Wrap – Week Ended 01/23/09


Well, the week that was was only half bad. Two green days, two red and one of those as expected being an innauguaral day. Five quick points of interest follow the table.

1) Oil & Oil Service Outperformed The Broad Market. Not by a landslide and it could be just market noise in a short week but the preference for energy equities was noticeable, especially on the down DOW and S&P days. Most likely it was the fact that energy isn't reporting misses, is able to get debt deals done, and oil is still not ready to give up and drop to $25 (see next point). The outperformance of service is a bit confounding but since the argument can be made that the group is already beaten down I attribute the recent run to short covering and don't give the OIH as a whole much chance of outperforming the producers in the first half of the year as rates begin to fall off with rigs.

2) Oil Closed The Week Up 8%. CNBC called it a 20% gain late Friday but they like to include jump given by the current contango comparing on expiry weeks, makes for a good, if misleading soundbite. Another jab there and I'll leave them alone. The steep contango we've seen develop over the last few months flattened significantly this week going from a $20 per barrel spread over the 12 month strip to a $12 spread. Damage to the contango was wrought with both the near months rising and the far months falling. This means there is:

  • less impetus to store crude in tankers off short which would suggest more crude coming to market (or at least ashore) in the near term which should again depress prices and
  • likely to be pressure on tanker rates.

3) Rigs Continue To Tumble. 50 off the gas rig count went unnoticed by gas traders Friday afternoon and the numbers perhaps was muted by a 10 rig rally in the horizontal rig count which has been more resilient than we would all like to see.  Service costs and rig rates are going to fall this year and SLB's comments on Friday indicated they see it coming but so far contracts are not being broken and the pressure by Majors, NOCs and E&Ps is not yet intense. Other evidence from subscribers who negotiate these contracts for a living indicate that we are nearing a day of reckoning for oil service. 

4) Gas Storage Continues String Of Sub Par Withdrawals. Last week's number was in line with my number and the Street's and in a vacuum we can all so "oh how nice" but given the weather the number should have recorded another 40 to 50 Bcf coming out of the ground. That's a 6 to 7 Bcfgpd delta due to too much supply and depressed industrial demand. Look for an update in Thursday's post covering the latest EIA data (November) for natural gas supply.

5) Shipping Rates Continue To Recover. There is an expectation in the market that the Chinese will devalue the Yuan in an lattempted to prevent a recession by reinvigorating their exports. Shipping rates which came close to going to $0 at the end of the year are snapping back while the shippers themselves got a modest market tied bounce before again selling off on news that dividends are indeed no longer safe and spending will grind to a halt. I'll have an update on the group later in the week.

One Response to “Wrap – Week Ended 01/23/09”

  1. 1
    zman Says:

    RS – we’ll get that done as soon as my Schwab will let me log in. SSP is down for me this morning.

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