06
Jul

Ugly Monday

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Sentiment Watch: Blood red ugly. Green shoots have turned out to be weeds which are quickly withering as time goes by. Even the Vice President says so.  While crude inventories have been declining for the last eight weeks, hot money that had come into commodities, oil among them, is now fleeing for the exits  resulting in WTI falling away from just short of a 7 month high to a 6 week low in the last 4 trading sessions.  Look for OPEC to step up the rhetoric regarding renewed efforts to stick with quotas and talks about "no production hikes" in September to defend $60 in coming days.  I'm glad I'm half cash and I won't be quick to fish this dip since people are looking back to the 2008 3Q and thinking what a beast it was for energy and everything else.

The Week Ahead:

  • Monday 7/6: ISM (forecast 46%)
  • Tuesday 7/7: No U.S. eco data
  • Wednesday 7/8:  EIA Oil Inventory Report, consumer credit
  • Thursday 7/9: EIA Natural Storage Report, initial jobless claims (forecast -584,000), May wholesale inventories
  • Friday 7/10: June housing starts, May trade balance, June import prices, July consumer sentiment (forecast 71)

In Today's Post:

  • Holdings Watch
  • Commodity Watch
  • E&P Bar Charts
  • Stuff We Care About Today
  • Odds & Ends

Holdings Watch:

  • $10KP: $16,300 / 61% Cash

 

Commodity  Watch:

Crude oil fell 4% last week to close at $66.28. The 12 month crude strip was trading at $70.44 before today but futures are indicating a sharply lower open this morning due to fears over a further delay in global recoveries (European GDP still very weak and U.S. job losses continuing to pile up). The dollar is making yet another effort to rebound off the lows as well with the combined effect of a $2.50 to $3 loss for crude before the open.

  • Nigeria Watch: Another week, another set of attacks.
    • MEND claims to have destroyed another Shell wellhead tied into the Bonny light export terminal and
    • a Chevron oil manifold in Delta state.
    • According to Reuters, Nigerian production has fallen 273,000 bopd in the last six weeks due to forced shut ins at Shell, Chevron, and AGIP.
    • MEND also claims to have hijacked a Chemical tanker (the Siehem Peaces) overnight.  So much for the amnesty offer.

Natural gas fell 11% last week to close at $3.66. The 12 month strip is now trading at $5.13. This morning gas is trading off nearly 20 cents with oil, a lack of tropical threat in the Gulf and a forecast that is something less than sweltering.

  • Weather Watch: Cooling Degree Days (CDDs) compared to gas storage injections:

    • Week Before Last: 76 CDDS which resulted in an injection of 70 Bcf.
    • Last Week: 64 CDDs which is in line with normal and year ago levels. This should yield a bigger injection this Thursday.
    • This Week's Forecast: 68 degree days,
  • Tropics Watch: Still pretty quiet. No development expected in the next 48 hours.
  • Canada Watch: 6th pipeline bombing in recent weeks; these are smaller lines, not the big export ones but a concern nonetheless as sabotage activity seems to be picking up.

 

E&P Multiple Update

These charts are provided as a reference and will be archived on the E&P - Metrics tab. 

 


Stuff We Care About Today

(GST) NAV coming tomorrow.

(EEE)'s Collins Quits

  • Former CEO of EEE and former CFO of EVG quits the K-Fuel story, resigning from the board.
  • I followed the KFX, then EEE clean coal story for nearly the last decade. Not good news for them to see him go. 

Odds & Ends

Analyst Watch: Pretty quiet today on the energy front. I expect this to pick up in the next few days as the "mark to market" process for the second quarter 

  • (RDS.A) cut to Neutral at HSBC
  • (CRZO) upped to Outperform at BMO

 

77 Responses to “Ugly Monday”

  1. 1
    isleworth Says:

    Great E&P update Z!!! Tks

  2. 2
    zman Says:

    Isle – I’ll add cash costs and 2010 growth to it and repost to the E&P metrics tab later this week. It’s a hand reference to have around.

  3. 3
    zman Says:

    Analyst watch:

    Caris cutting price targets on indie refiners.

  4. 4
    zman Says:

    Wondering if we get low of day early and then watch for a better ISM. No better ISM and we sell off even harder. SPX close to last line of defense.

  5. 5
    PackMan Says:

    CHK down another 7.5% on open …

  6. 6
    zman Says:

    Pack – they’re not alone. Won’t try to pick a bottom to add more positions in here until the dust settles a bit. If you look at the eco data this week there are only a couple of things that can really move the market, ISM being the first. Nicky pointed out that we are very close to a SPX right should break down.

  7. 7
    reefguy Says:

    63.97/3.45 = 18.54 Gas is oversold, and overreating to CL drop.

  8. 8
    zman Says:

    Reef – roger that. Everything I see says gas demand is off 3 Bcfgpd from where it normally would be. I think that math is a bit stale as that’s what the Street has been using for months now. I think we see a big short cover on the first tropical weather and I still don’t think we see a $2 handle on natural gas.

    One thing is certain, the E&Ps are going to be even more reluctant to put a lot of 2H09 planned rigs back to work with prices so low on the gas side and teetering on the oil side. I also think OPEC is going to start getting noisy here as $60 is not that far away (2 days trading at this rate).

  9. 9
    zman Says:

    SEA (drybulk ETF) down 3+%, in line with the commodity stocks drop. Group just can’t seem to get out of its own way.

    SP below its 50 day.

  10. 10
    zman Says:

    ISM at 47% vs 46% expected, 44% last month. Stocks, crude coming up a bit on that.

  11. 11
    choices Says:

    re: #9-Baltic Dry Index seems to be rolling over.

  12. 12
    elduque Says:

    Mahalo Z for all your work. Now if I could just convince you to come out to Maui and read it to me orally, I would have it made.

  13. 13
    zman Says:

    Eld – with your eyes closed, swinging in a hammock? I check to see if wordpress has that option, lol.

    Stocks tried to rally and then failed lower following ISM. Makes one wonder what they would have liked. Looking forward to a more news driven market in the coming days, still see no reason to get in the way of the fear that seems to be gripping the broad markets.

  14. 14
    zman Says:

    Nicky’s “must hold” level for the SP500 is 888.

  15. 15
    Dman Says:

    The well known defects in UNG result in it making new lows while NG has not (yet) done so. This could pressure NG if fund managers react to the technical breakdown in UNG.

  16. 16
    choices Says:

    Excellent summary and charts this morning, Z.

    Thanks.

    Z. what is your view of the seasonality of Nat Gas-I see a lot of chatter that it usually bottoms end of July rallies and tests bottom in Aug and then “to the moon.” I think you make a good point that the drillers are not going to put rigs to work until they see a solid recovery in price-I think this rejects the seasonality theory.

  17. 17
    zman Says:

    Dman – Agreed. I think regulators are going to take UNG and USO apart (or at least make them restructure how they operate), probably next year. The CFTC is considering position limits for commercial and non-commercial traders. I can’t see how UNG would get around that.

  18. 18
    Dman Says:

    CRK now only 21% above its October 2008 panic low.

  19. 19
    zman Says:

    Choices – I call it roving seasonality. Aubrey at CHK has referred often to it in the past that the rally in gas seems to come a month earlier each year (although not at all last year). I think this cycle is pretty different than past ones, that we don’t see a rally to the 2008 highs for quite some time but instead to that $6 to $7 range (which from here is still a pretty good rally). Unlike in the broad markets and in crude however, it will be much more attenuated to a change in data (lower supply) than it will be to sentiment. That’s not to say that traders won’t cover a bit in front of each of the monthly numbers but I think it will take hard data showing declines to maintain the rally begun by covering. Storms really saved gas’ bacon last year, shutting in 7 Bcfgpd or some large portion thereof for months. That would help again this year. But we’re aways from the really busy part of the cane season now and what we really need is an industrial recovery and lots of heat.

  20. 20
    zman Says:

    Has anyone seen a Street based GST comment? Bought a little on Friday in a couple of family accounts. Stock not getting any follow through today but not crumbling either at $0.56. Much more interesting without the giant debt load and the distraction of a foreign subsidiary. Now focused on just E. Texas (deep Bossier – think deep, high pressure gas, costly but big IP and in a good area with CHK, ECA around and playing in the play and the Knowles Lime (less tested) and with more upside potential over in the Marcellus and some in the PRB in Wyoming. Australia deal on Friday wiped out there debt, interesting.

  21. 21
    zman Says:

    ISM comments, services still contracting but best levels since last September:

    http://www.marketwatch.com/story/ism-gauge-shows-service-sector-on-road-to-recovery

  22. 22
    Dman Says:

    XCO gap filled

  23. 23
    zman Says:

    Dman – lot of that going on. New gap creation too. See HK Thursday and again today.

  24. 24
    Dman Says:

    NOV & OII have broken down thru lower line of ascending channels since March. In a sense this is positive: those channels were unsustainable. But both have monster sell signals on weekly MACD, so I’ll wait a while before looking at this as an opportunity.

    By comparison, whilst many E&P charts have also just gone negative on weekly MACD, the signal doesn’t have the “monster” character that some of the service charts do.

  25. 25
    BossmanG Says:

    Hi Z, came across this natural gas article from 2006, I didn’t realize negative spot prices were possible?
    http://news.bbc.co.uk/2/hi/business/5402370.stm?ls

  26. 26
    zman Says:

    Dman – I was early on my OIH shorts by about 6 weeks. Not going back in for now. My hedge is cash as this can turn when you least expect it.

  27. 27
    zman Says:

    Boss – yeah, I remember that, extremely rare though, has never happened this side of pond, no danger of it happening now. There’s a much smaller storage system with a lot less flexibility than the U.S. system, much more of a demand market than a storage market. The U.S., by contrast is seen as the world’s greatest salt cavern, taking excess supply off the high seas when need be.

  28. 28
    Dman Says:

    #25 Who said markets have no sense of humor? The price was negative but no one could “buy” it because they had nowhere to put it.

  29. 29
    VTZ Says:

    Z- You were asking about oil sands CO2 the other day and I said I expected Alberta to give out funding. I didn’t see this until today due to vacation:

    http://alberta.ca/home/NewsFrame.cfm?ReleaseID=/acn/200906/2638932A61D80-09C7-C9F7-CCD99F5E0113E39A.html

  30. 30
    zman Says:

    V – any idea how much capacity Scotford upgrade is of total? I’d like to get to a $/barrel figure at some point. At $2 billion it does not sound like a big cost so far, am I reading that right?

  31. 31
    zman Says:

    V – was thinking about SU and some other oily names when you send along 29. Just sitting on hands for now but they oilier names are getting whacked today. Same goes for oil dependent oil service, like RIG. Meanwhile, market seems frozen, like vacations are ongoing.

  32. 32
    zman Says:

    Analyst Watch: Lazard takes CLNE target from $10 to $12.

  33. 33
    zman Says:

    LNG still running 1.3 Bcfgd, +0.2 YoY

    Canada was 7.3 Bcfgpd last week, that’s a big uptick from recent weeks but still off 0.9 Bcfgpd. Guess they figure they better ship it south of the border while there is still room.

  34. 34
    VTZ Says:

    The government is willing to fund 2 billion worth of CO2 infrastructure projects.

    The Scotford project is applying for a portion of those dollars.

    Scotford’s capacity is ~150,000 bpd today and ~250,000 bpd in early 2011 (post-expansion s/u).

    At 150,000 bpd Scotford upgrader produces 1.5 million tonnes of CO2 per year. Their project is designed to capture and store 1.2 million tonnes of CO2 per year so they are eliminating 80% of CO2 from their current facility. The average industry cost is about 100-120 $/tonne so we have an annual cost of:

    100*1200000$ / 365*150000 bbls = 2.20 $/bbl

  35. 35
    VTZ Says:

    or looking at it as a reduction of the 250,000 bpd facility (post 2011) then you have

    100*1200000/365*250000 = 1.31 to offset 40% rather than 80%

  36. 36
    zman Says:

    Thanks much V!

  37. 37
    tater Says:

    Is WRES the mini SLB?

  38. 38
    tater Says:

    And what was the name of the hurricane clean-up company? The one that always seems to go through the roof when weather is threatening.

  39. 39
    Dman Says:

    #38 OII

    #37 huh?

  40. 40
    Dman Says:

    #37 I think you mean WFT

  41. 41
    zman Says:

    Tater – that would be WFT

    OII on the cleanup

  42. 42
    zman Says:

    Dman – thanks for the assist, I was busy listening to the ongoing Jackson estate issue on CNBC and wondering, for the 15th time this month, how those guys at CNBC have come up with yet another topic that has absolutely 0 impact on my bottomline.

  43. 43
    tater Says:

    Yes WFT. Thank you.

  44. 44
    tater Says:

    Thanks on the OII as well. I always seem to read that as “Oil” whenever I see it and my eye just skips over it.

  45. 45
    choices Says:

    http://www.nytimes.com/2009/07/05/opinion/05rich.html?_r=1

    Goldman seems to be in control:
    1. Elimination of the weekly reporting on program trades-theory is Goldman major beneficiary;
    2. Goldman alumni major component of the Geithner/Summers group;
    3. Sheila Bair FDIC cut out of consumer finance review.

    Fairly depressing news overall.

  46. 46
    PackMan Says:

    choices … not all good for Goldman today …

    http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html

  47. 47
    choices Says:

    Interesting, Pack. Thanks. Evidently the Matt Tiabbi article also sent Goldman into a fury-it would be less concerning to believe that they are not in total control but I do not think Geithner/Summers will stray too far from the reservation.

  48. 48
    Dman Says:

    re #45-47, this is an interesting site:

    http://www.goldmansachs666.com/

    … pointed out by Wall Street Manna:

    http://aaronandmoses.blogspot.com/2009/07/goldman-sachs-runs-with-its-tail.html

  49. 49
    1520sbroad Says:

    Z – BOP still out?

  50. 50
    zman Says:

    BOP’s busy with getting back from vacation.

  51. 51
    Dman Says:

    z – #42

    from James Kunstler:

    “Like the United States, Michael Jackson was spectacularly bankrupt, reportedly in the range of $800-million, which is rather a lot for an individual. Had he lived on a few more years, he might have qualified for his own TARP program…”

    http://kunstler.com/blog/2009/06/the-man-in-the-mirror.html#more

  52. 52
    1520sbroad Says:

    #50 – thanks

    Z – any guesses on why SWN is out front today?

  53. 53
    zman Says:

    Re SWN. No, that is odd. Broke 200 earlier.

  54. 54
    zman Says:

    200 day ema that is, then snapped back above it. A lot of the gassy stocks are at support, most of them in the lower half of the support range or breaking through it now. So it’s either time for a turn or a breakdown as we’ve had 3 weeks of slippage here.

  55. 55
    1520sbroad Says:

    swn – looks like decent volume for this time of day too.

  56. 56
    PackMan Says:

    KOG at 0.905 down 10% …

  57. 57
    Nicky Says:

    Good afternoon to all.

    Firstly apologies for that lousy call last week saying oil was heading higher! I had been quite bearish on oil until that rogue trade after hours last week which took oil back above 73 – it faked me out and I thought we were going to make new highs.
    I still do think we will go higher but likely this correction is not done. I think we are in a big wave iv correction and currently in C. I think it likely that we soon see a bounce back to the $66 area before heading most likely down to the early $60’s. We are now down five days in a row.

  58. 58
    1520sbroad Says:

    z – question about one of the bar charts in the post this morning – market implied value per MCFE – i think it is the 4th one from the top. the per MCFE portion – what type of reserves is that?

  59. 59
    Nicky Says:

    Broader market – 888 got taken out earlier today and likely means we are heading lower after a correction to the 906 – 912 SPX region. If 878 gets taken out then we are looking at 810 – 850 in short order.

    Could the top of the bear market rally be in . Yes its possible but not my preference. I think after this correction plays out we make another move to the upside before turning lower later in the summer.

  60. 60
    zman Says:

    Nicky – Can I get your thoughts on the SP chart?

    1520 – those are proved reserves, the SEC definition. Not potentials. This is why some of them with tons of inventory to drill, like a SWN or an HK is going to look a bit pricey.

  61. 61
    1520sbroad Says:

    #60 – got it – also answered my real question about those with a big drillable inventory.

  62. 62
    Nicky Says:

    SPX Z?

  63. 63
    zman Says:

    59 took care of it Nicky, thanks.

  64. 64
    zman Says:

    re 56, yep, I see it. No big move after the recent wells, was close to a breakout last week. Would buy more but am sitting on hands with last summer’s “it really shouldn’t get much cheaper” thought in my head. I’m content for “them” to turn this and not pick bottoms.

  65. 65
    Nicky Says:

    Gold – looks to be in v down. Needs to stay under 935 and then we likely go down in v to the 880 – 886 level.

  66. 66
    zman Says:

    Will have trucking short list in a minute, relayed from a pretty smart trucking analyst, don’t think he’s going to Cramer anyone on these.

    HK trying to hold $19. Ugh.

  67. 67
    zman Says:

    Trucking shorts from a hedge fund transport analyst/manager:

    cvti, fwrd, saia, yrcw.

  68. 68
    PackMan Says:

    64 – just pointing it out for those who might want it at that price..

    HK ugh is right !

  69. 69
    choices Says:

    clr getting crushed-ugh doesn’t do it for that one.

  70. 70
    zman Says:

    Roger that Pack and thanks, good to point out the sales when they happen. Man, I thought I got a good price on it a couple of weeks ago at 0.92.

    We have no eco-data in the U.S. tomorrow, for the last several weeks, the no eco days have been pretty ugly. Looking for a bounce of some kind soon here. On the HK, they have a predilection for Tuesday data releases in this general time frame, some Wednesdays but mostly Tuesday, so could be tomorrow, or next week, I don’t think they wait to release news until the Q in mid August.

  71. 71
    zman Says:

    Union calling on Geithner to force out Lewis.

    http://www.nypost.com/seven/07062009/postopinion/opedcolumnists/the_ceo_hostage_crisis_at_bofa_177806.htm

  72. 72
    choices Says:

    SWN, VLO standing in there amidst the carnage.

  73. 73
    choices Says:

    I am starting to not like Mondays.

  74. 74
    rkbos Says:

    Z – Today I show that HK saw very strong buying of Aug 21 calls (vol of almost 5800 vs. open interest of just 24), with many having traded on the offer. My options data tends to be suspect now and then, so I’d appreciate your confirming whether or not these figures are accurate. Thanks.

  75. 75
    zman Says:

    rkbos, I show 5,240 August 21’s traded today.

  76. 76
    PackMan Says:

    I show 5240 traded, with a prior open interest of 24.

    HK 19.80 x 19.89 after hours.
    Closing price was 19.32.

  77. 77
    rkbos Says:

    Thank to the both of you.

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