12
Jul

Wrap – Week Ended 7/10/09

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Wrap Comments

  • 1) Bad Week For Oil & Gas Prices. Oil led the way lower with indeterminant action in the dollar and a second week of mix bag reports out of the EIA. Natural gas saw its 3rd consecutive week of better than expected injections to no avail on pricing (see next comment and Friday's gas thoughts).
  • 2) Gas Rigs Hit New Low For This Cycle. I've heard multiple comments both from analysts in the last two weeks and before that from North American service providers that the U.S. gas rig count  is turning up. Doubtful, sideways if not lower in my book.  True enough that in the past, big swoons in the rig count have more often than not been followed by a V-shaped recovery in drilling. Hate to use the fateful words but "this time it's different". And in a number of ways:
    • First, we have weak natural gas demand (although Friday's post hinted at a possible recovery bearing out in the weekly storage numbers). This weak demand (primarily due to weak industrial and commercial demand),  combined with high production, has yielded record gas storage for this time of year. High gas storage in and of itself does not forestall a gas price recovery. 2006 saw similar peakish storage and gas prices were nearly double then what they are now (near 7 year lows). However, the lack of substantial (even noticeable production declines outside of Texas) does. Until we see real declines in the "other states" category, and in Oklahoma, Wyoming, New Mexico, and of course more from Texas, gas prices will waffle about. We also have position limit talks starting from the CFTC and Congress leading to a tendency on the part of the big name traders to remain on vacation just a bit longer until D.C. decides how the game will be played in the future. So gas prices remain depressed.
    • Second, E&P companies are snake bit right now. New shales are holding up better than expected. So with such low gas prices there is no reason to bolster one's efforts in the conventional plays to meet production goals that for many target a flat '09. Recall that non-conventional gas production in the U.S. (CBM, shales) accounts for only 15% or so of total U.S. production so despite the high number of monster wells being reported at present, this piece of the pie will be hard pressed to overcome the 30+% decline of the U.S. aggregated gas supply wedge.
  • Crude Is "Well Stored" But Distillates Remain The Real Trouble For Fall/Winter Crude Pricing. Refiners are going to need to take extended maintenance outages this late Summer/early Fall to balance things out. Good news for the trucking stocks in the States but bad news for refiners unless crude prices tumble. A lot of people are thinking oil will be in the $65 to $75 range again in Q4 and I am currently in that camp but the oversupply of products, as we make the shift from gasoline wagging the crude price dog to heating oil will make things tricky and therefore most likely limit upside for crude much beyond the top end of my range. 
  • No Alternative Love; TBP and BP Ease Back. We saw the "Energy Bill" get through the House two weeks ago and the wind and solar stocks are still not getting their legislatively mandated respect. Note that both T Boone Pickens and (BP) took steps to ease back from the renewables market last week. T Boone is hot on the trail of natural gas powered vehicles and we saw The Natural Gas Act introduced to the Senate last week along those lines. Concurrently, Boone delayed his Texas wind project until 2013. Meanwhile (BP) closed their alternatives HQ in London but will still spend 500 mm to $1B on wind, solar, and geothermal this year so they are not exactly out of the race but are looking at the reality of the continuing global recession as it pertains to the alternative energy plays (few subsidies in Europe, more tax breaks in the U.S.).  
  • No Signs Of A Global Trade Recovery. Rates for the largest ships, the Capesize's plummeted last week. Despite high profile brokerage upgrades for a couple of the stalwarts in the groups, the stocks continue to weaken and a couple of ship order cancellations won't help valuations although it starts to minimally address oversupply concerns. Watching, waiting, avoiding the drybulk group for now.

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One Response to “Wrap – Week Ended 7/10/09”

  1. 1
    Dman Says:

    How many Brits does it take to change 340 million light bulbs?

    http://www.telegraph.co.uk/earth/energy/5797435/Low-energy-lightbulbs-mailed-to-British-families-that-cannot-use-them.html

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