10
Mar
Wrap – Week Ended 3/9/12
Much ado about nothing as far as equities went last week as Greekeurotrashdebtcontagion fears and an ever so slightly weaker growth expectation out of China early in the week were largely offset later in the week by stronger ecodata. Payroll data continues to edge higher and prior month data was revised up which is what you would expect in this L-shaped recovery. We added back some trading positions sold at the end of February on the early week weakness. Energy equities are marking time post fourth quarter release which is normal and healthy.
WTI remains ahead of itself for this time in my modeling calendar. However, given the ongoing support of Middle East tensions, not exactly collapsing European demand for refined products, very much collapsing UK North Sea production (see the Wednesday post for graphs) along with rising non developed country demand this year and next and the promise of further embargoing of Iran crude it's not surprising to see crude at current levels. I don't think it is sustainable and would expect prices to be lower given continued weak U.S. domestic demand were it not for continued record product exports.
Natural gas storage remains at record highs for this time of year and will likely remain there until 4Q12. Look for almost 2 Bcfgpd of incremental gas demand from the gas fired generation segment to eat through a majority of the storage overhang by Fall as gas steals generation share from coal. Expect that to coincide with the first noticeable and significant rollover in U.S. supply since early 2009. Note the natural gas rig count below has that "this time they mean it" look to it but it will the ebb for supply will be a slow one as the drilled but not yet completed well count remains high in multiple gas basins.
The ZEB Positions and ZEB Blotter tabs will be updated later this weekend.
"The Week That Was" for last week will be in the Monday post as usual.
RIP Peter Beutel http://www.cnbc.com/id/46685807/
March 10th, 2012 at 9:37 amExcellent reminder and good to read on days when we have triple-digit drops…
March 10th, 2012 at 10:46 amhttp://online.wsj.com/article/SB10001424052970203961204577271670091239232.html?mod=WSJ_PersonalFinance_PF4
For gold watchers: this is a fairly good site, Norcini collaberates w/Jim Sinclair-comments on USD are helpful for other commods:
March 10th, 2012 at 11:49 amhttp://traderdannorcini.blogspot.com/
Z, data from EIA web site-continuing decline of gas and diesel for 3 months
March 10th, 2012 at 12:07 pmhttp://tinyurl.com/preview.php?num=7yptsny
-does this portend any significant decline in demand or only affecting imports?
Thanks-certainly no rush.
Homework..
March 10th, 2012 at 2:37 pmChart study of POMO activity and crude oil futures.
POMO data from http://www.newyorkfed.org/markets/pomo/display/index.cfm
Chart #1 Longer term.
Top pane ………Crude Oil Futures from 2008 til present. Green
Middle Pane …Number of POMO events in a 5 day look back. Red
Lower Pane …20 day moving average of $ amount of the POMO buy and sell events. Cyan
You'll have to expand the chart to see it. I haven't found a decent way to share Trade Station Charts yet.
http://i1223.photobucket.com/albums/dd503/zorgnak/POMO1.png
Event clusters during liquidity expansion and contraction have been reliable short term indicators of Crude Oil strength and weakness since 2008.
With the exception of a quick spike on 2/13/12
March looks relatively flat of POMO expansion until 2/21/12. I'll post the data when it appears to be significant if anyone else thinks it's relevant.
Schedule of future Fed market buys/sells and amounts is available at the
NY Fed site. http://www.newyorkfed.org/markets/tot_operation_schedule.html Historical data http://www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm
Homework..
March 10th, 2012 at 2:38 pmChart study of POMO activity and crude oil futures.
POMO data from http://www.newyorkfed.org/markets/pomo/display/index.cfm
Chart #1 Longer term.
Top pane ………Crude Oil Futures from 2008 til present. Green
Middle Pane …Number of POMO events in a 5 day look back. Red
Lower Pane …20 day moving average of $ amount of the POMO buy and sell events. Cyan
You'll have to expand the chart to see it. I haven't found a decent way to share Trade Station Charts yet.
http://i1223.photobucket.com/albums/dd503/zorgnak/POMO1.png
Event clusters during liquidity expansion and contraction have been reliable short term indicators of Crude Oil strength and weakness since 2008.
With the exception of a quick spike on 2/13/12
March looks relatively flat of POMO expansion until 2/21/12. I'll post the data when it appears to be significant if anyone else thinks it's relevant.
Schedule of future Fed market events available at…
March 10th, 2012 at 2:39 pmNY Fed site. http://www.newyorkfed.org/markets/tot_operation_schedule.html
Historical data
http://www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm
The chart in #6 above was not correct. I made a mistake in the translation from Excel to the TradeStation format.
Below are the correct charts. I had to use USO for crude as the future's data server I use is down at the moment. I used XOP to test oil stock correlation to POMO
http://i1223.photobucket.com/albums/dd503/zorgnak/POMO_USO1.png
Here's the correlation between POMO and XOP
http://i1223.photobucket.com/albums/dd503/zorgnak/POMO_XOP1.png
March 10th, 2012 at 4:20 pmSo, how is this POMO stuff useful? Since 12/22/08 it has paid to lean long either Crude or XOP when they are dipping while POMO buying events are in a cluster. Even more so when the $ amount of the purchases is increasing.
March 10th, 2012 at 5:10 pmUSO 19 Long Trades. 78.95% win rate. 3.44 Profit Factor
XOP 16 Long Trades 93.75% win rate. 5.52 Profit Factor
Not a suggestion to trade this way because correlations change all the time but it is for me, at least, a poor time to be selling.
On the flip side the odds were against chasing crude or E&P stocks when they are short term overbought and POMO selling events dominate.
USO 28 Short Trades 71.43% Wins 1.82 Profit Factor
XOP 27 Short Trades 62.96% Wins 1.53 Profit Factor
Again, I wouldn't short this idea but buying doesn't look profitable for short term traders
Here's a shorter term chart of XOP with POMO event clusters and POMO $ volume flow. I think this illustrates the idea a little better. I hope.
http://i1223.photobucket.com/albums/dd503/zorgnak/POMO_l_S.png
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/02/China%20Crude%20Imports%20.jpg
March 10th, 2012 at 9:10 pmZ,
March 11th, 2012 at 9:26 amAm curious if the expansion (and filling) of the Chinese Strategic Petroleum Reserve is abosrbing some of the growth shown in Wyoming's chart of Crude Oil Imports…………since this would be one time event even though they continue to expand the size of their SPR), and might cause the slop to be greater than just growth in consumption?
C, that would be 6 years of expanding their SPR. It might be part of it but consumption should factor in too IMO.
March 11th, 2012 at 10:49 amWith the decrease in demand from the US (down ~1.5mmbopd), I find it curious that we have increased the global consumption from 87mmbopd pre $147/bbl crash to today's ~88mmbopd+.
Include in this thought that XOM had a higher reserve replacement loss (3% rather than the modeled 2%). I don't think too many of the big boys are capable / able to increase or replace their depletion.
A little back up;
March 11th, 2012 at 10:55 amhttp://www.dispatch.com/content/stories/business/2012/03/11/opec-lowers-demand-estimate.html
SDRL-good summary on SDRL's debt situation:
March 11th, 2012 at 10:57 amhttp://seekingalpha.com/article/425201-don-t-worry-about-the-debt-seadrill-is-financially-strong?source=email_authors_alerts&ifp=0
Weekly Chart Watch
Last week S&P Futures Went straight up from oversold leaving three unfilled gaps in a row to close Friday at the 1365 upper acceptance area, just below the recent range highs. Whether this will be a pivot higher for the bulls remains to be seen.
Bulls need to hold above minor support at 1360.25 early in the week to extend recent highs. Below 1360.25 the Volume Range Pivot at 1353.75 comes in to play and if it gives way a test of the major
low volume area at 1347 and the unfilled gaps below would be most likely. Volume demand and short term breadth are not extended at the moment but have begun to diverge a bit from price action on several time frames.
Divergences do seem to be an early event in advance of market turns but are very imprecise timing tools IMO, remaining divergent for weeks or months at times. Early signs only. The levels are my canaries.
POMO buying events peak on Monday and then go flat until 3/21. OPEX studies are positive for March.
My plan for the week….Waiting for a better risk reward for any new longs and lightening up more into strength.
S&P Futures Volume Profile
http://www.charthub.com/images/2012/03/11/ES_Composite.png
Market Volume and breadth not yet extended.
http://i1223.photobucket.com/albums/dd503/zorgnak/OEX_Breadth.png
ZLT E&P Portfolio Breadth Charts (E&P Stocks only)
March 11th, 2012 at 4:17 pmVolume and breadth not yet extended.
http://i1223.photobucket.com/albums/dd503/zorgnak/ZLT_Breadth.png
Crude Futures Current range 104.50-110.50. Range acceptance 106.83. Major Acceptance at 99
http://www.charthub.com/images/2012/03/11/CL_Weekly.png
March 11th, 2012 at 4:21 pmGregor on oil consumption
March 11th, 2012 at 4:26 pmhttp://gregor.us/oecd/oecd-gives-up-the-oil-to-the-developing-world/
Asia/Oil
March 11th, 2012 at 4:27 pmhttp://www.smartplanet.com/blog/energy-futurist/oil-demand-shift-asia-takes-over/400?tag=search-river
RE 18: Good information and analysis in the article. Big argument if favor of the XL pipeline. And natgas transportation. And ZLT stocks. The author didn't mention any of those. He recommended railroads to replace autos. Really?
March 11th, 2012 at 5:07 pmZEB Blotter Page
http://zmansenergybrain.com/subscriber-data/zeb-zlt-blotter/
March 11th, 2012 at 7:57 pmDig the blotter. Thanks Z.
March 11th, 2012 at 9:00 pmThanks for the levels Zorg, good stuff.
Same to you Wyoming on the China chart, was going to answer with the word "exactly" on Saturday but have been tied up with the crew this weekend. I'll respond to 4 in tomorrow's post.
March 11th, 2012 at 9:43 pmCHK seeking more capital in Asia:
March 11th, 2012 at 10:29 pmhttp://www.bloomberg.com/news/2012-03-12/chesapeake-ceo-courts-asians-for-100-billion-resource-energy.html
Interesting slideshow of life today in Williston:
March 11th, 2012 at 10:52 pmhttp://www.businessinsider.com/youve-never-seen-anything-like-the-williston-oil-boom-2012-3#
For those interested in CRR, check out slide 25.