Monday and Tuesday Morning – Hello 2018



Market Sentiment Watch: Welcome to 2018 and Happy New Year!. In today's post please find comments on our 2018 natural gas price deck, The Week That Was,  the state by state oil production slides (note the odd delta in October to and with 4Q between the STEO and the weekly and the monthly data), the natural gas monthly macro slide show update (many details below), the ZLT Positions update, the Z4 Research 4Q17 contest winner (Nrgyman with a whopping 85% gain in CRC wins a 1 year subscription to the site), and several other odds and ends.   If you missed The Wrap click here.


Got questions about the site? Send them to zman@zmansenergybrain.com

Ecodata Watch:

  • We get Markit Manufacturing PMI at 9:45 am EST (no forecast, last read was 55.0).

The Week Ahead: 

  • Wednesday - ADP employment, ISM manufacturing, construction spending, car sales, 
  • Thursday - Jobless claims, Markit services PMI, EIA oil and natural gas inventory reports, 
  • Friday - Nonfarm payrolls, unemployment rate, hourly earnings, ISM nonmanufacturing, factory orders.  

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. U.S. Oil Production Charts 
  4. Natural Gas Macro - Production - rising too rapidly for sustainable moves north of $3. 
  5. Natural Gas Macro - Net Export - new monthly high for exports, YTD for 2017 also in export territory for first time. 
  6. Natural Gas Macro - Demand - October at record levels on the back of record Industrial and elevated everything else. 
  7. The Week That Was
  8. Stuff We Care About Today
  9. Odds & Ends

Click the link directly below this to ...


Holdings Watch:

ZLT (Zman Long Term portfolio)

Commodity Watch

Crude oil rose 3% to close at $60.42 last week. This level has not been seen since June 2015 and left 2017 up 12% on the front month.

  • The strip was up 2% on the week and at $59.15 was up 5% from the year ago 12 month strip.
  • Brent closed the week up 2% at $66.44 and was up 17% on the year.
  • The OPEC basket ended the year at $62.16, also up 17% on the year.
  • Equities Watch:  After rising 40% in 2016 one might note that the ZLT was down 11.9% on the year. One might also note that the XOP was down 10.2% on the year (up 37% in 2016) and the OIH and XES ETFs (both Service) were down 21.9% and 23.4% respectively on the year (both having scored up 20% gains in the prior year). We see all of these sectors as having gained recent traction with more to come in 2018 given inadequate discounting of continued oil price gains for last year (gains in oil prices plus growth in cash flow makes for a disconnect we see as being solved in 2018, something that happens from time to time, and not via a re-collapse in oil prices).  

This morning crude is trading flat.

  • Price Deck Watch 1:  WTI averaged $50.80 in 2017 (average of front month prices) with 4Q17 averaging $55.31. We started the year with a $55 deck (+$4 /-$6). 
  • Price Deck Watch 2: The Street started their view of 2017 at $54.
  • Price Deck Watch 3: We are at $55 for 2018, (again, current strip is $59.15) having been there since February of 2017. We are not contemplating a change to our deck at this time. The Street is at $54 and rising. 


  • Libya Watch: The damaged pipeline supplying the Es Sider port has been repaired and is said to be back in service. Net impact +100,000 bopd.
  • North Sea Watch:  Forties pipeline should be back to normal, having ramped by about 400,000 bopd over the last week.
  • Iran Watch: Widespread protests including violence with two dozen killed, pushing for regime change. Word of one captured town and protests in Tehran which is rare. Rumors of minor oil infrastructure damage as well. The US Administration is stoking the protests and a nationwide strike is rumored to have been called. 
  • Russia Watch: December production of 10.953 mm bopd, down 2.3% YoY and up 0.1% from November.

Natural gas bounced 14% last week to close at $2.95 on cold weather and a move from overdone to the downside levels but was off 21% on the year (front month to front month) with the UNG ETF (unowned) down a whopping 38%. Despite a good summer for demand last year (not as good as 2016 but that was expected) and good export demand and a good starting position for storage, worries over a recent rapid rise in U.S. supply have again dampened enthusiasm for natural gas. Shorts are in charge having moved from equilibrium with longs at the start of 2017 (1.0x long to short) to a new recent history low of 0.7x at present. We note that gas short positions have historically proved difficult to erode and so we don't see a high short position as all that contrarian-bullish (it will be we think but patience will be required). Near term moves in the meantime are just noise and weather and when the cold fades the fear of oversupply and a rapid rebuild will remain. This will be a very interesting year for natural gas as we do have the good set up on absolute storage now and supportive early winter weather.  Should prices drop in spring then we would again look for record setting electrical generation demand as we did in 2016 but not 2017. As LNG and Mexico exports rise slowly in 2018 and more so in 2019, this sets a 2H18 price picture that could be quite strong (see below).    

Price Deck Watch: We are lowering our 2018 natural gas price forecast from $3.25 to $3.00 and maintain the potential for near term further downside bias. Our planned semi annual price deck comments for natural gas will be released next week.  Tentative view by quarter: 

  • 1Q18: $3.00
  • 2Q18: $2.75
  • 3Q18: $3.00
  • 4Q18: $3.25
  • 2018 Average: $3.00

This morning gas is trading up 4 cents having retreated from a move over $3 last night. 

Weather Watch:

Last week:  

  • Gas Weighted Heating Degree Days (HDDs) came in at 260 vs 217 normal and 168 in the prior week (which spawned last week's paltry withdrawal). 

This week's forecast:  

  • This week, CPC predicts HDDs will rise further to 285 vs 223 normal and vs 212 a year ago. 

U.S. Oil Production Charts

Natural Gas Macro - Production


Natural Gas Macro - Net Imports

Natural Gas Macro - Demand

The Week That Was

Stuff We Care About Today

The Week Ahead:

  • Look for the Multiples updates for Bakken, Wattenberg, Permians tomorrow.
  • Look for a requested name update later this week.
  • Look for secondary Permian Players table late this week.
  • Look for a gassy players table late this week. 


Odds & Ends

Analyst Watch:

  • TBA in comments Tuesday. 

61 Responses to “Monday and Tuesday Morning – Hello 2018”

  1. 1
    Baylor Says:

    Happy new year Z and Z crew!

    z with the ice age that's upon us do you think it has a meaningful impact on the 3+ month pricing of NG or will massive over production still win out even though we're likely now to finish under 1200 bcf in storage this year?

  2. 2
    zman Says:

    Hey Baylor, Happy NY to you as well! I'm out of pocket at the moment but in short, it helps but is not a game changer. Lower peak 2017 and lower trough 2018 are price supportive but the outsized growth we have seen of late and expect in the new year is more than export growth can handle in the new year.  Withdrawals to be suboptimal on any warming and the injection slope to be steep in the spring.  2019 a better picture. So we expect short lived elevated prices on this arctic blast but for the averages to play out somewhat close to our quarterly comments in the Commodity Watch section under price deck as noted above.  I will be back at my desk around 6:30 am EST Tuesday. 

  3. 3
    Baylor Says:

    Thx. See ya mañana 

  4. 4
    zman Says:

    Crude with an hour to go before equity open trading flat:


  5. 5
    zman Says:

    NG trading up 6 pennies at $3.02


  6. 6
    zman Says:


  7. 7
    zman Says:

    Analyst Watch

    NFX – SunTrust bumps target from $37 to $40. 

    See our NFX comments here last Thursday:



  8. 8
    zman Says:

    Got questions about the site? Send them to zman@zmansenergybrain.com

  9. 9
    zman Says:

    WFT (very much unowned) – sold US completions segment to SLB for $435 mm, called down 11%. 


  10. 10
    bill Says:

    Suntrust with a buy on chk to 6.

    Raymond James changes COG to underperform

  11. 11
    zman Says:

    re 10 – thanks, early dip on COG explained. 

  12. 12
    zman Says:

    Fairly light volume, 1% up open in progress. 

    Good to see PES extending. 

  13. 13
    bill Says:

    NOG up 7 % and ecr up 3%

  14. 14
    zman Says:

    re 13 – would rather on the ECR over the NOG any day of week. Doesn't mean NOG can't outperform in the short term but the debt is there, the outspend is there, it may get some squeeze action but the problems remain. 

  15. 15
    zman Says:

    Getting on a call, back in a few. 

  16. 16
    zman Says:

    Back in 20 minutes. 

  17. 17
    zman Says:

    MTDR to new all time high.  Running out of near term room there vs our upside 6 month "target" ($33). Doesn't mean we sell as noted last week, just expecting a base in the lower $30s on our $55 2018 deck.  Rising Street est. could take it to upper $30s on the same multiple.  At $35+ we likely consider paring a bit. 



  18. 18
    zman Says:

    Back, quiet news flow day, should pick up next few days, more next week as we see more 2018 budgets roll out (very few so far).

  19. 19
    zman Says:

    BP (unowned) to take $1.5 B tax charge in 4Q in relation to the U.S. tax code changes. Sees long term benefits. 

    This is an adjustment to deferred taxes, it's not cash, will add a bit of noise to unadjusted EPS in 4Q across the sector and is a non event. 

  20. 20
    zman Says:

    The request line is open for name updates. 

  21. 21
    ctb14 Says:

    Genscape Cushing -2.35m

  22. 22
    zman Says:

    re 21 – thanks, did you see SPR yet?

  23. 23
    zman Says:

    All my TA guys are still on vacation. 

    RSPP cup and handle breakout continues. Our largest position in the ZLT. Also the biggest gap to target on the Permian Short Form Multiples page from last week. 

  24. 24
    zman Says:

    Hearing comments regarding a 1 Bcfgpd of freeze offs between Canada and U.S., generally a good source but no idea how close to mark. Certainly makes sense.

  25. 25
    Howard Pollack Says:

    Could you take a fresh look at WRD?

  26. 26
    zman Says:

    re 25 – yeah, noted the chart last Thursday in relation to a query re names that get LLS pricing,  as per

    "Tom – WRD (unowned) – another that gets LLS – strong pop in last month on strong 3Q results (lowish debt, rapid growth, oilier than not EFS producer with Austin Chalk upside)"


    "Re WRD (unowned) – reviewed it last December at $14.40.  Up a little under $4 since then having sat at $12 most of this year. Time for an update. "

     really strong 4Q there, planning to do an update next week. 

  27. 27
    zman Says:

    Front month and strip are super unexcited at the moment about the first half of January cold.  Last week of December will score a big number on Thursday but it's weather and not really the issue gas is facing. 


  28. 28
    zman Says:

    Anyone seen anything on how TSLA car batteries hold up in the extreme cold?  This time of year regular car battery sales can spike on cold weather as it takes out the weaker ones. 

  29. 29
    zman Says:

    re 28 – got sent this … hmm….


  30. 30
    zman Says:

    OT – grabbing lunch, back in a bit. 

  31. 31
    ram Says:

    Re 29  I'm definitely more comfortable understanding hydraulics.  Especially when you can touch and see systems working.

  32. 32
    bill Says:

    HCLP with a 11 handle. I think when the eps reports come out the sand stocks will move

  33. 33
    zman Says:

    SPR up 0.3 mm barrels last week. Refiners enjoying repaying those higher priced barrels. 


  34. 34
    zman Says:

    Not that I care about single day moves but wondering how long it takes the taking heads to bring up energy's opening day 2.5% move. 

  35. 35
    zman Says:

    OAS – Post Permian announcement high. Some may be starting to eye that over reaction gap. 

  36. 36
    zman Says:

    Re 24

    Here's 0.3 Bcfgpd from the Bakken out on freeze offs alone.  

    Also note the expected all time records for natural gas demand today and tomorrow


  37. 37
    zman Says:

    Got asked for this last week

  38. 38
    501xx Says:

    re: 37  No hurry but would be great to get hedge analysis on Permians plus ECA, EOG, and FANG. And, if you have a bit of time, a nutshell on ECA.  I read their conference call and was impressed with their strategy and performance to date. 

  39. 39
    zman Says:

    re 38 – will do read Permians and EOG – I'll beg off on a full update of ECA as they are outside of my normal wheelhouse on size (megacap) and spread (8 plays). Maybe I can do a quick look there.

  40. 40
    501xx Says:

    38 a quick look would be very appreciated.

  41. 41
    snoles Says:

    Has anyone ordered 2018 Stock Traders Almanac?  I just ordered mine (forgot to before Holidays) but would love to hear what first couple weeks of January look like if anyone already has there's.  

  42. 42
    zman Says:

    Tanker trackers site showing weak exports last week. 

    Bloom consensus again looking for a 4 mm barrel draw.

    We should start to moderate soon. 

  43. 43
    zman Says:

    re 40 – will put on my post it pile. 

  44. 44
    zman Says:

    US says options open for more Iran sanctions in support of protests. 

  45. 45
    501xx Says:

    42: Specifically what did you mean by "We should start to moderate soon."?

  46. 46
    zman Says:

    re 45 – the size of the crude draws should come off a bit soon, just seasonally speaking that would be normal.

  47. 47
    zman Says:


  48. 48
    zman Says:

    EOG – $7 off all time highs reached 2014. 

  49. 49
    zman Says:

    HAL nearly sporting a $50 handle, strong year on the way for them for NAM utilization and pricing, and they're just getting back to Spring 2017 levels now. 

  50. 50
    snoles Says:

    Is Joe Jaggers still selling off stock?

  51. 51
    zman Says:

    re 50 – I suppose he could be but I see no new Form 4's. 

  52. 52
    zman Says:

    Last I show is from 12/26


  53. 53
    zman Says:

    Look for 4 sets of group multiples tables with 6 month upside targets (adds the gassy players table) tomorrow's post. 

    We'll add AR (unowned) to the list later this week of cheat sheet updates. 

    Look for upstream news flow to pick up very soon. 

  54. 54
    zman Says:

    Any other requests? 

  55. 55
    zman Says:

    Good to see NFX pressuring higher.  Small cup and handle breakout that took out the 200 day and then failed with group action and probably end of year tax loss selling in December, top end now being tested again. 

    Our comments from last week there indicate plenty of fundamental room to run as Anadarko leads the way with up expectations for Williston as well.  



  56. 56
    zman Says:


    We get API tomorrow afternoon, not today, due to the holiday. 

    Back in a bit. 

  57. 57
    nrgyman Says:

    Moody's predicts a surge in corporate buyouts among E&P companies in 2018. 

    "Larger E&P companies with strong balance sheets will seek efficiencies of scale in higher-return basins,” Amol Joshi, a Moody’s vice-president, said in a statement. “For their part, smaller and sometimes over-leveraged firms could create value by combining with larger producers to accelerate development.”


  58. 58
    bill Says:

    Nog up 28 %  – wow

  59. 59
    zman Says:

    re 58 – likely short covering. No interest here. 

  60. 60
    zman Says:

    Adding to 59 – and pattern day traders.  NOG (unowned) opted to throw a bit of money to the wind, choosing to outspend more on an already stressed balance sheet with no change in plan. I just don't see owning them. Trading? Sure, but I'm not a trader. 

  61. 61
    bill Says:

    I dont like chasing so Im sitting out

    I dont mind trading if I can get in front of anticipated buying (like the sand stocks, pre earnings)

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