Friday – Natural Gas Storage Review Plus A Few Other Thoughts


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Rigs Vs Production
  5. Stuff We Care About Today
  6. Odds & Ends

Holdings Watch: The wiki tab has been updated.

  • $10KP - Sold the FSLR Call for $1.40, down 82%. Still holding the $135s. Potential contract announcement story is propping the shares up along with a green market but these were slipping through cracks pretty quickly.

Commodity Watch:

Crude oil soared, closing up a whopping $4.70 at $47.03 yesterday, in a buying frenzy following the retail sales figures and was aided by a strong equity market and a story that the Russians may be coming to OPEC's table this weekend. Monday's high was $48.83 and I would not be surprised to see a spike above that level, perhaps closing on $50 today with OPEC's decision coming on Sunday. This morning oil is trading off slightly.

  • From Russia With Love Watch: Russian Vice Premier Igor Sechin will attend the Sunday OPEC meeting and said Russia supports the idea of cutting oil supplies because of a significant surplus. Historically, Russia has been a tease and not a real date for OPEC. I doubt very much that they would join. If they did (and seriously, they won't), you are probably looking at an immediate $20 add to oil prices as Russia vies for the #1 producer status with Saudi Arabia from month to month. Its more likely, but still unlikely, that Russia would cooperate in some sort of "go along" fashion with OPEC's moves to boost crude. 
  • IEA Watch: The group revised its view of global demand lower by 270,000 to 84.4 mm bopd.; this was widely expectly. More importantly, they wiped out their expectation of Non-OPEC supply growth this year from growth of 380,000 bopd to 0.

Natural gas reclaimed the $4 mark yesterday before settling up $0.20 at $3.995 after the EIA released another larger than expected withdrawal from storage. Thoughts on that in the next section. This morning gas is trading down 5 to 10 cents.

Natural Gas Storage Review: Bigger than expected withdrawal; 4 more weeks left in the traditional withdrawal season and inventories remain bloated.


  • Another bigger than expected withdrawal from storage. This came with somewhat milder weather than the prior week when a smaller withdrawal of 102 was recorded. Part of this is noise, part end of season storage manipulation and part of it is lower production. More on the lower production in the next section.
  • Storage still remains high for the time of year. Without cold weather over the next 4 weeks gas prices are likely to soften.
  • In the following table, you can see how close we will come to bottoming close to the five year average. Everybody looks at these last few weeks and will do the straight-line math tom come up with a target. Mine is 1,450 to 1,550. Not great, not terrible. The coming reduction in gas supply will be far more important than the absolute trough storage level this Spring. Again see the section below on rigs vs production.

  • After a rough start to the fall and winter, gas withdrawals are doing much better now, see D below ...
  • ... And when you look at graph E, you get a sense that there is no reason to climb out a window just yet. Sure LNG imports may prove to be a concern but production is dropping and will drop further both in the States and Canada.


Rigs vs Production - I'm always searching for better ways to show my points through pictures as it saves keystrokes. Here we have U.S. Lower 48 natural gas marketed production on a daily basis vs the gas-directed as reported by Baker Hughes. As you'd guess, the more rigs you pile into the system, the more production grows. The exception until recently has been that the more rigs you add the less each rig adds because the easy conventional gas wells had largely been drilled up.  With the recent accelerated drilling in the Barnett, Woodford, Fayetteville and nacently in the Haynesville Shale along with some Rockies gas plays, all of which are on average utilizing more horizontal drilling, longer laterals and more frac stages you've seen that relationship skew back towards more rigs equals more production per rig. The IPs of shale wells and following declines are remininicent of the tight gas sand rush of the late 1990s. Big initial production and then an 80% of so first year decline. So drill a lot of these wells and you get a big pop in production. Take your foot off the drilling pedal and you are left with a bunch of wells that started at 20 MMcfepd on day one producing less than half that amount 6 months later. 

Anyway, the following chart shows the rapid incline in rigs and the resulting swell in U.S. gas production over the last six years, especially as we fought back onshore from the impact that successive hurricanes (those dips in the chart) are  had offshore.

  • But like I wrote in recent posts, we've never had a decline in the rig count of this absolute magnitude or one of such velocity.
  • The second chart blows up the last 3 years for easier viewing. Note the production data runs through December 2008 (the latest available) and that was flat with November's data. Click here to see the review piece on the December data as we started to see slippage in production in key gas growth states.
  • On the rig side, the data runs through last Friday. The thing to note is that while rig activity was slowing in the third and fourth quarter, it has been absolutely woodshedded in 1Q09.
  • Having listened to all of the conference calls from the big cap E&P's (who are the true drivers of gas activity in the U.S., not the Majors) and from dozens of the mid and small cap I only expect rig counts to continue to fall as capital budgets face further belt tightening.



Stuff We Care About Today

My thoughts on PQ from yesterday's comment section. Note I still own it.  Fair warning on the PQ, mine could be sold at anytime. Will let you know. Frankly tired of keeping the minute chart on one screen and in the back of my mind while I work. As I said yesterday, the name has a lot of hot, very fast money in it that does not know the difference between oil that has an API gravity and oil that has an SPF rating.

KOG Quick Take. This is probably pretty close to the worst case look at their NAV.

  • The acreage valuation may be a bit conservative as recent leases around the area have been above the $1,000 level (this is a post oil crash price and some leases have been going for above $4,000). I risked the acreage 50% which may be a bit overly conservative but you'll see my point in the nutshell.
  • I'm giving them no credit for the 3 wells in progress in the Bakken now despite "encouraging results while drilling"
  • I'm also showing them as canceling their two rigs now under contract which would be costly. There is no certainty they will cancel either rig but to be conservative this is probably the most it would cost them.
  • I don't think they have the potential for a breakup fee from Devon if they walk away from the Vermillion play but I'm still tracking that down.
  • In a nutshell, the stock is already pricing all of this in at current levels. They have no debt and like BOP says, if the wells proven successful (probably 2 to 3 months from knowing) the stock will move up.



Odds & Ends

Analyst Watch: (HAL) upped to Outperform at Credit Suisse, while the firm cut (FTI),(NOV), and (BHI) to Neutral.

Canadian Rigs Graph in response to rig comments in the comment section:


81 Responses to “Friday – Natural Gas Storage Review Plus A Few Other Thoughts”

  1. 1
    1520sbroad Says:

    z- great charts on rig count vs. BCFGPD. I’ll be curious to see that one again in 30, 60 and 90 days.

  2. 2
    zman Says:

    1520 – exactly. The well count now gives the growth, or lack thereof, for the next 3 to 6 months down the road.

  3. 3
    zman Says:

    Got these comments from Nicky last night:

    basically next level of resistance is 764 and then 45dma which the index may well make a run for is today at 804 but coming down a couple of points each day. We are basically now in a 45 day up cycle which is likely to last another week or so and I think will have another down up gyration. After that we should roll over and make another run at the lows and lower.

  4. 4
    zman Says:

    See PQ comments above, that goes double up another 10%.

  5. 5
    kyleandy Says:

    EVEP strong this morn conf call at 10 est this morn. hope u can listen

  6. 6
    elduque Says:

    BDI -79 2122

    TED 112.80

  7. 7
    elduque Says:

    Z – My first question of the day. I was thinking that when the cos. report earnings a year from now they will be able with the same assets that they have today, post more assets with the change in allowance for horizontal drilling. Correct or not.

    If correct, wouldn’t you think that the bankers would take that into account when they were doing their redetermination.

  8. 8
    zman Says:

    FSLR tapped on $130.

    Kyle – it’s a good thought, slow Friday. I own LINE in the MLP space now but its good to hear what these guys are thinking so I’ll jump on that call.

    BOP is having technical difficulties so I don’t know if we get the trading desk or credit reads this morning.

  9. 9
    jat Says:


    I’m very curious on when you think the timing of the gas production inflection point occurs, and when it matters for the price. It seems like we’re still oversupplied, and while we have seen that material drop in the rig count, it has yet to catch up with the weekly storage numbers and truly make an impact on prices. (LNG still a total guess as well, as harped by the sell-side in the last two weeks). I’m thinking of all this in relation to the general service companies… if we see a meaningful production response in the weekly numbers in Apr / May, people will probably look past Q1 earnings with decrimentals north of 50%.

  10. 10
    zman Says:

    Elduque – Its a good question. I think for the little guys who might have redetermination issues, including someone like GMXR (its not a problem early in the year but a big downside redet would squeeze them in the back half), the new SEC reserve methodology could help. However, the SEC still has not put forth the new rules so I’d be guessing. It really depends on the banks feeling right now. Not a hard equation there. So it might be in the back of their mind but I’d bet they are thinking, we will then redetermine again in 6 months if we have more rules data and of course in another year.

  11. 11
    zman Says:

    EVEP – sounds like everything on track in terms of production, costs. Not worried about a potential reduction in the borrowing base, good hedges. See drilling costs below 2006 levels later this year. See high line pressures this spring/summer (too much gas in the Lower 48) causing curtailments.

  12. 12
    zman Says:

    Jat – my sense is we are starting to see the roll begin now. If you go back to the link above for the December data you can see the key states were looking toppy in December and only the return of Gomex Shelf volumes post Gustav/ Ike drove production to be flat. The falls of 40%+ in rigs in each of the major shale plays is having an effect on shore. Rigs are inching lower offshore and I think will fall harder soon. The Shelf will really implode quickly. Anyway, I think we have some squishy pricing ahead of us but that by the time we have the March data in hand (end of May) the impact of the lower rig count will be obvious in Texas, Oklahoma, NM, Wyoming.

  13. 13
    zman Says:

    Jat – I can say a lot more, half listening to this EVEP call, happy to take questions.

  14. 14
    zman Says:

    Anyone see a negative broker comment on XTO this morning? Curious knock its taking.

    HK back to $17, I think that one can run once it gets back above the $17.50 deal price. Interest in that deal was substantial and you could get some follow on buying but managers are likely to be reticent to buy below their recent secondary share buy.

  15. 15
    zman Says:

    BOP – says busy running to a meeting with auditors so no report from there. Says to watch the banks this am, a rally and hold there will pull everything up with it.

  16. 16
    zman Says:

    PQ through $2

  17. 17
    zman Says:


    Out half PQ for $2.01, up 93% from purchase on Tuesday. That’s a lot faster and a lot better than I would have thought the stock could do.

  18. 18
    BirdsofpreyRcool Says:

    Sorry all… massive IT problems + have to meet with auditors today (the annual review).

    Anway, Credit is suspicious of this stock rally, but not going to fight it. The best part is that the high yield index has a 70-handle again. This is the most sensitive barometer of “risk” in the credit market.

    IG 237 bps

    HY 70.125 points

    My sense today… watch the banking stocks. They rally and hold, then the mrkt will end higher.

    Back later.

  19. 19
    zman Says:

    Same question on SWN regarding analyst commentary this morning. Very odd trading.

  20. 20
    zman Says:

    EVEP Q&A

    Question on the oil & gas vs Obama.

    IPAA – 100,000 letters have been sent in the last week on the adverse effect of the President’s anti oil policies. They don’t think that all of the negative provisions will make it. Seeing bipartisan attacks on those issues we talked about last week.

  21. 21
    reefguy Says:

    PQ- doubles are a very good thing

  22. 22
    zman Says:

    EVEP – Q&A – others have limits on distributions vs repayment of bank debt or covenants regarding distributable cash flow vs bank debt levels. They don’t.

    As far as I know, LINE doesn’t have this issue either.

    Borrowing base is question number #1 these days from analysts.

  23. 23
    zman Says:

    Reef – the EVEP call is very interesting, I do recall the CEO being one of the early ones call for the overall U.S. rig count to fall to around a thousand when it was over 2,000. He’s looking for further big drops in service costs. People are stacking rigs as we all know but a lot of wells are backing up on the completions side around the country waiting on prices to drop.

    I look at the service group and I see further pain in N. America and then I see jackup pain in scattered pockets about the globe including the middle east. I continue to be surprised by how well the OIH has held up year to date and to me it seems only further damage will be done to earnings in the second half. The revenue may not suffer as much but the low bid jobs you are seeing from guys like SLB, WFT, and NBR will mean slim margins.

  24. 24
    jat Says:

    All I could find today on XTO, this from MS Sales desk:

    “EOG has crushed XTO over the past week to the tune of 15%. Specialty Sales thinks the outperformance reflects some investors scrubbing numbers on the two names around unhedged ebitda ests. XTO’s ’09 ebitda ests have been supported by its large in the money hedge position (while it has been monetized, it still flows through the cash flow statement each qtr). While many analysts are savvy enough to adjust for this gain in their NAVs or ebitda ests, many do not. As such, XTO has looked much cheaper on ’09 that EOG b/c of this hedge gain. Specialty Sales view is someone pitched long EOG/short XTO on view that given more than 1x ebitda credit for a hedge gain is wrong. At current levels after the xto underperformance, the two trade at similar multiples–xto has a some ’10 hedges while eog has a better balance sheet. XTO is growing faster in ’09 and stands to be in better shape on their ’09 exit rate. EOG has a european shale JV with XOM.”

  25. 25
    zman Says:

    Thanks Jat, not the biggest fan of XTO, was just curious. They bought high, a lot, last year. I see a lot of this “backing out the hedges” comparison, which I think is not a worthwhile endeavor. The companies are the sum total of assets and actions. The hedges are part of the picture and at the end of the day we want to know what cash flow is relative to the other metrics. Stripping it out may be fun for some junior analyst to do with the model but I don’t give it much usefullness. Better to look at the sensitivity to change in $/Mcf and $/Bbs on CF and stop there. XTO has a lot of debt so they hedge more, EOG has a clean, almost too lean balance sheet as Papa hates the debt (dark) side of the capital structure and so he hedges less. So the hedging decision/strategy is as much a part of the planning process as what plays to participate in.

  26. 26
    reefguy Says:

    EVEP- did he say how low he thought the count might go? It may get really ugly… On a different note..Just hung up with a DIP lender. Seems they are back in force and starting to salivate. Anyone need DIP in a Pre-Pak BK at 16% and 5 points?

  27. 27
    zman Says:

    Kyle – EVEP – nutshell: very good call. Will circle back next week with some numbers here vs the group and LINE.

  28. 28
    sportlock Says:

    Z, Have not listened to the SWN CC. Any thoughts on what people are concerned about? I do not think it is the balance sheet or the Fayetteville. Is it Korrell quitting? thanks Bill

  29. 29
    zman Says:

    Have to agree with the “deer in the headlights” comment regarding Cramer last night on John Stewart. Jim just didn’t defend himself well.


  30. 30
    Denise Says:

    Z-Thank you for the EVEP comments
    I am also long and interested

    On another note for anyone interested Mr K lightening up a bit in financials

  31. 31
    Denise Says:

    If anyone wants the chain of Comedy Central versus CNBC/Cramer Barry Ritholtz has them laid out in order on his blog The Big Picture

  32. 32
    zman Says:

    Bill – No, the call went well. There is a lot of concern that the shoulder season will be exceedingly squishy on gas prices. SWN as a pure play is possibly getting hit on that despite the hedges and the improving well results and the falling costs. I think their spend is a little higher than necessary and while they are fine on debt vs reserves and EBITDA vs interest there may be some concern filtering into the stock price regarding the duration of the softness in prices…does it last into summer (very possible). That’s my guess and given the price action during the call, that didn’t seem to be the concern. I took Aprils there as I wasn’t sure the results could override gas and wanted a little room. I am thinking of adding some March (yep 5 days left) for a bounce if we get another set of strong declines in rigs later today.

  33. 33
    zman Says:

    Denise – financials waning this morning taking the market into red territory. Kass seems to have shortened his hold period, can’t say I blame him.

    By the way, for those of you waiting on GMXR and PVA looks, they will be out next week. Got a few more things I want to hunt down on GMXR and that delayed my look at PVA.

  34. 34
    zman Says:

    Addendum to the post, the KOG cash position is closer to $3mm now, down from $7.5 mm at year end. That puts an equity or debt deal in their very near future.

  35. 35
    zman Says:

    China concerned about the $:


  36. 36
    Popeye Says:

    I’m no fan of JC but I really felt sorry for the guy last nite. It was like the deer in the headlights was run down by a semi. I don’t know what he was thinking going on that show. Then again I have no problem with people being held accountable.

  37. 37
    zman Says:


    $10KP Adding 5 March $30 Calls (SWNCF) for $0.25. High risk as we only have a week but the stock has been weaker than expected after a good quarterly report and outlook. See the reports link on the site for more details there. I continue to hold the April $30s here as well.

  38. 38
    reefguy Says:

    SWN- could the downdraft suggest a delay in Boardwalk Pipeline whose completion was scheduled for April 1? Does anyone have color on the lines status?

  39. 39
    zman Says:

    Reef – I saw a Rockies Express delay notice (no shocker there with the weather they’ve been having) but nothing new on the Arkansas pipe. Will dig about a bit.

  40. 40
    reefguy Says:

    Fayetteville differential currently $1.21

  41. 41
    zman Says:

    Reef – now THAT could be depressing SWN.

  42. 42
    zman Says:

    Reef – EVEP basically said they are seeing widespread high line pressures. So the bad news is, there’s too much gas around. The effect will be to keep some low pressure production like the CV out of the system. That may have the effect of inhibiting or muting the impact of rig declines, thinking in Texas, maybe Louisiana although that state I really don’t expect to see fall off anytime soon.

  43. 43
    BirdsofpreyRcool Says:

    Just got back… is this what kicked the market in the stomach? The continued “promise/hope” vs. failure of execution?

    Fed Program to Spur Loans May Start With Few Deals (Update2)
    2009-03-13 14:47:59.641 GMT

    (Adds Fed delays TALF start in second, seventh paragraphs.)

    By Scott Lanman and Sarah Mulholland
    March 13 (Bloomberg) — The Federal Reserve’s program to revive the market for securities backed by consumer loans may start with just a handful of deals, according to participants in the preparations, delaying its prospects of easing the credit crunch.
    Today, the Fed delayed by two days the March 17 deadline for submissions of proposed packages of debt that investors can buy with Fed financing. No agreements have been announced yet for proposed securities. Brokers and investors have had difficulty agreeing over contract terms for the Term Asset-Backed Securities Loan Facility, the people said.
    “The stakes are quite large,” and it will be critical that the start of the program “gives reason for hope” that investors will ramp up demand in subsequent operations, said former Fed governor Lyle Gramley. “If they were to dilly-dally not just for weeks, but for months, it would be a black eye.”
    Treasury Secretary Timothy Geithner is counting on the so- called TALF, a joint program with the Fed, to expand to as much as $1 trillion to unfreeze credit markets. Any sign of failure of the effort may leave lenders less willing to boost lending for everything from car purchases to farming equipment.
    The TALF’s $200 billion first phase would finance AAA rated securities containing loans for autos, education, credit cards and small businesses. Officials eventually plan to finance other assets, including commercial mortgage-backed securities.

    First Round

    Fed Chairman Ben S. Bernanke and fellow policy makers may be watching the results of the TALF’s first round as they meet March
    17-18 in Washington. The Federal Open Market Committee’s last statement, on Jan. 28, said officials will continue to “assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity.”
    The New York Fed bank is administering the program, which was announced in November. The bank said in a statement today on its Web site that the two-day extension “was requested by market participants in order to allow more time for borrowers to complete the documentation associated with the initiation of the program.”
    “We’ll see a slow ramp-up in this process as people get more comfortable with their obligations,” said Reed Auerbach, co-chief executive officer of law firm McKee Nelson LLP in New York, who is working with issuers and underwriters on the TALF.
    “I don’t think this month will be indicative of the level of activity going forward.”

    Original Plan

    The Fed originally planned to start the TALF in February, then delayed the start to ensure “all our legal and procedural steps had been taken,” Bernanke said in congressional testimony Feb. 25. On March 3, the Fed and Treasury said applications for the first deals would be due on March 17, with loans disbursed on March 25.
    The program has been complicated by the number and variety of interested parties, including underwriters, issuers, dealers and investors.
    Under the TALF, investors such as hedge funds would borrow
    $84 to $95 from the Fed for every $100 in ABS posted as collateral, meaning they will put up $5 to $16 of their own capital, depending on the type of security.
    Initial interest rates on the Fed’s three-year loans will vary from about 1 percent to 3 percent, also depending on the collateral. Investor returns will stem from the pricing of the securities.
    Treasury is providing $20 billion in capital from the Troubled Asset Relief Program to protect the Fed from losses.
    Geithner plans to increase the contribution to $100 billion, allowing the Fed to expand the TALF to $1 trillion and add other assets such as commercial mortgage-backed securities.

    Cornerstone of Plans

    President Barack Obama has characterized the TALF as a cornerstone of his plans to reverse a self-reinforcing cycle of shrinking credit and economic contraction.
    “This administration is moving swiftly and aggressively to break this destructive cycle, to restore confidence and restart lending,” Obama said to a joint session of Congress on Feb. 24, without mentioning the program by name.
    Geithner told lawmakers yesterday that the TALF is “a very powerful program to help jumpstart lending to small businesses, student loan markets, consumer credit markets, auto finance markets.” He said at a Senate Budget Committee hearing that the effort “goes around the banking system to try to get the securities markets working again.”
    The Managed Funds Association, the main trade group for hedge funds, circulated a “fact sheet” on March 11 outlining 15 concerns of its members with a customer agreement provided by primary dealers, the 16 brokers who trade with the New York Fed’s markets desk and help the central bank implement monetary policy.

    Signed Off

    Attorneys for the dealers revised the contract, though many investors hadn’t signed off on the terms, one participant said on condition of anonymity.
    The primary dealers include securities units of Goldman Sachs Group Inc., Morgan Stanley and UBS AG.
    Each round of debt offerings after the first will be due to the Fed on the first Tuesday of every month through December, the current end of the program’s authorization by the Fed’s Board of Governors.
    The April round will add further types of securities, including ABS backed by vehicle-fleet leases and loans for business, construction and farm equipment.
    “This is for restarting a credit market that has been frozen,” said John Ryding, founder of RDQ Economics LLC and a former Fed economist. “That’s a process that’s going to take time.” Eventually, “it’s going to work and it’s going to work very significantly over time,” he said.

  44. 44
    reefguy Says:

    Low Pressure wells. It seems that any Barnett well that been there for more than two years is riding the line pressure. EVEP owns many stripper(low rate/low pressure)wells that are in the last 10% of their reserve life. Many of the EVEP wells are older chalk completions.

  45. 45
    zman Says:

    Intern #2’s shot bill.

    4 shots for $520 (that’s what the doctor billed the insurance company for the meds).

    These are tiny shots but my eyeball estimation is that he received 1 milliliter of fluids.

    There are 3,785 ML in a gallon.

    So a gallon of these medicines would come to $1.968 million. Or a fifth of the cost of drilling a fully decked out Haynesville well (that’s down two miles, over one on the lateral and with probably 15 frac stages). Somebody call the President.

  46. 46
    zman Says:

    Re 44. Lot of forced curtailments coming. Will cause some earnings misses for some folks in 2Q I should think.

  47. 47
    zman Says:

    I’ll update the Big Picture today for the latest versions of demand from the EIA, IEA and now OPEC which just put out numbers this morning. The see demand falling faster than previously thought as well (saw a 1.7 mm bopd drop for ’09 previously, now see 1.8 mm bopd).

  48. 48
    zman Says:

    BOP Re 43 … too many strings.

  49. 49
    Dman Says:

    Z – regarding the storage graphs: maybe some traders will focus on the trough numbers, but the real drama will be when the ’09 curve slices thru one of the other curves sometime after the trough as declines really start to bite. It’s been a long time since the current curve has been in the lower part of the 5-year band. If *that* happens, lookout …

    As for Cramer, yeah I felt sorry for him. He is too approval-seeking. But those TSCM tapes were very foolish. I saw them when they 1st went up and if you read Cramer closely, you sort of understand his mixture of shorthand (due to impatience with communicating arcania) and exaggeration of his own role (due to egomania). So I never thought he was actually confessing to bad stuff, but a “plain English” reading would lead you to think that’s exactly what he was doing… so again, very foolish. The reason I don’t think he did the “bad stuff” is that there are so many people gunning for his scalp that he would have been strung up by now if there was any actual malfeasance there.

    The shame is, he was a really good short-seller & he could have been helping his “followers” short the market for the last 2 years, but no… CNBC only lets you “buy” or “sell” but not “sell short”.

    Jimmy made his pact with CNBC on these lousy terms for the absurd reason that he really loved being on TV. I wonder if he still does…

  50. 50
    zman Says:

    Natural gas moving up a touch, at $4.01 without support from crude. Last week we saw a sharp pre Baker Hughes numbers release rally. Market is increasingly watching these plummeting rig levels.

  51. 51
    zman Says:

    Dman – My point is that absolute trough storage as a starting point for the rebuild season is of marginal value in determining the direction of prices. It helps to have it lower, sure, but the real add to prices will be falling domestic and Canadian production with LNG being the wildcard. LNG was supposed to be mongo large last year and was a no show. This year I’d bet we get an uptick but a tsunami of gas is far from guaranteed unless you drink the coolaid from LNG (the company) and for some reason (massive debt levels) I think they are biased.

    Anyway, it takes time for the falling rigs and backlog of completions to work through the system. Prices will key off the slightest down data and that is coming. However, we are going to see a more rapid build in gas storage than is normal in April and that will likely continue into May without the benefit of greater than normal cooling load. Early read on Hurricane season is more active than normal so you can throw that into the thinking as well.

  52. 52
    Dman Says:

    Speaking of people sorry for: Barack Obama doesn’t have an economics background. But he’s a smart guy (er… that would be in contrast to, you know, the …er… previous guy). So he thought the other smart, experienced guys that the Dem establishment pushed at him to run the economic side would be able to do the job. He was sold a bill of goods & I’m not sure he’s figured that out yet.

    I can’t help noticing the weird symmetry. Bush’s big mistake was that he thought all the smart, experienced national security people the GOP establishment pushed on him would be able to do the job. He was sold a bill of goods & eventually (after 4 years or so) figured that out.

    Now, Obama is supposed to be the smarter guy, so it *shouldn’t* take him 4 years to figure out his mistake. Should it?

  53. 53
    BirdsofpreyRcool Says:

    Midday Overview

    · Equities opened strong, spurred higher again by the financials, the same group that has been leading the market all week, but some fatigue is appearing into the afternoon (SPX at lows, dn 7pts to 743). Commodities (spot gold +$7 to $930, crude flattish) are relatively unchanged as the USD trades lower (DXY dn 0.3%, off lows) and treasuries are higher across the board. Tech, financials, industrials, energy are the weakest sectors; health care is higher again, up ~1%+, extending a huge rally from yesterday (outside of financials, health care was the best performing major group on Thurs). Some of the reasons for selling today: profit taking/fatigue after big/quick gains (Mon-Thurs rally) + tough technicals (752 is a big level technically in cash sp500) + eventful weekend = making life tough for equities (the TALF headline from the NY Fed isn’t helping either – see below for more on that). That said, the tone generally is that the rally may have some more legs to it (even among those who see this as just another bear market rally) and new shorts are largely not being put on. Investors watching ~740 level on the downside (which is the 20day MA).

    · TALF – there have been a bunch of articles of late talking about light initial submissions for the first TALF funding (in the WSJ and on Bloomberg); the NY Fed this morning pushed back the subscription date from Mar 17 to Mar 19 to give borrowers more time to complete the necessary documentation. All indications are that interest is high and the facility should see high levels of use once all the wrinkles are ironed out, but that continued delays to this facility aren’t helping confidence.

    · G20 – the meeting kicked off today in the UK and an official communiqué will be published tomorrow; some of the big issues: 1) IMF funding – the US and Europe would like to see the IMF’s resources increased to $500B to allow the body to have enough cash to rescue emerging economy countries (the wording around this will be key – will there be a firm commitment of cash or will the language be more vague?); 2) fiscal spending – the US and IMF want all major economies to commit 2% of GDP to fiscal spending initiatives (something the Europeans oppose); 3) any thoughts on the Swiss announcement from Thurs morning (will the G20 bless the deval move?).

    · Treasuries – Treasuries continued their rally as equities sold off. Weighing on treasuries earlier in the morning were comments from China’s Premier Wen that he’s concerned about the safety of U.S. gov’t debt. The belly of the curve (5s, 7s and 10s) rose the most, while 2s and 30s both managed to rise ~3/32nds. Our treasury desk today was better to buy in the front end (2s and 3s) by both trading accounts and real money.

    · Credit continues to underperform equities; CDX IG11 is 5bps wider midday despite flattish stocks. This has been the trend for the past few days, and was especially noticeable amid the surge in stocks in Thurs; mid-afternoon, CDXIG11 was 245-247bp despite SPX rallying 20+pts). However, some financials have performed nicely this week (eg – GS is 75bps tighter and never really blew out like the banks).

    · Consumer Sentiment – At Least It Didn’t Fall Any Further: The Michigan consumer sentiment index edged up to 56.6 in the preliminary March survey from 56.3 in February. With the earlier decline in equity prices and rising unemployment, we had thought sentiment would fall below its cycle low of 55.3. Although the latest figure is a positive surprise relative to our expectation, it is still a low number. The bottom line here is that consumers are very pessimistic about both current conditions and the outlook.

    · US Trade Balance – The Great American Export Collapse: US export and imports volumes continued to plunge in January, reflecting a very weak domestic and global demand. The net result was a shrinking in the trade balance, to -$36.0 billion from -$39.9 billion. To get a sense of just how bad the trade data is, consider that real goods exports in the three months to January fell 42% annualized from the prior three month period. By comparison, the worst quarterly decline in the postwar period was a 47% fall in 1Q65. In other words, exports are currently going through one of their most rapid contractions since WWII. Imports have not been much better. Real goods imports in the three months to January dropped 31% annualized from the prior three month period.

  54. 54
    Dman Says:

    Z – I shouldn’t ask a question like this, but I will anyway. Care to speculate on an absolute rock-bottom price that NG could spike down to?

  55. 55
    Denise Says:

    My Rant of the day-sorry off topic but I believe it is a very interesting state of affairs when you see this!

    Just got off the phone with my Raymond James broker-(one of my many accounts)they decided to stop acepting orders for double, triple inverse ETF’s

    Was told that they felt the individual investor does not understand that the etf’S DO NOT EXACTLY track double or triple so we(the individual investor) do not understand what were buying!

    Can you believe this boneheaded move?

  56. 56
    BirdsofpreyRcool Says:

    Denise — sad. But not surprising. They don’t want to get sued.

    That is the driving reason behind too many “business” decisions these days. You can’t just say “the person knew the risk when they took out the mortgage…” We are all “victims” now. Hence, you are not “allowed” to make risky decisions for yourself.

  57. 57
    zman Says:

    Dman – $3 for about a minute. I am watching the current rounding bottom with some degree of “hope” but I think that warm weather in the 10 day forecast will likely mean we might be 3 reports away from the end of the season.

    Denise – gotta love being protected from yourself. Unreal.

  58. 58
    zman Says:

    Rig counts out:

    Oil down 13 to 228 vs 343 a year ago
    Gas down 32 to 884 vs 1,441 ”
    Horizontal down 13 to 432 vs 482 a year ago.

    Canada down 79 to 220 vs 510 a year ago.

  59. 59
    kyleandy Says:

    quite a drop in canada

  60. 60
    AAA Says:


    Honestly I can understand why they would do it. The average Raymond James retail customer has no business in these products. They are for traders. Even the sponsors websites make that point. Historical data show that some of them are very poor hedges due to the daily compounding feature. See for example http://seekingalpha.com/user/188211/comment/380783

  61. 61
    zman Says:

    59: Part of that is an early arrival of spring break up which limits access up there but low prices and limited spending aren’t helping either.

  62. 62
    Nicky Says:

    Good afternoon all.

    The fact that natural gas is having a tough time holding the 4.00 support level means it may be headed for the opening range of the decade which was 2.640 – 2.780. The decline is likely to extend into April but that may turn out to be a major low.

  63. 63
    Nicky Says:

    Broader market – arrgh I hate corrections which I still favor this to be as there are too many possibilities as to how this may play out.
    Z put some levels above which still apply.
    Under any of the counts we are likely close to a top at between 7300 and 7400 on the Dow and 764 – 780 on the SPX. Likely we then see a pullback to 7000 at the very least on the Dow and 715 on the SPX. It could even turn out to be a more meaningful top.

  64. 64
    Dman Says:

    Denise, maybe they should say “OK you can buy it, but *only* for a daytrade” 🙂

  65. 65
    zman Says:

    kyle – I added a Canadian rigs range graph to the bottom of the post. Can rigs are seasonal due to the hardness of the ground (or not) so a range is more appropriate for looking at where we are. Note the very low peak during what should have been the busiest time of the year (winter). Not good for deliverability to the States.

  66. 66
    zman Says:

    Thanks much Nicky.

  67. 67
    Nicky Says:

    China worried about US debt and the US$:


  68. 68
    Dman Says:

    Nicky, thanks for your NG look. Care to take a look at GLD, SLV, PTM ?

    The Chinese comment today about the USD has got to make dollar-proofing one’s portfolio a pretty urgent matter, although oil exposure does that automatically to an extent. But anyway, that’s why I’m asking about the metals.

    The thing about the Chinese comments is that they have gotta be up to something. Of course they are worried about US debt, but to come out and say it is risking a rapid decline in their own assets. So why do it? There’s gotta be a reason & I think it is this: they are saying to the US: “look, we can come out and talk down the dollar & make your difficult position even worse. So to make it stop, you’d better let us buy up some hard US assets with our soft US dollars. No more objections to take overs please. Thank you, glad you agree.”

  69. 69
    zman Says:

    Continuing to watch pennies with no urgency: KOG, CPE, and BEXP. Happy to be out half PQ as it moves through $2.10.

  70. 70
    zman Says:

    I guess all my emails to MarketWatch finally paid off, lol:

    Story on rising gasoline demand:


  71. 71
    zman Says:

    Oil weathered a $1 of profit taking, looking for a bit of a run into the close. Crap shoot on OPEC outcome this weekend. 500,000 bopd is the consensus assumed cut, with Russian “cooperation” potential icing on the cake.

  72. 72
    zman Says:

    Oil ran back down into the close … noise.

  73. 73
    Dman Says:

    Z – if Russia joining OPEC would add $20 to crude, why haven’t they done it already? It’s not as though that $20 doesn’t matter to them… they need it bad.

  74. 74
    zman Says:

    Dman – They seem to like wagging the dog, plus I think there are cultural differences and Putin will only want to play nice when it is to his benefit, don’t think he wants to give anyone say over the Rodina’s oil.

  75. 75
    Nicky Says:

    Dman – I mentioned a couple of weeks ago that I saw a top for Gold in the 1000 region which played out nicely. Been choppy in the last week which looks like a wave 2 correction and could get as high as 970 but has resistance at 945 and 950. If that count is correct it should then roll over hard. I do not feel that confident with this count and if its wrong it likely means one more higher high.

    Silver following the same pattern and should find resistance in the 13.60 – 13.80 range.

  76. 76
    zman Says:

    Berstein on the tape saying E&Ps may be of interest to Majors. Says mids to go to big caps as well and says CHK, CNQ, DVN, ECA, TLM, XTO likely to be buyers. I think the first and last on that list are highly unlikely. The XTO comment may be what’s dumping XTO today.

    Berstein goes on to basically say what’s XOM waiting for? My answer would be three fold: 1) working capital markets, 2) stabilizing oil prices (that may be starting, and 3) lower acquisition prices.

  77. 77
    zman Says:

    Berstain also points to NFX as a takeout candidate. No kidding. I’d expect APC or DVN could bite on that, nice fit for either.

  78. 78
    zman Says:

    …but APC will not do it this year.

  79. 79
    choices Says:

    This may be of interest for weekend reading-equal opportunity for gorging at the trough by our elected leaders with the revolving door by regulatory agencies.
    Full report and Exec Summary available.


  80. 80
    zman Says:

    End of day like watching paint dry. Declaring beerthirty a touch early. I’ll be around all weekend. Wrap out overnight.

  81. 81
    Dman Says:

    #75 – Thanks Nicky

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