Monday Morning And All Is A Continuation of Last Week’s Action

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Sentiment Watch: Cautious, sit on hands mode. Commodities are easing with a directionless, summer equity market. While individual catalysts continue to crop up they are few and far between this time of year so patience between now and 2Q earnings season is key.

The Week Ahead:

  • Monday 6/22: No U.S. eco data release.
  • Tuesday 6/23: Existing home sales for May (expect 4.83 mm), FHA home prices
  • Wednesday 6/24:  EIA Oil Inventory Report, Durable goods for May (expect -0.1%), New home sales for May (expect 360 m), FOMC meets
  • Thursday 6/25: EIA Natural Storage Report, Initial jobless claims (exp 605m), 1Q GDP (exp -5.7%)
  • Friday 6/26: Consumer sentiment (expect 69.5 vs 69 last reading)

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today
  • Odds & Ends

Holdings Watch:

  • $10KP: $21,600 / 61% Cash
  • The Wiki Holdings Tab Is Updated


Commodity  Watch:

Crude oil fell 3.5% last week to close at $69.55. The 12 month crude strip is now trading at $73 which is probably not altogether unreasonable given current elevated global storage levels. This morning crude is trading off $1 plus with down equity futures and another attempt to bounce the dollar.

  • MEND Watch: MEND claims it attacked two more Shell oil pipelines and a shallow water platform in River state on Sunday. This is the furthest east attacks and the first in the Rivers part of the delta since the group launch their latest offensive. 
  • Mexico Watch:
    • Production down 7.9% to 2.65 mm bopd for the first five months of 2009.
    • Exports were down 15% for the period to 1.24 mm bopd
    • Mexico is the U.S.'s 2nd largest imported source of crude behind Canada. Venezuela, Saudi Arabia and Nigeria rank 3rd, 4th, and 5th respectively.  

Natural gas rose 4.5% last week to close at $4.03, despite a larger than expected injection into storage. The short cover action we have seen showed up in the wrap data as a 10,000 contract decline in the short position (down 4%) although the net short position actually grew as longs abandoned ship north of $4.  The 12 month strip is now trading at $5.37 with the 1Q10 trading at $6.10 providing a decent position for prudent E&Ps to hedge more gas just in case industrial demand remains poor for longer than expected. This morning gas is trading up slightly with the heat wave gripping the nation's mid section.

  • Weather Watch:
    • Last week: CDDs came in at 52 vs 39 in the prior week and 57 expected. If you look at the Northeast and Pacific Northwest data you can still see the sub seasonal temps continued to hold sway last week.
    • This week: Hot. Damn Hot. CDDs rise to 80, 30% above normal for the week, with all regions expected to see warmer than normal temps.
  • Tropics Watch: We're starting to see the typical pattern of tropical waves forming in the southern Atlantic as they come off Africa and drift towards the Carribbean but at this time nothing looks likely to develop. 
  • LNG Watch: XOM is close to signing long term deals for roughly 200 Bcf per year of LNG from its Papua New Guinea development with three Asian buyers starting in 2013. Asia is one of the wild cards (European demand and domestic supply being the others) that will help to determine how much of the LNG tsunami actually reaches U.S. shores.  

Stuff We Care About Today


Deal Watch:

  • (CLNE) offering 6 mm share secondary

    • use of proceeds is working capital, potential acquistions, construction etc
    • This may offer a decent entry point on the name as they push natural gas as a fleet transportation fuel forward.
    • Catalyst here may be the passage of the Natural Gas Act later this year which you don't hear a lot about but which is custom tailored to benefit the company via incentives for the adoption of CNG and LNG power vehicles.

Capex Watch ~ from Barclays

  • U.S. 2009 E&P spending seen down 38%
  • Canadian EP& spending seen down 36%
  • Global spending seen down 15%
  • Barclays survey shows most E&P's see higher spending in 2010 - not surprising as they don't want to see production declines to take but early to really say given the precariousness of pricing.
  • Mixed bag for oil service; you can see this reflected to some extent in the rig counts. The fact that global spending is only down 15% runs testament to long lead time projects, especially deepwater that have become the focus with many NOCs. Probably better news for RIG and DO than for SLB, HAL, and BHI but the service group's ability to look through the trough has been incredible.

OIH Multiple Table Notes:

  1. Estimates continue to fall

    1. the bigger oil service names have repeatedly cut their work forces back and taken other cost cutting measures and it shows in their recent estimate revisions
  2. Stocks have stalled but are still up 38% (as measured by the OIH) year to date
  3. Most oil service names are not expected to earn as much in 2011 as they are this year so the downturn is expected to be protracted.
  4. I expect the group to consolidate with the market and oil but to reassert itself early again as the defense by the Street here is strong small signs of recovery here and there or at least price stabilization will drive the stocks higher. I have no positions in service at present and will likely wait out 2Q earnings season before getting on board.

Odds & Ends

Analyst Watch:

  • Raymond James ups targets and ratings on Canadian E&Ps.

68 Responses to “Monday Morning And All Is A Continuation of Last Week’s Action”

  1. 1
    BirdsofpreyRcool Says:

    TechTrader = another good day to short… odds are 60/40 that a short trade will work. Caveat, with the gap down at open, will need some sort of rally to short. May not get that.

    Market seems to be working itself back toward FEAR again. There are solid reasons why we will not retest the March 2009 lows, unless we see Stupid Public Policy passed in Washington. THAT continues to be the 8,000-lb Gorilla in the room.

    Credit Market is trading back at the wide end of it’s new range, roughly IG 120-150bps. Volatility is a normal part of any market bottoming and turning…. especially since it is still not clear what we are “turning into.”

    IG 146.5

    HY 81

    Must read cross-asset class article this morning. With this, you will know more than most institutional equity money managers about the bond/CDS market.


  2. 2
    zman Says:

    Ugly open on tap. BOP, I assume TT is thinking more of the same action from last week for this week. Not a lot of energy news out there and the analysts covering all industries seem to be increasingly scarce which is normal for this time of year.

  3. 3
    zman Says:

    Pritchard takes ATPG from hold to Buy.

  4. 4
    tater Says:

    “unless we see Stupid Public Policy passed in Washington”.

    I think that might be the easiest caveat hurdle to jump that I’ve ever seen!

  5. 5
    zman Says:

    BOP – wrote 2 before seeing one, so thanks. Any word from Head Trader?

  6. 6
    BirdsofpreyRcool Says:

    HeadTrader is siding with TechTrader… not saying much.

  7. 7
    zman Says:

    NG holding north of $4 despite all other futures in the red. Heat. Air conditioning will be running all night across the South all week long as it has for the last 4 days now. Look for one more big fat injection this Thursday due to all that weather that is making the U.S. Open a month long event and then we roll into high double digit territory. Next real catalyst for gas will be supply data in 8 days.

  8. 8
    zman Says:

    My sense we won’t get a much of a rebound without positive auction (silly but true), better than 6 handle on jobs on Thursday, and better consumer sentiment on Friday. More likely the rebound is real if it happen intraday instead of a gap reversal in the morning on eco-data.

  9. 9
    BirdsofpreyRcool Says:

    tater — yep. Without the presence and overhang of Stupid Public Policy, we would on the other side of the canyon, climbing out of the recession.

    History repeating itself…

  10. 10
    zman Says:

    3 to 7% drops across the board, feels more like panic, volumes light for the size of the drop so specialists making a little coin on the back of the timid.

  11. 11
    zman Says:

    That ATPG upgrade wasn’t unbiased as Pritchard was on the deal team for last week’s secondary.

  12. 12
    zman Says:

    I may do some day trades in here as the discounts on light volume for little reason with oil still near its 2009 high is a bit too much to watch and do nothing about.

  13. 13
    PackMan Says:

    It’s called Killing the Calls ….

  14. 14
    zman Says:


    HK – Opening down 8% on no news was a bit much for me. Added the HK July $20 calls (HKGD), (10) of them, for $1.95, with the stock just under $21. Market is in “baby and bathwater disposal mode” for the first time in quite some time and I feel the hit the stocks are taking is unwarranted.

  15. 15
    zman Says:

    Packman – I hear ya. Anytime I can pick up positions on a high single or low double digits down day on no news other than people are back in fear mode (temporarily in my estimation) in good, solidly hedged, solidly growing companies where the thing THEY sell is flat I’m game.

  16. 16
    BirdsofpreyRcool Says:

    From a tactical standpoint, it doesn’t benefit anyone to crash the mrkt from here. Too close to quarter end… no body wants to trash 2nd quarter portfolio performance. So, may have to wait a few days, but should see a bounce into the end of June.

    Then in July, we sell off a bit again.

    Summer Volatility.

  17. 17
    zman Says:

    BOP – my thoughts exactly. Energy down now for 7 sessions, far worse a decline in the stocks than in oil or natural gas. But the groups still some of the strongest among stocks so a quarter end run after this kind of a quick beat down is probably in the cards. In the past, you get these moves, everyone gets disheartened, thinking the only shade of screen they recall ever seeing is red and then a mid day event occurs and suddenly you are back to that sea of green love dman waxes on about. Its not my favorite kind of trading but as you said, it’s summer.

  18. 18
    zman Says:

    NG succumbing to the pull of lower crude.

    Crude is down 3.5% led lower by gasoline, down 4%. As such, no joy for the refiners either.

  19. 19
    zman Says:

    Housekeeping watch: If you are signed up for texting let me know if you got the trade via text this morning. Thanks.

  20. 20
    BirdsofpreyRcool Says:

    The most sensitive FEAR indicator is the TED Spread. Last October, TED blew out to almost 500 bps, post-Lehman. No one had EVER seen 500 bps on TED before… it was a 9-sigma event (someone with a stats degree can translate that into years… but, it’s something like an event you would only see every 300** yrs or so). Anyway, TED traded at a recent tight last Friday, 43.12 bps. Today it’s 43.76. A bid wider… but not the stuff of nightmares.

    ** just random guessing, on my part, but you get the point

  21. 21
    jpntexas Says:

    I rcvd the txt, no problemo

  22. 22
    zman Says:

    Big Brother Watch: The FTC is going to be going after bloggers who fail to disclose payments for their recommendations of products. They will also target those, who on their personal blog, say they liked such and such book, and then include a link to where you can buy it on Amazon, with or without a payment to the blogger by Amazon. I guess this is how we create more government jobs.

    I can assure you no one pays me to tell you how great any of the stocks or options I buy into are. Furthermore, though I think Sennheiser owes me a debt of gratitude for deeply vouching for their wireless headphones which work from your desk to the men’s room, they have not, as yet, paid me a dime.

    I would think the government has bigger fish to fry at present but, apparently, they can fry vast amounts of fish at once.

  23. 23
    zman Says:

    Thanks much jpn. Occam?

  24. 24
    zman Says:

    Price deck watch: analyst remain low to oil prices. This means estimates for the oilier names will be coming up for 2Q but also beyond as they mark their price forecasts to market (something they do over the last week of the quarter and into the first week of the 3Q as they prepare for 2Q releases starting mid month July). I’ll have charts out for tomorrow’s post but here’s what we are looking at. The first number is the analyst’s median estimate, the second is the forward curve:

    2Q: 51.50 vs 65.56 (Strip over by 25%)
    3Q: 58 vs 71.08 (23%)
    4Q: 61.50 vs 72.98 (19%)
    1Q10: 66 vs 74.16 (12%)

  25. 25
    zman Says:

    Imports Watch

    LNG at 1.3 Bcfgpd last week, this is off 0.3 Bcfgpd from the previous week. Still no flood despite all the dire predictions it would be here early in the 2Q. Hmmm.

    Canada: Back above 6 to 6.2 Bcfgpd last week, but still very low, down 0.9 Bcfgpd from last year at this time.

  26. 26
    VTZ Says:

    Thanks for the disclosure on Sennheiser… I feel like this site is more responsible just by knowing that. πŸ™‚

  27. 27
    BirdsofpreyRcool Says:

    Me — pretty red day… any reason to think people are starting to get nervous?

    HT — nope. not nervouse. they wanted mrkt to go down.

    Me — ok

    HT — right? isn’t that what we have been talking about last week? … we are DEAD for volume… so profit taking could be just what’s happening.

    HT — plus golf is on again… and it is in NY, so like last week, no one is around.

  28. 28
    PackMan Says:

    Lots of reasons to view today as somewhat forced. 1st day after options expiration. Kill folks who got assigned. Kill call premiums. Scare folks into taking profits.

    This is a reminder of what happens when you withdraw liquidity (bids).

    Then again, the economic backdrop is still pretty bleak and our 3+ month rally was pretty contrived.

    market throwing a fit ahead of Fed meeting … a reminder to Fed to play ball or else ?

  29. 29
    VTZ Says:

    Play ball how PackMan? I’m not sure the market knows what they want or the Fed knows what to do.

  30. 30
    zman Says:

    VTZ – I think more talk of accomodation and green shoots, no talk about inflation being a concern.

  31. 31
    zman Says:

    Anyone have a schedule for a Jefferies Boston energy conference today?

  32. 32
    VTZ Says:

    Ohhh, so more jawboning, no changes to easy money, print away, worry about it later, gotcha.

    Policy with a day-to-day basis seems like something this market would like.

  33. 33
    PackMan Says:

    Exactly … keep up the happy talk fiction …

  34. 34
    zman Says:

    Emailed SP levels from Nicky:

    900, 897, 892

  35. 35
    zman Says:

    Re 32/33. Yep, probably so. Should send the dollar lower. They can’t hope for a rally without energy going higher ya know and it should be the most profitable sector of the SP500 for 2Q so a down dollar will help.

  36. 36
    zman Says:

    RBC reiterating HK as their best gassy name buy. Attributing the weakness of last week and today due to problems with the Board Walk Pipeline (the new pipe out of the Fayetteville) which has seen some delays in ramping up. RBC makes a good point that Fayetteville accounts for 15% of HK production and that drilling results (they mentioned H.S. and E.F.S.) will overshadow lower realizations from the Fayetteville. Its pretty old news that the pipe has seen some delays but the expectation of an extension of lower prices into 3Q is new. I’d say its more than discounted into the stock at this point and more of a problem for a SWN who is squarely focused on the Fayetteville. I used to work with this particularly analyst and I concur with his assessment.

  37. 37
    zman Says:

    Analyst Watch:

    Goldman raised FRO from Sell to Buy.

    There’s nothing like a serious change of heart to pump a stock … except today, FRO down 8% like everything else.

  38. 38
    cargocult Says:

    Maybe I have it backwards so please correct me if I am wrong but it seems to me that $billions just evaporated during this financial crisis(CDO’s worthless etc) so the Fed is injecting more $billions into the system to replace the liquidity that is no more. This is not yet inflationary, rather anti-recession. Sort of what happens when somebody spills beer on the monopoly money and we have to get new notes so we can keep on playing?

  39. 39
    zman Says:

    BOP – forwarded you a note.

  40. 40
    bill Says:

    From 30,000 feet

    we have an anti business climate in wash

    -spending money like drunken sailors

    – states doing the same

    -want to tax anything that moves

    -wealth destruction in preogress

    = equal playing field– we are all now broke

    Oh yeah, blame the previous regime for all the above

    we should be holding puts and shorting everything across the board as capitlism is dead for the time being

  41. 41
    zman Says:

    Lot of names back into what I’d call 2 month support now. RRC, PXD, HK.

    SWN went clear through support, KWK getting blasted as well.

    Bill – I hear ya but I’m not there with you on capitalism being dead, more like stunted. I’ve got a lot of companies on deck that will report very solid quarters. It just seems dark now that the rally is fading, I don’t think the fade last long at all, agree the brief quarter end rally around the corner and then results driven for a time and then sliding into end of July. But all is far from lost. And the more restrictions they put on drilling, the higher prices will be in the future.

  42. 42
    Dman Says:

    Z – I was looking at GMXR calls but the spreads are awful.

    I have to be clear that the credit for inventing the phrase “sea of energy love” belongs to you, but it is true that I somewhat appropriated it πŸ™‚

    Began to see signs of the Sea in May & this worried me because it looked like a re-run of the previous year.

  43. 43
    Dman Says:

    USD up 2% against AUD and almost as much against CAD. More hot money fleeing the hard asset play.

    bill – plenty of capitalism in China etc.

    Maybe even in Iran. Which reminds me: I still don’t get why the oil market isn’t worried about the biggest instability there since 1979. Maybe they think that whoever wins, the oil will still flow. Maybe that’s right … (?)

  44. 44
    Dman Says:

    BOP – last week you were musing about CLR & I got the impression you thought it was a tad overvalued. Care to expand on your thinking there?

  45. 45
    zman Says:

    Iran looking ugly for Mahmoud, as the movement against him now has a female martyr as of yesterday. I think he probably holds onto power but that’s just a guess. Oil coming off if he leaves as he’s a wildcard, but one full of hot as he has never withheld oil from the market. A replacement would likely sink crude a bit more as he’d almost have to be less of a hot head but it also might mean he’d be firmer on the quota.

  46. 46
    Dman Says:

    It’s amazing how quickly that Iran situation developed. I didn’t see anyone predicting it. If the clerics have to back down in any way, it seems to me that this means the old system is finished. But what replaces it? How do they get from here to there? How long does that take? If anything like this was happening in Saudi, oil would be at $150 !

  47. 47
    zman Says:

    Yep, meanwhile, half a world away we’ve got that other nutbag promising to nuke everyone if the U.S. boards his ship.

    WRES getting dropped 15% for no cause. Hmmm. PQ same. This is the first day they’ve really bathwatered the really little ones and I may do a little stock shopping later in the week.

  48. 48
    md Says:

    An Iranian Expat was on CBC at beginning of the demonstrations. He reiterated that all the candidates were chosen by the Council and Supreme Ayatollah. Whoever is president reports to the Council so it’s the choice of lesser evils.

  49. 49
    zman Says:

    md – right, same deal, 4 different faces.

  50. 50
    Dman Says:

    #48 yes, true, but why did the clerics then jump in and destroy their credibility by taking sides and rigging the vote? They would only do that if they perceived that the other outcome was a threat to them in some way. By taking that path, they have basically aligned their fate with the A-man and if he goes down, I can’t see how the system stays.

  51. 51
    choices Says:

    Copper futures getting hammered today, down 5%

  52. 52
    Dman Says:

    Don’t want to ruin anyone’s day, but I just noticed that the weekly MACD is at a negative crossover on many energy stocks.

    This suggests an uphill battle for a while, i.e. positive news might still “work” but the default direction could be down in between news items.

    Eg for HK, the weekly MACD is just crossing over as the price is testing the bottom of an uptrend channel going back to October.

  53. 53
    zman Says:

    Dman – nope, good of you to point out, it is what it is.

  54. 54
    zman Says:

    Dman – here ya go. “Voting irregularities” … that didn’t affect the outcome of the vote… so go home or get shot.


  55. 55
    zman Says:

    Nicky’s 892 next stop.

    The stocks have taken a breather on going down since the first hour. Could be the FOMC turns it. Could be we have another 10% in store, difficult/impossible to say. I think the bargain hunting begins soon and I don’t think the cheapest forward multiple names will be the fastest to turn but instead the the “expensive for a reason moniker” leads the way. In mid cap E&P land that would be SWN, HK, RRC, CLR, GMXR, will post the multiples tomorrow, I’m not in a rush to pile out of cash and into more names here.

  56. 56
    choices Says:

    z-EOG hanging relatively tough, SU, COS.UN would be relative bargains if and when crude stabilizes. A lot of the energy stks have broken thru the 50 DMA, however.

  57. 57
    zman Says:

    Hear ya choices. The SP500 went through its 50 day today too.

  58. 58
    PackMan Says:

    Thanks for pointing out WRES; in at 2.11

  59. 59
    Dman Says:

    NG itself is an exception to #52: still looks to be in the middle of an upswing cycle on the weekly MACD. Crude is further along the cycle.

  60. 60
    zman Says:

    Ask Nicky what her level is below 892.


    886 then 884. Market down 5 of last 6 days. I think we are near a bounce. 879 has to hold for the bullish count going forward.

  61. 61
    zman Says:

    SEA off 7%, KOL off 8%, XNG off 5%, OIH off 6%. Not a lot discretion being exercised. Look at a minute chart on HK you can see the volume that took us to the bottom today was a couple of hundred thousand shares and that its being slow accumulated since then with volume at 5.6 mm now, that’s looking to higher than average volume by the close. Seeing similar patterns everywhere. So not everyone is in their cave.

  62. 62
    zman Says:

    Ugh ugly day. Stepping out for a bit. No point watching the red turn a slightly light shade.

  63. 63
    VTZ Says:

    Gold hanging in there all things considered.

  64. 64
    zman Says:

    V – yep, by far the least bad performance of the day. Doesn’t say much for the sustainability of this micro rally in the dollar which is what many are pointing to as the driver behind the recent pull back in crude. We may be off 4% today but crude is only off 9% from its highs last week. Many of the E&Ps are off in the low 20%s now.

  65. 65
    elduque Says:

    I am watching the dollar as my main outside market for a read. I believe it is going to go lower and that should help commodities.

    Tater do you have a read on the dollar?

  66. 66
    zman Says:

    Closing near the lows. Beerthirty.

  67. 67
    tater Says:

    I don’t really pay all that much attention to the dollar from day to day any more. I just believe it to be a joke the way it bounces around from one day to the next. I mean really, what’s changed so much from last week to this week about the dollar? Iran is blowing up so now everybody needs the “safety” of the USD?
    My personal opinion is that the US govt and people have made the obvious choice to hyper-inflate their way out of the mess created from the lack of respect for the business cycle. (We don’t need no stinking recession, we’ve got an election to win!).
    The Wimpy strategy of “I’ll gladly pay you Tuesday for a hamburger today” will come to an end when China decides that it is in their best interest to stop playing nice. (That comes when their middle class has built up its ability to be a consumer). In the meantime we get stagflation. Loads of it. There is no other answer because taking our medicine is completely off the table. Our nation simply is not capable of the thought, much less the act. (At least not yet).
    As for the semantical arguments about deflation vs. inflation, I’ll leave that up to those better schooled in that direction, it doesn’t help my trading or my tax burden, so I don’t have much use for it. Personally I use a mixed up definition more equatable to the idea of “cost of living” than some esoteric notion of the “value” of the dollar. I believe that it will cost much much more to be a citizen of this country to live at the same standard of living enjoyed just a couple years ago.
    Maybe POTUS just thinks thinks it’s more cool to say green shoots than to use the word malaise, but our present state of affairs sure does seem to be walking like a duck.

    On the weekly chart I think the dollar has the room to rally all the way to 83 but that would just be noise on the way to levels below 2008’s lows by the end of the year.
    Not one of my stronger areas so take it for what it’s worth.

  68. 68
    rseidman Says:

    Tater: I enjoy your point of view.
    Thanks. That’s a great benefit of this site!

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