19
May

Wednesday – Oil Preview Plus Catalyst List

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Market Sentiment Watch: Yesterday saw another plunge for the euro, rally in the dollar and a sell off for everything else. We've been trading in a weak and conviction-less tape and the same goes for the open today. Note that the ZCAT is largely in cash and the few positions there are all worthless having been caught weeks ago by the market downdraft I don't expect catalytic news this week (and even if it came out I doubt it could offset the impact of the swings in the broad markets which are at the whim of unilaterally acting Germans) leaving me sitting on my hands in that portfolio. For the ZIM, I've continued to average down a little each day in the same positions and that will be somewhat costly without a market turn  today, tomorrow or Friday.

The buzzword returning to everyone's lips is deflation, that one disease for which the Fed has no cure (if you accept that unemployment is not a disease but a symptom of recession).  Also look for Washington to add to uncertainty this week with an attempt to pass a financial reform bill which threatens to reverse progress made over the last year freeing up lending while at the same time failing to address the root causes of the problems that led to the crisis in the first place. Combine  all that uncertainty with a strong dollar (because things appear to be even worse overseas) and this all leads to a market that is very much on edge. Look for a test of the 200 day moving average for the S&P 500 today early and if that breaks, a test of the "flash crash" lows of May 6th and more importantly, a test of the 2010 lows. I have to step back and say that the dollar up / market down relationship is alive and very healthy, contrary to all the talking bobble heads that work at CNBC and who espoused the relationship's demise so often earlier this year. Quite simply you guys were very wrong. And finally, earnings continue to come out better than expected (HPQ last night, TGT this morning) and the domestic economy continues to show grudging indications of improvement. It doesn't matter at the moment but it will down the road. Looking for an intraday turn "any day now" to signal buyers are participating.

Ecodata Watch:

  • CPI came in at -0.1% vs -0.1% expected
  • Core CPI was 0.0% vs +0.1% expected


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today – Catalyst List Update, EOG
  5. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $7,900
  • 94% Cash
  • Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades:
    • NONE

 

ZIM (Zman Inefficient Markets portfolio)

  • $15,300
  • 65% Cash
  • Yesterday’s Trades:
    • HAL - Added (200) HAL $30 May Calls for $0.05. The position is now full and though its a lot of contracts, it's not a lot of money.

Commodity Watch:

 

Crude oil bounced over $2 early but upon the euro's further demised closed off $0.67 at $69.41 yesterday, crude's first close below $70 this year. Demand is up but this is all about currencies.  After the close, the API released a mixed bag of a report showing moves counter to those expected in crude and product stocks (see below). This morning crude is trading down 30 cents after a much bigger drop earlier but suddenly we are back to July 2009 levels.

 

Natural gas eased $0.06 (also after an earlier morning gain) to close the day at $4.34 yesterday. The Street is looking for a below average injection due to a combination of low imports, and cold in the northern tier of the country mixed with heat in the south last week.  This morning gas is trading down a few pennies.


Early Read On Natural Gas Storage: Street is at 79 BCF for tomorrow’s report.

  • Last Week: 94 Bcf Injection
  • Last Year: 100 Bcf Injection
  • 5 Year Average: 90 Bcf Injection
  • 10 year Hi: 110 Bcf Injection
  • 10 year Low: 50 Bcf Injection

 

Oil Inventory Preview


API Watch: 

  • Crude: DOWN 794,000 barrels

    • with Cushing inventories shown up 914,000 barrels (doubtful but if true then another hard knock for prices)
  • Gasoline: UP 981,000 barrels (I really doubt EIA will report a build here)
  • Distillates: DOWN 331,000 barrels


Stuff We Care About Today

Catalyst List


Changes to the list as always are highlighted in yellow.

Most important near term catalysts:

  1. HK analyst meeting next week. The stock has been an under-performer to say the least this year and yet it seems to be making all the right moves in terms of asset sales, production profile shift targeting the Eagle Ford, hedging, capex vs cash flow etc. With the advent of more liquid rich Eagle Ford wells, the opportunity for them to snap back could bear out in the form of a 10 to 15% move higher post meeting.
  2. SM Niobrara and Granite Wash. First results from significant acreage positions in both plays could lead to upward NAV revisions. Niobrara "hotness" will return again when the market becomes more rationale.
  3. BEXP biggest frac stage well yet and at Ross and near their 5,000+ boepd completion is just around the corner from completion. Bigger news (biggest of the year) is due end of June / early July.


Other Stuff:

  • I'll have the Small Cap E&P Orange Charts out tomorrow.  (GMXR, PQ, GDP, ROSE, BBG, CRK BRY WLL, SD, SM SFY EXXI, BEXP)
  • EOG Buys Into Canadian LNG Operation
    • Good fit as the company continues to develop it's Horn River Basin asset in British Columbia and has mentioned LNG as one avenue in getting volumes to sales via the port at Kitimat.
    • EOG will have 49% of operations with APA owning the other 51%.
    • EOG has experience producing into an LNG train in Trinidad, so it's not their first rodeo
    • Undisclosed sum but it probably explains a portion of the debt offering earlier this week.
    • Volumes from Horn River are not set to really ramp until 2012 (into piped markets) and this facility would not be on line until 2015.
    • Production into the facility would be tied to oil index prices.

Odds & Ends

Analyst Watch:

  • Nada - in fact, recommendations for all sectors have sharply fallen in the last 2 weeks as analysts step to the sidelines due to the market.

114 Responses to “Wednesday – Oil Preview Plus Catalyst List”

  1. 1
    zman Says:

    On CNBC a guest is talking about not knowing what the problem was in the flash crash but the govt being willing to impose new curbs. I agree with his confoundedness at this.

    I actually stripped it out of the opening part of the post but had written about two hot news headlines that came across yesterday. The first said the SEC was imposing new curbs and the second said it and CFTC were still not sure what the problem was. This reminds me of what is wrong with much of government these days. They act before they know what the problem (if it really was a problem) was to “fix” something they don’t understand. Since there is a lot they don’t understand there is a lot of legislation that misses the target. Everyone needs to slow down and take a hard look at the potential consequences of actions before they just try to, um, change things for the act of changing them. Some days you can get out of bed and actually breath the air and not feel the need to change its molecular structure. I promise.

  2. 2
    zman Says:

    And Joe Kernon saying that Congress has a panel coming back to explain the financial crisis but not until November. So of course, we are voting on financial reform this week. Sheesh, ugh, etc.

  3. 3
    BirdsofpreyRcool Says:

    Good Morning Watch Summary. Thank you.

    Credit Markets are actually better this morning. We will see who follows whom, once stocks open. Our “Cash TED” indicator is back to the wides of last week (although so far from the Panic Wides of 2008 as to be like trying to see Istanbul from the top of the Empire State Building). A CDS trading desk is actually suggesting that stocks could close day unch’d, but is hoping that is not the case. I think a lot of professional investors want to see the mrkt completely rinse out, before starting the next wash cycle. If you didn’t get a chance to read it last night, BedTime Market Strategist was worth reading.

    IG -3bps tighter (good)

    HY +1/8 pt higher (barely good)

    TED 30.7bps, back to post-Thurs Plunge Day closing wide (but not as wide as TED got intra-day on May 7th)

  4. 4
    zman Says:

    Tar balls found in Key West are not same type of oil as from BP spill. This find is what helped turn that group of stocks yesterday. Nice.

  5. 5
    BirdsofpreyRcool Says:

    post #1 hear, hear!!

  6. 6
    zman Says:

    BTM last night was one of the best he’s written in my short time reading him. Very well put.

  7. 7
    zman Says:

    Crude off a dime at 69.30 after testing $68 overnight. Take a look at the link in the post for you visual types. Looks like its time to bottom/small bounce from here. Dollar has had a heckuva run but I have to wonder when you hear sovereign debt and California in the same sentence more commonly. Don’t wait for CNN, they’re reporting about lost cats these days. Find your local BBC half hour or the occasional guest on CNBC for that. Wondering also if that’s the impetus for Byron Wien’s $1,500 gold target.

  8. 8
    Nicky Says:

    Morning all. The British reporters on CNBC were saying that the EURO is actually considered fair value here at 1.22 so what the heck is all the fuss about. German exporters loving it. The comment was that Euroland is not as good as putting a ‘spin’ on their falling currency as the US. Remember all those months the dollar fell whilst Geithner professed to support a strong dollar??

  9. 9
    BossmanG Says:

    Goodmorning all, just got back from a vegas bachelor…first time there.
    I must say the booze/clothing/cars are much cheaper then here in canada…booze was at least 50% cheaper. Wow.

  10. 10
    Nicky Says:

    Same levels apply as the ones I put up late last night. But in case not everyone saw them –

    1107 is the 62% retracement of the rally off 6th May. 1091 is the 78% retracement of the same rally.

    1101 is the 200 dma.

    I am seriously open to almost anything here! We could make a low early today and head up to 1065 into Opex. Or today could be more wildness and still end lower.

    My preference is for 1101 – 1107 to hold on this wave down.

  11. 11
    BirdsofpreyRcool Says:

    Howard Weil initiates EXXI with a Market Outperform and price target of $30 saying the co offers investors a high-impact exploration program supported by a cash flow stream generated primarily through development/exploitation activity as well as the acquisition of primarily mature, oily producing assets.

  12. 12
    elijahwc Says:

    Energy XXI initiated with a Market Outperform at Howard Weil; tgt $30

  13. 13
    Nicky Says:

    Resistance is at 1120/1122, 1126,1135.

  14. 14
    zman Says:

    Thanks Nicky.

    Glad to see HW showing a little spine, most brokers have backed away from the market at this point until things settle out.

    RIG stating for the record that the batteries on BOP were not dead. Also stating that BP overrode their guy on the decision to continue PA’ing the well after reducing the pressure in the wellbore and receiving anomalous pressure readings. BP saying that the MMS only requires a positive pressure test, not a negative one as well.

  15. 15
    BirdsofpreyRcool Says:

    Rig Gear Supplier Cameron May Prove Winner After BP Oil Spill
    2010-05-19 04:00:00.3 GMT

    By David Wethe
    May 19 (Bloomberg) — Cameron International Corp., whose stock plunged after a safety device it supplied became a focus of investigations into the Gulf of Mexico oil spill, may find its fortunes boosted by the disaster.
    Cameron and other manufacturers of drilling gear, including National Oilwell Varco Inc., may benefit should the April 20 rig explosion that triggered the Gulf spill lead to stricter regulations, said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston. Rules to improve safety would lead to a jump in sales of equipment to meet new standards, he said.
    “The likes of Cameron could see a 180-degree turn in impact from this event within a short period of time,” said Scott Gruber, an analyst at Sanford C. Bernstein & Co. in New York. “It could happen very quickly.”
    Cameron made the so-called blowout preventer on the Deepwater Horizon drilling rig that was designed to contain a surge in pressure like the one that killed 11 workers in an April 20 explosion and fire that set off the oil spill. The blast occurred while BP Plc, which leased the rig from Transocean Ltd., was drilling a well in 5,000 feet (1,524 meters) of water.
    Cameron, which has been named as a defendant in lawsuits related to the incident, dropped to a seven-month low of $34.65 in New York trading on April 29. The stock has 18 buy and 9 hold ratings from analysts. It will climb 41 percent in the next 12 months, according to the average analyst price target.
    Closer scrutiny of offshore drilling already is underway.
    The U.S. Interior Department halted drilling permits for new wells pending findings of a government study into the incident.

    Presidential Commission

    President Barack Obama plans to create a commission to investigate the drilling accident, following presidential probes in prior decades of the Three Mile Island nuclear accident and the Space Shuttle Challenger disaster, an administration official said on condition of anonymity.
    The commission will be established by executive order, possibly this week, and will have no current government officials among its members, the official said.
    Blowout preventers, known as BOPs, are among the most important pieces of safety equipment on an offshore drilling rig
    — and also one of the most expensive. A system costs about $40 million, or roughly 10 percent of the total cost of the vessel, according to Quest Offshore Resources Inc.
    The top three BOP makers, based on sales, for deep-water rigs are Cameron, National Oilwell Varco and General Electric Co.’s GE Oil & Gas unit, said Paul Hillegeist, president of Quest Offshore. Fewer than 10 companies around the world make the devices for deep-water drillers, he said.

    ‘Rocket Science’

    A BOP consists of a series of valves installed at the wellhead that close to prevent the escape of pressurized fluids from the petroleum reservoir below ground.
    The devices can be up to six stories tall, according to Houston-based National Oilwell Varco, which ranks ahead of Cameron as the biggest U.S. maker of oilfield equipment. On offshore rigs, the systems typically are installed underwater at the seafloor by remote-operated robots.
    “This stuff is rocket science,” National Oilwell Varco Chief Executive Officer Pete Miller said Sept. 10 at the Barclays Capital CEO Conference in New York.
    Katina Hargett, a spokeswoman for National Oilwell Varco, didn’t respond to telephone messages seeking comment for this story. Rhonda Barnat, a spokeswoman for Houston-based Cameron, declined to comment. Nigel O’Connor, a spokesman for GE Oil & Gas, said he couldn’t immediately comment.

    T-3 Energy

    Steve Krablin, CEO at T-3 Energy Services Inc., which also provides services and parts for the safety device, said increased regulations could mean “big opportunities” for his Houston-based company. More companies will buy backups for safety equipment, including BOPs, he said.
    “There’s already a redundancy in the industry, but that doesn’t mean there can’t be more redundancy when you become very cautious about the effects of a tragedy like this,” Krablin told investors on an April 30 conference call. “For us, most of the things that you could speculate that could come from this would have the result of increasing our revenue, not decreasing it.”
    Most offshore rigs are equipped with two BOPs, one of them a backup unit, said Leslie Cook, senior research analyst at Quest. There are currently 239 floating rigs under contract or available for work around the world, as well as 80 more that are under development, she said.
    The biggest equipment makers will probably benefit most as the oil spill passes and drillers move to meet new safety standards, said Uhlmer of Pritchard Capital.
    “Anything in the Gulf of Mexico is coming under pressure, but in the long term, their business should actually improve,” he said.

  16. 16
    zman Says:

    Thanks BOP, good points there.

  17. 17
    zman Says:

    Oil up 15 cents, inventories in 45 minutes.

  18. 18
    BirdsofpreyRcool Says:

    CDS Trading Desk saying that “if we are rallying [CDS] becasue of ECB buying EUR this is a desperation call and I actually think it probably fails to have a real push tighter… so it’s worth reshorting again.”

    IG CDS -3bps

  19. 19
    zman Says:

    EOG moving on the Kitimat LNG deal, its a good deal for them logistically due to the tie in prices of their gas to an oil index. But maybe more just an excuse for the stock to bounce after the post earnings pullback.

  20. 20
    rseidman Says:

    #6 BTM? Who is that? Sorry if I’m a little slow this morning.

  21. 21
    BirdsofpreyRcool Says:

    z — you might want to add little EGY to your catalyst list. After a couple of years of doing pretty much nothing, they actually have some well-scripted events coming up. Worth noting, imho…. especially as almost $2 of share value is pure cash.

  22. 22
    BirdsofpreyRcool Says:

    #20 “BedTime Market Strategist”

  23. 23
    zman Says:

    re 21. Agreed, will do.

  24. 24
    BirdsofpreyRcool Says:

    EGY — the thing about their offshore Gabon oil play is that, if the structure is there, it has oil. It’s not terribly complex geology. Structures are low-relief, tho… like 20-40 ft of closure. Also, EGY has no incentive (b/c of Gabon Concession Tax Structure) to exceed the processing capacity of their FPSO at 25kboe/d. Although, with their 2 recent well successes, they already exceed that (telling me they will choke back, or not pump, their wells as aggressively… but, a proved reserve stays a proved reserve). The growth in EGY will come from anything positive they can do with their on-shore Gabon concession and anything accretive they do with their pile o’ cash. Then, there is the Angola offshore concession. I give that a zero and actually think they lose the $10mm of cash in escrow there.

    Anyway, we could hear about an onshore Gabon partner and drilling plan any day now… and they have just spud their highest impact well permitted for this year, the SE Etame wildcat well. If successfuly, this one well could double the company’s proved reserves (yes… it is a small company, but the COO is teriffic, imho)

  25. 25
    rseidman Says:

    BOP, thanks

  26. 26
    Nicky Says:

    CNBC saying that they are voting on something to do with financial reform at 2pm this afternoon. Final vote likely to take place at 8pm tomorrow night.

  27. 27
    Nicky Says:

    Bullish count has us working on v of C of 2 down now. Shouldn’t go lower than 1091 for this count.

  28. 28
    Nicky Says:

    Bearish count has us working on v of i of some larger degree wave (still to be determined) to the downside.

  29. 29
    Nicky Says:

    Bullish count cannot be totally dismissed until we take out 1065.

  30. 30
    zman Says:

    Nicky – do you have the 200 day at about 1101?

  31. 31
    elduque Says:

    i am looking at SU for a med term play. Any thoughts?

  32. 32
    zman Says:

    WHX down 10%.

    Eld. Not a lot of rhyme / reason to the flushing going on. Just flushing. I don’t own them and would have to see oil at least stabilize which means the S&P stabilize before I’d add.

  33. 33
    Nicky Says:

    Yes 200 dma is at 1101.

  34. 34
    zman Says:

    EIA oil inventory snapshot

    Crude down 20 cents pre report at 69.20

    Inventories:
    Crude UP 0.2 mm barrels
    Gasoline DOWN 0.3 mm barrels
    Distillates DOWN 1.0 mm barrels

    Demand
    Gasoline: 9.1 bpd, not great
    Distillates: 4.086 mm bpd … very good number

    ….

  35. 35
    zman Says:

    Cushing up 0.9 mm barrles to 37.9 mm barrels. Big numbers there continue.

  36. 36
    Jerome Blank Says:

    Gap filled 1108, probably the low for the day…

  37. 37
    zman Says:

    Inputs to refineries rose another 150,000 bopd and the gasoline number came in where it did due to increased production gearing up for the traveling season. Expect demand to rise there next week.

    Crude going slightly green so far, more in a bit. These are not bad numbers except for that Cushing data point. Great to see distillates move into the upper middle range of demand for this time of year. That is likely to be a combination of increased trucks rolling for inventory resupply in the States and is definitely an indication of stronger export markets to Latin America for diesel.

  38. 38
    zman Says:

    HAL CEO out with a statement saying his company is “fully indemnified” for U.S. Gulf Oil spill. I would file that under true but not sure anyone is going to believe you buddy.

  39. 39
    zman Says:

    HAL popped for about a minute on 38 before selling back off. Reef, TEXW, Wyoming, GMLGDC, it seems to me HAL is stating the obvious. How hard / time consuming / costly is it to determine where there is a problem with the cement job and to fix it? Thanks.

  40. 40
    zman Says:

    One final note on EIA for a bit: Imports stayed high relative to their position all year long, this is the 4th week that’s been the case so having a small build in stocks is not a function of a pull back there but more one of refining demand.

  41. 41
    Nicky Says:

    We look to be working on a wave iv. Could waste a bit of time. After that lower lows.

  42. 42
    zman Says:

    Lastly, those EIA demand numbers for distillates should be very welcome news to the likes of VLO and SUN primarily but also HOC and FTO. The distillate demand increase for the last 3 weeks runs counter to a nearly 2 year long trend of nothing but poor demand. The refiners don’t care today because the market is fearful of Europe uber alles but it’s also going to matter down the road and is likely to mean better than expected 2Q earnings for the group.

  43. 43
    cargocult Says:

    WHX now has a potential yield of almost 17%. Is the market telling us that they can not deliver? Or perhaps this is a baby and bathwater deal? They paid .70 on Tuesday so that explains some of the drop. What does our inefficient markets dept think at this moment in time?

  44. 44
    Nicky Says:

    If we roll over again and enter into v down and it wants to extend then the 1090/92 area would make a nice target.

  45. 45
    zman Says:

    Cargo – I’ve gone over the distribution there backwards and forwards. The fear is not that they can’t deliver as it is a simple model, not all that affected by price, with predictable declines and cots. The two downgrades yesterday pointed out the fact that in 2017 (and one said 2015 and his assumptions were bunk) the trust will be out of reserves to produce. This was known before and is not new. I’d put them in the sour grapes camp as they missed out on the move to higher levels with hold ratings and downgraded to sell as oil and the markets were coming off, adding to the fear factor. I’m waiting out DC’s ruling tomorrow and plan on adding a third slice before the weekend. I fully expect higher oil prices next year, which matter much more to the model then than they do now and I plan on holding well in 2011 and collecting distributions the whole time.

  46. 46
    zman Says:

    By the way, the dollar has been falling all day and crude and equities just don’t seem to care.

  47. 47
    zman Says:

    SEC, CFTC at a loss to explain “flash crash” but are willing to make rules to try to stop another one. That’s just dumb.

    http://www.marketwatch.com/story/regulators-on-the-flash-crash-its-complicated-2010-05-19

  48. 48
    zman Says:

    Nicky – hears to them going ahead and taking it there so we can get another massive short covering rally on technicals.

  49. 49
    Nicky Says:

    Double checked – 1102.12 is the 200 dma

  50. 50
    Alhambra Says:

    #4: Would that be due to the fact that they’ve been dropping chemicals in the spill; so would it change the type of oil found in the tar-balls?

    #47: yeah, it’s hard to explain it without placing blame and a resulting lack of confidence in the markets. (Third-world-esque if you ask me)

  51. 51
    zman Says:

    Re 4 – No. Lab tests confirm its not from Macondo.

  52. 52
    zman Says:

    HAL CEO speaking at annual meeting says “we believe we are fully indemnified”. I say, good luck proving it was the cement and even if it was, it was BP’s decision to proceed.

  53. 53
    zman Says:

    Bob Pisani explaining how the new trading curbs will lead to more volatility in the market, not less, as halts in S&P 500 stocks will lead to wide bid /ask spreads on the SPDRs.

    S&P at 1101.33

  54. 54
    zman Says:

    CSPAN 3 carrying more oil spill testimony now.

  55. 55
    elduque Says:

    kog ever get its banking settled?

  56. 56
    zman Says:

    Eld – not yet, to my understanding they would press release that.

  57. 57
    zman Says:

    RIG CEO – comment on the BOP. “If you have the wrong stuff in the BOP, for instance, like the stuff that flew out of the wellbore and landed on the nearby supply boat, then the BOP is not going to work”

  58. 58
    BirdsofpreyRcool Says:

    MIDDAY OVERVIEW

    Market Update – equity weakness extends from Tues ostensibly due to the German short bans. There was a brief attempt to rally this morning, but there was no real buying behind the move and we came right back for sale. We are now below 1110 (which is where we closed May 7, the Fri before the European bailout was announced) and people are increasingly watching 1102 (which is the 200day MA for the sp500 cash, a level we haven’t been under since Jul ’09). While the German news is being cited as a reason for today’s weakness, the selling is really a continuation of a weeks-long trend that is driven more by concerns about a slowing in economic activity. Based on commentary from a variety of retailers (inc. TGT this morning), it appears like May consumer sales have weakened off the pace from Mar and Apr. The Empire Manufacturing reading out on Mon, the first major economic release for the month of May, was well below expectations. While the housing starts # out yesterday were encouraging, this was for the month of Apr, which still benefited from the tax credit (data out today from the MBA revealed that mortgage purchase applications sank 27.1% in the latest reading to the lowest level since May 1997). The debt crisis in Europe continues to reverberate, w/Digitimes reporting that notebook vendors are seeing order cuts due to slackening demand from the region while TYC was on the tape today saying the euro weakness will clip a few cents from its recent earnings outlook. Some important market “tells” are flashing warning signs – in the US, industrial stocks are very weak (levered to global economic activity). Copper is off 2% and nearly giving back its Tues rally. Crude drops another 1% today and falls further below $70. The AUD, which is very levered to commodity prices (which in turn are levered to economic growth sentiment, esp. Chinese growth), has been plunging of late (its off another 2.7% today, adding to its 1.5% decline on Tues). In addition to the signs of faltering growth, the US CPI reading today revealed that the core CPI is showing the smallest increase since ’61, raising worries of a stagflationary environment (one of the reasons gold is so weak today despite heightened levels of investor fear). On top of all of this, investors are still nervous about the regulatory landscape. The Dodd bill looms on the horizon (cloture vote today @ 2pmET), although we are actually seeing a bounce in some of the stocks w/the most exposure, like C, V, MA, COF, etc (signaling that sentiment may have become too negative on this issue). In Europe, the German action is raising worries more b/c it signals a major lack of coordination among officials when it comes to implementing policy. In addition to Tues’ short bans, Germany’s plan to deal w/European budget transgressors could be an even bigger deal– “As a last resort, a managed insolvency proceeding for bankrupt states” (this was talked about on FT Alphaville pre-open and is being highlighted on Bloomberg mid-day). Bottom Line – growth + regulatory landscapes have quickly become major headwinds while a lot of big technical levels are being broken through (the 200day @ 1102 a big test for our close today). Today’s inflation #s adding new quiver for bear case arrow. The FOMC minutes today @ 2pmET may read a bit more hawkish than current market sentiment as they are from a meeting that took place in late Apr, before the European debt crisis really escalated.
    Desk Color – cash – Monday and Tuesday of this week we saw a NOTICEABLE pick up in ETF and Futures Volumes as our clients have used these vehicles to hedge out their portfolios (from macro events) while volumes in single stocks have lagged (from an institutional level.) Today, we have seen a NOTICEABLE pick up in single stock cash volumes as PM’s are going through their portfolios with a rake weeding out single stock names (both winners and losers.) ETF $ value traded as a % of total $ value is at 34% today (below the recent 37%+ avg.). Typically in times of mkt duress the Buyside almost always first manages direction (hedging), then manages basis (single stocks.) This has been clearly evident based on the activity we have seen the past few days as our clients are finally today much more focused on alpha.

    Desk color – PT – we were very busy Monday and Tuesday. We saw “unusually high notional amounts” across the desk as institutional clients rebalanced their portfolios sector wise. These big shifts in the mkt cause the sector skews within their portfolios to get out of whack. The rebalancing can be seen as a macro/hedging effort. Now we are very quiet today as your volumes on the cash desk increase as they have time to go through and look for active opportunities in single names.

    Equity sectors: Industrials are the worst space in the market today, falling 2.25% on weakness across the board, but especially in the higher-beta machinery, mining, and transport names. Materials are also down sharply, falling over 2% on weakness in everything, although precious metals are down significantly. Energy is off around 2% on weakness across the board, although E&Ps and coals are driving a lot of the underperformance as natural gas falls around 3-4%. Discretionary is off close to 2% as investors sell the space with hotels and auto parts leading the way lower. Utilities are off 1.5%, underperforming as weakness in EQT and STR offset the typical safety bid the space usually gets on down days. Tech is off 1%, but outperforming as semis are off less than 1%. Recall the group led the market lower yesterday and the SOX was off nearly 3%. Financials are off just under 1% as some strength in large cap banks and investment banks offsets weakness in regionals and insurers. Healthcare, staples, and telecoms are all off 0.5-0.75% as the three continue to outperform the broader market given their defensive nature.

    Commodities: Despite continuing market concern, Gold has fallen below $1200, and is down ~2%. Copper is trading near its lows, down >2.5%. Despite DOE Gasoline inventories coming in lower than expected – Crude sold off and is trading near its lows around $68.25, down ~1.7%. Natural Gas is also weak this morning, down >4%, even though DOE US Gas inventories came in lower than anticipated.

    FX: USD (DXY) has sold off after trading flat overnight; its trading near its lows of the day, around $86.75 down ~0.5%. The Euro rallied before the open, but has come off its highs and is up ~0.8% vs. the dollar, sitting near the $1.23 mark. The Euro has come off its highs vs. the Yen, and is down ~0.4%. The dollar has come off its lows vs. the pound and is flat after the morning. The dollar has weakened throughout the morning vs. the Yen, and is down ~1.25%. Getting more attention that the euro today is the steep decline in the Australian dollar, which is down ~3% today and has been VERY weak in the last few days. Being talked about in the last few days – the short low yielding funding currencies (like dollar or yen) to fund a long AUD trade being unwound.

    Corp. Credit: Corp Credit is outperforming equities today – IG is flattish-to-out small; HY is more inline w/equities, falling ~7/8 on the day.
    Treasuries: Treasuries have rallied from their morning lows – the 2s are unch from yesterday and are yielding 73bps while the 10s are yielding 333bps. The 2-10 yield spread has flattened to 259bps.

    Europe: Europe is underperforming the S&P500 across almost every index, despite fewer headlines than in days past. There was speculation that Greece would leave the EU/Euro Zone, but that was denied by the Greek Govt. [Reuters] Despite the news, the Greek ASE is one of the few indices to post a gain today. The Euro rallied this morning, and is hovering around the $1.23 level. Swedish OMX and the Italian Italian FTSE MIB are each down >3%. In the OMX – worst performing stocks include: Swedbank, Boliden, and Sandvik.

  59. 59
    zman Says:

    Max pains are generally quite a bit above current levels. That often happens when the market has run hard in one direction in the 2 weeks prior to expiry and it may not mean much but at least there is not an impetus from that perspective to further beat down our names. I’ll have a table out in the post tomorrow.

  60. 60
    zman Says:

    Reuters story update on the HAL indemnity comments adds that HAL was doing the cement job according to BP’s specs and third parties have confirmed that BP would have had to sign off on HLA’s work. I’m beating a dead horse but it’s a slow day.

    Nicky, any thoughts on this little rally off the 200 day?

  61. 61
    Nicky Says:

    Not getting to excited about this move off the low right now. Its possibly a small c wave and if so would complete around the 1112/1113 area before turning lower again. We have resistance in the 1114 to 1119 area.
    All that said I am on the lookout for a reversal and the euro has been much stronger all day with the market taking absolutely no notice.
    Fisher on Fast Money saying we should be running to oil!

  62. 62
    zman Says:

    Thanks. Given the demand figures and the fact that has been largely a dollar based move I have to agree with the oil comments.

  63. 63
    Nicky Says:

    there is a small inverse h and s setting up on the spx – could take us back to 1125.

  64. 64
    zman Says:

    BOP – do you know the EXXI cap budget this year off the top of your head?

  65. 65
    zman Says:

    EXXI presentation – slide 16

    http://files.shareholder.com/downloads/EXXI/817575650x0x374445/2ea347c4-1f0e-440a-bd25-13547e6a3a09/Energy%20XXI%20RodmanRenshaw%20v3.pdf

    EXXI pointing out that there are BOPs and then there are BOPs.

  66. 66
    Nicky Says:

    Bloomberg TV is running a headline saying Sen. Dodd to drop plan for compromise amendment on derivatives

  67. 67
    BirdsofpreyRcool Says:

    #64 FY2010 = $156mm

  68. 68
    zman Says:

    Nicky – listening to the oil testimony, not sure what to make of 66. Wonder if that’s a political move regarding Blanche Lincoln.

  69. 69
    zman Says:

    Thanks, BOP, I have $147 mm from the RR report, close enough.

  70. 70
    zman Says:

    Hey BOP, have they given a average production level for 2010, I can’t tell capacity plans from actual guidance for the year, not a big deal, I get where they are going, just doing a couple of things at once at the moment.

  71. 71
    tomdavis12 Says:

    Z: Is today the last day for the front month for crude? Contango still in the $10 range?

  72. 72
    Nicky Says:

    If we are going to make lower lows on this wave down then I think we need to stay below 1120. If we can move above there we have a good chance the low is in and of moving higher.

  73. 73
    zman Says:

    Tomorrow, 3rd trading day prior to the 25th. Yes, about $10 from prompt month to May 2011.

    BP saying catheter now siphoning 3,000 bopd.

  74. 74
    zman Says:

    RMD – GST on the tape with a lower Bossier discovery at the Donelson #4 well.

  75. 75
    Nicky Says:

    2pm vote delayed

  76. 76
    zman Says:

    Senator asking about Nalco dispersant choice. Saying a BP person sits on the Nalco board.

  77. 77
    zman Says:

    Crude back to flat on the day.

  78. 78
    zman Says:

    NLC – that sounds pretty damning, especially since the court is one of public opinion.

  79. 79
    zman Says:

    Shocked and Appalled Watch:

    Congressman asked about BP’s little green flower commercials and the tax treatment of it.

    BP responded that it was an expense of $11 or $12 mm

    Congressman then stated that it should not be tax free. He said the Chairman should look into making advertising a non tax free expense. So now they want to re-write basic accounting because he doesn’t like their ads.

  80. 80
    zman Says:

    Fed Minutes – 3.2 to 3.7% growth expected this year.

  81. 81
    1520sbroad Says:

    #79 – ugh.

  82. 82
    zman Says:

    Oil up 40 cents, taking a look at $70 just before the NYMEX close.

    1520 – I got a couple of tidbits of info out of today’s ongoing testimony but for the most part it is a witch hunt. Democrat from Wisconsin talking about appropriateness of freezing BP assets. Shades of Hugo. By the way, BP produces more oil in the U.S. than anyone else. I bet they cut funding over here in the future like they would in any country deemed hostile for development.

  83. 83
    1520sbroad Says:

    82 – agreed. I think they should run those hearings behind closed doors and then publish the minutes. I bet the grandstanding and attempts at pithy commentary would disappear.

  84. 84
    zman Says:

    June crude 69.90

    July at 72.40
    August at 73.66

    pretty steep beyond that. Unlike the front month, all of the out months are down but trading looks light.

  85. 85
    zman Says:

    Crude closing over $70.

  86. 86
    reefguy Says:

    GST- #4 Donaldson is a development location between the #3 Don. (20 MMCFPD) and the #4 Belin(41 MMCFPD). These are 25 BCF type wells that GST has a 49% NRI in the #4. BTW, they have 3 more development locations in this fault block, 5 pay zones in each well.

  87. 87
    andy Says:

    nicky – if we go above 1120 u like the chances of going higher or does it have to close above 1120?

  88. 88
    Nicky Says:

    andy doesnt have to close above 1120 just has to move above there. Resistance then becomes 1135.

  89. 89
    Nicky Says:

    Reports that Dems have not got the 60 votes needed. BOP said yesterday the market may like that…

  90. 90
    andy Says:

    nicky – ty

  91. 91
    Nicky Says:

    What would be very bearish would be a close under the 200 dma.

  92. 92
    zman Says:

    BP to attempt top kill early next week.

  93. 93
    Jerome Blank Says:

    Bought some VLO June $20 calls down here, holding up at daily ascending triangle trendline support and recently printed a P&F “bear trap”….thinking it may go higher if we bounce

  94. 94
    zman Says:

    re 93. Fundamentally in line with my thinking as well. I’m just sitting on hands on additional purchases for the moment.

  95. 95
    milepost_43 Says:

    WPRT…Westport Innovations (WPRT), which is a dominant provider of natural gas engines. On the medium-duty side in transit and refuse vehicles, this is through a joint venture with Cummins (CMI). Then on the heavy-duty side, they sell LNG fuel systems, and those would be for heavy-duty Class 8 trucks.

    Big down draft on Jefferies downgrade to HOLD on May 17. Started a position today @ 15.16…some support 15ish..STRONG support 13-14ish…not going to let it get away again……

  96. 96
    zman Says:

    Hear ya MP, lot of things in that category. Many names off 25%+ in 2 weeks.

  97. 97
    Nicky Says:

    What a battle. 1120 proving to be formidable resistance. We are susceptible to a move back to the lows tomorrow if we can’t get above 1120.

  98. 98
    Jerome Blank Says:

    Re: #93, we’re really short term oversold here, $NYMO has got to be down more today….

  99. 99
    Nicky Says:

    Vote failed.

  100. 100
    zman Says:

    Cloture failed on financial reform bill, somebody forgot to line up all their ducks.

  101. 101
    Nicky Says:

    Market sold off on that which I can’t understand except for the uncertainty.

  102. 102
    Nicky Says:

    I guess just another reason to sell the market. They would have sold it if it had passed too.

  103. 103
    Nicky Says:

    the high in the last hour looks to be the c wave for iv. Now they can take it down again in v!

  104. 104
    RMD Says:

    NOG: Micheal Reger’s brother has started another Bakken co. by reverse merging into a shell, Voyager Oil ANTF.ob.

  105. 105
    zman Says:

    V – NXY on the tape selling heavy oil assets.

  106. 106
    Wyoming Says:

    HAL popped for about a minute on 38 before selling back off. Reef, TEXW, Wyoming, GMLGDC, it seems to me HAL is stating the obvious. How hard / time consuming / costly is it to determine where there is a problem with the cement job and to fix it? Thanks.

    Anywhere from 10,000 to 1,000,000 … all in a days work, depending where you are. …

  107. 107
    zman Says:

    Thanks Wyo – got your email.

  108. 108
    PackMan Says:

    Another Obama Commission ?

    Anything to kick the can down the road and avoid making decisions.

    Yeesh.

    Fun Market, eh ?

    Just brutal, particularly this space.

    Hammered.

    Hope all doing well thru this.

    BOP must have quadrupled down on EXXI by this point.

  109. 109
    PackMan Says:

    BOP, others. Check out John Crudele article about jobs.

    Basically says that Census seems to be stockpiling workers they don’t need. Hiring a worker for even 1 hour, counts as a “job”. So hiring more workers than needed and barely or not using them inflates the jobs numbers.

    Interesting read. Yesterday’s Newspaper of Record (NY Post).

  110. 110
    Jerome Blank Says:

    $NYMO closed at -105.3…very oversold

  111. 111
    BirdsofpreyRcool Says:

    #108 I have to admit… hanging on to my E21 position has been an exercise in OUCH.

    But, gotta believe what you gotta believe. I picked my points, now just have to ride it out.

    The Census Employment stuff is truly Barf Material.

  112. 112
    zman Says:

    re 108. Agreed brutal.

  113. 113
    zman Says:

    South Korean investigation concludes N.K. torpedoed ship.

    http://www.marketwatch.com/story/seoul-blames-north-for-sinking-ship-shares-dip-2010-05-19

  114. 114
    BirdsofpreyRcool Says:

    BedTime Market Strategist… for breakfast.

    Support.

    Global equity markets remained under pressure following Germany’s poorly communicated criminalization of various types of short selling. The S&P 500’s tendency to follow the direction of the Euro took a hiatus as the Euro rallied in the first half of U.S. trading and jitters sent U.S. stocks lower. The S&P 500 tested the 1100 support level and the 200 day moving average, then managed to erase the majority of the session’s losses. Several behavioral indicators flashed signals that were enough to give buyers an impetus to start working. Weekly mutual fund flows (equity and bond combined) experienced their first weekly outflow in 60 weeks. The Put/Call composite spiked to levels not seen since late 2008. In 3 of the last 4 sessions, the S&P 500 posted its intraday low around noon and managed to rally respectably late in the session. Yesterday was the exception as the surprise headlines spooked markets. Late rallies are a positive sign, but the market still needs to prove it has established some stability.

    Rates First, Then Asset Sales.

    The FOMC minutes provided new and important clarity on the Fed’s exit strategy. The most important development addresses the FOMC’s own chicken versus egg dilemma – whether rate hikes or asset sales should come first. The FOMC explains its current thinking as, “Most participants favored deferring asset sales for some time. A majority preferred beginning asset sales some time after the first increase in the Federal Open Market Committee’s (FOMC) target for short-term interest rates. Such an approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee’s key monetary policy tool.” Another important development relates to the clarity on how the Fed’s balance sheet should be shrunk. The Fed has often talked about letting securities runoff as they mature or are prepaid, now, it looks like the Fed is very willing to sell them in the open market when the timing is right. “Most participants expressed a preference for strategies that would eventually entail sales of agency debt and MBS in order to return the size and composition of the Federal Reserve’s balance sheet to a more normal configuration more quickly than would be accomplished by simply letting MBS and agency securities run off. They agreed that sales of agency debt and MBS should be implemented in accordance with a framework communicated in advance and be conducted at a gradual pace that potentially could be adjusted in response to changes in economic and financial conditions.” Now that we know it is likely asset sales will begin after the FOMC’s first rate hike, the question is how long will they last? The FOMC indicated that, “Most preferred that the agency debt and MBS held in the portfolio be sold at a gradual pace that would complete the sales about five years after they began.”

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