01
Aug
Monday Morning – Natural Gas Macro Update
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Market Sentiment Watch: Busy week capped off by non farm payrolls on Friday. After last week's dismal 2Q16 GDP reading most eco-analysts are pushing the next Fed hike out further and/or reducing near term chances of a move and raising their view of a December hike. And the world continues to spin. In energyland, all eyes will be squarely focused on Wednesday's oil inventory report ... a test of $40 is likely if crude or gasoline builds are outsized. This also marks the busiest week of the 2Q16 reporting season. Comments may be at times briefer than usual (Thursday we have 10 owned names reporting) but bear with us and we will get to everything in short order. In today's post please find The Week That Was, the Natural Gas Macro Update Slideshow (ebbing production, demand record for month of May, and net imports near their all time lows for time of year), this week's energy earnings calendar, and some other odds and ends.
Ecodata Watch:
- We get Markit manufacturing PMI at 9:45 am (no forecast, last read was 52.9),
- We get ISM manufacturing at 10 am EST (no forecast, last read was 53.2%).
The Week Ahead:
- Tuesday - 8/2 - Personal income, consumer spending, core inflation, car sales,
- Wednesday -8/3 - ADP employment, Markit services PMI, ISM services,
- Thursday -8/4 - Jobless claims, factory orders,
- Friday -8/5 - Nonfarm payrolls, unemployment rate, average hourly earnings, foreign trade deficit, consumer credit.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- The Week That Was
- Natural Gas Macro Update - Production
- Natural Gas Macro Update - Imports
- Natural Gas Macro Update - Demand
- Stuff We Care About Today – Energy Earnings 2Q16 Week 3
- Odds & Ends
Holdings Watch:
ZLT (Zman Long Term portfolio)
- Last Week’s Trades: None
- The Blotter is updated.
Commodity Watch
Crude oil was off 5% last week closing at $41.60, moving lower on finished product inventories, the first build in 10 weeks for U.S. crude stocks, and comments by VLO that point to 2H16 run cuts (Europe and and NE US were indicated). Brent was off 7% as was the OPEC basket. This morning crude is trading down about $0.45.
- Iraq Watch: ISIS attacked an oil field, took worker hostages and killed as many as many as five. Iraq reports the 175,000 bopd Bai Hassan field is offline after damage to storage and a gas compressor.
- Libya Watch: Libya NOC says deal reached to open recently blockaded ports and targets 0.9 mm bopd by YE16. Good luck, believe it when we see it.
- Saudi Watch: Saudi cuts OSP to Asia by $1.30 per barrel.
Natural gas jumped 5% to close at $2.88 last week with all of the rally coming on Thursday immediately after EIA reported a another smaller than expected injection due to heat (with the South Atlantic region sporting a significant withdrawal). The 12 month strip rose 6% to end the week at $3.21. Please see The Week That Was below for details. Also in today's post please find the natural gas monthly macro update slides and comments below. Through May, production is apparently ebbing, imports are limping along at near record low levels (though Canada started sending more south after the covered period in the slides as noted in weekly posts of late), and demand for May hit a new May record as noted below. This morning gas is trading off 3 cents.
Weather Watch:
- Last week's weather: Cooling Degree Days came in at 99 vs 75 normal and 94 in the prior week that helped generate last Thursday's low 17 Bcf injection.
- This weeks forecast: CDDs are set to move to 96 vs 73 normal
Tropics Watch: Starting to see Invests form off West Africa and into the Caribbean. Invest 97L is likely to turn into Tropical Storm Earl targeting Mexico later this week.
Macro Quick (see graphs below):
- Production Watch - May Lower 48 came in at 77.3 Bcfpgd. From April to May, Lower 48 was down 0.52 Bcfgpd and Onshore Lower 48 was down 0.63 Bcfgpd. We focus on Lower 48 since Alaskan volumes don't make into the States' supply demand equation. On a YoY basis total Lower 48 production was down 0.1 Bcfgpd and May was the 3rd and steepest month of decline since the February 2016 gas production high of 79.1 Bcfgpd.
- Imports Watch - Net imports essentially tied the record low for May set last year. Since then imports have risen but exports have advanced as well yielding a slight increase to July level imports ... which still remain near their record lows.
- Demand Watch - Record for month of May, not surprisingly with near record Electrical (over 2 Bcfpgd over the 5 year average May) but interesting to see record Industrial demand as well (about 0.5 Bcfgpd over last record).
Natural Gas Macro Update - Production
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Natural Gas Macro Update - Imports
Natural Gas Macro Update - Demand
The Week That Was
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Stuff We Care About Today
2Q16 Energy Earnings - Week 3
If you know of any names not on this list that you think should be please let us know. This table has been archived on the Calendar tab.
Odds & Ends
Analyst Watch:
- TBA in comments.
Z – I have a fairly large % position in RSPP. Is it "too late" to add to a position in PE for meaningful potential upside over the next 2 years+?
August 1st, 2016 at 7:54 amre 1 – just back from coffee. Not in my view, it's not too late, for either one of them.
August 1st, 2016 at 8:22 amOil testing below $41 again, big round number $40 acting like a magnet. Looks technical and the big short position want it lower.
August 1st, 2016 at 8:24 amNG off 2 pennies
http://www.investing.com/commodities/natural-gas
As noted in the post. last week's weather was the hottest of the year so far, well above normal and higher than the CDD readings that gave us last Thursday's 17 Bcf injection.
August 1st, 2016 at 8:26 amAnalyst Watch:
COG – SunTrust ups from $28 to $32
COG – Barclays ups from $20 to $22
No typos there, just how worthless Barclays has been on the names in my view for the last several years.
August 1st, 2016 at 8:29 amInjections since April 1 = 826 Bcf
vs last year's 1,411 Bcf
and the 5 year average cumulative injection of 1,145 Bcf
August 1st, 2016 at 8:31 amECR – interesting turn in the chart latter part of last week.
August 1st, 2016 at 8:34 amOAS: Susquehanna upgrades to Positive from Neutral. TP $11.
CLR: Suntrust upgrades to Buy and $60 TP.
August 1st, 2016 at 8:38 amre 8 – thanks
August 1st, 2016 at 8:40 amE&P sector – I am expecting a sluggish Aug. due to the $16B in secondaries that are in the black. With PXD the most recent secondary was at $157.5 in mid-June. Even with good earnings you also had a secondary Jan '16 @ $117/sh. So during a period of stubborn inventories I would not be surprised by range bound trading. I will be keeping above average cash until inventory declines leave no doubt as to near term trend.
August 1st, 2016 at 8:43 amre 10 – makes sense. August is generally pretty slow for the group with a bit of "so now what" in the wake of the quarterly results. Oil needs gasoline stocks to stop rising for it to gain some traction. Natural gas just needs to continue to post small injections relative to normal and to continue to see low net imports and decent weather to accomplish that. We remain about 80/20 oil vs natural gas and about 20% cash.
August 1st, 2016 at 8:47 amNG: what if we have a withdrawl this week….
August 1st, 2016 at 8:55 amre 12 – it's possible. Have not seen early consensus yet but that was a really hot week. Probably good for a near term but short lived double digit % pop. The shorts, from what I can tell, continue to come back to the idea of record high storage levels for time of year now and record by mid November as well. I see the worm as turning myself.
August 1st, 2016 at 8:58 amISM manufacturing at 52.6
Construction spending down 0.6%
August 1st, 2016 at 9:12 amSouth Atlantic – where we saw a sizable withdrawal last week was 112 CDDs in that week. Last week (for this Thursday's number) South Atlantic was 126
August 1st, 2016 at 9:14 amKemp reporting that hedge funds are net short Gasoline futures for the first time in 10 years.
August 1st, 2016 at 9:15 amGenscape reports small draw for Cushing last week.
August 1st, 2016 at 9:15 amre 16 – saw that, that will lean further on prices and likely prompt more demand as they fall.
August 1st, 2016 at 9:24 amHousekeeping Watch: Does anyone know of a name reporting this week that's not on the calendar that should be? Thanks.
August 1st, 2016 at 9:24 amSeeing Permians not immune to the day's drop, the specter of $40 has people nervous it would seem.
Also seeing some hefty profit taking in the gassy names.
August 1st, 2016 at 9:41 amRe 12/13 in eyeing a DGAZ trade after the number is announced in Thursday on any further pop
August 1st, 2016 at 9:44 amre 21 – good luck.
August 1st, 2016 at 9:45 amAnalyst Watch
COG – Raja out with a post 2Q update entitlled "setting the stage for tremendous growth in 2H17 and 2018". As COG noted, they are on track to ramp next year and potentially double production by 2019 from within cash flow.
August 1st, 2016 at 10:13 amCrude cracked Friday's low, headed for the $40 test today.
August 1st, 2016 at 10:28 amAnyone see news PE?
August 1st, 2016 at 10:32 amAlong with the Saudi OSP move, also maybe weighing on crude, US striking ISIS in Libya at request of Libya.
August 1st, 2016 at 10:38 amSorry if I missed it but was there any notes taken on the RES conference call? Thanks
August 1st, 2016 at 10:42 am*were there
August 1st, 2016 at 10:43 amre 27/28 re RES (unowned) – apologies, covered the basic quarterly numbers in a post last week, but then got busy, and have not looked at the transcript yet. Will do.
August 1st, 2016 at 10:44 amCrude toying with the $40 test today. I'd be surprised if we don't tap the $30s at some point today or overnight tonight.
http://www.cx-portal.com/wti/oil_en.html
August 1st, 2016 at 10:45 amPermians still showing more resilience than your average group name,
Gassy names seem to still see profit taking on the slightest whiff of less hot air. Watching ECR, COG and the very poorly performing post quarter RRC for potential adds.
August 1st, 2016 at 10:48 amXOP skating sideways, no change in thinking from a tightening base formation but if oil is hit by stop loss orders on a crack of $40 the XOP just about has to feel the pull of oil and shrink some of the divergence that's formed since the start of July.
August 1st, 2016 at 10:57 amAs WTI has been weakening I haven't been trading much at all. I've been trying to plot out how the next move will unfold and how I can make a significant gain from it. Certainly, what I'm doing may not work, but I will share what my thinking is. I have long held the opinion that XOP and many of the related equities are in either a consolidating pattern or some kind of bottoming pattern. The instrument where the pattern is clearest to me is XOP so that is what I will show. I've shown this XOP weekly chart many times in here but I'm thinking it is putting in an inverse head and shoulders on the weekly chart. If so, the completed pattern will make for a very nice move. I've been counting the weeks in what I consider to be the left shoulder, which I've outlined with a red rectangle. That part of the pattern took 19 weeks. The right shoulder is still in process and is at a count of 14 weeks. So, if this pattern works the earliest I expect a breakout is in early October. BUT I think one needs to accumulate the position now and that is what I'm trying to do. The lows of the right shoulder rectangle are below $33 and that is where we are testing. The actual low is 32.41. My first take is pegged at 32.88 and so far it has not filled. I will take shares until it goes to 32.41 and will hold them unless they drop below $ 31.80….if my projected target works, which is neckline plus $18…it will be a very good 2016/2017….if the pattern breaks down the losses will be manageable….here's the chart…..https://stockcharts.com/h-sc/ui?s=XOP&p=W&b=5&g=0&id=p88059240823&a=464643817
August 1st, 2016 at 11:01 amWTI broke below $43, a potential area of chart support I'd been looking at and when it did I started looking at the Fibs, which cah be helpful when you see no other apparent areas of chart support. The 50% retracement, low to high comes in around $38.89 as I recall. So, I'm thinking worst case we stop the bleeding in WTI between the high $38's and $40….
https://stockcharts.com/h-sc/ui?s=%24WTIC&p=D&yr=1&mn=0&dy=0&id=p23526296638&a=468080911
August 1st, 2016 at 11:07 amre 33 – makes sense. Depending on time frame I'd say you are highly likely to fill. I think they take it below $40 today and the first 5 minutes of that will be an erratic plunge (stops) followed by dip buying/covering given that July was basically nothing but down for WTI.
August 1st, 2016 at 11:08 amre 34 – yeah, that makes sense to me too.
August 1st, 2016 at 11:10 amFloor pivots today on WTI
Pivot 41.28
S1 40.89
S2 40.18
S3 39.08
August 1st, 2016 at 11:11 amFloor pivots on XOP
Pivot 33.77
S1 33.27 (broken)
S2 32.28 would love to own some here…have a large order in at previous pivot low 32.41
S3 30.79
August 1st, 2016 at 11:13 amfilled XOP 32.88…but expecting to get more lower later today or tomorrow in line with what Z is thinking….want quite a bit if I can get it…
August 1st, 2016 at 11:14 amPE 7/29 filed form 4. Don't see anything from today.
August 1st, 2016 at 11:14 amre 40 – thank you.
August 1st, 2016 at 11:15 am$40 vs $45 vs almost $50 … is going to slow the pace of the rig count bounce and rig add comments rather rapidly. No rig count bounce and no sustained at $45+ and we see few DUC adds and a 4Q that is not roughly flat with 3Q but down noticeably again.
August 1st, 2016 at 11:16 amSPX noting oil. Zero banging a gong on twitter about the stocks vs oil divergence that's formed.
August 1st, 2016 at 11:18 amRJ analyst Pavel M was on CNBC this morning reiterating his firm's call of crude going to $55-$60 range by year end. Sees demand steady and capex shrinking supply. Says that capex might be lower in 2017 than 2016, which would set the stage for a stronger move higher. Another analyst pointed out that crude shorts are approaching the size seen at the Feb lows, setting up for a potentially strong short covering rally. As crude breaks $40 and some panic selling sets in, a buying opportunity should present itself.
August 1st, 2016 at 11:18 amre 44 – thanks for that color.
August 1st, 2016 at 11:21 amAPC also calling for $60 WTI by year end.
August 1st, 2016 at 11:21 amCiti's Ed Morse says we are nearing a bottom in crude, according to CNBC.
August 1st, 2016 at 11:25 amCrude cracks $40.
August 1st, 2016 at 11:31 amre 46 – thanks for that as well.
As a note, demand for oil and oil products has been and continues to be strong. We've had some over production by more marginal players, some of them outside the US, that prices are no longer encouraging.
Meanwhile,
From peak to 2Q16 average it was down 0.9 mm bopd.
Volumes are off 1.2 mm bopd from peak now (April 2015).
And from 2Q to 3Q, US oil production is expected to be down 0.5 mm bopd taking the average of 3Q from peak down 1.4 mm bopd.
Other areas have to weaken given lack of spend but international data outside of obvious outages is less transparent.
There went $40 and stops are getting hit.
August 1st, 2016 at 11:31 amOfftopicthirty, grabbing lunch, back in a bit.
August 1st, 2016 at 11:34 amZ, what the your top 2-3 oil based names for adds atm?
August 1st, 2016 at 11:36 amXOP back to recent gap-fill support. Seeing a little bounce here. Sell the rumor buy the fact?
August 1st, 2016 at 11:39 amre 51 – stepping out but breifly
CPE – #1
OAS – patience
VNOM but lower
Have been eyeing EPE but not yet ready there.
August 1st, 2016 at 11:39 amHa: "There is an amazing battle going on right now (with crude at $40) between a Chicago computer and a NY computer." Half time trader Joe.
August 1st, 2016 at 11:54 amRE 53: Thanks. OAS holding the Friday gap-fill lows thus far, a good sign on this crude breakdown. CPE looks like it wants to fill the June 27 closing gap at $10.37. VNOM has a closing gap at $15.43 that beckons.
August 1st, 2016 at 11:59 amBack, working on items ahead of a busy week of earnings. XOP holding near LOD in the 32.80s with oil hugging levels around $40.
August 1st, 2016 at 12:40 pmOAS: just hit the 61.8% Fib retracement of the Feb low to June high move at $6.89. The April 5 gap filled completely. Lower support at $6.50 and another lower gap at $6.02. Added some at $6.89.
August 1st, 2016 at 12:50 pmLPI: showing more support vs some Permian peers and Bakken names. At the 200 dma now. Something behind the relative strength in LPI?
August 1st, 2016 at 1:02 pmre 57 – should be a solid quarter, Street is upper end of range which calls for small sequential decline and first tick below the 50 MBOEpd mark in 7 quarters.
Re 58 – not that I'm aware of. It's not been up as much as leaders so maybe it's that but as you know they are a lower margin Permian, much gassier than the leader names and as such they trade at a cheaper multiple so when sellside guys talk of downside protection and taking profits they go where the profits have been (from a stock appreciation standpoint) and so you see some comeoffs in names that held up better at what's viewed as a key point ($40 oil) for the group, so that's the RSPP's and FANG's and PE's of the sub group. If you look at a daily chart, the LPI is at a confluence of simple moving average support including being at the 200 day. Those leader names are far above their 200 day SMAs.
August 1st, 2016 at 1:08 pmEarly read on gas storage for Thursday
+9 Bcf
August 1st, 2016 at 1:22 pmRE 59: Yep. Thanks.
August 1st, 2016 at 1:27 pmre 61 – I've been pretty quiet on buys of late, other than the ECR and the OAS. I'm waiting for a good flush in the group, if we don't get one with this week's oil numbers we may not be getting one near term.
August 1st, 2016 at 1:31 pmThat +9 Bcf number is going up against
+38 Bcf last year and
+57 Bcf for the 5 year average
Eroding the overhang
August 1st, 2016 at 1:46 pmPretty interesting idea. Not sure about costs relative to battery charging.
http://www.businessinsider.com/this-startup-has-a-novel-solution-to-the-problem-of-recharging-electric-cars-2016-8
August 1st, 2016 at 1:48 pmWTI closed at $40.06, down 3.7%
August 1st, 2016 at 1:50 pmDiamond Offshore CEO
"Some of the larger diversified oilfield service providers have declared a bottom in activity and are suggesting that a recovery is imminent," Chief Executive Marc Edwards said on a conference call. "While this may be the case for certain onshore basins, it is not so for deepwater drilling."
August 1st, 2016 at 2:05 pmre 66 – good quote, thanks.
August 1st, 2016 at 2:06 pmReading, shout if you need something.
August 1st, 2016 at 2:38 pmRES 2Q16 call notes
Opening of call was a walk through the numbers covered a post last week.
Noted the recent increase in rig count
Noted June showed "signs of improvement"
Sees a trough has formed but notes lack of clear upward bias in oil prices reduces confidence in a near term recovery
And that's basically it pre Q&A
Trying to maintain pricing, don't want to go lower
Really hesitant to say they see immediate improvement in pricing or activity – seeing pricing slightly up in last month
They note the upward price comments by SLB and HAL
Said RES is now nowhere near fully staffed but the equipment is being maintained, not cannibalized.
Sees breakeven 2H17 at this point …said would need to gain 10 rigs a week for next nine months … that's not going to happen in my view.
They noted weak sand demand, something most of the sand guys are not talking about.
The main takeaway I get from the RES call is that they still are in very murky forecasting waters. Nothing concrete to stand on here. If rig counts rise, especially if they rise in the Permian than it likely lifts the name.
August 1st, 2016 at 2:57 pmBeerthirty, back in a bit.
August 1st, 2016 at 2:59 pmhttp://www.bloomberg.com/news/articles/2016-08-01/nigeria-resumes-paying-ex-delta-militants-as-oil-output-drops
August 1st, 2016 at 3:47 pm*BONANZA CREEK ENERGY:WON'T MAKE PAYMENT ON $300M 5.75% NOTES
30 day grace
August 1st, 2016 at 4:05 pmre 72 – not exactly surprising after they hired advisors after misjudging how far the revolver was going to get dinged. We sold in May.
August 1st, 2016 at 4:08 pmyup
August 1st, 2016 at 4:10 pmAnyone see an analyst comment on OAS tonight?
August 1st, 2016 at 8:57 pmRB – any new thoughts on LUV? I saw the unions called for the ouster of the CEO after last week's IT outage. Pretty amazing that with oil at $40 (and some calling for $50-60 at year end (i seem to recall CLB calling for $70 at year end of 2015 so i take all that with gigantic grain of salt) LUV's PE is at a little over 9, while AAL is just over 3 and UAL and DAL are around 6 give or take, it just doesn't completely add up.
Either the transports are pricing in a rise in oil prices or a recession (or similar) and loss in revenue.
Meanwhile, LUV just made more money last quarter in net profit than it's made in 43 of it's 45 years in existence.
Stock was at $51 briefly well over a year ago and has bounced around between $47 and where it stands today at high $36 low $37
It seems it's likely dead money until the CEO is gone or the leadership of some unions are gone because the unions dropped a mega-hammer on Gary Kelly today.
August 1st, 2016 at 10:22 pmZ – is what makes NFX so appealing its SCOOP / STACK plays? It doesn't appear to have much Permian exposure if any.
August 1st, 2016 at 10:33 pmRe NFX – yes, it is the stacked pays within the Anadarko Basin (the Woodford and the Meramec) which provide strong returns at current price that is the current appeal to the story (mostly about Blaine, Kingfisher, and Canadian Counties OK – highly delineated at this point, rapidly rising volumes, not yet set for spacing, moving to development mode next year). The Williston Basin has been surprisingly resilient as well. At these prices, the Uinta and the Eagle Ford are less appealing and therefore on the back burner and China they just milk. They're not active in the Permian.
August 1st, 2016 at 10:41 pmthx
August 1st, 2016 at 11:26 pm[…] Check out our latest Natural Gas Macro slide show here. […]
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