[MrBill]

Supanova, you'll have to tell me how to insert graphs & charts to these forums? I haven't even figured out how to post a profile atovar?


In any case, when I look at those DOE stocks versus their long run averages, it is hard not to get bearish crude (high end) and bullish low sulfur diesel and unleaded gasoline (low end of range)? What's it going to take for those cracks to correct? Which months?

I am off. Talk to you tomorrow. Cheers.

[strider3700]

Disclaimer - I'm playing the madmoneychallenge not with real money.

Can anyone tell me what the hell happened today? I see the oil supply report come out quite bearish this morning before I leave for work. I arrive at work and as expected my gas/oil ECA, BP and APC and my solar ESLR and CY are all bleeding badly.

I actually do some work and now at closing I see that ECA is up 10% by and APC also moved up a little Yet natural gas and oil both barely moved in the end.

Of course I got stomped on the solar plays but they are really volatile at the best of times.

So anyways what happened to push ECA up so much? why didn't oil come down?

[drew]

Yeah Strider I saw that ECA too, wtf... There will be something!! Hurricane? I sold all my oil and gas stocks about a week before the correction. (eca 1 lot at 49, 1 lot at 57, sold both at 67, dumped the cnq in july) But of course I still follow it. I am much too chicken at the moment to jump back in, but 10% up on ECA would have been a nice day.

As you know there have been some very bad days recently too. I am only a little guy playing for chump change (my life savings) so I have become wary of late. Since I PM'ed Mr Bill (hi) I moved about 20 % of my portfolio into CEF, a silver and gold holdings ETF. I don't entirely know if this was smart-depends on inflation doesn't it.

Greed is tempting me back into energy....aagh!!!!

Drew

[drew]

Shell may buy encana, hence the spike

DREW

[MrBill]

My tummy tells me we should find some good technical support around the $58-60 area on the daily charts, which would not violate the channel support on the weekly chart that is still firmly in an uptrend overall. However, this would complete the head & shoulders on the daily crude chart and the rather dramatic A.B.C correction on the unleaded gasoline contract. I look for support in the gasoline at 1.6000 basically back at level we saw last May before the superspike to 2.9200 post-Katerina. A lot of ground has been covered in a short period of time. However, I would not discount a move lower to 1.5000? Looking at the heating oil it looks like it may find some buying at 1.8000. The correction has been much less dramatic than unleaded, probably due to support from nat gas, which is still firmly above $12.00 where the likely long-term buying interest lies.

Supernova watches the intermonth spreads a lot more than I do as he has much more experience than I, but even I cannot help but notice how much they have moved recently. Crude went from contango to backwardation, but not much once NOV goes off the board today. Heating oil looks like a bell curve with the peak in FEB. My thought is to buy the backend of the heating oil season as the DOE reserves in low sulfur diesel look very low by historical standards and if it is a cold winter then refiners may not have time to build stocks in diesel while pumping out heating oil. Mind you APR heating oil is still 17 cents higher than MAR gasoline, so I am not sure whether to spread it against gasoline or sell APR crude? That would lock in a crack spread of $18 a barrel vs. $11 in the gasoline? Dunno, just ruminating out loud here.

I have to think that higher interest rates and higher energy costs this winter are going to squeeze the consumer and the economy will slowdown. I cannot see any event on the horizon which will further forestall this eventuality. The consumer's home equity is already tapped out, interest rates are rising and we have record personal debt and low savings rates. We may see growth elsewhere in the world to alleviate the poor situation we see in Europe in America, but basically I think it will be insufficient to help out a stretched household at home. Therefore, I also see some demand destruction in a slower economy and also less discretionary driving. We are already seeing overall demand down about 3.0% if you can trust the EIA's figures yesterday? Hmmm?

But we still have a lot of oil rig, pipeline & refining capacity in the Gulf down and I do not see that situation magically righting itself, and you have to calculate in the possibility of refinery maintenance, which has been delayed, but not indefinately, as well as the outside possibility of a fire or some other calamity occuring. The big variable now being this winter's weather. Logic tells me to buy the crack spreads, but that was a very expensive hobby this month. Lick my wounds and climb back on?

[MrBill]

I thought this was interesting so I have taken the liberty of posting it here.

$this->bbcode_second_pass_quote('', 'G')lobal Market Strategy
J.P. Morgan Securities Ltd.
London, October 19, 2005


Volatility, Leverage and Returns Click here

Market volatility has collapsed: this is great for growth, but a problem to investors, as it depresses the return from taking risk.


A dramatic fall in economic and corporate “surprises” and a move to predictable monetary policies have pushed macro and corporate volatility to decade lows.


But a certain degree of luck has helped, with high oil prices and low bond yields almost perfectly offsetting each other this past year. This luck is about to run out.


Next year promises a rebound in macro and market volatility from depressed 2005 levels, but only modestly, with a dramatic rise in volatility delayed to 2007-08.

Equity and EM credit volatility should rise into 2006. Corporate credit and bond volatility to rise only slightly from current levels.


Risk premia on credit should rise slightly in 2006, with larger rises in 2007.


Leverage is generally considered the evil force that produces excessive volatility in markets and economies.


We find that corporate and macro leverage do bring about high market volatility, but find instead a negative relation between investor leverage and volatility.


We find strong evidence that bond managers, credit managers, banks, and hedge funds raise leverage when volatility is low, and reduce when volatility is high.


Market leverage thus lags rather than leads volatility. Managers appear to target a stable Value-at-Risk, which is the size of their positions times volatility.


Over the past year, banks and bond managers have taken larger positions as volatility collapsed. Hedge funds and credit fund managers, in contrast, are taking remarkably little risk, quite likely as they see lower spreads and fewer trading opportunities.


Active managers have complained that low volatility prevents them from finding profitable trading opportunities.


We find, though, that active managers of bond and hedge funds earn lower alpha when volatility rises unexpectedly. This is because many are structurally long risky assets that get hurt when volatility rises. Alpha returns when volatility stops rising and becomes high only when volatility starts falling again.

[SupaNova]

good day.. all fun and games.

Cracks are hard work as Mr.Bill has made comment on - but there remains a problem there, unless demand (with respec to heat) can fall away in the same fashion as gasoiline over the last few weeks.

Spread structure on crude has been firm to say the least (I've commented on this a few times) and makes little sense with the current market awash with the stuff. There may be value in a Z/H box... selling z/h wti and buying z/h brent against it - will try and post a chart shortly.

Gasoil flat price is volatile, but I think the Nov/Dec Spread spread looks undervalued at $4 under... historically it is a premium this time of year - esp if the numbers I hear out of europe are correct.

Heat cracks... I'll hang on in there, though it's been no fun last 2 weeks. Gasoline cracks... well I'm out today sometime on WTi expiry, took money out of these but had hoped for a last minute spike (hence keeping a small residual position) that never happened.

Happy hunting.

[MrBill]

$this->bbcode_second_pass_quote('', 'T')here may be value in a Z/H box... selling z/h wti and buying z/h brent against it - will try and post a chart shortly.

[SupaNova]

sell dec wti, buy mar wti
buy dec brent, sell mar brent

[MrBill]

closed my DEC WTI short now. getting too close to long term support on the daily and the weekly chart and altough I can build a case it might dip to $58 I have to be okay with taking profit below $60 now that unleaded did touch that 1.6000 level?

have a nice night. cheers.

[jsurly]

$this->bbcode_second_pass_quote('drew', 'S')hell may buy encana, hence the spike

[strider3700]

SO much for the idea that we bottomed yesterday morning. I haven't been paying attention all that long. Are these 100+ point swings that common?

[SupaNova]

yes.... big volatility is not unusual now,a $1 move is noting special

[drew]

I wonder if we have reached the bottom too. I don't know. Just read a financial sense article (see PO news) about energy stocks being undervalued and I have to agree, but for one important point; the guy's whole argument is based on the econ chugging along as is, or somewhat slower. As I recall reading, demand dropped from the mid sixties to mid fifties (MMBPD) after 79 Iranian rev, and didn't reach mid sixties till 87. Ouch!! So if there is a severe recession, how long will it take before we can make a killing on energy. Money sitting in stocks that are stagnant, or losing value, isn't making money over time, and after all time is money.

Drew

[MrBill]

With NOV crude off the board now, concentrating on the DEC front month. It has dropped from 63.75 area to 59.35 level roughly and is now hovering around the $60 psychological area. A contrarian would buy the bounce on position squaring ahead of the weekend, but there is no guarantee that NY might not try to push it down towards $58-59 first and then close positions. Still more than 12. hours to go before that final bell.

Unleaded touched $1.6000 and bounced but now the technical analysts have their sights set on $1.5000 and some even as low as $1.3750 if the bulls go into full retreat. That would roughly correspond to crude well below $60, likely in the mid-50's.

Heating oil has held up rather well. A test to the 1.8400 area and now trading around $1.8700 in the front month. Probably crude would already be lower except for heating oil's support. However, analysts see the nat gas complex starting to crack and we may see a push lower there which would undermine support for heating oil especially if unleaded remains offered.

In short the whole oil complex looks very soggy at the moment, so I cannot expect oil company shares to buck the trend and grind higher at the moment. Wilma was probably the last selling opportunity ahead of year-end and it hasn't generated much interest at all. Oil insiders have been selling crude for delivery in 2010 at $54/barrel, $7 under yesterday's spot price of $61. They are hedging by selling some of their production forward in case prices return to $40-50 range going forward. This is a view on the demand destruction which may be caused by a US or wider recession.

AAA sees falling demand and lower pump prices for their members. Personally, I am long DEC WTI at this level and will put a tight stop on it. I am looking for a bounce, but I am not prepared to lose money if the whole complex slides lower. I have to fly to Moscow next week and explain not only my own tepid trading results, but also the Refco debacle to my bosses and the last thing I need is to get stubborn and defend $60 oil if it wants to fall

[MrBill]

I cut my long, it is just not bouncing and nat gas is looking heavy again, so too risky for me at the moment.

$this->bbcode_second_pass_quote('', 'N')ews:
· Anadarko Petroleum evacuated 35 nonessential personnel from its Marco Polo offshore Gulf platform ahead of Wilma.

· Louisiana reports onshore crude oil production has reached 62,803-bpd or 30.9% of capacity

· The US Senate Energy Committee approved a measure to allow drilling in ANWR where up to 10 billion barrels of oil reserves is estimated to be located. It would be added to a budget reconciliation bill that wouldn’t be subject to filibuster in the Senate.

· Altex Energy proposes to construct a 1,865-mile oil pipeline linking Alberta to the Texas Gulf Coast as Alberta doubles its output of heavy oil to 2-mbpd from its oil sands deposits over the next few years.

· MMS update reports 967,734-bpd or 64.52% of US Gulf oil output still shut-in with cumulative lost production since 8/26 of 63.561 million barrels or 11.609% of annual Gulf output. There were also 210 platforms and 5 rigs evacuated, or 25.64% of 819 manned platforms and 3.73% of 134 rigs currently operating in the Gulf.

[rkerver]

I learned about Jim Puplava' abundant good advise on this forum. I suppose he's popular here because he is peakoil literate and includes financial analysis that accounts for the coming seismic shifts in the finanacial markets that will result from a total world energy deficit (oil, natural gas, clean coal, uranium and renewables combined). He's at it once again:
Today's WrapUp by Jim Puplava - Cheap After All These Years

$this->bbcode_second_pass_quote('', '[')color=darkblue]Energy experts only disagree as to its timing. While the experts disagree as to the timing of Peal Oil, they all agree it’s on the horizon. The current discussion is on mitigation. What should be done now to mitigate the peaking of world oil production? Studies indicate that effective mitigation will cost hundreds of billions of dollars and will take decades to implement.... Since mitigation of this problem or crisis—depending on how soon it arrives—takes time and money, we should be starting to activate “Plan B” today. Possible alternatives include the following:
* Fuel efficient transportation (Mass transit, trains, hybrids, diesel)
* Heavy oil (Shale)/ oil sands
* Coal liquefaction
* Enhanced oil recovery
* Gas-to-liquids
* Alternatives nuclear, wind, solar conversion[5]

One suggestion would be to convert our present system of generating electricity over to nuclear, wind, solar, and clean coal freeing up much needed oil for our transportation system and natural gas for agriculture. Whatever method of energy that is used to mitigate peak oil, there is going to be enormous costs and long lead times to put them in place. The longer we fiddle and dither the worst the eventual crisis when it finally arrives. In the words of Dr. Robert L. Hirsh “If mitigation is too little, too late, world supply/demand balance will have to be achieved through massive demand destruction( shortages), which would translate to extreme economic hardship.“ .... we have no ”Plan B” and we need to start working on one real soon before it is too late.[/color]

[MrBill]

Rkerver do you have a name or nickname? Thanks.

That reminds me I have received an investment report this week from Dresdner about companies likely to benefit from high oil prices. I printed it out to read but have not gotten around to it this week. It must be somewhere here on my desk unless I took it home with me? Hmmm?

Yes, yes, yes. Whether or not peak oil plays out in our time frame or indeed as we expect it to taking the portfolio approach to different alternative energies is the right idea. For example, fuel cells may turn out to be elusive, but the firms involved in fuel cell research may commercialize other useful technologies or indeed like the dot.com boom investors might buy all alternative energy stocks regardless of whether they are good buys or not?

I bought some GE for several reasons. They are a global firm, so as such they are well placed to profit from growth anywhere in the world regardless of where it is and this minimizes their exposure to the N. American market or the dollar. Also, they are involved in many specialized technologies where they are acknowledged world leaders. They have quite a bit of super efficient coal gasification (sp?), solar, wind turbine and natural gas turbine technology. I cannot predict who the winner will be in this race to find alternatives, so I have to guess who they are most likely to buy from? Also, it is a well-run company.

If people keep saying that we have a liquid fuel problem, not an enegy problem, then it only makes sense to convert everything standing still to alternative forms of energy and save our gasoline and diesel for motor fuels IMHO.

[MrBill]

If you study trading envelopes, range trading bands, which are spaced two standard deviations from the mean, they reflect broad trends of over-bought and over-sold based on how quickly the market deviates from the mean. They are fairly reliable overtime, but their main drawback is that they can self-correct. That is as the rise or decline moderates the absolute high or absolute low can expand, so they do not provide a clear top or a clear bottom signal. Never the less, generally they tell when you are at one end of a move or another and along with other technical indicators are a good predictor of when to either close your existing trending position or in fact to take a contrarian position.

The whole energy complex - crude, unleaded, heeating oil and natural gas - are all at the bottom ends of their range using two standard deviations. This might indicate that the major decline from post-Katerina highs has now run it's course and buying interest will emerge around these levels? If so, buying will likely emerge in the natural gas and the heating oil first and then may buoy the unleaded and crude along with it? Too early to call a reversal, but the first signs are starting to emerge.

Look for support in the DEC crude at Friday's $59.10 and Nat Gas to hold $12.60. If those levels go then we are not quite at bottom, yet.

[MrBill]

$this->bbcode_second_pass_quote('', 'N')ews:

· Oil Movements report OPEC shipments rose 120,000-bpd to 24.72-mbpd in the four weeks through Nov 5 from the period through Oct 8.

· Nigerian oil exports from the 240,000-bpd Brass River tanker terminal were suspended Friday due to a strike.

· Oil flows were reduced on Iraq’s Kirkuk pipeline following an attack just a day after it was brought back online. The sabotage cut rates 100,000-bpd to 600,000-bpd.

· Oil executives in a recent poll predicted oil prices will remain in the $50-$60 range over the next 12 months and 81% expect oil to remain well above $50 for the next 10 years. *

· Baker Hughes weekly rig count down 8, up 224 year-over-year. Oil rigs up 1.

· MMS update reports 986,805-bpd or 65.787% of US Gulf oil output still shut-in with cumulative lost production since 8/26 of 64.548 million barrels or 11.79% of annual Gulf output. There were also 211 platforms and 16 rigs evacuated, or 25.76% of 819 manned platforms and 11.94% of 134 rigs currently operating in the Gulf.