $20 Calls (HKAD) for $0.40

    and

    HK – added HK February $20 Calls (HKBD) for $1.45.

    with the stock at $17.90.

48. Always a fun read. I like to save this every year, then look back at what he got right. Didn’t do that for 2008, tho. Number 3 would make us all happy.

    Byron Wien Announces Ten Surprises for 2009

    Byron Wien Announces Ten Surprises for 2009

    Pequot Capital Chief Investment Strategist Compiles 24th Annual List

    WESTPORT, Conn. — January 05, 2009

    Byron R. Wien, Chief Investment Strategist of Pequot Capital Management,
    Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued
    his economic, financial market and political surprises annually since
    1986. The 2009 list follows:

    1. The Standard and Poor’s 500 rises to 1200. In anticipation of a
    second-half recovery in the U.S. economy, the market improves from a base
    of investor despondency and hedge fund and mutual fund withdrawals. The
    mantra changes from “fortunes have been lost” to “fortunes can still be
    made.” Higher quality corporate bonds, leveraged loans and mortgages lead
    the way.

    2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern
    investors and a worldwide disenchantment with paper currencies drive the
    price of precious metals higher. In a time of uncertainty, investors want
    something they can count on as real.

    3. The price of oil returns to $80 per barrel. Production disappointments
    and rising Asian demand create an unfavorable supply/demand balance. Other
    commodities also rise, some doubling from their 2008 lows. Natural gas
    goes to $9 per mcf.

    4. Low Treasury interest rates coupled with huge borrowing by the Treasury
    send the dollar into a serious downward slide. Overseas investors become
    concerned that the currency printing presses will never stop. The yen goes
    to 75 and the euro to 1.65.

    5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as
    the economy shows signs of recovery, economists and investors shift their
    mood from concern about deflation to worries about inflation. A weak
    dollar, rapid growth in money supply and record-setting deficits (over $1
    trillion) are behind the change.

    6. China’s growth exceeds 7% and its stock market revives. World leaders
    credit China’s authoritarian government for its thoughtful stimulus
    policies and effective execution during a challenging period. The Chinese
    consumer begins to spend more and save less and this shift is behind the
    unexpected strength in the economy.

    7. Falling tax revenues from the financial sector cause New York State to
    threaten bankruptcy and other states and municipalities follow. The
    Federal government is forced to step in and provide substantial
    assistance. The New York Post screams “When will the bailouts stop?”

    8. Housing starts reach bottom ahead of schedule in the fall, and house
    prices stabilize after dropping 15% from year-end 2008 levels. The Obama
    stimulus program proves effective and a slow growth recovery begins before
    year-end. Third and fourth quarter real gross domestic product numbers are
    positive.

    9. The savings rate in the United States fails to improve beyond 3%, as
    most economists expect. The concept of thrift seems to have vanished from
    American culture. Peak job insecurity and negative growth drive increased
    savings early in the year, but spending resumes as the economic growth
    turns positive in the second half, making Christmas 2009 the best ever.

    10. Citing concerns about Iraq’s fragile democratically elected government
    and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his
    plan for troop withdrawal in the former and meaningfully increases U.S.
    military presence in the latter. In a hawkish speech he states that the
    threat of terrorism forces the United States to maintain a strong military
    force in this strategic area.

    Mr. Wien believes these surprises, which the consensus would assign only a
    one-in-three chance of happening, have at least a 50% probability of
    occurring at some point during the year. In previous years, more than half
    of the elements of the list have proven correct.

    Pequot Capital Management is a private investment firm.

49. BOP – he’s a very smart chap.

    Pearl – I forgot coal in #40 above. My thought there at least for the equities is that while the stocks were pounded for 2008, the commodities were up 8%. The group is rallying now in deadcat bounce fashion from a move it should never have made. Is everything better? Far from it as demand is off with electrical consumption and the new administration will not be coal friendly. I think the stocks should bounce based upon their recent performance but that coal is probably over priced in here. I’m just watching that group for now.

50. BOP – check your email, I forwarded that piece about the middle Bakken to you.

51. z – i like $9 nat gas better than $80 oil. But, does that make sense to you? In light of all the resource plays? Wonder what Byron sees driving nat gas… perhaps the “clean energy” aspect.

52. BOP from Friday’s piece which I’m just shocked you have not read. I wrote about 2008 and my thoughts below for 2009. Wien is just stealing my $9 end of year number:

    3) … Not Too Great For Natural Gas Either. Natural gas suffered first from fear of too much supply and then from a broad based decline in industrial activity. Lower 48 U.S. natural gas production probably grew 7% (excluding the impact of hurricanes Gustav and Ike) in 2008 which is an unprecedented amount. Past years have seen gas growth close to flat with individual years growing or receding by 1 to 2%. So 2007 and 2008 were outliers brought about by accelerated activity in shale plays. Much of this growth comes from wells which decline at a rate of 80% (or more) in the first year so the only way to get growth each year is to drill more wells, and for that, you have to have gas prices that support level of activity or projects start getting shelved in order of lowest to higher IRR. Gas itself appears to be basing in a range of $5 to $6.25 now but the outcome of January weather will have the first shot at price determination early in the year (very cold = $6.50, very warm = $5) before a decline rig count (see next bullet) can start shoving natural gas production down in the really high decline rate plays.

    * Prediction for price?: Average $6 to $7 with a close of 2009 closer to $9.
    * Prediction of supply growth for 2009: 1 to 2%.

    I really don’t see it being up to any Obama effect, at least not from physically drawing down gas supplies for cars or some such use. But from a sentiment standpoint, yep, it won’t hurt either.

53. z – got it. thanks!

    pete and pearl – nice call on your TBT trade.

54. Good morning all.

    BOP not sure how this fits in with your thoughts but cycles are due to top out shortly and indices should head lower into mid – end of January – I am not expecting lower lows maybe 8000 Dow. Then a sharp rally into the Spring which will be wave B (March is most likely but it could be done by the end of February). Then essentially we see 16 months of downside into mid to end of 2010 which will be wave C.

55. Oil – nearly 30% in a few trading sessions is too much too fast fundamentally! TA we are in 4C – could go a bit higher but likely to turn lower with the indices and put in a final low for this wave sometime in January and I still think 32 level may be it.

56. z – #52. Didn’t get to your Friday report… was too busy, catching up on all Sambone’s poetry.

57. The Friday post was essentially my nine thoughts for 2009. I hate those things but 2 days in and so far I’m right, lol.

58. Friday was a slow day

59. Not good

    NOVO OGAREVO, Russia (AFP)–Russian Prime Minister Vladimir Putin on Monday
    ordered gas giant OAO Gazprom (GAZP.RS) immediately to cut gas pumped via
    Ukraine to Europe in response to Ukraine’s alleged siphoning from pipelines.
    “Start reducing it from today,” Putin told Alexei Miller after the Gazprom
    chief informed him of a plan to cut volumes of natural gas shipped through
    Ukraine by amounts equivalent to those Moscow has accused Ukraine of stealing.
    Russia cut its gas supply to Ukraine’s domestic market Jan. 1 and has since
    accused Ukraine of illegally removing gas transiting its country for clients
    further downstream in Europe, a charge Ukraine has denied.
    Miller told Putin that Ukraine had since Jan. 1 “stolen” 65.3 million cubic
    metres of gas that were supposed to have flowed through pipelines that cross
    its territory on to customers in the European Union.
    The Gazprom chief vowed the state-run monopoly “will do everything we can” to
    compensate for the reduction of gas shipped through Ukraine by increasing
    volumes pumped through Belarus, Poland and Turkey.
    But he warned that, in addition to reducing Ukraine pipeline volumes by the
    amount Russia says the country has removed, Gazprom would continue to cut gas
    pumped through Ukraine on a daily basis by amounts it considered stolen.
    Referring to the debt Gazprom says it is owed by Ukraine, Miller said it was
    still above $600 million, but said: “If they continue to illegally take gas it
    will soon be billions.”

    Dow Jones Newswires
    01-05-09 1134ET

60. Nicky – i generally agree with you.

    I think we see a lower low on the S&P500 at some point, tho.

    I’m a bit more optimistic about 2010 being a very good year for the stock market. Not a good sense of the timing that far out, tho. So, your mid-year prediction could be spot on.

    What I think: the corporate bond market will beat the stock indices for 2009 for buy-and-hold investors. Also, it will be one HECK of a trading year. If you’re good at calling volatility, you could make a lot of $$ trading stocks this year.

    z – you’re a good stock trader. just get lots of sleep!

61. FSLR at $160

    Re Russia/Ukraine: Ukraine has to siphon a bit of gas off to keep pipeline pressures up on the system for the trans-Ukrainian gas. At least that’s their story. So if Russia cuts by that much then then Ukraine will still need to syphon and there will be more rounds about this. The two are very far from agreeing on a gas price contract going forward (see details in post).

    Sleep? When I was younger and pre-kids, I said I’d sleep when I’m dead. Now I sleep whenever I can. In fact zzzzzzz.

62. IG 203 +2 bps

    HY 80 3/16 points

63. Warren Zevon used your line in a song…

64. Yep, I had a boss once whose favorite line was “you’ve got eyes so plagiarize”. I pointed out that this was both unethical and bad meter. Either way, some people say it better than others, like all those ancient Chinese sayings, so why not lift a little here and there.

    What I do like, stocks are recovering in the face of some small gain in commodities (except NG which is down again) and in the face of a slightly red broad market. Volumes are still not great but are improving and as the broad market improves the stocks seems to want to trade up in conjunction. So we outperform on the down days and remain at least in line on the good. Not saying its a pattern of any duration but certainly the best I’ve seen for the groups over the last 6 months.

65. Just a quick note on cycles and possible target levels.

    The high is due Feb/March and could possible extend into April. 1080 on the SPX with 1180 a possibility.

    Then down into May/June.

    Support on the SPX is in the 600 and 450 region. I do expect these levels to ultimately be seen but maybe not until 2010.

66. Oil approaching HOD,

    Thanks much for the levels Nicky.

67. Gotta figure Israel will halt things soon and that oil will use that as an excuse to pull away from these highs back into mid to low $40s.

68. ZMAN – Does the levels/timing that Nicky state for oil play into a limited exposure at this time?

69. Re 68 – I think it does for a straight oil play like USO. As to the stocks, I think they are still quite beat down and will follow the market. I don’t see oil going quite as low as $32 again but it certainly could. So the stocks and the commodities could diverge for a bit. The 12 month strips for oil and gas are significantly higher than the front month contracts and on that basis, the stocks appear to be cheap. I think the commodities simply not going down is at least as important as this little bounce in oil is (and its little given where we’ve just come from).

70. 69 continued.

    So if you are asking if a downturn in oil prices would mean less exposure I’d say yep, a little, but not a lot. I did take half my SU off the table this morning.

71. you know it’s been a crappy market when you find yourself thinking “oh boy, my stock’s at 44 cents.” And actually feeling happy about it!

72. Hear ya on that one bird, missed my little pullback on GST, could have bought up a nickle, now at 20 cents (47%) I fell a little late.

73. KOG having a nice day… maybe it’s just the pressure release of tax loss selling abatement. But, should hear something about the 1st well, literally any day now.

    reef – thanks for the research piece. I read it that KOG might delay the completion of their first 2 wells to get better pricing on services. While that makes some sense, I highly doubt it. Now that KOG has partnered with Hunt Oil, they both want to know the value of their holdings. If these first two wells prove up (and IP at close to 1,000 bls), then the FBIR acreage alone makes this stock worth something like $2.50/share.

74. KOG – while I don’t think they will do it, if they can prove up the FBIR Bakken acreage, Lynn and the boys should sell out. They are the nicest people in the world… but can’t operate their way out of a wet paper bag.

75. BOP,

    Couple more comments, late but I had to do some things. You can do more with them, fluorescence will indicate oil presence. It can give you indications of formation being penetrated. Comments above were in relation to horizontals. Ideal would be to see the same rock returned for thousands of feet drilled.

76. Wyoming – ok. the “porpoise” comment makes more sense now. thanks!

77. Wyo – you should send her those photos of the drill bit that came back up out of the ground on a horizontal. We’ve hit…air!

78. drilling for Flipper??

79. IG backing off a bit at 205… but, that’s ok.

    The indices got somewhat ahead of the cash market. Still seeing decent buying in individual names, across the board. Just have to keep this up for 9 more working days….

80. KOG- primed for a takeout by Hunt or private equity

81. Would Hunt be XTO now?

    Oil at HOD

    NG springing to life, up at $6.10

82. 81- oh yes, I think so…

83. z – that’s just it… Hunt sold all their Bakken acreage to XTO. Then, they (Hunt) turned around and offered KOG a deal they (KOG) couldn’t refuse. It was unsolicited by KOG… but came at a good time. Since Hunt has experience in putting together Bakken acreage, and selling (for $5k/acre to XTO), you’d think they would know prospective acreage, when they see it.

    I don’t think KOG gets taken out prior to results from the first well (due in 1st half of March)… but, after that, it would be the right thing to do… sell the Vermillion acreage to Devon and the Bakken stuff to XTO… or, whoever. KOG is not an operator.

84. Surge in LNG imports?

    http://blogs.oilandgasinvestor.com/peggy/2008/12/19/surge-in-global-lng-production-coming-quickly/

85. Oil at $49, feels like a buying panic, volume is pretty high, 5th highest in a month.

    Reef – I’m with you, these KOG guys won’t last. I think many others will go away too when the financial markets function again AND once commodity prices are seen as being something like stable.

86. Percentage gain for oil in just a few sessions Z is unreal.

87. Popeye – I see a slight uptick in LNG, but quite a few new regas facilities are opening in other parts of the world too. I saw this story when it came out and while true, much of these volumes would go to the control of the proposed gas OPEC and then to the highest bidder. Europe and China/Japan have backed off consumption of late but they will be demanding more gas when the global economy recovers. To say it all comes to the U.S., the place with the lowest price around doesn’t make a lot of since when you can ship it to someplace closer for a higher price. I think the U.S. gets some increase for sure but I don’t think it’ll be the tsunami of foreign gas some are calling for.

    Nicky – agreed. Although we’re coming from a smaller number so its easy to get big % moves. We were in the $110 to $120 range at the mid point of Hurricane season, 3x higher than here.

88. Wow Meg Whitman considering a run for Governor of Calif. Should give Kennedy a run for her money!

89. Yes agree Z – its so easy to forget how far we have fallen in just a few months!

90. Still, you are right, without the broad market going up today, the energy stocks look reluctant to move higher without the commodities doing so (more than they have). Probably due for a round of profit taking later this week.

91. Its hard to see how the attention is not going to turn to the non farm numbers soon.

92. Just updated my math and assumptions for KOG valuation based on Bakken acreage alone: at $5k/net acre, KOG stock is worth just shy of $2.00/share. That is giving no value to the Vermillion JV with Devon but valuing their cash + pre-paid capex and subtracting 2 quarter’s worth of G&A.

93. So it begins #2

    PARIS (AFP)–Pirates seized a ship belonging to French maritime services
    company Bourbon off the coast of Nigeria during the weekend and are
    holding nine crew members hostage, the company said Monday.
    “Bourbon confirms that the Bourbon Leda and its nine crew members (five
    Nigerians, two Ghanaians, one Cameroonian and one Indonesian) were seized off
    the coast of Nigeria during the night of Saturday January 3 to Sunday January
    4,” a statement said.
    “Bourbon received Sunday, January 4, a call which allowed it to be in contact
    with the commander of the Bourbon Leda who confirmed that all crew members were
    safe and in good health.”
    The Bourbon Leda, a vessel of the FSIV (Fast Supply Intervention Vessel) type
    was attacked off Bonny, a major oil and gas terminal in southern Nigeria. At
    the end of October another vessel belonging to Bourbon, which specializes in
    offshore oil activities, was seized by pirates off the Nigerian coast.
    On August 2 two French crew members of a Bourbon supply ship were kidnapped by
    armed men in a bar in the port of Onne, near Port Harcourt, Nigeria’s oil
    capital. They were freed in September.
    The Niger Delta has seen with increasing regularity since 2006 acts of
    violence by armed groups which have kidnapped oil sector workers, attacked
    installations and carried out acts of sabotage.
    Nigeria is one of sub-Saharan Africa’s two biggest oil producers.

    Dow Jones Newswires
    01-05-09 1431ET

94. No offense to Meg but PayPal, which is a division of Ebay, is absolutely lousy to deal with.

95. Gotta step out for a few minutes.

96. Ok, I’m back, doesn’t look like I missed much.

97. when you leave, the broad mrkt goes down. when you come back, the broad mrkt goes back up.

    don’t go anywhere anymore.

98. I’ll do what I can.

99. that Tom Ward / SD announcement has the stock up 15%.

100. By David Bird
     Of DOW JONES NEWSWIRES

     NEW YORK (Dow Jones)–Oil futures jumped 5% to a one-month high on Monday,
     continuing a blistering holiday rally spurred by violence in the Gaza Strip and
     worries over Russian natural gas supplies to Europe.
     Crude oil futures for February delivery settled $2.47 higher, or 5.3%, at
     $48.81 a barrel on the New York Mercantile Exchange. This is the highest close
     since Dec. 1.
     Crude prices have gained 25%, or $8.78 a barrel, in the past three sessions as
     the market searches for near-term direction.
     ICE Brent crude for February delivery settled $2.71 higher, or 5.78%, at
     $49.62.
     Traders said fresh funding came into the market at the start of the year,
     fueling the run-up that now puts oil within striking distance of $50 a barrel
     for the first time since the end of November.
     Still, some traders worry the market has got ahead of itself and continued
     weak fundamentals. Worries linked to geopolitical issues are making it
     difficult to maintain short positions, or bets that prices will fall, traders
     said.
     An Iranian official on Monday called for Islamic oil exporters to cut supplies
     to Israel’s supporters in response to the violence in the Gaza Strip, but such
     a move isn’t likely. Saudi Arabia, the world’s largest oil exporter, has long
     disavowed the use of oil as a political weapon.
     Phil Flynn, analyst at Alaron Trading in Chicago, said the new year brought
     “lots of money off the sidelines” and back into crude on the view that oil
     under $35 a barrel recently “was too cheap.” A move above $50 could be a
     building block for an eventual technical rally to $75 a barrel, he said, but
     the events influencing prices haven’t fundamentally changed a market that’s
     stung by oversupply and weak demand.
     “Traders are just trying to sort out whether the gains of the past week are
     real or not, as they occurred on light, holiday and contract-expiration
     volume,” said Tim Evans, energy analyst at Citi Futures Perspective.
     Near-term expectations of colder temperatures lent support for heating oil,
     though the National Oceanic and Atmospheric Administration said the southern
     two-thirds of the country will see above-normal temperatures this month,
     including the lower regions of the Northeast, the world’s largest heating oil
     market.
     Traders said the move by Russian gas giant OAO Gazprom to cut natural gas
     supplies via the Ukraine to Europe was lifting gasoil prices on the continent
     and having a knock-on effect on the Nymex. Russian Prime Minister Vladimir
     Putin ordered the flow cut after Gazprom accused Ukraine of illegally removing
     gas from transit lines in the country.
     February heating oil futures settled 9.60 cents, or 6.5% higher, at $1.5763 a
     gallon, rising for the sixth straight day to the highest level since Dec. 3.
     RBOB gasoline for February delivery, also up for a sixth straight day, rose
     7.19 cents, or 6.47%, to settle $1.1824 a gallon, the highest level since Nov.
     14.
     -By David Bird, Dow Jones Newswires
     Dow Jones Newswires
     01-05-09 1537ET

101. I agree with Phil Flynn quote there.

102. I don’t understand the significance of the ann. on SD?

103. Eld – just that a potential source of selling pressure is now gone. As with CHK and Aubrey’s sales, the market has been aware that CEO Tom Ward needed to sell down his position. How much wasn’t clear, now it is.

104. Tom Ward needed to raise money (although I had some one argue that he was trying to capture a tax loss for planning purposes… if true, that was a secondary outcome i would think). Anyway, Tom is truly a Class Act. Instead of the Aubrey Method of “waiting to the last minute then letting your lender seize and sell your collateral,” Tom raised money from a close friend in a private market transaction.

     SD rallied (i guess) along with energy in general and the demonstration that the CEO will do almost anything to keep from bashing his own stock.

105. Bird – agreed, ya gotta like how he handled his working interest sale back to the company too. More than fair terms on that one for the shareholders.

     I would like it if the SEC would get busy with a rule requiring disclosure of margin buys of stock by officers. I’m not saying to keep them from doing it but if they are using stock to collateralize the purchase of more stock, I want to know about it.

106. I just turned on CNBC for some levity on the close and they were quoting an analyst, sorry did not get the firm or the name of the analyst, but he was saying this is only a bear market rally in the oil service stocks and they will not have any pricing power in 09. CNBC seemed to give credence to this analyst but what the hell does that mean. Again, I apologize for not catching more details.

107. z – totally agree about the disclosure! I think if the CEO uses the stock to pledge against ANYTHING, it should be disclosed. But, especially if he uses leverage to buy his own company’s stock.

     Seems like a pretty straightforward-type of disclosure to me. But, then again, our SEC is busy chasing nits… and missing the big picture stuff. Small minds, disasterous results. And we want to give those guys MORE power? They don’t properly use the power they have already.

     But… i digress…

108. Choices – I didn’t see it but I can tell you he’s saying that service rates have not come off yet. 2009 will be the year the E&P company puts the screws to the service guys after many years of annual price hikes, as rigs get stacked. It’s pretty hard to tell how much of that is priced into service stocks but I think they under-perform this year at least relative to the producers. I do have a bit of an issue with these guys lumping all service names into one service basket, but they will have a tougher time in general unless we see a good recovery for oil and natural gas…or they are just not going to be very busy.

109. Re my comment at 106, the firm was UBS and they downgraded several oil service stks from buy to neutral.

     I would be interested in opinions on the track record of UBS or is it as Z says, simply clearing the deck for upgrades later on.

110. Thanks, Z

111. UBS has been behind the curve on downgrades as I recall. If they are cutting the names now on this pop but rode things like SLB from $110 to $50 (and I’m not saying they did since I don’t track them closely) then I’d say taking the hit now with the upgrade in mind down the road.

     I do know the service guys at Jefferies pretty well and they are smart. And I know they recently downgraded a lot of names for the first time. This move down caught a lot of smart guys off guard I think. They go from a position of “these names are cheap, surely they can’t fall much more” to “wow, um, wow, this is bad” to “it seems to us that we missed our chance to downgrade” to “we’re downgrading the names after the little pop they’ve had. We’ll wait for a bottom and upgrade them lower later.”

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