03
Jun

Wednesday – Oil Inventory Preview Plus A Few Other Items

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Energy Bill DOA? The bill that includes fun things like Cap and Trade and increased royalty burdens has run into a roadblock made of cows. The farm-states don't like certain provisions regarding ethanol and the bill has now been sent out to eight different House sub-committees for review.  See story here.


Meanwhile, Back In Reality Land Watch: Kinder Morgan CEO Rich Kinder says that he sees "the overall shale situation as bullish for the industry ... upstream folks will tell you we have 100 years of natural gas supply that we know we can access in the lower 48 without importing LNG. When you look at a way to solve the CO2 problem, natural gas has got to be an enormous part of that solution and now we know we have the supply to do that."

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. BOP Spot
  5. Price Deck Watch
  6. Stuff We Care About Today - NFX
  7. Odds & Ends


Holdings Watch

  • $10KP:

    • $39,400
    • 37% cash (I will raise cash soon)
    • The Wiki Tab is updated.
  • EOG - Added EOG June $75 Calls (EOGFO) for $3.10 with the stock at $74.7, off almost 3%. Just repositioning for sideways to slightly upward move in oil and a gravitation towards names in the E&P space that are either oilier or are getting oilier.
  • PXD - Added (10) July $30 Calls (PXDGF) for $2.10 with the stock at $29.12.

Commodity Watch

Crude oil closed off $0.03 at $68.55 yesterday. Crude take the day off for profit taking despite another 1% drop in the dollar. Last night's API numbers seem to have set a bit of a cautious tone and crude is trading off $0.50 to $1.00 this morning.

  • President Obama Watch: The President is in Riyadh today talking oil with King Abdullah. Should see some headlines tomorrow.

Natural gas fell $0.13 to close at $4.12 yesterday. After Monday's surprising 10% jump, a little give back on a tepid market day is less than notable. This morning gas is trading off close to the $4 level.

  • The Early Read on Tomorrow's Gas Storage Report: 115 Bcf injection.
  • Canadian imports have been getting weaker as production ebbs. Below I've included graphs of Canadian storage that show those fellows north of the border to be well stored.  At present this chart looks like the U.S. storage chart as demand in Canada is soft as well, masking the impact of lower activity. Prices in the U.S. are insufficient to drive a substantial bump in imports to the U.S. so why not store it now and send it down south when demand (and prices) pick up? This fall, it will be worth monitoring this more closely.

Meanwhile, Canada is seeing low gas drilling activity like in the U.S. Canada is more subject to seasonal patterns than the U.S. due to drilling season restrictions which are weather dependent but not the recent lower highs and now, lower lows, in activity.

Oil Inventory Preview

API Watch:

  • Crude: Down 828 M barrels

    • Utilization: down 1 percent (which jives with what I've been seeing in the last couple of weeks with increased incidence of planned and unplanned maintenance at refineries.
    • Imports: up 150,000 bopd from last week but still running pretty low for the season.
  • Gasoline: up 99 M barrels
  • Distillates: up 3,446 M barrels

ZComment: API numbers were pretty neutral in my book.

  • Although the headline crude number was softer than expected (a smaller draw than analysts/traders are looking for today) we normally are still building inventory at this time of year so a draw down of stocks is somewhat price supportive.
  • Crude imports seem to be levelizing at the low end of the seasonal range which is good since demand from the refining sector continues to lag norms by a wide margin.
  • Gasoline demand will again be the most import number in the release and I think we need to see a number above 9.3 mm bpd to keep gasoline prices aloft (now at $1.92 per gallon wholesale). There is a pretty good shot this will happen as the Mastercard SpendingPulse survey showed demand up 2.2% YoY last week. 
  • Distillates: you want to see a rally in crude and products? Show some progress here in jump starting demand.

 

BOP Spot: (the following is a submission from BOP)

This is a plot of the avg US House price, back to 1975... we are almost back to trend.  

When home prices stop falling, that is when stocks will have a second leg propping them up:

  1. Keep banks from failing (check).  
  2. Credit market stabilization and improvement (check).
  3. Housing prices stop falling and mortgage defaults improve.
  4. Job losses stabilize.  
  5. Credit card debt default worries diminish. 
  6. Commercial real estate worries are abated.
  7. Industrial production ticks up.  

I might have 4-7 in the wrong order... but, you get the picture.  We are almost 1/2 way through all the worst stuff.  By the time you check off #7, the stock market will be up another 20-30%.

Price Deck Watch:

With the recent rally in oil prices, analyst oil price forecasts for the next four quarters have been left in the dust. Just two months ago, oil decks used by analysts to calculate E&P cash flows were in line with the forward curve. In the past analysts have generally tried to stay within 5 to 15% of the strip, generally on the low side of it to be conservative unless they really buy into their own macro theme and won't to make a statement by publishing estimates that most others will scoff at. At present this means the oilier names (see the E&P tab for % of production oil vs gas) have a better shot than in the last few quarters of exceeding estimates based on better than "expected" commodity prices. While you have to call this kind of outperformance a "low quality beat" it is nevertheless a beat and more importantly, additional cash flow, which these days more than ever, is a good thing.

On the natural gas side, estimates are still too high in the near term but beyond that, analysts are much closer to the forward curve than they have been all year.

Stuff We Care About Today

NFX Announces Two Deepwater Discoveries

  • Pyrenees - Garden Banks Block 293,
    • 2,100 ' water
    • 125' of net hydrocarbon pay in three separate intervals. 
    • NFX operates with 40%, SGY has 15%
  • Winter - Garden Banks Block 605,
    • 3400' water depth
    • encountered approximately 44' of net hydrocarbon pay in two sands.
    • sounds like a tieback
    • NFX operates with a 30% WI, APA has 25%

Putting this in context of the total company.

  • Pre-drill, both prospects were in the 50 to 150 Bcfe gross reserves ballpark.
  • Just for simplicity assume high end of the range on the bigger pay package Pyrenees and low end of the range on Winter, so 200 Bcfe, with net to NFX assuming a 12.75% royalty of roughly 65 Bcfe. 
  • NFX had 2,950 Bcfe as of year end 2008.
  • So these are nice, bread and butter deepwater drilling results, but not world beater, game changer. However, not every thing is designed to be a homerun. This is the kind of stuff that helps you fill the exploration wedge of your production growth profile when you look out into 2011 and 2012 (I assume given their proximity to existing infrastructure that they will be subsea tiebacks).
  • This is also the kind of stuff that may not get drilled under a higher royalty, half the current least period, and carry surcharge environment.  


VLO says to report net loss, stock down 7% AH. Better cracks meet weaker volumes. Street saw a 2Q at positive $0.69. VLO says looking for 50 cent loss. I continue to avoid the indie refining group.

Odds & Ends

Analyst Watch:

  • (VLO) cut to Underperform by BMO.

Sign of the Times Watch: Two more hedge funds close.

121 Responses to “Wednesday – Oil Inventory Preview Plus A Few Other Items”

  1. 1
    zman Says:

    Way to go watch: U.S. posts list of all civilian nuclear sites.

    http://news.yahoo.com/s/ap/20090603/ap_on_go_ot/us_us_nuclear_list

  2. 2
    bill Says:

    from z link to energy bill

    >In a recent analysis, he cited several studies showing the danger to agriculture from extreme weather events related to global warming.

    ok so global warming now causes extreme weather lol. What will they think of next?
    Does it cause blizzrds too? Huricanes bring in moisture , good for crops, no?

  3. 3
    bill Says:

    and farmers love thunderstorms as that brings in moisture

    anyways on another matter

    tudor just started coverage on COG. They said they will have a report out at end of day with a buy rating

  4. 4
    zman Says:

    Cap and trade in its current form proposes a 4% reduction in carbon emissions by the U.S. in 3 years and a 17% reduction by 2020. According to Kernon on CNBC the models being cited by backers of the bill say this will result in 3/10 of a degree lowering of temps over the next 100 years. I think that is if China and India go along with it. Hmmm. I’m no scientist but that does not sound like a big swing. Maybe it is. Kernon asked if the trillions needed would be better spent on sea walls. I know this is hyperbole on Joe’s part, surely not “trillions” for such a small change in temps, but you have to wonder at the feasibility of carrying out such a plan without all global industrial parties on board. I promise to not bring it up again today.

  5. 5
    bill Says:

    sgy is up premarket on the news from nfx

  6. 6
    BirdsofpreyRcool Says:

    The last I will post on the damage the President inflicted on capital markets with the GM and Chrysler “shared-sacrifice” policy. It was just plain bad news for capitalism and rule of law… and even “fairness” in general. This bloomberg article sums in up very well.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9HNldyokP.M

  7. 7
    zman Says:

    Thanks Bill, saw the COG. Used to follow that one but it was a thin option trader so I never picked it up here. Good management, interesting assets that have undergone quite a bit of change since I was active.

  8. 8
    zman Says:

    Bill, re SGY, yep, its a much bigger deal for them from a potential vs current reserves standpoint. Maybe worth a trade. SGY needs higher commodity prices, though, period.

  9. 9
    BirdsofpreyRcool Says:

    Both TechTrader and HeadTrader bearish today. Sell morning rallies, they recommend.

    With Friday’s Non-Farm payroll number staring us in the face, the market will be a random walk through volatility… until we get through the jobs number and see the market’s reaction to it.

  10. 10
    zman Says:

    Aren’t ADP and the feds payroll numbers supposed to be pretty close in counting methodology now? Would this not mean that the reaction to ADP substantially discounts non-farm payrolls ahead of release?

  11. 11
    jy Says:

    Z & Bill Re #8: SGY needed a discovery- any discovery! It’s been years.

  12. 12
    zman Says:

    Problem with names like SGY is that you need discoveries all the time, that 3 to 4 Gomex shelf RP is a killer.

  13. 13
    BirdsofpreyRcool Says:

    z #10 — in theory, you are correct. But, the comments from a NY bond trading desk, immediately after the ADP #, was that “no one pays attention to the ADP number.” So, even though ADP has gotten better at predicting the Non-Farm Payrolls, no one believes it yet. Can’t use reaction to ADP as a precursor to Friday’s number. We will just have to wait it out. Non-Farm could be a fairly ugly number. Obviously, employment is still headed south.

  14. 14
    zman Says:

    NG falling through $4 again pre open.

  15. 15
    zman Says:

    Planned layoffs fall to 8 month low:

    http://news.yahoo.com/s/nm/20090603/bs_nm/us_usa_economy_jobs_challenger

  16. 16
    zman Says:

    SU – halted on order imbalance. Sign of hot money in the group, panic sell at the first sign of a red oil day.

  17. 17
    BirdsofpreyRcool Says:

    Not seeing the same amount of panic in the bond market. Index spreads are a little wider, mainly in investment grade, this morning. But, otherwise, they showed little reaction (actually, a bit positive) to the ADP report.

    IG 127

    HY 84.25

  18. 18
    zman Says:

    Wow ugly open, again with the extremely low opening volumes. I’d do a little more bottom fishing but not in front of the oil numbers.

  19. 19
    zman Says:

    VLO warning crushing the refining sector for 10 to 15% moves. Stands to reason that all estimates there will be falling. Trade off is run high utilization and kill margins or run low and keep them up. They chose the latter…makes you wonder why the analyst community was so asleep at the wheel though. Was close to warming to the group again; glad to have kept my distance.

  20. 20
    tater Says:

    Not for everybody, but I’ve posted a 5 min chart for the S&P that apparently is working very well. Probably on a 15 min delay, but just take a look at the Fib lines and the trend lines and you should be able to project to a chart that you have in your own program.

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

  21. 21
    zman Says:

    NFX getting no credit (actually down a buck plus) for last night’s news. That will change.

  22. 22
    bill Says:

    on 6

    why did the bondholders rollover?

    What happens if you dig in?

  23. 23
    Dman Says:

    BOP, with any other asset class, such a huge run above the trend would be followed by a substantial overcorrection below trend. So why not expect that with housing?

  24. 24
    Coug1984 Says:

    Z – Have you noticed if the E&Ps are increasing their oil hedges for the next couple of years on the recent price increase?

  25. 25
    VTZ Says:

    This feels like a pretty severe down day for the energy equities considering the small drop in oil.

  26. 26
    VTZ Says:

    …and considering volume too…

  27. 27
    zman Says:

    Coug – nothing really comes to mind, several on the last round of conference calls said they were considering it, saw NFX had some new hedges out a couple of weeks back.

    Stocks getting dropped pretty hard here, quite the over-reaction to a 1% down day in oil.

  28. 28
    zman Says:

    VTZ – agreed.

  29. 29
    zman Says:

    Ben says pace of economic contraction slowing.

  30. 30
    BirdsofpreyRcool Says:

    Dman #23 — could happen. If the average earnings in the US go down.

    Ultimately, the price of the average home is a function of the average salary and interest rates. Everything else is just irrational exhuberance (or fear), too easy money (including lower down payments), or some meaningful change in demographics and/or savings behavior.

    Think of the value of the asset (in this case, the house) as the sum of a 20% downpayment + 30 yrs of amortizing coupon payments, discounted by the cost of borrowing. That is all the “value” of a house is… someone’s ablility to finance a cash flow. So, if salaries go up (all else equal), housing values go up. If interest rates go down (all else equal), housing values go up. And vice versa, of course. So, the red line is the present value of 2.5x the average salary, discounted by mortgage borrowing rates.

    But, for various reasons, homes values can move above, or below, that line. In practise, it’s tougher to move much below the line (unless you have a depression; high unemployment) as demographics provide a natural bid (or underpinning) to home values. Which brings up another point, immigration has provided much of the growth in housing demand… so that could be a near-term wild card, pressuring prices in the other direction, if population growth slows.

  31. 31
    Dman Says:

    BOP – I don’t know about the average, but I think the median income in the US has been falling for a long time, once you back out the phony inflation statistics.

    It seems pretty clear the next few years will be highly inflationary, so if house prices stabilize in nominal terms, they will actually be falling quite hard. But whether incomes will actually rise to keep up with inflation (thus allowing house prices to also keep up) seems dubious to me. I just can’t see what will drive it. Any suggestions?

  32. 32
    VTZ Says:

    Do you feel as though people will be willing to take the energy names back up on a moderate inventory report or is it going to be a sell no matter what day unless its extremely bullish?

  33. 33
    zman Says:

    USD up 1.1%, back to 79.25.

  34. 34
    zman Says:

    I think we need to see gasoline demand hang in there and distillate demand pick up. This time of year anything is possible on the headline numbers for crude (some big 5 and 8 mm barrel draw weeks last year). I don’t think we get that but it would help reverse crude. Ultimately, unless we get a better crude headline number positive, I’d guess the stocks match the market’s negative mood x2 to x3.

  35. 35
    zman Says:

    Crude up on big jump in imports, so much for API. …

  36. 36
    VTZ Says:

    big build…

  37. 37
    BirdsofpreyRcool Says:

    bill — #22 Bondholders tried to dig in on Chrysler. Look at how they were pilloried by our own President as “greedy bondholders, pushing Chrysler into bankruptcy.” The truth is 180 degrees from that statement. But, it played well to the prime-time TV crowd.

    The banks in Chrylser caved, of course, because of the TARP strings. When the non-TARP group tried to hold out, they were threatened. The non-TARP group even went to the BK judge, in an effort to have their names kept “confidential,” as several of them had received bodily threats. The judge refused. Firms like Oppenheimer and their portfolio managers were openly identified as being “holdouts” and “greedy” and not willing to “share the sacrifice.”

    In the end, running a mutual fund (or a bank) is all about reputation. You can try to defend yourself… but, at some point you can win the battle, but lose the war as your investors listen to the Washington rhetoric. That is why Eliot Spitzer only went after financial institutions, by the way. Your reputation is your calling card, in this business. So, instead of fighting Mr. Spitzer, firms just payed the greenmail to settle. Same thing here.

    Look at the GM bondholder list and you see a lot of firms with stellar reputations who did not want their names dragged through the mud by this Administration. I know several people at those firms personally… they would not risk the publicity for a 1-3% position in the portfolio. So, when it came to GM, they had seen how the Chrysler holdouts were treated. It didn’t take much for them to capitulate also.

    No question, this was “Chicago-style” politics at it’s very worse. And companies (and ultimately all of us) will be footing the bill for higher borrowing costs to account for this new “political risk” element in the credit market. Not a large step away from the political risk one assigns to investing in a country like Russia or Venezuela, frankly. Money will still be lent… but it will cost everyone more, to have so blatantly and unfairly favored the UAW in the unprecidented pre-bankruptcy “negotiations” that on between private lenders of capital and our own President.

  38. 38
    zman Says:

    Sorting through numbers

    Crude up 2.9 mm barrels
    Gasoline down 0.2 mm barrels
    Distillate up 1.6 mm barrels

    Imports at 9.6 mm bopd, big source of the rise in crude stocks.

    Utilization was actually up to 86.3% so the numbers look a little odd as the EIA said crude inputs to refiners were flat. That’s hard to believe.

    Cushing stocks fell from 30.7 to 29.9 mm barrels… makes sense given a pick up in refinery utilization.

    Gasoline demand tanked to 9.02 mm bpd, not at all in line with the mastercard spendingpulse survey.

    Distillate demand eased out of its recent range falling from 3.6 to 3.45 mm bpd.

    Nothing bullish in this report.

  39. 39
    zman Says:

    adding to 38 … the crude number of up 2.9 mm barrels for the week makes very little sense given the utilization number. Then, when you look at flat refinery inputs you have to wonder about a data error or a timing of the move up. At times, you see utilization move one week and inputs trail them the next. Could be that inputs make up the difference in next week’s report. Unfortunate that it occurred when imports unexpected rose. Would imagine that crude will slide over the next few days to $65 unless the broad market reignites.

  40. 40
    bill Says:

    37

    Looks like the union support and campaign contributions are bearing fruit

    As a fine senator once said money talks bullshit walks

    We have a corrupt political system

  41. 41
    zman Says:

    adding to 38 #2

    One bullish thing will be the reversal at Cushing. Very minorly price supportive.

  42. 42
    West Says:

    looks like buying opp eog and kog. tried wll but less volume more whipsaw. I also like ard down here, 90% oil no debt, 50mil in cash.

  43. 43
    BirdsofpreyRcool Says:

    Dman — #31. Home prices are quoted in nominal, not real, values. So, yes. The main driver of the positive slope in the line is inflation… not real wage growth, as the main driver of wage growth is inflation (if that seems circular, it’s because it is).

    I have a quite different definition of “inflation.” To me, it is the expectation by the market that prices will go up every year and therefore, wage increases become automatic. Wages drive inflation, more than anything else.

    I think we will see a period of wage contraction and higher interest rates and commodity prices. How low wages go (realy, “disposable income,” which is affected by changes in tax rates, fixed expenses, savings rates, etc.) and how high Treasury yields go, combined with the bank lending environment, will determine where house value are set.

    Just to extend the conversation, another thing that will bring down housing values is the ability of judges to “cram down” lenders in personal bankruptcy court. That adds another layer of uncertainty to lenders, who in turn, offset that risk by charging everyone more. Lending is not a zero-sum game. Every time our President favors one group or another, the cost for all of us goes up. Dems and Reps… we all pay more.

  44. 44
    zman Says:

    Refinery utilization hit the high for the year last week, refinery inputs were unchanged. Explains all of the “bad” oil number. Looks like bad data.

  45. 45
    zman Says:

    Stocks very marginally improving from the first minutes after the report, inching up a tad with the broad market.

    Did Ben say anything of consequence, this seems to be about the level the markets were at when he started speaking?

  46. 46
    BirdsofpreyRcool Says:

    z — re: Ben. Did not listen. But reading a colleague’s comments: “Bernanke may be coming out against Obama’s spending plans.”

    So, the Bond Vigilantes may have just found they have a key friend in this Administration.

  47. 47
    zman Says:

    Somewhat tempted to do a little bottom fishing but not really wanted to get more long at present, not in front of what appears to be a fear driven, Friday focused market. Still, I may do a couple of day trades momentarily.

  48. 48
    zman Says:

    BOP – re 46. Thanks. Market seems to be digging his chili a little more now.

  49. 49
    zman Says:

    ZTRADE:

    Added another 20 PXD $30 Calls for $0.60 with the stock off 6.5% at $27.43. This piece will be punted with the next rally as my sense is the group is being overly punished for a 2% down move in oil. The oil numbers were odd, not bullish in the least from a products standpoint but not a disaster either. I continue to await news from PXD and I continue to Hold July calls here as well.

  50. 50
    zman Says:

    Service shrink at slowest pace since October:

    http://finance.yahoo.com/news/Group-says-US-service-economy-apf-15425619.html?sec=topStories&pos=3&asset=&ccode=

  51. 51
    md Says:

    Re: refinery util
    Compare Gross Inputs to Inputs. Specifically Gulf Coast. That may be the answer. Can’t say I understand it but it seems to explain the discrepancy

  52. 52
    zman Says:

    Saw that MD. The numbers are very weird this week. Midwest should have seen an uptick with Cushing going down. That’s odd. Then you have gasoline production falling back off like a stone. I have to say, the utilization number looks bad.

  53. 53
    zman Says:

    Crude and the stocks now just keying off the DJIA/SP.

  54. 54
    kiaora Says:

    Z..#49 June or July?

  55. 55
    zman Says:

    Woops, left that out. Junes.

  56. 56
    Nicky Says:

    Good morning all.

    Indices – two possibilities 1) that we are still in wave iv with another wave up in v to come where my target is still 956 spx.

    Or there is a very good chance that the A wave rally is now totally complete. If so we are now in B down which I likely think will take us lower than most are expecting. Cycle lows due 15th June. The bulls are very confident that every attempt by the bears to take this market down in the last few months have failed. That reason alone may bring about a bigger fall. Many are rushing to buy the fall here too. They have had quite a few actual traders on CNBC the last few days saying this won’t go as high as everyone thinks and they were lightening up on longs and going short.

    The $ – too early to say whether we have put in a low but its looking encouraging. Really need to see it over 79.48 before going under 78.33 again. If we move above the 80.50 area we are out of the downtrend and likely the low is in. Huge fall in sterling this morning (I was yelling all day yesterday that it was massively overbought). Made a higher high overnight and is now close to yesterdays lows and therefore a key reversal. Being helped by the impending collapse of the British government.

    Oil it looks done too and the last leg up has been a huge move in a very short period so likely all that is now retraced. If the indices turn out to need one more leg up and the $ one more leg down then oil would have one more move higher.

  57. 57
    zman Says:

    Thanks for the read Nicky.

  58. 58
    zman Says:

    Nicky – I’d bet your buddy at Fastmoney, Terranova, is now saying sell oil and oil stocks.

  59. 59
    elijahwc Says:

    Lifted from another site:

    The old marketing tag line, “GM Mark of Excellence” could be changed to “GM: Where Failure Comes To Succeed.”

    GM will never turn a profit — particularly when the product is designed by the government and built by the UAW, which has never been a model of efficiency (though I hear the benefits are nice and the golf course is beautiful).

    This is the largest socialist experiment since California. And like California, it will fail.

  60. 60
    ram Says:

    Hey, the few of us that still live in California still believe we will get through these difficult times.

  61. 61
    Dman Says:

    BOP – inflation = change of price in stuff versus some agreed unit (eg $).

    Since most wages have not kept pace with the price of stuff (actual stuff, not whitewashed statistical stuff) then wages cannot be causing inflation.

    Only the massive increase in household debt allowed people to avoid noticing that their (real) wages were falling. It got to the point that people actually thought that buying stuff on credit was as good as, well, buying it with real money. They forgot that if they buy stuff on credit, they don’t really own it. But everyone was doing it, so credit became the new “ownership”. Now that’s all been taken away, exposing the actual fall in wages & the pool of unemployed will keep a good lid on that.

  62. 62
    BirdsofpreyRcool Says:

    Dman — yes. That is why i said i have a different version of what inflation means. That is why i was on the other side of what the Fed was doing, during the start of the credit crisis. Ben & Co. kept interest rates high b/c energy prices were high and they were worried about “inflation.” Meanwhile, credit was falling out of bed, people were starting to lose their jobs, banks pulled back, bonds spreads blew out, LIBOR spiked, BearStearns poofed… THEN the Fed started to pick up what was going on. They finally “got it” last summer. But, it was too late by then. The Credit Market was frozen, solid.

    So, by focusing on “inflation” that included the massive effects of energy pricing (which i think relates more to the mrkt’s expectations of supply-and-demand, in the long run), the Fed blew the chance to nip the Credit Freeze in the bud. When lack of supply pushes up prices, i do not think of that as “inflation” as it is not something you can “cure” with monetary policy… short of killing the economy and therefore the demand.

    Volker slammed the door on inflation in the early 80s by jerking interest rates way up, very quickly. But it was wage inflation that was the real problem. Remember when everyone got “cost of living” raises that were 8% or more, as of January 1st? That is inflation. The rest is supply/demand curves.

    As i said, i have a different definition of inflation. But one that would have dropped interest rates a LOT faster in this cycle. Which, ultimately, was the right thing to do.

  63. 63
    BirdsofpreyRcool Says:

    Dman — also, i think that globalization has had a larger affect on wages than anything else. Water will find it’s own level, once you remove the dam. Agreed that consumer leverage kept the spending rate much higher than it should have been — much higher — given where real wages were. Have i not been the one more worried about “deflation” than “inflation” on this board? Wages and housing prices falling is classic deflation. Energy prices, once you close in on (at least the perception) of 100% production capacity are a different matter. Not completely unlinked, but different.

    Clear as mud. I know.

  64. 64
    Nicky Says:

    Metals breaking down. Perfect action overnight – small spike up in gold to 990 and silver 16.25 which were target areas.

  65. 65
    gaamblor Says:

    curious, what is the largest ever weekly build for NG?

  66. 66
    BirdsofpreyRcool Says:

    gaamblor — going back to 1994… there was a spike of 147 reported on 7/4/03. But, other than that, reports above about 110 are rare.

  67. 67
    zman Says:

    They see 117 for tomorrow. To my knowledge 113 Bcf is it, will check my files.

  68. 68
    BirdsofpreyRcool Says:

    frankly, reports above 100 are kinda rare.

  69. 69
    zman Says:

    I see a 147 in 2003 as well. Generally lower teens represents the high of the season.

  70. 70
    zman Says:

    I tend to think of things as compared to “this week in history”. For this week, the high was 114 Bcf back in 2003.

  71. 71
    zman Says:

    Crude defending the 66.50 level pretty well, that’s down 3% which is really nothing in the face of the rally we have had in the last couple of weeks. There does not seem to be a desire to hit the exits very hard here. The stocks are acting like we are going back into the $50s, a sure sign Joe Hotmoney is in the energy house.

  72. 72
    BirdsofpreyRcool Says:

    “this week in history” = good point. thx.

  73. 73
    jat Says:

    Z,

    Sorry, could you clarify your takeaway on the DOE data? That is, which of the data do you view as inaccurate… obviously the refinery inputs flat WoW doesn’t jive with a 1% increase in utilization. Is the utilization inaccurate, or are the inputs inaccurate? Not sure when you say “bad” is you mean “bearish” or “inaccurate.” And, either way, isn’t the entire report still bearish for, though perhaps a low quality type of miss, with imports driving the crude build and, more importantly, gasoline demand looking poor?

  74. 74
    zman Says:

    Jat – good points. The data was overall a bit bearish. I think the utilization number was wrong or at least misleading. A lot of the data looked odd including weak gasoline production with higher utilization and flat inputs. Umm. Those three together kind of hard to figure, feels like they botched something in the short week and then played catchup with this data. Would not put it past EIA to do that. I have seen them plug a number in between 2 others in the gas monthly that is obviously just a mid point. Your tax dollars not at work.

    Key takeaway would be that gasoline and distillate demand were back to being very soft. Not surprising for distillate as that’s been weak but also seasonally trending lower makes sense. The gasoline demand falling like that (by 500,000 bpd) is troubling with regard to the rest of the driving season but again, if you average the last two weeks you probably get a view of OK-ish demand.

  75. 75
    zman Says:

    Putin Watch:

    http://www.reuters.com/article/rbssEnergyNews/idUSL3102226120090603

  76. 76
    gaamblor Says:

    re: gasoline demand your earlier point that they screwed up last week makes more sense than a sudden massive drop on demand

    or your earlier earlier point about stations building stocks ahead of memorial day

  77. 77
    Nicky Says:

    USD makes it above 79.40 before going back under 78.33 – that was important.

  78. 78
    gaamblor Says:

    thanks for the info on gas builds, guess there’s no chance of a largest ever headline until the fall when storage probably makes one

  79. 79
    Nicky Says:

    Lots of big support in the spx around the 924 – 926 area.

  80. 80
    zman Says:

    HK – on the tape with some decent sized insider sales. Both Floyd & Christmas (former ceo of acquired KCS) shedding shares.

  81. 81
    bill Says:

    some of you like looking at weather charts in the hurricane season

    Here is an interesting link on weather analysis and its potential impact on air france recent airline crash

    http://www.weathergraphics.com/tim/af447/

  82. 82
    zman Says:

    Thanks Bill, just sitting on hands today. Ugly out there.

  83. 83
    bill Says:

    bulkers getting slammed too………

    cape rates went down 20 k per day today so the bdi will be down tomorrow

  84. 84
    bill Says:

    oil stocks got a bit extended and profit taking is coming in

    pxp was willing to sell shares at 18, 3 weeks ago and it crossed 30 3 weeks later

    I sold most of the energy holdings but got caught with the bulker meltdown

  85. 85
    zman Says:

    Bill – CNBC guy said to sell the bulkers. Also Terranova acted like he was short oil and had been talking that way for days. I honestly don’t know why I have cable sometimes.

  86. 86
    zman Says:

    ZTRADE: Added another 20 to June PXD $30 call position for $0.45 with the stock at 26.60, down over 9% today.

  87. 87
    Dman Says:

    #75 – I don’t suppose Ukraine has any shales they could start to drill up? I know some European operators have been looking into the horizontal drilling technology. I just feel sorry for the Ukrainians depending on Mr Putin … nasty place to be.

  88. 88
    zman Says:

    Going to lunch for 30 minutes, rally this beast for me.

  89. 89
    Dman Says:

    & Mr Putin being unsubtle with W. Europe, as usual. With oil nicely up, I guess he has a spring in his step.

  90. 90
    tater Says:

    Hey Nicky,
    How do you feel about the gap-up June 1 at 920.09 in relation to the idea of support at 924-6 area? Sure seems to be a target. At the same time, I’m getting an overdone reading to the move down today, like we will get the bounce that you are talking about to 956. Just think/guess we might push to cover the gap first.

    Just an aside, obviously I make a lot of bad calls/chart reads. If it was a sure thing, I’d be hugely rich and famous by now. That said, what I do know is when I am working off the correct landmarks and when I am not. Today that 5 min chart that I posted on the S&P is a money maker. Not because I’ve guessed correctly, but because the landmarks are working.
    Hence my question to Nicky, I’m asking about a landmark and whether it holds much validity to the way that she does TA.

  91. 91
    PackMan Says:

    Z re: PXD

    I see you are buying more June 30 calls. Did you ever sell any of those June 30’s that you were buying last week or so ?

    Also, what exactly are you expecting from PXD that will move the stock back up — and on what timetable & how high do you think it could run.

    THX.

    Apologies if you have covered this before.

  92. 92
    Nicky Says:

    Hi Tater,

    The bulls are banking on that gap at 920 being filled and holding. We have a clear five waves down today so what I think we may see is a 3 wave bounce off the 920 area. Many will see that as the launch pad to higher highs but I think it rolls over again. What we need to look for is when this wave down is complete the structure off the wave up off that low. If it is a 3 wave correction and we do not take out yesterdays highs and then move down below whatever lows we make here we know we are going a lot lower.

  93. 93
    tater Says:

    Thank you for making clear to my remedial EW brain 🙂 Very much appreciate it! Now I’ve got to go soak my head and prepare to make my first longside trade in I don’t know how long.

  94. 94
    bill Says:

    this is for comrade Birds of Prey

    http://www.reuters.com/article/newsOne/idUSTRE5520GX20090603

  95. 95
    zman Says:

    Pack –

    PXD Catalyst:

    Eagle Ford Shale well results. They have tied their first horizontal test in the E.F.S. to sales and should have production test information out in the not too distant future. Could be any day now, could take longer I guess if they want it to. They know everyone is watching the well.

    E.F.S. looks a lot like the Haynesville in terms of rock properties but it is very early in the play. HK has drilled some high single digit IP wells here and thinks economic reserves are in the 4 to 7 Bcfe range which is big for the money to drill and complete.

    PXD has 310,000 acres that could be propsective.

    They have seen the Eagle Ford in over 150 wells as they drilled lower to the Edwards and have said they got gas flares from the EFS interval in those wells.

    They have 3D over their acreage

    They have said they are very encouraged by this well (without giving any numbers yet) and are planning to drill a second well in late 3Q.

    We know they have an economic well but we don’t know how big (other than being encouraged).

    In the past, they have announced first production from new plays and the CEO all but said a press release is around the corner at the Deutsche Bank conference last week. I have not yet seen comments from the RBC conference.

    Given their understanding of the area I am betting they are onto something. But this is still exploration and the well results could still disappoint the Street.

    I sold the June 25s last week.

    Of the $30 strikes I have 100 June and 25 July.

  96. 96
    zman Says:

    I second #93, thanks.

  97. 97
    BirdsofpreyRcool Says:

    bill — #94… seems Hugo got one right. Sad thing is, joke’s on us. Or, at least those of us who believe in the value of private sector capital.

  98. 98
    zman Says:

    Re 94 – Talk about the hand you shook that bit you, lol.

  99. 99
    PackMan Says:

    Thanks Z …. and GL, especially with those June’s !

    I bought some stock & July 30’s today fwiw. Sold out too soon on the last run.

    Care to speculate on high can this move on good news; or where you would look to exit ?

  100. 100
    zman Says:

    Pack – No. It’s going to depend too much on the news.

  101. 101
    zman Says:

    … and the market … and crude.

  102. 102
    zman Says:

    Pop quiz: what stock is 100% hedged for the next 3 years, has a 13% yield, and is down 6% today because oil and gas are down.

  103. 103
    Bob Says:

    I think we all know you mean LINE.

  104. 104
    zman Says:

    Oil recovered enough ground to close just north of $66, down about $2.50.

  105. 105
    zman Says:

    Thanks Bob, just gauging attention levels.

  106. 106
    tater Says:

    That’s what the crazy TV midget will bring you on Linn.

  107. 107
    zman Says:

    Tater = LOL.

  108. 108
    zman Says:

    Dollar at 79.50.

  109. 109
    zman Says:

    BOP – gotta give this day to HT and TT.

  110. 110
    zman Says:

    Tater – thanks for the fresh HK thoughts, just saw. On the SP 500, you think 920 is the line in the sand for near term support?

  111. 111
    tater Says:

    Actually, just contemplating a scenario where we close above the gap today, and then open tomorrow below the gap for an island reversal. That would send us to the toilet pronto. Just making all of that up, but I’m running out the door without a position on and trying to cover everything that I can think of.

    Going to have to say that it’s just too hard of a call. I’m going to have to beg off until I see what happens and then play with the crowd. I do believe the gap will come into play at some point in the next couple days.

  112. 112
    zman Says:

    Hear ya potty talk, agreed very hard call to make, thanks.

  113. 113
    zman Says:

    Nicky – can I get your thoughts on the SP post close for the near term.

  114. 114
    zman Says:

    Lot of volume on the close in PXD, HK, SWN, EOG etc.

    cheapbeerthirty

  115. 115
    BirdsofpreyRcool Says:

    z — #109 when they agree from the git-go, i listen.

    That said, HeadTrader said “nobody was going nothing today… not buying, not selling, not shorting.”

    So, breather day, it seems. Or, rather, holding breath until Friday’s Non-Jobs #.

  116. 116
    PackMan Says:

    Z – 109 … got to wait til the end … LOL. Another ridiculous close….

  117. 117
    md Says:

    I know it’s late in the day You can answer in the comments or tomorrow.
    EIA weekly – The inexact science that it is…
    Does the following formula make sense
    Refinery inputs Gasoline+ Gasoline imports-exports(not broken down)- product supplied= Stock change

  118. 118
    Jay Reynolds Says:

    Lots of talk about “record crude inventories”. Hasn’t the demand side changed considerably to the upside since the comparison high storage level dates?

    Don’t have the numbers in front of me but am guessing that we have significantly FEWER days of supply in storage than before.

  119. 119
    md Says:

    I bought Line on your recomendation at $15 or so. Wish I had bought more

  120. 120
    zman Says:

    Good questions in 117 and 118. Will put in the stuff we care about – overnight mailbag section in tomorrow’s post as I’m just heading out.

  121. 121
    zman Says:

    Citi on the tape recommending investors buy natural gas leveraged E&Ps

    Specifically cite: NFX, KWK, XTO, APA, SWN, FST.

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