Wednesday Morning And All Is Jittery

Posted on by zman

 

 

Market Sentiment Watch: Another lazy summer day. The lack of news is palpable. In energy land , a federal judge in Louisiana reversed the Administration's deep water drilling moratorium.  Stocks rallied for the three minutes it took for the White House to vow to appeal the decision and sold off promptly from there. I understand a second moratorium is now on the drawing board that addresses the judge's language with the point of essentially keeping those 33 rigs in the deep water from restarting and most assume we'll see the 6 months play out without a significant restart in the deep water. Otherwise in energy land, things remain in the doldrums.

Interesting Facts Watch:

  • The sum of all high bids from the March 2010 Central Gulf of Mexico Lease Sale: $949 mm
  • The sum of all high bids from the August 2009 Western Gulf of Mexico Lease Sale: $115 mm
  • Both of those sales are well off highs seen earlier in the decade.
  • Columbia's lease sale yesterday: $1 Billion. Money talks ...and rigs will move.


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today – WIOWIO (ROSE)
  5. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $6,000
  • 99% Cash
  • Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades: None. Still too far away from catalysts but a few are getting close.

 

ZIM (Zman Inefficient Markets portfolio)

  • $7,500
  • 51% Cash
  • Positions are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades:
    • HK - Added (10) HK July $20 calls for $1.27 with the stock off 3% on the open on no news I can lay hands on. Could be that HBO documentary on fraccing that ran Monday night or it just could be the mini correction over the last week in natural gas.
    • HK - Added (10) HK $20 July Calls for $1.00 with the stock at $20.05.
    • HAL - Added (20) more HAL July $28 calls for $0.70 with the stock at $26.90. Judge rules against the Administration’s 6th month deep water moratorium.

Commodity Watch:

 

Crude oil closed down $0.76 yesterday on the July contract at $77.85.  After the close, the API released a bearish looking report with bigger than expected builds in crude and gasoline  (see below). This morning crude is trading off about 50 cents.

 

Natural gas fell $0.12  to close the day at $4.76 yesterday.  This morning gas is trading up 8 cents. 

  • Marcellus Panic Watch: Rumors cropped up yesterday of a 1 year moratorium in the Marcellus Shale. Very unlikely. First you have multiple governments to deal with so saying it'll be play wide is uninformed. Secondly, you have cash strapped governments that need jobs and tax revenues. Sounds like a group of short sellers to me trying to string the frac piece on HBO together with Pennsylvania's call for a voluntary and temporary stay on drilling following the EOG blowout together to cause a wave of panic selling. Mission accomplished. Your big shale players were off from 4 to 6% yesterday, helping to drag much of the rest of the E&P sector lower as well. 

 

  • So I Watched Gasland Watch: Where to start? First, two words: Steady Cam. This is a jittery, art house piece, designed for max impact while flooding the viewer with grainy scenes of aerial views of well sites stretching as far as the eye can see, dirty well water in mason jars, and strings of poly-syllabic, evil sounding chemicals shot across the screen at blazing speeds. The connection between drilling activity / fraccing and problems with well water are implied but far from proven in the film. This website does a great job of debunking problematic statements made in the film: Debunking Gasland. I'm not saying you shouldn't call the authorities if you can light your tap water on fire or if your local stream bubbles methane. These are things that are the results of either a) accidents with the drilling process (perhaps a leak in the surface casing) or b) natural occurring methane in the well water. They simply are not the result of the frac process. I also noted that all of the people who had wells on their property and problems with their water in the film didn't say whether or not they took the lease checks for those wells to get there in the first place. Bet they did. 

 

  • Imports:  Flat with the prior week

    • 6.5 Bcfgpd from Canadian pipes
    • 1.2 Bcfgpd from LNG

Early Read On Natural Gas Storage: Street is at 80 BCF for tomorrow’s report. In all probability we will again gain on the five year average storage level for this week of the year and we will definitely move into deficit territory versus year ago storage levels. The same goes for at least next week's report. Beyond that, the forecasts show a potential for a moderation in temperatures. 

  • Last Week: 87 Bcf Injection
  • Last Year: 97 Bcf Injection
  • 5 Year Average: 86 Bcf Injection
  • 10 year Hi: 127 Bcf Injection
  • 10 year Low: 66 Bcf Injection

 

Oil Inventory Preview


API Watch: 

  • Crude: UP 3.685 mm barrels
  • Gasoline: UP 0.810 mm barrels
  • Distillates: UP 1.078 mm barrels

ZComment:

A) API - Crude up big on a big ramp in imports. Could be as that's pretty unpredictable. I am looking for a pullback in imports or at least flat imports after a fairly strong run of late. API also saw a slight increase in utilization which I was looking for as demand continues to tick up seasonally. API's read on gasoline inventories made little sense as demand rose more than supply but stocks increased. Go figure.

B) I'm still looking for a rebound in refinery utilization and a slight down tick in crude imports to lead to a bigger withdrawal from crude stocks than the Street is looking for in the table above. I remain concerned about the bloated position at Cushing, coupled with above normal utilization by refiners in the Midwest and the inability of this increased consumption to bring inventories down. Further record highs will, all other things being equal, lead to lower crude prices. For what it's worth, API showed another build in Cushing stocks.

C) Gasoline demand should continue to inch along rising over a multi week average if not necessarily week in and week out. Last week's move above 9.3 mm barrels per day was a welcome site for those wishing to see oil price stability in the 70s.

Stuff We Care About Today

WIOWIO

ROSE - Southern Alberta Basin, Eagle Ford Player

  • Management hails from Burlington and Vastar and has proven in the past to be conservative and forward thinking.
  • First mover status in the nascent Southern Alberta Basin Bakken play with the largest acreage accumulation in north west Montana of any E&P.
  • NFX is here as well and may have definitive well results prior to ROSE (but which would likely rub off on ROSE in the form of a higher stock price).
  • Nutshell - Probably a mid $20s stock until either commodity prices breakout or late in 2010 when they have production data on at least one of their three Southern Alberta Basin Bakken/Logdepole/ Three Forks - tests (vertical probably, probably no horizontal test until year end or early 2011). 

 

Odds & Ends

Analyst Watch:

  • ROSE and BRY - Credit Suisse Top Picks


 

82 thoughts on “Wednesday Morning And All Is Jittery”

  1. EXXI out with an operational update… to summarize —

    Energy XXI provides operations update

    Production Update: Co announces they have installed and placed in service a bi-directional pipeline lateral between its Main Pass 61 and 73 fields offshore Louisiana, restoring more than 2,000 barrels of oil equivalent per day of production that had been shut-in on April 6 by a rupture of the third-party-owned Cypress Pipe Line. In the South Pass area, Energy XXI has acquired additional interests in several properties, adding 2.2 mln BOE of proved and probable reserves that are approx 40% oil. Reflecting the pipeline-related production shut-in, volumes for the fiscal fourth quarter ending June 30, 2010 are expected to average about 25,000 BOE per day. Current production approximates 26,000 BOE per day, with total production capacity of 28,000 BOE per day. Shelf Exploration and Development Activity: Including Davy Jones and Blackbeard West, the McMoRan-operated partnership (in which the co has various interests) has identified 15 sub-salt prospects in shallow water near existing infrastructure. The partnership’s sub-salt-shelf drilling plans in 2010 include the Blackbeard East and Lafitte exploratory wells and a delineation well at Davy Jones.

  2. Thanks BOP, had an operational issue with a site save this morning, lost some stuff and had not yet seen their news.

    28,000 boepd capacity sounds 2,000 boepd low to me, you?

  3. 28k/d is 2k less production capacity than what they said on the last conf call… since i assume they have added back the 2k ruptured pipeline capacity to the mix, i don’t (yet) know where the difference is.

  4. hmmmm …. re-reading the opening paragraphs of the EXXI operational update, i think the missing 2k is due to NOT adding it back into max capacity yet. It’s just too much of a co-incidence that 2k goes missing… but the pipeline represents 2k. Just poorly-written PR, i think.

  5. E21 getting double-kicked in the head at open… someone no likee-likee the 28k plus oil down over a buck. Don’t think it will stay here… but we shall see.

  6. Thanks again BOP and I’m just nitpicking or at least trying to keep my notes there straight. Sounds like we are a good four to five months away on more data from their deepshelf wells. Frankly, I’m just happy someone is talking about what they are doing in the field and not just sitting back in the summer doldrums, with only politics to talk about.

  7. re 5, yeah, oil not supported by that API report, especially with tepid equity action and a slightly stronger dollar. Plenty of things that can unmire or sink today are the existing home sales number in 20 minutes, oil inventories in just under an hour, and Fed comments.

  10. 93L – still below Haiti, slight upgrade to probability this morning, track still for Gulf. Good chance it breaks up over Cuba and then possibly reorganizes over Gulf.

  13. Other than the transitional week, site works well – just choose to be in background.

  14. for the moment here, heading out to watch the game in a moment, mortgage collateral is way high,

  16. New Home Sales fell to a record low for May. Why this would surprise anyone (with tax credits rolling off) is a surprise to me.

    Like when the auto guys were pushing huge sales incentives for years. Then were “surprised!” that auto sales have been below average lately. “Gee… you think some people bought ahead of their need, on the incentives???” Sheesh.

  19. Economists are all morons… all they do is take trends and straight or exponentially fit the line and trend forward…

  22. Well gold didn’t initially blow right through resistance so that should be a battle to watch today for anyone wanting to see some non-paint drying action.

  23. VTZ — paint is drying somewhere?! Where??!! I wanna go watch!! Gots to be more interesting than watching this mrkt….

  24. EIA Oil Inventory Report:

    Crude at 75.50 just prior to report

    Crude: UP 2 mm barrels – big increase in imports
    Gasoline: DOWN 0.8 mm barrels
    Distillates: UP 0.3 mm barrels

    …

  26. more EIA

    Gasoline and distillate demand backed off slightly

    Oil holding pretty steady, up slightly post report.

    …

  28. Seeing some resilience in gold/silver stocks despite gold -1% & silver -3%. Looks like accumulation is continuing.

  29. The precious metals stocks could appreciate by 30-50% and the HUI would be at the same ratio of gold price as it was from 2004 to early 2008.

  31. HK bounced and is now holding major support at $19.50…would like to see a base form here, it’s trading right at short term intraday resistance now, you can see it on the 5 min…if it rolls off resistance here, look for the higher low above $19.50…

  32. WLL still cheap, BEXP probably setting up a pretty good opportunity here as the time around the end of the month could hold their two biggest news items of the year and the stock has been coming off again.

  39. Re: #37 choices, thank you..

    BEXP is at an interesting technical point, there is major support on the daily chart just a tad below the lower triangle trendline, if you look at the P&F chart, BEXP is a prime bear trap candidate, if bullish on BEXP, consider longs on intraday reversals between $15.50 and $16…

  41. Baylor – My thought is they will say nothing to signal a tightening is on the way anytime this year. I am wondering if they will acknowledge the recent re-weakening we are seeing or not.

  43. I’m trying to determine if there are any near term positive catalysts to look out for.

    As an example, brk-a is up almost 15% in the past 10 days and is starting to look like a good short opportunity.

  45. US beats Algeria 1 to nil.

    Baylor – as far as broad market catalysts, I don’t know what they’d be from a fundamentals standpoint. For energy heat and storms should bend sentiment and prices higher again soon.

  48. Crude appears to be barely trading, holding just under $76, down $2.

    NG up 4 to 8 cents depending on when you look. Last I checked Street at 80 Bcf for tomorrow, I’m 5 Bcf light to them.

  50. 75 ish . Next week really setting up to be a smaller number. Could have something in the Gulf (or not) by Sunday. If the first storm “disappoints” look for the sell off in gas to be bigger than the rally that happens when the storm looks threatening.

  51. TED widening a bit

    BALTIC still dropping.

    HK still lower. Doesn’t really seem to have any catalyst other than the price of NG.

  54. VTZ to sue BP over non-BP investment losses. We might as well pile on while the going is good!

  55. Not that i am the most connected person to trading desks but i got 3 seperate emails from desks announcing the goal scored by the US. Clearly more eyeballs on that this morning so far.

    That said – i think we get those eyeballs back on the market thru 2:15 and the close. I would like to see the market break the mini-streak of “fade into the close” closes we have had so far this week.

  58. Saw that APBD – I’m with Kass on this one.

    SWN keeps trying for green.

    Oil recovering some now.

    Grabbing lunch

  60. JB — been hoping (planning) on picking up more CIGX at 1.55… so, maybe it doesn’t pull back there?

    voted. Thank you.

  61. HK trying to find a low , testing $19.50 more as a double bottom, no higher low off the initial test, seems we now look for a higher high above intrday resistance at $19.75 to suggest a possible change of intraday trend…

  64. apbd — just a thought… but in light of what set off the whole episode, it might be best for Italy to remain silent on the issue. Sad but true.

  65. Historically (at least lately), haven’t we sort of rallied up to a Fed Decision, then sold off after the announcement… then rallied in the last 1/2 hr or so?

  67. Wow. Credit market just went green… for first time today. Trading desk is stunned.

  68. Coal names putting on a show today, WLT, PCX.

    Energy groups very mixed, but names trying to do something interesting with the market.

  71. ATW landing a gig for one of its rigs. Beacon going for $115,000 a day, for 4 wells after current contract. Pretty good news in this environment.

  72. Salazar Says New Moratorium May Permit Some Drilling (Update1)
    2010-06-23 18:40:37.992 GMT

    (Updates with comment from Murkowski in seventh paragraph.
    For more on the Gulf of Mexico spill, see {SPILL }.)

    By Jim Efstathiou Jr. and Jeff Plungis
    June 23 (Bloomberg) — The Obama administration may let certain deepwater drilling operations in the Gulf of Mexico resume during a six-month halt, U.S. Interior Secretary Ken Salazar said.
    Rules to be issued “will include the criteria under which it is appropriate to take a look at the lifting of the moratoria,” Salazar said today in Washington at a hearing of a Senate Appropriations Committee panel.
    A six-month halt to deepwater exploration, imposed last month by President Barack Obama in response to the BP Plc spill, was overturned yesterday by U.S. District Judge Martin Feldman in New Orleans. The administration said it will appeal the decision, and Salazar announced he will reformulate the rules.
    Republicans and Gulf Coast Democrats have said the ban is too broad and jeopardizes tens of thousands of jobs.
    “We will in the weeks and months ahead take a look at how it is that the moratorium in place might be refined,” Salazar said today. “It might be that there are demarcations that can be made based on reservoirs, when we actually do know the pressures and the risks associated with that versus those reservoirs which are exploratory in nature where you don’t know as a company what it is that you are drilling in.”
    The drilling ban was imposed May 27 in response to the explosion and sinking in April of the BP-leased Deepwater Horizon drilling rig 40 miles (64 kilometers) off Louisiana’s coast. The halt was called during the investigation by a presidential commission of the spill that continues to spew oil into the Gulf.

    33 Rigs Idled

    The moratorium has idled 33 rigs, some of which are being moved from the Gulf to other oil fields. Five rigs were drilling exploratory wells and 28 were in the development phase, said Senator Lisa Murkowski, an Alaska Republican.
    “The risk factors are much, much different between a well that is in this appraisal and development status, as opposed to the exploratory when we don’t know what the pressures are,”
    Murkowski said. “The judge’s decision yesterday, you have to admit, is pretty scathing.”
    Salazar told Murkowski that “there is a difference”
    between the two types of wells. “Those are exactly the kinds of issues that we are looking at,” he said.
    The moratorium, if left in place for six months, may result in a loss of 140,000 jobs in Louisiana, Senator David Vitter, a Republican from the state, said last week. The commission formed by Obama to investigate the spill should release its work in stages and “in a few weeks, not months” issue safety guidelines that will let drilling resume, Vitter said.

    Judge’s Ruling

    In his ruling, Feldman said the administration must “cogently explain why it has exercised its discretion in a given manner. It has not done so.”
    Feldman said a section of Salazar’s May 27 report, which stated the moratorium recommendation was “peer-reviewed by seven experts identified by the National Academy of Engineering,” was “misleading” and members of the group said it was a “misrepresentation.”
    Five of the experts said the recommendation for a six-month ban was added after their final review of the report, Feldman said. Kenneth Arnold, an oil-industry consultant in Houston and a contributor to the report, said in an interview that it was wrong to “use us as justification for the moratorium.”
    The ban requires drillers to temporarily abandon wells, which can increase risks, Arnold said. It will also increase U.S. dependence on foreign supplies, which are transported by tankers that have greater risk of a spill than oil carried by pipeline from Gulf platforms, he said.

    ‘Modify The Moratorium’

    “The Department of Interior has apologized” for the characterization of the groups’ position, Arnold said. “We are working with them at the moment to see if there’s a way to modify the moratorium in a way that makes sense from a safety standpoint.”
    Senator Lamar Alexander, a Republican from Tennessee, said a revised drilling ban should be drafted to ensure that the economic consequences are weighed against environmental impacts.
    “I would hope that, in devising any other moratorium, that you take into account the judge’s reasoning and the countervailing public interest pressures that involve jobs, and make sure that the economic consequences aren’t worse than the environmental consequences,” Alexander said.
    The new head of the Interior Department agency regulating offshore oil-and-gas drilling said today that he created an investigations unit to help with oversight, enforcement and reorganization.
    “The new unit will provide us the capacity to investigate allegations of misconduct, to provide unified and coordinated monitoring of compliance with laws and regulations, and to respond swiftly to emerging and urgent issues,” Michael Bromwich said in a statement issued as he testified before a Senate hearing on the reorganization.

  74. apbd — lol. Hardly! But thank you for your comment, nonetheless.

    We continue to live in “interesting times.” I, for one, look forward to a little more boredom, when watching our nation’s capital.

  75. re 74, Less need to watch D.C. and more stories and fundamentals to talk about would be nice. Can’t wait for 2Q reports to get here.

  76. Speaking of bonds (not that we were speaking about bonds, but i will do it anyway), the EXXI 10s due 6/13 are back at par. DRAT. I missed buying when they dropped to 95. Had some issues with a managed account and couldn’t execute. But that was a tasty level and gratuitous yield, for a company set to do about $100mm in free cash flow for FY 2011.

  77. And now for something completely different…
    —————————————–

    Man Run Over By Truck After Dog Puts It in Gear

    Ridge Manor, Fla. (AP) — A man was reportedly run over by his own truck after his dog put it into gear. The sheriff’s office reported that 43-year-old Christopher Bishop was checking under his Ford F-150 for oil leaks Sunday evening. He had put the running truck into neutral and left the driver’s door open. While he was under the truck, Bishop’s bulldog, Tassey, jumped into the truck and knocked the vehicle into gear. The truck rolled over the left side of Bishop’s body.
    Bishop managed to get up, stop the vehicle and go into his house. After several hours of pain, Bishop finally called for help.
    He was taken to a nearby hospital with injuries that were not considered life-threatening.

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