Wrap – Week Ended 07/20/12

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Most of the wrap comments will be incorporated into the Monday post along with the coming week's earnings table and "The Week that Was" summary but we thought we'd throw out yesterday's storage graphs and brief comments as we love it when a plan (in this case, the flatter slope of the injection line) really comes together as expected (self back pat right there but hey, its Saturday, and the sideways trade in the group is in progress, the leveraged gassy plays are working, the sun is shining (and its hot!), etc). Enjoy the weekend. 



  • We are now 470 Bcf above the 5 year average, down from 927 Bcf over it at the end of March

  • This wasn't a record low storage number for this week in history, that goes to 2006 with -7 (we had some Gulf related outages around that time) but it was far and away the second lowest number for this week in history.

  • We are now 211 Bcf below the 2009 level (down from 249 Bcf in the prior report). 2009 represents the upper band of the historical range for storage. 

  • Cumulative gas injections for 2012 are running 3.3 Bcfgpd behind the five year average. Meaning that on average we have packed away 23 Bcf less each week in the first 17 weeks of the injection season than we have in years past. Put another way, we have put 396 Bcf less into storage this season than would be indicated by the 5 year average. 



On to the wrap and just briefly note:

1) E&P stocks and Service names had a better-than-market week as the sideways trade oscillated north on Middle East fear driven oil, fundamentally driven natural gas, and better than expected early 2Q12 reporting season results from NE, BHI, and SLB. 

2) Natural gas closed over $3 for the first time since February for the front month. Note that the forward strip did not advance as rapidly but is did move higher to $3.40.

3) Natural gas directed rigs are not the only thing that is tumbling, non commercial traders (speculators) who have been short natural gas continued to pull the injection handles at an increasing pace.  I'm sure some will reload in the Fall but that trade is quite long in the tooth and changing dynamics of the natural gas macro are going to leave some traders without heads. 

26 Responses to “Wrap – Week Ended 07/20/12”

  1. 1
    zman Says:

    Iraq to turkey pipeline bombed. Carries about a quarter of Iraq's exports.  Hello PKK. President Obama sided with Iraq against Exxon and leases in Kurdish territory on Friday. Hmmm.

  2. 2
    crysball Says:

    Solely  as a historical  perspective ( and  not  political)  the  folks  in Washington  have  consistently  'screwed ' the   Kurdish   dating back  to  the  1980;s  when  Saddam   was   using  chemical wepons  on  the  Kurdish minority  as we turned a 'blind eye'  to   what  was  going  on.   This  ' HISTORICAL' observation  applies  to  both  political parties / administrations in Washington  DC…………so while cynical,    it  comes as  no  surprise  that  BHO  would    take  an  OPPORTUNITY   which  would  throw both    Exxon  and  the Kurds  under  the bus……..'DOUBLE THE FUN'.
    The  Kurds   must  fight for their existence  against  the  Iriquis, the Turks,  the Iranians,  and  the  good ol  USA.
    While  the  PKK   is  an  extremist element  it  isnn't  hared  to understand   how they   became extremist  in their  views.

  3. 3
    crysball Says:

    Z,   you  deserve  more than  a    'PAT   on  the Back'         for  the  insightfull  'SPOT ON' calls  you   make  ………gas   ……….oil………price decks, and   individual   stock  picks  and analysis  of  them  and  how  they fit  into  the 'BIG PICTURE'. 
    Am constantly amazed  how  you   CAN   digest, analysw   &  produce  the  massive amount  of  data    on a daily  basis.

  4. 4
    zman Says:

    re 2 – Agreed. Chevron licensing there too, others working on it. I used to follow some wells there that had 30,000 bopd IPs from a conventional reservoir without breaking a sweat.  Onshore Verticals.  So I get why the oil companies are there. I'd ask people who don't get it how they would feel if someone a half a world away said Oklahoma couldn't sign a deal with China to produce Miss Lime wells. Unreal to me how the Kurds still get treated and, as they will tell you, DON'T call them Iraqi Kurds. They are Kurds.

    re 3 – thanks a lot, means much coming from someone who has been here, what, 5 years now? Thanks.  

  5. 5
    choices Says:

    SDRL-a weekend read:  as TomD is aware, SDRL's debt is a concern to some (myself included)-they ARE leveraged and use leverage for growth while paying out divs ~8%-long term contracts on new equipment strengthens cash flow-I believe this SA article is useful on the debt situation:

  6. 6
    zman Says:

    Not Shocking News Watch


  7. 7
    crysball Says:

    Another  Middle  East  Pipeline  gets bombed……..this one for the 15th  time:

  8. 8
    tomdavis12 Says:

    5 Choices. Thanks for the SA post. Risks for SDRL not in the article. Most of the last 6 UDW rigs ordered are backend loaded. 20% down with 80% upon completion. With price tags of $500 – $650K/rig that is still a decent amount to be put up when rigs become available. If they have a contract upon completion, borrowing should not be a problem. If any significant bank failures pop up in Europe, that is a risk we saw with our '08 bank mess. SDRL has also had the pattern of selling older rigs to keep their fleet very new with over 90% utilization over the last 3 years. The potential MLP might follow that pattern. This mgmt team has taken has taken the company from a standing start to the top market cap in their space in the world. I for one hope they keep making smart decisions. 

  9. 9
    zman Says:

    The Blotter is updated


  10. 10
    Zorgnak Says:

    S&P 500 Futures Weekly Notes/Thoughts
    Last week’s green shoots withered as the market ran to upper tail of volume distribution since May (far left volume profile) at the 1273 CHVN(far right).  1354 is near support for any further extension. 1351 CHVN is the intermediate volume pivot. Trading below this area is likely to test 1340 again. 1321 is far support. 1309 is the Major CHVN on the chart. To my eye the market is stalling and looks to be ready to test lower once again. While both turned positive during the latest rally, neither demand volume or breadth confirmed the latest swing high and show signs of rolling over . In addition, on 7/18, a DeMark TD 13 exhaustion sell set up occurred on the SPY.  $USD remains strong on the weekly, daily and intra-day.  Financials and Transports have worked off the June 6th oversold low and are rolling over  after making lower highs. The long bond, after working off overbought conditions, is rising again in all time frames.  
    Last weekend I posted that I thought we could see another pop and drop move. To my eye, this  seems  to be the most likely scenario.  Watch the reactions at 1354 and 1340 to gauge the degree of the drop. 
    CLVN=Low Volume Rejection Zone – CHVN= High Volume Price Acceptance and Congestion Zone
    1375     Congestion begins to increase.
    1362-78 CLVN, Low volume zone.  
     1354   Support, CLVN
    1351     CHVN, Short/Intermediate term Volume Pivot
    1340.25 Key rejection area . Break lower works to 1321.
    1321   CLVN, Support
    1309    Major Long and Intermediate CHVN
    S&P 500 Futures Chart

  11. 11
    Zorgnak Says:

    XLE  Traded to the CHVN at 68.50 on positive demand volume. Demand volume is positive and improving.  Looks short term extended but demand volume suggests consolidation between 66.60 and 70.

  12. 12
    Zorgnak Says:

    XOP… E&P ETF…  Another sharp low volume rally to resistance/overhead supply at 52. Looks extended. (Swing  short setup triggered Thursday ,75% winners, 4.51 Profit Factor over last 6 years). Demand volume has turned up longer term.  Expecting consolidation below 52.75.

  13. 13
    Zorgnak Says:

    Crude Oil Futures held on Friday at 91 near support  CLVN. Crude continued to build acceptance  around 91.70 Near resistance at 93.75 Volume base at 89 with wide open low volume zones from there to long term acceptance at 98. Price able to move in either direction on low volume.  Longer term demand volume rounding under with short term demand flattening. Expect 89 to offer better support should 91 break.  

  14. 14
    brodway Says:

    Last week there was a mention that the drop in the price of crude was directly correlated to the rise in the valued of the US dollar.  
    Would the price of crude continue to move down if in fact the strength in the dollar continued? I have some concerns that the weakness in the Euro and Dollar/Euro reaching to levels not seen in some time may further deteriorate the price of crude.

  15. 15
    crysball Says:

    Re  15…….elements  influencing Crude Price
    The old  adage:  Gas is local……….Crude  is  Global   still  applies. There are many  elements  (in  addition   supply & deman which play a  role……… events  in the Middle  East, Headline risk,  and  relative  currency  valuation……..to name a few.  The  dynamics  are  constantly shifting.

  16. 16
    nrgyman Says:

    With all of the turmoil in the MIddle east it is easy to understand the recent bullish interest in crude oil, but the real story over the past 2 months has been natural gas.  And if this Forbes story is even close to becoming true, the natgas price move upward has just begun and it will be a great time to be long natgas stocks:
    I don't see $8 natgas by year end as the article posits, but the trend higher from here could be very real.  In the past 2 volatile months (May 21 – July 20) WTI has dropped 1.06%, during which time we have also seen the following:  SPY +3.95%, XOP +4.77% and natgas +16.22%.  The article states the following to support much higher natgas prices in the next 6-9 months:
    "So combine 13 year low gas rig counts, declining production levels with resultant ultralow storage injections, shut in gas production, faster than anticipated shale well declines, persistent switching from oil and coal to cheaper and cleaner gas alternatives…..Then consider unending hotter than normal summer temperatures, continued greater than normal nuclear plant outages, a hurricane or two that knocks out Gulf of Mexico natural gas production for a week or two, and a La Nina induced cold winter…….any one of these can light the fuse that pushes the tenuous supply/demand balance into cardiac arrest. That’s the chain and it’s going to lead us to $8.00 mcf natural gas by the approaching winter."
    Another bullish factor for natgas stocks:  Zman has been buying more of them in the last month for his long-term portfolio (XCO and SJT pure plays).  

  17. 17
    nrgyman Says:

    RE 16:  Just as a curiosity, I measured the performance of some common energy names  over past 2 volatile months (May 21 – July 20) to see how they are tracking WTI, natgas, XOP and SPY.  Here are some:
    MMR +43.5%
    REXX +22.93%
    PVA +20.0%
    CHK +15.36%
    EPL +14.2%
    TPLM +11.84%
    NFX +8.90%
    SWN +7.82%
    EXXI +6.9%
    OAS +6.64%
    SD +4.46%
    GPOR +4.07%
    XCO +1.85%
    ROSE +1.48%
    EVEP +1.0%
    KOG +0.47%
    PDCE +0.09%
    EOG -0.84%
    RRC -1.77%
    CLR -1.87%
    SYRG -2.02%
    CRZO -5.48%
    SJT -6.3%
    WLL -6.48%
    BCEI -7.15%
    NOG -8.26%
    HK -9.66%
    MHR -13.57%
    GDP -14.99%
    SSN -25.45%
    MPO -32.87%

  18. 18
    brodway Says:

    re: 15
    what you say makes a whole lot of sense. the story is being written but not told. the migration to nat gas story is only a matter of time. this has to be one of the greatest times in history to be invested in nat gas. a lot of smart people putting their money into gas now. time horizon may have to be more than just to the end of the year. lots of unexpected elements may delay the process. have to say if CHK revisits $14-15 again, the risk/reward may start to look like a good one there again. SWN looks like a $50 stock masquerading at 30.

  19. 19
    brodway Says:

    one day T. Boone is going to go down in history as the man who predicted the nat gas boom. he has been pounding the table on nat gas for what seems like more than a decade now. the man just gets no respect. 

  20. 20
    nrgyman Says:

    RE 17:  With natgas up 16% and WTI down 1% in the 2 month performance window shown above, it is not surprising that the top 4 performing stocks are heavy natgas producers.  I want to focus on 3 stocks from this list that look interesting:
    MMR:  Fantastic performance, but if the UD proves productive from upcoming results then this stock could be the best future performer from the list by a massive amount.  MMR has the highest ceiling of any of these stocks, but also the highest risk.  The last CC was exciting to listen to and the upside is staggering.  If the UD is proven productive as MMR believes it will, MMR will be bought by a major at a much higher price–perhaps multiples higher–at some point in the not-to-distant future.
    EPL:  This was the best performing oil focused stock, #5 on the performance list during this period.  This may be the cheapest stock on a TEV/Ebdita basis.  They get the Brent related premium and they are growing their oil production while maintaining good financial discipline and cash flow.  But the market also might be starting to value their hidden UD assets due to MMR's potential success.  No doubt EXXI, which has also performed well during this period, is also gaining from the UD potential.  The UD potential could make MMR, EXXI and EPL very exciting performers going forward.  
    SJT:  With natgas up so much, it is surprising to see that SJT dropped 6.3%.  IMO, this had more to do with the problems at HGT–which cut it's dividend due to a leasehold dispute that they were ordered to settle.  The panic spillover to SJT, which has historically traded similar to but has no connection with HGT, appears to be unjustified.  This is a natgas income trust with a yield of 5.2% at current low natgas prices, so if natgas rises this should be a good total return performer as well.

  21. 21
    nrgyman Says:

    RE 18-19:  Agree on Boone, SWN and CHK.  I think CHK is a great value at current levels and I took a position in it Friday around $17 after selling it near $20 not long ago.  I will likely add more if it goes lower.  Headline risk likely there but IMO not long-term consequential.  Selling assets is important, however, so the energy markets will have an impact on CHK.  Energy markets look more constructive now.  Heavy recent insider buying above current prices.  Any positive news could spike CHK.  

  22. 22
    elduque Says:

    Still like Penn West (PWE)- Yield 8% plus, a boatload of great prospects in light oil plays, diversification away from the U.S. Dollar, and cheap on a relative price performance basis vs peer group.

  23. 23
    brodway Says:

    i've been seeing this move in corn as a huge negative for continued ethanol production. both from a perspective of price and waste of a valuable food source . worst drought since the 1950's??? don't think oil prices have factored this in yet. it will catch on soon enough.
    also mentions Bird's GEVO .

  24. 24
    zman Says:

    China's CNOOC Buys NXY for $15.1 B , details will be in the Monday post. 

  25. 25
    Big Oil & Gas – Independent Stock Analysis Says:

    […] A natural gas loaded stat-fest at Zman’s Energy Brain. […]

  26. 26
    BirdsofpreyRcool Says:

    broadway #23 — thanks for pointing out that article.  I would be shocked (shocked!) if GEVO wasn't already in discussions with Valero about taking a few of those pesky 100 MGPY plants off their hands… and the unprofitable ethanol supply train.

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