Wednesday Morning Post - Oil Inventory Preview + More Earnings

In general, I'm an oil and gas stock (E&P) bull as you know. The E&P stocks remain cheap despite a recent run, the long term fundamentals point to higher commodity prices, and at present service cost inflation has abated and even reversed in many situations. And the companies I track are getting more efficient at doing what they do. But $100 oil is bad for business from both fundamental and trading perspectives.

• On the fundamental side you have incredible pressure on the economy. This pressure is really no greater than it is at at $98 or $95  or $90 but the perception can be as punishing to the stocks as the reality. For week's now I've heard bears calling for demand destruction and surprisingly there is still little evidence of it but if we routinely see $4 gas this Spring two things will happen: 1) people will find ways to drive less and 2) Vespa sales will skyrocket. 

• From a trading perspective, you get the sea of green and sea of red days as the market decides it either loves or hates energy. The "Crowd" enters and exits with a flip, mindless, indiscriminate, and sledgehammerly fashion which I don't care for.

• I spent yesterday taking a little of the Call money off table as you'll see below.
• Am I early? Probably. 
• Am I expecting and energy bear market? Don't make me laugh.
• A correction? Not really, no. Let's just say oil and gas have had a pretty good run as have the stocks and this market has show a complete inability to string more than a couple of green days together. Inventories could be a downer today and I wanted to lock in a little of the recent gains. 

• I'm Not Alone In Lightening Up As The Brokers Start To Pull In Their Horns As Well: E&P Analyst Watch: (UPL) cut to neutral at JP Morgan, (BBG) cut to Neutral at SunTrust, Citigroup cuts (CHK), (KWK), (EOG), and (SWN) to hold from Buy. Guarantee these are valuation calls based on the very recent run in the stocks

Commodity Watch:

• Crude Oil closed up $1.65 at $100.88 (after trading as high as $101.43) on the usual suspects: Turkey/Iraq, OPEC, Nigeria, and the dollar. After soaring to $102.08, crude is trading of slightly to levels just under $101.

• Turkey Melts Northern Iraq Watch: Turkish troops are now reported to be 15 miles over the border (last count was 6) and they are saying they will stay until the job of wiping out suspected rebels is complete. Iraq told Turkey to get out yesterday saying that there would be serious consequences if civilians and infrastructure are harmed.

• OPEC Watch: Still set to meet March 5. Various ministers are providing the markets with mixed signals…some indicating speculators are in control of crude prices and that a reduction of quotas may be on the way while others make noises like Libya who said that production would stay where it is unless prices fall below $90. None of them are talking about boosting production.

• Nigeria Watch:
  
• Interesting story on Henry Okah, who maybe is and maybe is not the head of MEND. Still no confirmation if he's breathing or not but interesting.
• Shell says Forcados production to double to 285,000 bopd in April following pipeline repair.

• Hugo Watch: Chavez offers to settle up with XOM regarding the stolen heavy oil project in Venezuela by turning over its 50% ownership in the 50/50 owned Chalmette, Louisiana refinery. Hmm, XOM and CVX get the courts to freeze $12 billion in Venezuelan assets and Chavez offers up half of a 110,000 bopd refinery as a trade?! That's like say, "hey, I've stolen your house but here's a pup tent, now run along". Total foreign oil company investment in the Orinoco project was estimated by Wood McKensie at least $15 billion back in 2006. Half of a scrub refinery, hah!

• Buzzkill Ben Speaks Today: The dollar (shown below in terms of Euros) abandoned all hope in advance of yet  another ivory tower pep talk.