Wednesday – Oil Inventory Preview

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 Sentiment Watch: Guarded to negative. API set a bearish tone for crude futures this morning and ADP's payroll numbers showed 742,000 job losses.

Your Tax Dollars Hardly Working At All Watch: The EIA put off the release of its natural gas monthly for the month of January from yesterday until Friday which means I'll likely have my slide show, with integrated rig counts available for next Monday's post. I wonder if the issue is lack of funding? The annual budget of the EIA is $95.5 million. 50% of the budget goes to pay 374 federal employees or an average of $128K each. Another 42% goes to pay 250 consultants who make an average of $160K each. Nope it's not funding. 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Natural Gas Supply Slide Show
  5. Other Stuff We Care About Today
  6. Odds & Ends

Holdings Watch: The Wiki tab is updated.

$10KP Trades:

  • Added (3) CRK $30 April Calls (CRKDF) for $1.75
  • Added (10) CRK $35 April Calls (CFKDG) for $0.40.
  • Note on the CRK Additions: The company had a good fourth quarter report and is one of the least financially stretched of the Haynesville players. Still, they were punished following the report, probably due to a combination of continued low gas prices and a smallish (10%) natural gas hedge position for 2009. They are overdue for a Haynesville drilling update as their Feb 10 call strongly implied they'd be talking about more well results in “about 6 weeks”.

Commodity Watch

Crude oil rose $1.25 to close at $49.66 yesterday on the back of the equity market rally and a re-weakening dollar. This morning crude is weak and closer to $48 after another bearish looking set of inventory data was released from API.

  • API Watch:
    • Crude: Up 3.3 million barrels (with rising imports and falling refinery utilization)
      • Sidebar Watch: Imports have been creeping back up since the last OPEC meeting. One of the items OPEC ministers pointed to when speaking of their tight compliance was shrinking import levels in the West. If imports are seen rising again, it increases the probability the Cartel will tighten quotas when it meets again at the end of May.
    • Gasoline:  Down 0.451 mm barrels
    • Distillates: Up 1.8 mm barrels
  • Dollar Watch: The dollar appears to be having trouble moving up in the face of so much stimulus.

Natural gas closed up 4 cents to $3.78 at it tread water around near term support. Long term support is much lower, around $3. Gas traders continue to await the government data for January which will be picked apart for signs of slippage in key state production. This morning gas is trading off 6 cents with oil.

Oil Inventory Preview:

ZComment: API reported another bigger than expected building in crude stocks last night along with an unexpected build in distillates. API saw rising imports and falling demand from refiners behind the build in oil stocks. The bar is actually set pretty low for this week as we typically see a large build in crude stocks (up 7.4 mm barrels last year and up 4.4 mm barrels for the five year average as refiners wrap up the Spring maintenance season.) Normally this is the biggest week of crude storage builds of the season (sort of the hump if you will) after which demand picks up to maintain gasoline inventories. Maintaining growth in gasoline demand will be key in the next several weeks.


Other Stuff We Care About Today

Operations Update Watch:

  • I expect operations updates out of HK and CRK in early to mid April, most likely with CRK first as indicated in the Holdings Watch above. For HK, they could have as many as a dozen Haynseville completions to talk about and at least one additional Eagle Ford shale completion.
  • GMXR probably has one in early May - they had a new presentation available yesterday which highlighted current drilling but gave away little color.
  • SWN - 2 Haynesville wells are in progress. Could see a pre call update but most likely these guys wait for the 1Q call.

HAL Estimates Getting Crushed.

  • Seeing a number of broker notes slashing 2009 and 2010 estimates
  • Brokers siting North American rig count declines as outpacing cost cutting initiatives
  • Current estimates:
    • 2009: $1.49 (this was $1.73 at the mid point of the quarter (6 weeks ago))
    • 2010: $1.54 (this was $1.92)
  • Most recent numbers from the Street:
    • 2009: $1.20 to $1.30
    • There is little reason to doubt that the rest of the Street will be pulling their numbers down to these levels and lower.
  • I plan on adding that put position back on the first sign of any strength in the stock as I think it will be fleeting. Other oil service estimates are coming in as well but HAL is at the same time the poste child for declining utilization in the States and the tightest spread option trading vehicle I have found in the space with 1 to 2 cent spreads being common at "near the strike" options.


Odds & Ends

Analyst Watch: Nada

95 Responses to “Wednesday – Oil Inventory Preview”

  1. 1
    jy Says:

    How has Comstock (CRK) accounted for the drop in value of the stock they received from Stone (SGY) when Comstock sold Bois D’Arc to Stone? SGY stock collapsed since the deal was done last year.

  2. 2
    zman Says:

    jy – they flowed an impairment on the SGY stock through their income statement in the fourth quarter.

  3. 3
    jy Says:

    CRK took 0.165 share of SGY stock (closed at $49.85) on day of closing 8-28-08 + $13.65 cash for each share of Bois D’Arc.

    The stock portion was valued at $8.23/sh at closing but is worth $0.55 at yestergay’s SGY close of $3.33.

  4. 4
    jy Says:

    Thanks Z.

  5. 5
    elduque Says:

    BDI -41 1574

    TED 96.59

  6. 6
    zman Says:

    From the 10K

    On August 28, 2008, Bois d’Arc Energy completed a merger with Stone Energy Corporation (“Stone”) pursuant to which each outstanding share of the common stock of Bois d’Arc Energy was exchanged for cash in the amount of $13.65 per share and 0.165 shares of Stone common stock. As a result of this transaction, Comstock received net proceeds of $439.0 million in cash and 5,317,069 shares of Stone common stock in exchange for its interest in Bois d’Arc Energy. In connection with the merger, Comstock agreed not to sell its shares of Stone common stock prior to August 28, 2009 and to certain other restrictions relating to its ownership of the Stone common stock.

    They took a $162 mm impairment last year on the stock, probably take another smaller one this quarter. Don’t think that it will shock anyone. At least they didn’t take all stock.

  7. 7
    zman Says:

    Oil down $2.20 ; gas off 11 cents as ADP rocks the equity futures. Um, rough open on tap.

    DNR was redetermined at prior bank line levels. Worth watching today to gauge reaction to that.

    Should have put in the post on GMXR that their redetermination is due any day now.

  8. 8
    nifkin Says:

    DNR goes into the S&P 500 tonight as well

  9. 9
    elduque Says:

    Have you ever written anything on EVEP?


  10. 10
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures traded lower as the slumping economy
    and weak demand returned to the forefront.
    Light, sweet crude for May delivery traded $2, or 4%, lower at $47.66 a barrel
    on the New York Mercantile Exchange. Brent crude on the ICE futures exchange
    traded $1.59 lower at $47.64 a barrel.
    Oil prices have now shed all of the gains made since mid-March, when a series
    of government and Federal Reserve initiatives to reverse the recession sent
    commodities and equities markets shooting higher. Crude futures topped $54 a
    barrel amid optimism that the U.S. recession was nearing its bottom.
    On Wednesday, Automatic Data Processing Inc. punctured a hole in that view,
    estimating that 742,000 U.S. private-sector jobs were lost in March. The
    average economist forecast was for a 656,000 decline. Unemployment is of
    particular concern for oil, as it can indicate a decline in gasoline
    consumption by commuters, as well as a fall in industrial demand.
    The oil market is also bracing for an expected increase in U.S. oil
    inventories, which are already at a 16-year high. The American Petroleum
    Institute on Tuesday reported a 3.3 million-barrel build for the week ended
    March 27. Data are due out from the Department of Energy at 10:30 a.m. EDT.
    “We are not seeing any real signs of crude stocks going down,” said Ehsan
    Ul-Haq, head of research with JBC Energy in Vienna. “It could be because of
    refining maintenance … but on the other hand, it could also mean demand is
    even weaker than previously thought.”
    Oil inventories are seen rising 2.3 million barrels in a Dow Jones Newswires
    survey. Gasoline stockpiles are expected to fall by 1.2 million barrels and
    distillate inventories, including heating oil and diesel, are seen declining by
    500,000 barrels.
    Front-month May reformulated gasoline blendstock, or RBOB, recently traded
    down 4.26 cents, or 3%, at $1.3787 a gallon. May heating oil traded down 5.17
    cents, or 3.8%, at $1.3162 a gallon.

    -By Brian Baskin, Dow Jones Newswires

    Dow Jones Newswires
    04-01-09 0917ET

  11. 11
    BirdsofpreyRcool Says:

    The Credit Market has been methodically getting worse (as measured by the CDS Indices) over the last week. We have seen some tepid attempts to rally on green-stock days… but, overall, the bond market is not buying into the stock market rally. Of historical note, however, bonds don’t call market bottoms, stocks do. So, if and when we ever turn the corner, you will see it first in stocks.

    IG12 205 +8bps from yesterday’s wider close

    HY12 70.375 -3/8pts from yesterday’s close.

  12. 12
    BirdsofpreyRcool Says:

    Credit Market Addemdum…. all that said, the CDS Indices (which are the playground of the global-macro hedge funds) are saying “worse,” but individual investment-grade bond spreads have been holding in here. Long-only investors are not trying to dump bonds while the Global Macro bears are trying to raise the Fear Index by pushing on CDS Index spreads.

    The eternal fight continues.

  13. 13
    BirdsofpreyRcool Says:

    FWIW, Head Trader thinks we bounce today and close higher than we opened. He’s not calling for a “green day,” per se… just less bad than open.

  14. 14
    zman Says:

    Elduque – I don’t recall ever writing them up on a standalone basis. I have had comments on them from time to time since writing this MLP piece last October:


    I still prefer LINE

  15. 15
    zman Says:

    Jat – my $15 target on HAL has been reached. I unloaded a bit early there. Will play again on the next “everything is coming up roses” day.

  16. 16
    zman Says:

    Nice move on KOG BOP, just noticed the bounce back its had. Did you hear anything regarding completion ops on their two wells?

  17. 17
    zman Says:

    Pending home sales up 2.1%, goosing the market a bit.

    All big cap E&P just went green.

    HK inching up, reading others saying update soon, and since HK all but promised an update in April before they did their deal they pretty much have to put up something. Hearing they are increasing their liking of the Eagle Ford via a broker note. Knew they were going to 2 rigs in the play soon, now may see 3 rigs there later this year. We could see 2 more wells there in the next update, 1 for sure.

  18. 18
    zman Says:

    ZTRADE: $10KP. Added 5 more of the CRK $35 April Calls for $0.30 with the stock off about $0.65 on no news. See post for thinking here.

  19. 19
    zman Says:

    Oil numbers in 10 minutes, widely thought to be bearish and a big number could be discounted given the week of the year we are in.

    HK moving back through $20. Seems to be mkt cap weighted performance today with the big caps receiving much more attention than the mids and smalls early.

  20. 20
    BirdsofpreyRcool Says:

    #16 KOG — thanks. But, can’t take credit for the move. I thought 18 cents was undervaluing the Bakken acreage… but, can’t argue with wherever anyone wants to mark it and risk-weight it, as we still don’t have enough operating details to pin a tighter valuation on the acreage.

    There has been NO NEWS from the company. KOG mngmt is totally tight-hole now. So, other than their brkfst mtg at HW, don’t know what is moving the stock. That said, something must be happening there. So many ways for the stock to go up… only a couple of ways for the stock to go down. Will let you know when I learn more.

    Wyoming… maybe some of your roughneck friends in the field have been watching KOG operations and know something. Where’s a good oil scout when you need him?

  21. 21
    zman Says:

    EIA Report

    Crude: up 2.8 mm barrels
    Gasoline: up 2.2 (that’s unexpectedly high)
    Distillates: up 0.3 (that’s low)

    Imports of 9.6 mm barrels (too high)
    Utilization: 81.7% (still falling, a bit late in the season)

    Oil Down $1.60 at time of report

  22. 22
    zman Says:

    EIA Report II

    Gasoline demand continued to inch up, now at 9.125 mm barrels per day.

    Thought is, not bullish, could have been a lot worse given the unexpected drop in utilization. API called that drop nicely and the increase in imports.

  23. 23
    zman Says:

    EIA Report III

    Cushing stocks fell again. We’re seeing a build up of stocks along the gulf coast which will be worked through when refinery capacity comes back on line. That should be in the next few weeks. My sense is that oil is not going to simply look at the headline crude build and capitulate. I would expect a smallish rally on these numbers followed by green and a test of $50, dollar willing, later this week.

  24. 24
    1520sbroad Says:

    Saw this go across about 9am:


    This deal may save APL (BOP we talked about this one a while back – MLP that got totally out of compliance with some covenants) APL has some other assets for sale right now that may help them get back on their feet. (NOARK pipeline in the Fayetteville is currently for sale) I would buy that one if i had a couple hundred million. SWN should have that pipe full for a long time.

    APL definitely qualifies as distressed in my book.

  25. 25
    zman Says:

    Isle – agreed re full pipeline. SWN will drill more wells this year with less dollars, unlike most of their peers. A strong balance sheet, strong hedge position in 2009 AND 2010, and a core play that only improves with age will allow you to do that kind of thing.

  26. 26
    1520sbroad Says:

    Of note is the fact that SWN sold the NOARK to Atlas about a year and half ago to help fund their drilling program (smart move given the environment since.)

  27. 27
    Sambone Says:

    NEW YORK (Dow Jones)–U.S. crude-oil inventories in the week ended March 27
    rose more than analysts’ expectations, according to data released Wednesday by
    the U.S. Department of Energy.
    Crude stockpiles rose 2.8 million barrels to 359.4 million barrels, the
    department’s Energy Information Administration said in its weekly report. That
    compared with an average forecast of a 2.3 million-barrel increase in a Dow
    Jones Newswires survey of analysts.
    Gasoline stockpiles rose 2.2 million barrels to 216.8 million barrels,
    compared with an average survey estimate of a 1.2 million-barrel drawdown.
    Distillate stockpiles rose more than 200,000 barrels to 144.2 million barrels,
    compared with analysts’ forecasts of a 500,000-barrel draw.
    Refinery use fell 0.3 percentage point to 81.7% of capacity. Analysts had
    expected a 0.2 percentage point gain.

    U.S. Oil Inventories:
    For week ended March 27.
    Crude Gasoline Distillates Refinery Use
    EIA data: +2.8 +2.2 +0.2 -0.3
    Forecast: +2.3 -1.2 -0.5 +0.2

    Figures in millions of barrels, except for refining capacity, which is
    reported in percentage points. Forecasts are the average of expectations in a
    Dow Jones Newswires survey of analysts earlier in the week.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    04-01-09 1041ET

  28. 28
    Dman Says:

    Headlines from Minyanville:

    White House Faces Foreclosure:
    Obama administration says it was hoodwinked by predator loan.

    GM Unveils New Wood-Burning Car: Automaker answers critics with ultimate solution to fuel efficiency.

    Dell to Include Apple Logo Decals for Embarrassed Laptop Owners: Stock surges past Hewlett-Packard on the news.

  29. 29
    Dman Says:

    More Minyanville:

    Ailing Chicago Sun-Times to Just Print Page A-3 From Now On: But entire paper will be available online.

  30. 30
    BirdsofpreyRcool Says:

    KOG — the only new data point is BEXP’s sale of Bakken acreage for $1,900/acre… which you pointed out, z.

  31. 31
    Sambone Says:

    Hurricane forecast 2009

    Forecast Parameter and 1950-2000
    Climatology (in parentheses)
    10 December 2008
    Forecast for 2009
    Named Storms (NS) (9.6)
    Named Storm Days (NSD) (49.1)
    Hurricanes (H) (5.9)
    Hurricane Days (HD) (24.5)
    Intense Hurricanes (IH) (2.3)
    Intense Hurricane Days (IHD) (5.0)
    Accumulated Cyclone Energy (ACE) (96.1)
    Net Tropical Cyclone Activity (NTC) (100%)
    1) Entire U.S. coastline – 63% (average for last century is 52%)
    2) U.S. East Coast Including Peninsula Florida – 39% (average for last century is 31%)
    3) Gulf Coast from the Florida Panhandle westward to Brownsville – 38% (average for last century is 30%)
    4) Above-average major hurricane landfall risk in the Caribbean

    Ref http://tropical.atmos.colostate.edu/forecasts/2008/dec2008/dec2008.pdf

  32. 32
    zman Says:

    BOP – Nice per acre (we had previously said $1 to $4,000) but the small total package size of $6mm is not exactly wowing the BEXP shareholders today. BEXP’s pr didn’t do much in that regard either as they failed to put the little frio bump into context of the bigger picture and then mentioned some non-wowser sized wells in the Williston.

  33. 33
    zman Says:

    Thanks Sam. That’s down from last year but up from the last forecast right? Or is it flat with the last forecast?

  34. 34
    Sambone Says:


  35. 35
    BirdsofpreyRcool Says:

    z — isn’t BEXP on reef’s Bye-Bye list? Or, was that put off, with the Bakken acreage sale?

  36. 36
    md Says:

    SPR has replaced Ike N GUS drawdowns and then some. Last 3 weeks SPR avg. fill up 1.7. It seems like there’s enough for everyone. The bump in gasoline consumption suggests the consumers joining the party.

  37. 37
    zman Says:

    BOP – not sure, didn’t think so. All they need to is sell another $144 to $194 mm and they’ll be golden. All kidding aside, as Reef said before, low prices suck.

    MD – too true. Someone and I hate to credit them but I think it was congress had the smart idea to refill the SPR tanks while prices are low. Not sure how much longer they add as we are at record levels now:


    Thank you Sam.

  38. 38
    Sambone Says:

    Question, is the US still filling the SPR?

  39. 39
    zman Says:

    re 38, you mean this week?

    Last 4 weeks SPR inventory
    705.7 mm barrels

  40. 40
    Hoss Says:


    CRK – Annual meeting of Stockholders May 19.

    On the ballot to “increase the number of authorized shares of the Company’s common stock from 50,000,000 shares to 75,000,000 shares”

    noting uses of additional shares:
    – provide equity compensation
    – consideration of possible future acquisitions
    – enhance capital and liquidity
    – stock dividends or stock splits
    – other corporate purposes
    – anti-takeover – prevent/delay proposed business combination or other change-of-control transaction deemed
    unacceptable to the Board

  41. 41
    zman Says:

    Thanks Hoss. Pretty standard stuff. Increase flexibility, adopt a more defensive posture when you’re assets are undervalued. I would not expect a deal just to raise cash, they laughed at the concept on the call. But if they saw a cheap asset opportunity I could see that.

  42. 42
    BirdsofpreyRcool Says:

    Seeing those rare PQ 10 3/8s bonds show up again… CRT Capital has a buyer, but is quoting a 2-sided market: 61.5 – 62.5.

  43. 43
    VTZ Says:

    Z – Do you recall Nicky’s levels for crude?

  44. 44
    zman Says:

    V – I recall her mentioning a top around 56 to 58 and we got just under 56 before a pullback, don’t know what she’s calling support here. Will inquire.

  45. 45
    VTZ Says:

    Yeah I remembered 55-58 or something then I know she wanted a retrace but I wasn’t sure how far.

  46. 46
    BirdsofpreyRcool Says:

    Timmy on the tape, making Happy Talk. Guess his boss told him to get out there and make up for your weekend comments…

  47. 47
    Popeye Says:

    Bad news:
    A helicopter carrying 16 people from an offshore oil rig crashed into the North Sea off the northeast coast of Scotland on Wednesday and a rescue operation is under way, the Maritime and Coastguard Agency said.

  48. 48
    zman Says:

    That stinks. Not to make light at all of the situation as I see they have recovered 10 bodies so far but it does make one wonder at the price of a gallon of gasoline vs the price of a gallon of milk.

  49. 49
    Nicky Says:

    Good morning all.

    Crude levels: support at 47 – 47.50 and then 45. We are sitting on fairly big support here and also close to the uptrend line off the 39.50 move up.

    Move up in the indices does not look sustainable to me. We are now at the 61.8% retrace of the move down from the top. 7785 would be 74.6%. Looks a very typical C wave ie straight line move.

  50. 50
    Nicky Says:

    sorry that should have said 76.4%

  51. 51
    zman Says:

    Thanks Nicky – I’d bet crude and the indexes travel together after today until next Wednesday.

  52. 52
    Nicky Says:

    Not sure what the market is finding to rally about. The protests across the pond are a sign of what is to come here pretty soon I would say. I will add that it is decades since we have seen anything like this in the UK either. My sister lives in London and they are pretty much being told to stay at home. Same was happening in France a week or so ago. I have seen very little coverage until today on any of this in the US as they attempt I believe to ‘shield’ US citizens from reality.

  53. 53
    zman Says:

    re 52 “remain calm, nothing to see here, move along”

  54. 54
    Nicky Says:

    They are more interested here Z in what Michele Obama is wearing!

  55. 55
    zman Says:

    Flight to perceived safety/quality/size easy to see if you have your market watch arranged correctly.

    There’s APA,APC,CHK,DVN,EOG,XTO – all strongly green up 1.5 to 4% today. Then there’s every thing else, either small green or small red moves.

    The XNG is actually beating the Dow and S&Ps moves but its focused on the big caps. Either we broaden out to pull up the mids or this rally fades. Note on the big caps that recent pull back accounted for about 40% of the move off the 3/9 lows. Looks like they are trying to hold the big caps up here above a 50% retracement. In the past that’s been confidence building for the sector.

  56. 56
    BirdsofpreyRcool Says:


    · Equities move to session highs as noon passes, though credit lags again; SPX +10pts. Overall, it has been a quiet day (biggest topics on CNBC are riots in London and Madoff’s boat being seized by regulators) and volumes/flows on the desk are relatively light. Equities opened weaker, but were able to hold the key 780 support level again, which prompted buyers to step in (and shorts to cover)…the 10am ISM/home data also helped bump stocks to highs. Geithner in a Bloomberg TV interview says he is seeing encouraging signs of improvement and FDIC’s Bair this morning said US banks getting on firmer footing; financials and tech are leaders to the upside (similar to yesterday). The first round of auto sales also came in better than feared. Healthcare is dwn 1.2% on the day (few earnings warnings last night weighing); real estate stocks also weak. Similar to yesterday, credit is WIDER on the day, sig. lagging equities (IG crossed over 200bp today; financial CDS wider pretty much across the board despite financial equities trading well). There is a lot of anticipation ahead of tomorrow’s FASB MTM vote (the board meeting starts 8amET – see below for details), although there shouldn’t be any surprise in the outcome (all the rules have been posted on the FASB website for weeks).

    · Eco numbers from around the world continues to signal that conditions may have hit a bottom: US’s ISM manufacturing came in a bit ahead of expectations @ 36.3 in Mar, up from 35.8 in Feb. The ISM new order gauge rose to 41.2 from 33.1 in Feb (from Michael Feroli: “Shoots of green in the details of the March ISM”). Also in the US this morning – Construction spending declined 0.9%m/m in February, better than our estimate of a 2.4% decline and the consensus estimate of a 1.9% fall (Abiel Reinhart). In Europe, the final PMI release confirmed the overall impression that we may have hit a floor at the end of the first quarter: the Euro area manufacturing PMI edged up a touch in March to a reading of 33.9 from February’s record low of 33.5, and little changed from 34.0 reported in the flash report (Maryse Pogodzinski). In the UK, March manufacturing PMI hints that the most intense phase of decline in output may have come to an end, pointing to a more moderate contraction in 2Q; The rise was one of the largest recorded in the survey (Allan Monks). In China, China’s March CLSA manufacturing PMI stabilized after three consecutive monthly gains since last December. The headline index edged down 0.3pt to 44.8 in March, but this is still well above the monthly average of 42.4 in 4Q08 and 43.7 in Jan-Feb09. Details suggest that output and new export orders gained modestly, while new orders edged lower. This suggests that the near-term industrial activity momentum has likely stabilized somewhat in March as the re-stocking in certain industries (such as steel) took a pause before the major infrastructure projects start to kick off the ground in 2Q09 (Qian Wang)

    · Housing – another pos. data point today – pending home sales came in stronger than expected this morning (up 2.1% vs. forecasts for flat). There were a bunch of upbeat data points last week (inc. new home sales, starts, KBH earnings, etc, although yesterday’s LEN earnings report & Case-Schiller pricing update were negatives).

    · Mixed headlines on the jobs front: Challenger says job cuts fall again while ADP’s forecast of Mar losses was worse than expected; according to Challenger, major U.S. companies announced 150,411 job reductions in March, the second straight decline in layoff announcements, the first back-to-back declines in two years. It was the lowest monthly figure since October. However, ADP’s Mar jobs report this morning showed a larger cut than anticipated (ADP this morning says 742K private-sector jobs were lost in Mar vs forecasts of 663K decline). From JPMorgan’s Abiel Reinhart – The ADP/Macroeconomic Advisors employment report estimated that private nonfarm payrolls fell by 742,000 in March. This is reasonably close to our own forecast for a 710,000 drop in private payrolls and a 700,000 fall in total payrolls. At this time we see no reason to change our forecast.

    · Strategic M&A deals continue to pick up, although for now the majority of the volume has been in health care; this morning, FIS announced plans to buy MV. The market is still waiting to hear on a potential JAVA/IBM transaction. The FT reported mid-day that Sanofi is exploring a merger w/Salvoy in a deal that could be worth more than EU7B.

    · De-coupling? In Q1, MSCI EM +1% vs MSCI ACWI -11%. And MSCI EAFE -15%. This was the first quarter since the launch of the MSCI EM index with a positive EM return when developed markets declined

  57. 57
    Jay Reynolds Says:

    This is very interesting for a variety of reasons… NOT THE LEAST of which is that something so professionally done and well funded is taking off at such a tear.


    Really worth a watch/listen. Hmmmm..

  58. 58
    Sambone Says:

    By David Bird
    NEW YORK (Dow Jones)–U.S. oil demand in January fell 989,000 barrels a day,
    or 4.9%, from a year earlier to 19.125 million barrels a day – the lowest level
    in the most since 2000, revised government figures released Wednesday show.
    Data from the Energy Information Administration was revised down by 2.2%, or
    440,000 barrels a day, from earlier estimates.
    January marks the 18th straight month of year-on-year declines in oil demand
    in the world’s largest oil consumer. That’s the longest skid since a 37-month
    stretch ended in April 1982, as prices soared and demand fell after the Iranian
    Revolution. In the past 18 months, year-on-year demand has dropped 959,000
    barrels a day, hit hard first by record high prices last summer of near $150 a
    barrel and then by the growing global recession.
    Demand for gasoline, the most widely used petroleum product, fell 1.4%, or
    124,000 barrels a day, from a year ago to 8.69 million barrels a day. Gasoline
    demand was revised down from a drop of 1.1%, or 99,000 barrels a day from an
    earlier estimate. Revised gasoline demand was the lowest in January since 2003.
    Demand for distillate fuel averaged 4.075 million barrels a day in January,
    down 3.2%, or 134,000 barrels a day from a year ago and was the weakest in
    January since 2002. The figure was revised up slightly from the estimate of
    4.066 million barrels a day earlier.
    Distillate fuel is the umbrella group for home-heating oil and diesel fuel.
    Despite the weak economy, diesel fuel demand of 3.088 million barrels a day was
    fractionally above the year-earlier level of 3.081 million barrels a day.
    Jet fuel demand fell 12.2%, or 188,970 barrels a day from a year ago to 1.357
    million barrels a day. That’s up 1.3% from the earlier estimate, but still the
    lowest level in any month since September 1993 and the weakest level in January
    since 1992.
    Demand for heavy residual fuel averaged 700,000 barrels a day, up 4.2%, or
    28,000 barrels a day, from a year ago. The earlier estimate put demand
    unchanged on the year.
    – By David Bird, Dow Jones Newswires

    Dow Jones Newswires
    04-01-09 1248ET

  59. 59
    Nicky Says:

    Okay can I have a little rant now?

    What are they talking about? Green shoots of recovery??? They are totally clutching at straws.
    Whilst I realize unemployment is a lagging indicator – it continues to get worse and there are absolutely no signs of improvement on that front. In fact it is forecast to get much worse. No jobs, no spending.
    A word on Europe, namely the UK, they are only into year one of their housing downturn which will last at least four years! Year one saw a 25% drop in house prices.
    UK is on the verge of defaulting on their debt and I suspect the USA will do the same before this is done. The world is broke. And most the world has no faith in the solutions being put foward by the US to spend their way out of this. Chances are they are creating an even bigger problem down the line.
    I don’t doubt they can muster a rally talking all this crap but seriously the situation is being seriously underestimated.

  60. 60
    ram Says:

    I second Nicky’s rant.

  61. 61
    Wyoming Says:

    Have to get back to a meeting. Kind of had an :Oh crap” moment for the long term. Services that have manufacturing, WFT, BHI, SLB, HAL, FTI, CAM, Lufkin,X, WH (think Pipe) etc…

    Products were very short even up to Summer 08. Many operators built inventory, trees packers, pumping jacks. When we do start drilling again, it will be literally years before we buy anything in order to write down all of our overpriced equipment.

    This is a long term comment, I don’t think drilling will kick up anytime soon, IMHO.

    Will get back later tonight, Ju-Jitsu for the nose miners after work.

  62. 62
    isleworth Says:


    Does Nicky have an opinion on the technical bottom for nat gas prices?

    Here is a comment I recently received on my blog:

    “I have been in the natural gas business since 1978 and recognize that there has been a sea change for gas production and prices over the last 18 months. The large domestic shale plays along with the rapid advances in the technology of how to get the gas out of these shales is staggering. The industry currently knows of 150 plus years of gas supply at current demand and many extremely large shales have not yet been tested and within the next several years, I suspect that close to a 300 plus year supply will be identified. We certaintely cannot get the gas out of these shales economically at current prices but at some price(I suspect it will be in excess of $6.50/mcf), we can bring on more gas than demand will take. The industry will be able to supply all of the domestic demand with as few as 400 to 450 horizontal rinning . We certainly have the ability drill with 2 or 3 times that number of horizontal rigs, and thus natural gas prices will remain low for many many years.”

  63. 63
    zman Says:

    Re 61 & 62 – very valid points. When we go through these shakeouts the industry generally re-emerges in capital discipline mode abhorring high growth rates in favor of high IRR / margin projects. Until we see a new source of demand for gas (transportation) really take hold, I don’t see the industry returning to the “run as fast as you can” environment of the last 3 years. It’s also very hard to see how the shale have nots, who rely on exploration and/ or other conventional gas plays garner anything but a severe multiple discount.

  64. 64
    zman Says:

    Isle – I think Nicky put long term support at $2.70 on gas.

  65. 65
    zman Says:

    Gasoline stocks starting to look more troubling. If gasoline imports continue at current elevated levels when the refiners come back from their spring maintenance turns, stocks will rapidly increase. Gasoline margins have been keeping the refiners from hurting worse than they already are on earnings. Distillate stocks remain extremely bloated. So if we don’t see a pickup, and not just an inching up seasonally, but a bigger pickup in product demand, refiners will either be forced to curtail throughput throughout the year of accelerate demand for crude without a commensurate increase in demand for products which would crush their margins. Not pretty to be a refiner these days.

  66. 66
    zman Says:

    EIA has moved up the monthly to tomorrow from Friday. Had some sort of glitch that is now apparently (they used the word “hopefully”) fixed.

  67. 67
    BirdsofpreyRcool Says:

    Pretty astonishing divergence between stocks and bonds today. Stock market up, IG12 down… quite a bit.

    IG12 204 +7 bps on the day… which is a significantly large move… in the wrong direction.

    Stocks and bonds are trading with two different outlooks. Stocks seem to be trying to look through the bottom. Bonds know we have to actually LIVE through the bottom. With stocks, hope and expectations are everything. With bonds, cash flow and cash flow are everything.

  68. 68
    Sambone Says:


    Amen! That’s why I went long again on SKF, for my third round trip.

  69. 69
    Nicky Says:

    Sorry had a powercut here. But long term support for natural gas is at 2.5 – 2.7.

  70. 70
    BirdsofpreyRcool Says:

    GM saying auto sales may be “reaching bottom.”

    Of course, this from GM’s forecast and planning department, which has shown so much prescience in the past… right?

  71. 71
    Nicky Says:

    Gold holding too which i would not expect if all was right with stocks.
    BOP I agree re Bonds – with this very spiky looking move in the indices I can’t believe the bond market won’t be right.

  72. 72
    zman Says:

    mids and small cap E&P starting to cash up now, feels like market related noise and nothing more. Glad to have the group hold at current levels on the XNG.

  73. 73
    zman Says:

    Apologies for the quiet time today, having fun with the blue screen of death after installing some new software.

    Oil going out at best levels of the day.

    Agree with BOP/Nicky that there’s not a whole lot to love in the news and the rally in equities with a rally in credit is not to be trusted.

  74. 74
    Sambone Says:

    WASHINGTON, April 1 (Reuters) – U.S. gasoline prices
    probably will not rise as high as $3 a gallon this summer, the
    Energy Information Administration said on Wednesday, citing
    surplus oil refining capacity and a weak economy.
    The average pump price climbed to $2.05 a gallon this week
    to the highest level since last November.
    “Retail gasoline prices approaching $3 per gallon, however,
    are probably not reachable, let alone sustainable, this summer
    due to continuing surplus refining capacity and the continuing
    effect of the economic downturn on fuel demand,” the EIA said
    in its weekly review of the oil market.
    (Reporting by Tom Doggett; Editing by David Gregorio)

    Wed Apr 1 17:21:17 2009

  75. 75
    BirdsofpreyRcool Says:

    Macy’s downgraded by Moody’s to junk status. Just fyi.

  76. 76
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures ended down Wednesday as an increase in
    U.S. oil inventories indicated that the market remains severely oversupplied.
    Light, sweet crude for May delivery settled $1.27, or 2.6%, lower at $48.39 a
    barrel on the New York Mercantile Exchange. May Brent crude on the ICE futures
    exchange settled 79 cents, or 1.6%, lower at $48.44 a barrel.
    The global economic downturn is pushing millions of barrels of oil into
    storage, as rising unemployment and falling industrial demand cut into fuel
    consumption. Last week, U.S. oil inventories, already at a 16-year high, rose
    by 2.8 million barrels, according to the U.S. Energy Information
    Administration. That topped analyst expectations of a 2.2 million-barrel build.
    Vast amounts of unwanted crude have stood in the way of oil price rallies for
    months, and are now quickly erasing a 60% increase in crude futures between
    mid-February and last week. Oil futures are down about $7 since Thursday.
    On Wednesday, the inventory data helped prevent oil prices from following U.S.
    equities higher. The Dow Jones Industrial Average was recently up 2% at 7759,
    as investors bet that the economy was on the road to recovery.
    “That type of economic optimism is hard to ignore,” said Jim Ritterbusch,
    president of Ritterbusch & Associates, a trading advisory firm in Galena, Ill.
    “Today, the fundamentals simply won out.”
    Oil prices are likely to be buffeted for the remainder of the week by
    movements in the dollar. The European Central Bank is due to meet Thursday, and
    is expected to reduce interest rates and potentially taking other steps that
    could weaken the euro. A stronger dollar would draw investors out of
    commodities priced in U.S. currency, as their value would be artificially
    The G20 summit is also set to open Thursday, with leaders of the world’s
    largest economies meeting to discuss how to address the downturn. Sharp
    divisions between attendants have made the outcome difficult to predict. But
    any action – or inaction – could have potentially wide-ranging consequences for
    economies worldwide, and therefore oil demand.
    Front-month May reformulated gasoline blendstock, or RBOB, settled 4.96 cents,
    or 3.5%, lower at $1.3717 a gallon. May heating oil settled 2.21 cents, or
    1.6%, lower at $1.3458 a gallon.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    04-01-09 1515ET

  77. 77
    RMD Says:

    Read the Sun. Times about CHK giving Aubrey a new comp dea , including a $75mm bonus which replaces his 5 year deal of 2007. The Louisiana Police Retirement system is challanging, seeking disclosure on how the Board voted. Seems the Police think it was more bailout than bonus. (The $75mm can be drawn against as Aubrey’s contribution to his headsup drilling with CHK.)
    I think we need more corporate governance oversight like this.

  78. 78
    zman Says:

    The compensation deal is at least one month old. Had not heard the bit about the LPR challenge.

  79. 79
    john11 Says:

    CNBC Fast Money Karen Finerman ranted about Aubrey’s $75 mil. the other day, trying to pressure him to return the grant.

  80. 80
    BirdsofpreyRcool Says:

    z — actually, the CHK challenge is a very interesting one. Instead of offering an opinion on the level of compensation (“too much” or “not tied to performance” or whatever), the LPR is just asking to see the Board meeting notes. They was to see what the Board talked about and the rationale behind the decision.

    This is the sort of thing that should put the Compensation Committee of Boards on notice. You can’t just pay the guy b/c you feel sorry for his margin losses… they have to come up with real reasons.

    I think it is a good thing to put Boards on notice that they have to justify their decisions. On the other hand, I have a feeling that requesting BoD meeting notes is a tactic that could quickly get out of hand. Oh well… the pendulum swings in both directions.

  81. 81
    jy Says:

    link to article mentioned in #77

  82. 82
    zman Says:

    CLR, WLL acting very well for such a down day. Could be consequences of the BEXP sale.

    BOP – agreed, I was just pointing out that the $75mm deal is old news.

  83. 83
    BirdsofpreyRcool Says:

    About an hour ago, Head Trader weighed in that he “wouldn’t be surprised to see them run the mrkt into the close”… as GSCO has been buying futures in the pits for the last 3 days. Sorry I didn’t post that. Looks like Head Trader was right.

    On the other hand, he pointed out that MLCO has been selling futures for 3 days. GS and Merrill Lynch, the yin and yang of the mrkt.

  84. 84
    BirdsofpreyRcool Says:

    z — #82. Yep. Recall you mentioned it months ago, it seems. Anyway, that is certainly old news.

  85. 85
    BirdsofpreyRcool Says:

    z — CRK calls…. looking good, Billy Ray.

  86. 86
    zman Says:

    BOP – yep, glad to see those reversed nicely on the day but want to be holding over their ops update press release, should be any day now.

  87. 87
    BirdsofpreyRcool Says:

    Credit Market indices went out at pretty much their worst levels of the day. Bond mrkt not buying into the equity market rally today.

    Will watch what the Goldman pit trader does tomorrow. So far GS 1, ML 0.

  88. 88
    zman Says:

    Maybe that story and the investigation bites Aubrey/CHK. I think the opener comparing AIG and CHK is less than appropriate. Also, its 75 for 5 years. I’m not defending Aubrey’s use of margin…I think that should have been disclosed. But I think comparing the performance of CHK in growing reserves and taking over what people are now recognizing as “sea-change” assets in 4 basins in the U.S. with the risk taking that brought AIG down is non-sense. Aubrey grew reserves and became the #1 producer of gas in the U.S. In hindsight, looking at prices and what happened to the market you could say “well, that was growth for growth sake”. I think you’d be wrong. Is $75 mm over 5 years too much to pay the guy at the top? Maybe. But since his gunslinger tactics have yielded a company that even at lousy gas prices will still produce EBITDA of $4 to 6 billion this year (let alone what it will produce over the next 5 years) I have to wonder if $15 million per year is out of line. Just my two cents. I’m not holding options here at present.

  89. 89
    choices Says:

    I can’t find anymore more definitive on it but noted a comment that FASB announces their decision on mark to market rules tomorrow AM, ie whether to change or not.

  90. 90
    BirdsofpreyRcool Says:

    High-Yield Bonds Have Best Performance Since 2003 (Update1)

    By Gabrielle Coppola
    April 1 (Bloomberg) — Junk bonds offered the biggest returns since 2003 as investors bet that yields on the debt will offset defaults amid the deepest global slowdown since the Great Depression.
    High-yield, high-risk, or junk, bonds returned 5.02 percent in the first quarter, the best performance since the fourth quarter of 2003, according to Merrill Lynch’s U.S. High Yield Master II index. The debt lost 17.63 percent in last year’s fourth quarter, and 9.48 percent in the third quarter, according to the index.
    Yields on junk-rated debt relative to benchmark rates have fallen nearly five percentage points from their December high as investors bet the bonds have become cheap enough to compensate for the risk of companies failing to meet debt payments. The recession that started at the end of 2007 and dwindling access to credit are driving up the default rate, which Standard & Poor’s expects will reach a record in the next 12 months.
    “Everybody’s looking at these and coming to the same conclusion,” said Manny Labrinos, a portfolio manager who helps oversee $1.7 billion in fixed-income assets at Nuveen Investment Management in Los Angeles. “It will be relatively easy to achieve double-digit returns through year-end even if defaults continue to ramp up as we expect them to do.”
    The U.S. corporate speculative-grade default rate may rise to a record 13.9 percent over the next 12 months, according to a report on March 27 from S&P, the ratings unit of New York-based McGraw-Hill Cos. The default rate rose to 4.9 percent at the end of February, according to the report.
    Returns were the highest since the fourth quarter of 2003, when high-yield bonds returned 5.94 percent.

    Spreads Narrow

    The average spread on junk-rated debt narrowed 0.35 percentage point in March to 17.03 percent as of yesterday, Merrill Lynch data show. That’s 4.79 percentage points less than the 21.82 percent record set on Dec. 15. High-yield debt is rated below Baa3 by Moody’s Investors Service and lower than
    BBB- by S&P.
    Junk bonds rallied toward the end of March after the government released data showing unexpected growth in durable- goods orders and new-home sales, and banks hinted they may turn a profit in the first quarter after $914 billion in writedowns and losses since the beginning of 2007.
    Junk bond mutual funds had the biggest investor inflows since January last week, receiving inflows of $790 million, according to AMG Data Services in Arcata, California. The increase was the biggest since the week ended Jan. 7, when speculative-grade mutual funds had $988 million of contributions.

    ‘Attractive Again’

    “With the equity market stabilizing, credit became attractive again,” John Cokinos, head of high-yield capital markets at Bank of America Merrill Lynch in New York, said yesterday in a telephone interview. “It is a not a full-fledged rally, it’s very selective and it’s very industry-specific and credit-specific.”
    Bonds with a BB tier ranking, the top high-yield range, performed better than lower-rated debt, returning 8.28 percent, compared with a 12.79 percent loss in the fourth quarter, Merrill data show. Bonds in the CCC tier were the only rating category with a negative return, losing 0.05 percent, compared with a 26.8 percent loss in the fourth quarter.
    “It’s no longer liquidity that’s the story, it’s actual defaults and losses and low recoveries, and that’s hitting the CCC sector much harder than the BB sector,” said Ashish Shah, head of credit strategy at Barclays Capital in New York. “It’s more beta to the real economy.”

    Performance Boosted

    Real estate, telecommunications, and energy companies were the best performers among high-yield sectors this quarter, while banks, utilities and technology and electronics companies had the deepest losses, Merrill index data show.
    Borrowers sold $12.6 billion of high-yield bonds in the first quarter of 2009, compared with $4.4 billion from September to December and $10 billion in the same period last year, Bloomberg data show. Companies sold $28.7 billion of high-yield bonds in the first quarter of 2006.
    U.S. investment-grade companies raised $384 billion in the first quarter, compared with $211 billion a year ago.
    Investment-grade bonds lost 1.43 percent in the first three months of 2009, after returning 1.55 percent in last year’s fourth quarter.
    The performance of high-yield debt was boosted as investors bid on bonds in the secondary markets to make up for the absence of new issues, analysts led by John Fenn at Citigroup Inc. in New York wrote in a March 27 report.
    “There’s more demand for paper than supply of paper, but it doesn’t mean that people are going to lose their head,”
    Cokinos said. “They’re not going to buy credits they don’t like.”

  91. 91
    BirdsofpreyRcool Says:

    The FASB Marked-to-Market conference call starts at 8am EDT tomorrow. They are going to lay out the framework for how to apply the rules.

    I have a sneaky feeling this is why at least the financials rallied today. That, and (if you ignored the ADP report) the eco-data was less bad than anticipated.

    That said, stocks rallied. Bonds didn’t. If the stock/bond divergence continues tomorrow, I think we have to sit up and take notice.

  92. 92
    RMD Says:

    I disagree with #88; bonus smacks of making good his losses in a year where the stock was down 59%. CHK makes a point in their proxy that mgt’s comp is heavily tied to the stock (does not say you have to own it on margin). So down 59% is “payment” by the market for excessive leverage.
    Retention bonus? What about his ’07 contract? Wasn’t that supposed to “retain” him along with the 2.5% Founder’s drilling deal?
    The real news is corp. governance; investors need to stand up and ask questions; if they think something is excessive, it might be (might not too).

  93. 93
    Nicky Says:

    You are right BOP as CNBC have been reporting all day that traders have been buying financials ahead of M2M tomorrow. Is it going to be a case of buy the rumor and sell the fact as I don’t see it being the answer to all the problems.

  94. 94
    BirdsofpreyRcool Says:

    FASB mark-to-market meeting starts 8amET tomorrow

    FASB board meeting Thurs Mar 2. Starts 8amET. Among the topics will be the mark-to-market rule change.

    · The discussion will go all morning. We probably won’t have votes on both proposals (fair value and other-than-temporary impairments) until around 10 or 11amET.

    · You can listen to a webcast: http://www.fasb.org/action/mtgs_webcast&telephone.shtml.

    · See this link for full calendar: http://www.fasb.org/calendar/index.shtml

    The meeting will be to discuss and pass rules concerning: 1) fair value and 2) other-than-temporary impairments. FASB first published its proposed rules on each back on Mar 17. The meeting tomorrow will just be to discuss and pass these rules.

    · Rules on whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements: http://www.fasb.org/fasb_staff_positions/prop_fsp_fas157-e.pdf

    · Rules on other-than-temporary: http://www.fasb.org/fasb_staff_positions/prop_fsp_fas115-a_fas124-a_and_eitf99-20-b.pdf

  95. 95
    zman Says:

    RMD – Given your last sentence, I’m not sure what you disagree with in 88. Is stock price over a one year time frame the sole definition by which we judge management? The stock had a 7 fold increase from the start of the decade through mid last year. Then everything fell apart. Nobody really saw commodities falling as hard and as fast as they did. Oh wait, but CHK was heavily hedged so I guess they did and yet they were much maligned for those large hedges as prices rose and their stock lifted more slowly than the other names. As to the 59% drop as punishment for over leveraging, I think there was some gold rush in there yes, and I think they were a bit slow to slow down on leasing, but their interest is easily covered at current levels given that hedge position. Again, I’m not defending the “bonus” but I’d take a longer view than the back half of last year and current prices when thinking about it.

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