Tuesday Morning

Posted on by zman



 

Market Sentiment Watch: This should be either the slowest or the second slowest trading week of the year. Ecodata is almost non-existent this week which is probably a good thing given the recent turn in the numbers marking a higher likelihood of a double dip in recent reports. In energy land, activity in the tropics continues to ramp and the country is heating back up. Both factors should act to lift natural gas prices this week but unless BP caps their well early I would not expect much in the way of excitement in energy land until at least next week.


The Week Ahead:

  • Tuesday 7/6: ISM Non-manufacturing at 10am (F=55%)
  • Wednesday 7/7:  None scheduled
  • Thursday 7/8: EIA Natural Gas Storage Report, EIA Oil Inventory Report (11 am EST), Jobless claims (F=460K), Consumer credit.
  • Friday 7/9: Wholesale inventories.

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today - Wrap comments, BP, NOG, GMXR
  • Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $6,000
  • 99% Cash

ZIM (Zman Inefficient Markets portfolio)

  • $2,800
  • 6% Cash

Commodity  Watch:

Crude oil dropped 9% last week to close at $71.87. The 12 month crude strip is now trading at $74.53. This morning crude up 70 cents. -

Natural gas eased 2% last week to close at $4.81. We remain range bound in the $4.50 to $5.50 band for now with only the occasional tropic disturbance lifting prices towards the upper end of that range. Coal and natural gas are in near parity so expect hot weather to benefit both equally at the moment. This morning gas is trading up a dime.


  • Tropics Watch: Getting very busy given the time of year. It's early for us to be seeing multiple systems popping up in the Gulf and Carribean. Over the weekend there were four at one time and one nearly managed to attain Tropical Storm status before coming ashore in Louisiana. At present, one disturbance near the Yucatan looks threatening for development but again, things seem to be in what I call "pop up" mode, where one hour a pile of clouds looks just like that, a disorganized low, only to rapidly develop, due to favorable winds and very warm sea, into a storm.
  • Weather Watch: Cooling Degree Days back on the rise.
    • Week before last (CDDS) of 80, which yielded the smallish 60 Bcf injection last Thursday
    • Last week's reading of 66 CDDs was below the forecast of 73 CDDs. This should produce an injection around 80 Bcf this Thursday.
    • This week's forecast is a whopping 92 CDDs as near record heat invades the northeast.





Stuff We Care About Today

SSN Deal Oversubscribed

  • No real surprise there given the carrot offered by the company on the deal followed by the news of a potential acreage sale.
  • SSN received bids for about 225% of the offered amount.
  • We should get subscription amounts sometime early this week.

 

Points from the Wrap - See Link here for circled area comments below

1) Lousy week for equities, energy or otherwise. The broad indexes all fell 5% with natural gas stocks off 6% and oil service off 3%. Natural gas fell a little harder due to a combination of 1) lack of interest, 2) rumors of drilling moratoriums onshore (so far unfounded) and 3) a turn of Hurricane Alex away from the gas producing region of the Gulf. OIH "outperformed" simply due to the drubbing it had already taken since late April. With estimates improving at leader HAL it continues to appear this drubbing is well overdone. 

2) Commodities hit hard. Oil fell 9% last week products falling a touch more. The dollar moved lower so that's not to blame for one but instead China and fears over how much growth there will contract, combined with a general take no prisoners attitude for commodities in general was to blame. We should see a steep, Alex-related, drop in imports result in a larger than normal draw down of crude this week. Given that oil is off is much as it is, expect the bar to be set pretty nicely for a rebound on any additional strength in product demand. Natural gas fared somewhat better last week ending down 2% on the front month but down 4% on the strip. Injections continue to vary wildly with weather and gas is being driven by the oft updated sites tracking potential trouble in the tropics.

3) Coal remains a conundrum. Coal was one of the few commodities residing in the plus column last week, with a 1% for  Easter Bituminous coal and bringing the year to up 27%. Coal stocks continued to track worse than the market with large hits taken late in the week. Tempting to get involved but fear of Chinese demand, or a lack thereof, continues to hang over this market. Helping U.S. players, at least from a fundamental standpoint is continued hot weather, the recent bounce in gas prices which has helped bring the two closer to parity and the continued lack of growth and in fact contraction in domestic coal production.

4) Alternative energy ETF's remain stuck in the mud. Surprising given the push for Green Energy everything of late but the TAN and GEX ETF's fell again last week and are now down 33 and 24% respectively on the year. Perhaps the president's gift of $2 billion to two solar concerns over the weekend will help that industry and these funds but I don't think anything short of either a) massive federally mandated subsidies or b) massive new hydrocarbon taxes (like some of the cap and trade proposals), can make the many of the Green technologies as they currently exist cost competitive.  

5) Dry bulk rates continue to decline. Again, blame the China syndrome. Getting closer to looking at some of the names in the space again. If you haven't looked at DRYS, NM, EGLS, DSX lately then you may be in for a bit of double take whiplash. All of the names, (good and bad) are moving into or are well into the single digits now.

Other Stuff

  • BP up this morning as the company denies it needs or is planning to offer shares. Rumors also continue to mount regarding a number of potential white knights emerging from the sovereign investor realm.
  • NOG operations update - announced two long lateral Bakken completions with IPs of 2,753 and 3,784 BOEpd. These are very strong rates for NOG wells to date and the company, as usual, has just over a 20% working interest in each. NOG also participated in a successful upper Bakken completion in Montana. It will be interesting to see how the market reacts to NOG's update over the course of this week. In a more normal market I would expect a positive reaction today with a more follow through tomorrow. 
  • GMXR operations update - 2Q production in line with guidance; costs per well in the Haynesville falling, in line with budget, reiterating 2010 production guidance which calls for 34% growth this year (and higher growth next year but they didn't remark on that). Could lead to a partial short covering here as the stock remains 26% short.  

Odds & Ends

Analyst Watch:

  • BP - upped to Buy at Royal Bank of Scotland. RBS said they think the first shot at intersecting the well bore is next week.  "Stopping the flow of oil will cap the physical volume of the spill, reduce the daily costs being incurred, cool the political temperature and, if BP's share price remains excessively depressed, it could trigger credible merger speculation,"
  • HAL - upped to Overweight at Barclays
  • WLT - upped to Outperform at FBR (the WLT chart has come in some 40% in the last several weeks despite a continued strong earnings outlook).

83 thoughts on “Tuesday Morning”

  1. Potential sign things are too bearish, saw Eliot Waver Prechter in a story over the weekend, again calling for the end of the market as we know it, with a target on the Dow below 1,000.

  3. I think we're due a bounce and I don't buy his implication that the mother of all corrections has started. Last time he had a big bad negative call the market had just started to roll over and he had a new book in print. I think I heard he covered his shorts higher so despite making calls about 5 and 6 years from now, he's pretty short term in his trading. 

  9. It seems like Nicky was mentioning a nasty decline beginning early next year.  I wonder what her take on the 1000 target is.

  10. Will ask her

    Indications looking pretty good on a number of names, lets see if they actually hold.

  11. OK, time for the closing bell. Or at least I'd be content with these prices as of the close. PXD seeing a 5% opening rally on an order imbalance.

    OAS almost back to where I bought it.

    SSN with a good open on the over-subscription notice. Guessing we get 40% of what we put in for although I'm not sure if it will be an equal cut to the subscription or have a weighting dependent on what you already owned.

  14. VNR’s 6/24/10 guidance update has confused some, including me, and mgt will probably use 2Q10 conf. call to enlighten people. My take is that there is both good news and bad news. News services focused on the reduction in net income, probably pressuring the stock. They, and St. analysts, miss the fact that cash flow is largely unaffected because the change was lostly an increase in DDA from $1.30/m to $2.15/m. ; DCF stays unchanged at $2.81/share. St. is missing the higher revenue & cash flow from increased oil weighting and guessing capx too high (co. expects capx to stay flat at $15mm). The bad news is the big DDA increase came from an error in underestimating future development costs. I didn’t explore whether their hedging strategy is brilliant or not, but selling calls to increase current strikes me awfully cute.
    My conclusion: coverage better into the future, stock is behind the upstream MLPs and should catch up.

  17. Z: CHK filed an IPO for its Midstream Partners LP. Raising $425M approx $20/sh. Symbol will be CHKM.

  18. RE: #13 BP, gapped out above the topside daily channel line and 20 day SMA resistance this morning…first support is now at about $30.25, with major support at $29, BP prints a new P&F buy signal at $34….

  19. TAT – nothing that I saw, very light volume today.

    Thanks Tom, JB.

    RMD – I gave up paying close attention after their last lame conference call, should I dust it off again?

  20. HAL walking up through its 50 day average. Taking longer than I like but it is well off the lows now.

  21. GMXR – not seeing enough volume after the update to call it short covering but with the Gulf action and with natural gas trying to push back to $5+ this week, that may give some players pause. Chart is starting to form a rounding base. Kind of scoopy.

  22. Z: More M&A activity in the service area. Rowan for Skele Drilling, Seadrill for Scorpion Offshore and Noble for Frontier Drilling. Looks like weak hands to strong hands will be a positive to pricing going forward. I expect a tradeable event with the dropping of the moratorium. What is your latest guess about that?

  23. BP collected or burned 24,980 bo on Monday. Efforts to get capacity up to 80,000 bopd have been hampered by weather but the first floating riser system is supposed to be in place by Friday. Meanwhile wells keep drilling.

  24. Tom – I think they keep the moratorium in place, illegally at present, for the full six months on the deep water. Shallower wells are apparently getting permitted but very slowly. Rigs will continue to move away (saw some RDC rigs set to last week).

    On the market action, I say give me two days like this in a row before I really buy it. We haven’t strung together two strong days in the group since I think May. I don’t mind missing the very lows while I contemplate adding as the stocks are so far off not too distant past highs.

  25. ARD moving up pre vote on the 16th. SD up 3% too.

    BEXP getting a bounce, finally. Lot of good news that’s not in the stock price any longer.

  26. Z: Taiwan sending over the Whale 1 without approval yet. Should help with clean up if we can ever make a logical decision.

  28. JB – when you get a quick minute, can you look at HK, SWN, RRC, UPL. Thinking we may get a bounce in NG/UNG here. The gassy names have taken a pretty big hit last two weeks, especially SWN, RRC. SWN is still least hedged and bigger and those two things make me think it could sit up and take notice better than an HK in here despite the improved solidity of the HK fundamental story.

  31. Bidding a little ECA now, stock has been holding up a little better since the 1Q call than much of the group.

    ZTRADE – ZCAT – ECA

    ECA – Added (30) ECA July $33 calls for $0.25 (on the mid after a little wait) with the stock at $31.30. My play on this slow week on a potential bounce in gas due to weather (both record heat and tropics). High risk trade given that we have two weeks left in this period.

  33. Thanks Tom. They should have plenty of security at this point. Rumor persists that their Fayetteville stuff is for sale. Nothing from company on that.

    BP still drifting higher, up 7%.

    SSN bouncing back from Friday’s sell down.

    Going for a run, back in a bit.

  34. Re: #28, #30, of the stocks mentioned, RRC currently looks the weakest, a P&F sell signal in o’s below trendline support, the strongest technical picture of the group goes to SWN and ECA, both currently are still on P&F buy signals in o’s, but holding P&F trendline support, from here ECA reverses back into X’s at $33 and SWN at $41, overall ECA has the strongest technical structure, HK looks good also, holding and reversing off the lower daily channel trendline, HK reverses backm into X’s at $18…

  35. Are we in sell the rips mode? Bexp up over 7% today and I have a one bagger working in July calls.

  41. Checking in on an old FAV since it is topical today (some would say tropical): ATLIF

    Over on Real Money, Glenn Williams is commenting on New England Nearing 25 GW & the resulting Energy Supply Problems

    “It appears New England may need more generation. Prices are climbing to $250 as new resources are sought. No binding constraints; transportation is not the problem. Current demand exceeds planned demand by 3 GW (the equivalent of three nuclear power plants). Prices suggest that oil fired power plants are being dispatched.

    Either new generation will be found, or demand response (DR) programs will be initiated, or both.

    Long Island appears to have similar issues, however New England and New York grids are reporting conflicting RT data. Canadians in Quebec are making a fortune.

    This is early in the day.”

    My FAV in the space is a fomer Canadian Income Trust which converted to a corporation, elected to keep the payout (which is covered) and is in the process of listing on the NYSE: Atlanic Power, symbol ATLIF(US OTC) or ATP(TSE).

    Altantic owns a vast array power and transmission assets in the US (most of which are on the Eastern seaboard), pays a 1.028 divi which is a monthly pay which equates to 8%+ yield, and is a name that should be discovered by “the street” later on this summer.

    It’s been a very consistant performer for me over the years and thought I’d share.

  43. Welcome

    Forgot to add that just like the commercial, this one has “all of the good and none of the bad” in that the divi doesn’t create any funny tax problems or filings.

  47. Just got this from Italyinvestor:

    I don’t have dependable internet at this time but I hope to get it later. I’m pretty busy here working 18 to 20 hour days. The Army surged us in here but the logisitcs can’t keep up. As an Infantry Battalion commander (2-502 Infantry, 2d Brigade Combat Team, 101st Airborne Division) i’m spending most of my time tracking tents, air conditioning (its 105-114 degrees here) and power generation. We’re operating in Zhari district of Kandahar Province. The birthplace of the Taliban movement is 3.5 km south of my current location. And there are lots of TB between us and there. At some point i’ll be able to focus on the enemy, who is plentiful and likes to shoot at us daily. I attached some photos of me and my new ride on its voyage mounted patrol into taliban country. Its a 23 ton MATV. Its pretty survivable, however we’ll be doing more dismounted operations than mounted operations. Our sister battalion, 1-502 has one more month in country than we do and has already suffered 2 X KIA and 32 X WIA. We’ve been lucky so far, but we’re also holding back for another two weeks or so until our Afghan National Army counterparts link up with us. I’ll send pics and updates as available. Feel free to post or distro to anyone if they want them.

  48. I’ll post his pics to the bottom of the post tomorrow.

    Godspeed and God bless Italy. Thanks for all you do man.

  53. Dman – Nothing comes to mind. It came off when oil did. Like I said earlier, need to see gains 1) hold and 2) string together for a couple of days. I’d guess its just technicals.

  54. Thanks ELI. I should realize that I can always manually reinvest when the distribution hits my account. ATLIF looks interesting and appears to be relatively safe if the DOW reaches 1000.

  56. VQ – I keep half an eye on it, I think DRL mentioned it a couple of weeks back, lots of oil in place under their acreage. I’ve noted that BMO and Wunderlich have been pushing it in the last 3 weeks. Don’t know what’s up with it today but it could just be oil not faltering any longer and it bouncing to regain last week’s losses.

  57. Things that bother me about this kind of market. Everything is either green or red depending on the color of the day. But, things that should be moving due to news are not reacting well. BEXP last week. Today GMXR now red and while I’m no big fan of their s I think, at least for now, they are delivering. NOG too basically not reacting to some nice wells.

  60. Z: Unusual call activity in NE week ago Friday. Stock up 10% last week. Good to know that insider activity is alive and well.

  66. Just no staying power. Forget 2 days, I’d settle for an up day. Maybe this will help. Stepping out for 20 minutes.

  67. This feels like the start of the fall in 08 where nobody cared about anything other than squiggly lines.

  69. re 67, somewhat yes. Not aggressively pursuing stuff lower this time. No one else is either I see.

  70. Who wants $5 gasoline? Waxman, that’s who. Calling on U.S. to deny permit for pipeline bringing oil sands crude south of the border. I’m sure China will be happy to bring one to the west coast.

  71. Z: Increasingly, the search for untapped global crude oil reserves ends in Africa. African governments traditionally have been more accommodating than Russia’s government, and the quality of its oil surpasses that of most Latin American fields. As a result, U.S. dependence on African crude likely will reach 25% of the country’s use by 2015. Meanwhile, China’s biggest oil producers all have emerged as key operators in areas such as Sudan. But as Africa’s leverage in the global crude market strengthens, so could its demands, particularly in areas such as Nigeria, which already has imposed tougher fiscal terms on foreign producers, which could place upward pressure on global oil prices in the long run. ( Source: Financial Times )

  72. White House suggested that its OK if smaller E&Ps are forced out of drilling offshore if they remove the liability caps.

    “Maybe this is a sector where you really need large companies who can bring to bear the expertise and who have the wherewithal to cover the expense if something goes wrong,” Carol Browner, special adviser to U.S. President Barack Obama on energy and climate change, said.

  73. “EPA Proposes to Cut Power-Plant Emissions in 31 States”
    “mainly from coal-fired power plants”

    Incentive to migrate to NG?

  76. re 73, you would think a bit so, but instead they are going to go after fracing at the same time. Of course, that should be good for commodity prices. Was chatting with a long time energy investor and we keep circling back to either looking at more Canadians (who ostensibly wouldn’t get hit by a frac ban, except for U.S. ops of course) or looking at more conventional players. We keep coming back to DNR.

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