02
Jun

Wrap – Week Ended 06/01/12

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1) Another Sharp Retreat For Crude and Products.  8% drop on the week but a $23 drop in the last 30 days. This seems like an overreaction to Europe, China, and US data. Yes Saudi is producing full tilt in an effort to knock prices down in preparation for further restricted volumes from Iran and seasonally stronger global liquids demand in 2H12. Well Mission Accomplished on that account. Motivations for wildly over producing the Kingdom's quota range beyond aiding the world's ailing economies via cheaper energy costs however including dealing a blow to Iran's economy. One other side effect that may not be accidental is curbing U.S. production growth. Get below $80 WTI and the list of plays that exceed 20% IRRs in the States shrinks rapidly. The "Lite" play shale areas go sub-economic and the oily rig count flattens and starts to decline as the impact of a 200+% increase in service costs over the last three years makes itself more obvious. Go to $70 WTI and parts of Core play shale areas start to become highly questionable. An America the oil addict who has begun to make progress with recent domestic production breaching 6 mm bopd flattens and stays un-weaned.  

1a) Note that while domestic inventories of crude have grown recently largely on the back of domestic production and lower refiner utilization and not on strong imports, U.S. product inventories are well below average for this time of year. So this past week as oil fell, products retreated by similar amounts yielding strong, stable margins for refiners.   Given still quiet strong (near record) export demand the refining crowd is likely to see increased interest from me in coming weeks. 

1b) Note also that while oil may have tumbled, non commercial (speculator) lack of interest can't be blamed for the decline as the numbers really haven't budged. I guess they only get blamed when oil prices rise. 

2/3) Natural Gas Retreated With Everything Else. Positive data for supply and another lower than five year average injection report was largely ignored this week as the markets were in tumble mode. But "Flatter Slope" still very much applies to the injection pattern this summer and the storage overhang from last summer continues to slowly erode. More importantly, supply data is showing an acceleration to the decline of natural gas coming from LA (expected but welcome to see it happen along with negative revisions to the prior month's data) and even "Other States" production faltered (for the first time in over a year) last month. It's a not a big dip but this amalgam of areas has been a big driver of YoY gas supply growth for the last several years now. See Friday's post for the Natural Gas Supply Slide Show here.

25 Responses to “Wrap – Week Ended 06/01/12”

  1. 1
    choices Says:

    CHK well-wow-add'l details:
    http://www.bloomberg.com/news/2012-06-01/chesapeake-makes-significant-discovery-in-anadarko-basin.html

  2. 2
    zman Says:

    Our Hogshooter comments from yesterday's comments section:

     

    CHK -Hogshooter

    – Huge oil wells, no one cares today. 1 well with 7,350 BOEpd (73% oil, 16% NGLs) for first 8 days of life. That's a big big well. 2nd well is 5 miles away, averaged 1,900 BOEpd first 27 days.

    – CHK has 30,000 net acres so plenty of wells (they say 65) to drill in time.  They should probably sell this (TX panhandle, Wheeler County) but they want the liquids from it.  

    – One would think NFX, LINE, APA, PVA, SM, FST would benefit on a normal day from the news.

    – LINE is drilling three Hogshooter formation (shallow Missourian formation above the granite wash) wells now (in between Cleveland and Tonkawa).

    – PVA is trying to sell their Granite Wash acreage (Washita County OK, which is adjacent to APA's Beckham County, OK 2,000 boepd IPs from late 2010) now so these results could aid in that process as well.  PVA is east of them but not far east of APA success.  

    – I have not seen a good strat map of how the hogshooter runs about the area, not sure if its viable that far east or not could thin, just don't know yet. LINE is probably the direct play just because of the 3 in progress wells. And if one of the names is going to let a well rip and report the absolute highest rate you can imagine its probably LINE. Not a criticism, just have seen them do that repeatedly in the GW.

  3. 3
    choices Says:

    Streetsweeper (Melissa Davis, "award winning journalist", heh) now posting in SA and getting flaming comments in return, some comparing SA now to the Yahoo boards.

  4. 4
    elduque Says:

    Z- in rereading Friday's excellent early morning post. Am I right in assuming that all the data confirmed your second half constructive outlook for both Crude and Nat Gas.
     

  5. 5
    elduque Says:

    For you technicians: It looks to me like the Euro had a key reversal day on Friday. 

  6. 6
    brodway Says:

    Eldque.
    you are right, so did gold. Zorg had a technical level that the Euro has to get over to take a more bullish stance, but its closer to 1.25 i believe.
    i think oil is right behind. 
    there were too many oil "pros" calling for $80-85 oil, so now that we are here, they can all cheer and move on.

  7. 7
    zman Says:

    Just ducking in from a picnic 

    Re 3 – you reap what you sow

    Re 4 – short answer yes, long answer later this weekend. 

    Re 5 – good eye

  8. 8
    brodway Says:

    Zorg.
    wondering if you have some lower price points on the S&P. right now seems 1263 is an important point in your charting. wondering what happens if we break that? i was looking at your chart and saw 1240-1245 area as next area of support. 

  9. 9
    brodway Says:

    Yields on the benchmark 10-year Treasury note hit 1.442 percent, the lowest level in records going back to the early 1800s.

  10. 10
    RMD Says:

    MPO just read RBC's update.  Slightly unsettling thought is they were low est for '12 production at 10.14m/d when roadshow guidance was 11m/d.  Now the guide for '12 is 10.5m – 11.2m/d and RBC's new number is 9.94m.  RBC's '13 est went up from 14.4m/d to 14.6m/d.
    I'll try to find out why below guidance.

  11. 11
    brodway Says:

    RMD
    didn't Morgan Stanley suggest moving out of BCEI and into MPO?
    also wasn't MPO management upset that their initial offering was priced too low?
    strange stuff

  12. 12
    tomdavis12 Says:

    11 MS does not follow BCEI. Too small, must be someone else. 

  13. 13
    zman Says:

    Added some notes to the top of this post. 

  14. 14
    zman Says:

    Comments on piercing the 200 day SMA for the S&P500 on Friday. 

    http://blogs.marketwatch.com/thetell/2012/06/01/watch-for-avalanche-of-sell-orders-monday/

    Futures off 10 on the SPX so far. 

  15. 15
    elduque Says:

    When do you expect the president's of all the major oil cos. will be called to Washington, to answer why the price of oil is so cheap???
     
    Ah, those evil speculators. 

  16. 16
    zman Says:

    Like clockwork
    http://news.yahoo.com/clinton-draws-no-conclusions-iranian-warning-153401608.html

  17. 17
    elduque Says:

    It doesn't look like Hilary has had a chance to work out. 

  18. 18
    PackMan Says:

    OMG; never slim, but Hillary looks like a Weeblo …

  19. 19
    brodway Says:

    re: 14
    Let's see if Zorg's 1263 S&P target acts as any kind of support. 

  20. 20
    Justin Says:

    Yikes…The Willie Wonka Grape Girl. 
    Anyway, saw Merkel reiterated no Euro bonds. Still scratching my head on this deal.

  21. 21
    Zorgnak Says:

    Checking in …Still on vacation until next week..working off a small laptop.
    I see the O/N session is down to the 1263.50 level that I thought  might be key in this latest move.  It is the last major volume structure supporting long term acceptance above. Rejection of this area now puts a large amount of  long and short term inventory underwater with relatively minor market structure below. In addition, system and TA selling will kick with a break of the 200 MA exacerbating the downward pressure. A bounce at the 1363.50  back above the 1290 level level would be necessary to avoid or postpone these negative events.Aside from 1263.50 the levels that I have are …….
    http://www.charthub.com/images/2012/06/03/ES_Composite_2.png
    1275       Resistance
    1258.75 Minor Support/CLVN
    1252.      Acceptance/CHVN
    1241       Support/CLVN

  22. 22
    Zorgnak Says:

    should have read " a bounce at the 1263.50 back above the 1290 level would be necessary to avoid or postpone these negative events"
    my laptop typing is even more lame than on the desktop computer at home….good luck to all…

  23. 23
    choices Says:

    Thanks, zorg
    Hang Seng down large.

  24. 24
    choices Says:

    Outlook for week ahead-I've followed this guy's articles for awhile-he tends to keep his head on-FWIW.
    http://tinyurl.com/preview.php?num=7xzlf3e

  25. 25
    Zorgnak Says:

    S&P Futures Short Term Levels of Interest. 8:01 AM 1277.50
    At the moment the market is set to open within Friday's range and within the outer lower limits of the major longer term  acceptance.
    O/N session rejected the 1263.50 area and has rebounded above the minor CLVN at 1275. If 1275 holds as support then I expect an attempt to
    test back to major acceptance 1290-1304 may be only a rumor or two away. With a break of 1275 as support I'd expect to see a retest of the
    1263.50/O/N lows. The 1263.50 area actually stretches from 1258.75-1263.50. Bulls would like to see it hold as high
    in that zone as possible but as long as the general area holds I still see 1290-1304 as the major magnet in the immediate area of the chart and
    and expect rally attempts.
    The next area of acceptance below is at 1252 with potential support at 1241.
    http://www.charthub.com/images/2012/06/04/ES_Composite.png

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