Wrap – Week Ended 8/19/11

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  1. Energy Continues To Get Hit With A 4th Straight Week Of Losses For The Broad Markets. Especially the Oil Service names and not just the little ones. Fear of a global double dip and lower oil prices in the U.S. has investors believing that capex will tumble. So far there is no indication for E&Ps, Majors, or National Oil Companies (NOCs) that spending will be down. We listened to just over 40 conference calls this past season (see Monday's call for the bullets on 31 of them) and indications for the second half of this year are up. Early indications for 2012 are flat to up. As far as the NOCs go, Saudi Aramco has embarked on a drilling binge, PEMEX has found the funds/will to bring in outside help to stem years of decline and Iraq is really starting to roll now. And there are increasing signs from North Africa to Europe of continued growth in conventional and new growth in unconventional projects. But investors are choosing to flee based on weak charts.
  2. Oil Is Still Global But WTI Continues To (Temporarily) Act Local. Last week saw an unexpected build in crude stocks. Crude closed up on the day of the weekly inventory report since the build was the creation of a large draw on the SPR (5.9 mm barrels) and because stocks at Cushing, the WTI pricing point, fell again, hitting a 10 month low. Gasoline demand remained OK for the time of year with lower prices at the pump supporting consumption of 9.2 mm barrels per day and helping to offset the ongoing impact of high unemployment. Year to date, gasoline demand has averaged 9.025 mm bpd, ranking 2011 6th for demand out of the last 10 years, with 2007 being the peak at 9.374 mmbpd. Expect one last holiday inspired bump in gasoline demand in the next couple of weeks. Also note that at this rate, the U.S. SPR release will be exhausted in less than three weeks, taking away an incremental 0.8 mm bopd of supply.  Despite all of this, WTI priced crude tumbled on Thursday with a weak equity makret to end the week off 4%. Meanwhile in Europe (the source of much of the US equity market woe), Brent was actually up last week and the spread between it and WTI has ballooned to $27.65 per barrel. That's unlikely to persist for long.
  3. Natural Gas Production Is Still Too High To Warrant Calls For A Significant Rally In The Near Term. Production has risen most of this year. Storage is below year levels by 5.8% but that's not a big feat since last year's storage levels were so bloated and we are coming off a coal winter that gave us a good (low) starting point to the injection season. The fact that some really hot weather in July did not prompt a summer withdrawal in one or two weeks this summer is telling regarding the ongoing build in "other states" production. Yes, we saw draws in the producing region but the Eastern consuming region is fending for itself thanks in large part to the Marcellus and the Western region is now surpassing its five year average and plans in Wyoming call for a lot more gas focused drilling over the next couple of years.  Additionally, the rush to liquids rich plays yields casinghead gas produced at any price and this is compounding the supply problem at a time when industrial demand is likely to trend sideways or even reverse unless Ben Bernanke can pull a stimulative rabbit out of his Jackson Hole meeting.
  4. Coal and Solar. Interesting dichotomy here. If you looked at the coal stocks you'd think they sold solar cells and not coal which is essentially unscathed in the recent pullback in all commodities not related to gold. And if you bought into the green jobs stuff from two years ago you probably wouldn't expect the TAN and GEX green energy ETFs to be off 32 and 30% respectively this year. Demand for coal is up everywhere but in the U.S. Europe has the Fukushima fear inspired variety and China and India are simply doing what they do ... building massive amounts of coal fired power with little way to feed it other than seaborne imports. I've stayed away from solar for some time and now we are seeing bankruptcies and long time executive departures as the time until the next government subsidy program of size in key European markets seems to have been extended beyond the normal human lifetime. I remain on the sidelines there. As to coal, I continue to own BTU and will likely double the position once the markets settle down a bit and the end-of-the-financial-world-as-we-know-it-fear has been fully discounted.
  5. Bulker Rates Ticking Up. Interesting. Will dust the group off and take a look around.

10 Responses to “Wrap – Week Ended 8/19/11”

  1. 1
    Alhambra Says:


  2. 2
    tomdavis12 Says:

    Z: Read thru the RJ piece re EXXI. They do have a $60/sh possibility with some positives from the Udeep stuff. Very impressed with how they can manage in a difficult price envoirnment. At $70 crude they still have 200M excess cash flow. Very well hedged and they do not sell @ WTI. Expecting 40% net debt/cap in 2 years. Unless they find another tasty morsel. For RJ this was an initiation of coverage. I believe their numbers were VERY cautious. Andrew Coleman is the new analyst. He came from?2 Questions: Is the depletion rate in the GOM quicker than onshore (Bakken or others). 2 The Gov’t is having a western GOM lease sale in Dec. Is MMR & EXXI likely to participate?

  3. 3
    brodway Says:


    another interesting perspective

  4. 4
    zman Says:

    re 3 – the knee jerk, no brainer reaction is to sell. To say that prices are $10 to $20 elevated by the situation is ludicrous and since its below the pre war pricing (WTI, Brent is about even) then my thought is that it sells quick, then rallies when OPEC supply is tapered off.

  5. 5
    Justin Says:

    Listened to TAT Q2 call yesterday. Spudding holes in the Thrace ain’t a sure thing like we were led to believe. They’re pausing to reconsider the re-frac strategy. I hope they can get it right with the new manpower. So our attention essentially shifts to oil in the Selmo. Hope Arpatepe wells (4 planned) work too.

    I’m not a cynic, bit I enjoyed the guy from KMF calling them out on execution and poor guidance. But I don’t agree with him that a buyback would be prudent.

  6. 6
    elduque Says:

    re TAT- So far MMIII has bt about 1,250,000 over the last few days.

  7. 7
    choices Says:

    Globex ES, Hang Seng up a tad

    Protests against Keystone pipeline getting more active,visible

  8. 8
    zman Says:

    re 7 – yeah, they are locking people up in DC over that.

    Saw futures off early, saw guys like Nouriel smiling about it, funny to see them reverse on him but all of it noise pre Jackson Hole and pre some better economic numbers. GDP largely expected to be revised for 2Q to below a percent on Friday and everywhere I look I see brokers cutting US growth estimates. We shall see but I’d note that these guys are herd animals.

  9. 9
    choices Says:


    Western Hemisphere getting more recognition for energy sources (if gubermnts do not screw it up).

  10. 10
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