Yesterday was not fun. After a pretty good run over the last several weeks,
oil and gas producers and oil service stocks took a beating, closing on the
day's lows. It's one of the those days that in hindsight are pretty easy to see.
In this case we knew Fed decision induced dollar strengthening fear could hurt
oil plus we knew the strike in the UK would only last 24 hours and that
headlines like today's "Oil Down On Easing Supply Concerns" would be echoed by
one reporter after another.
Today will likely see more of the same action early as striking workers in
Nigeria have agreed to return to work but the Fed decision will be key to oil
prices at least in the very near term. We do get EIA inventory numbers this
morning but they will probably be largely ignored unless they are well afield
from expectations (see Zcomment below) in favor of waiting on the Fed decision
this afternoon. The market has signaled it would like to see one more cut and
then a pause out of the Fed and that is probably what we'll get. Oil may slip to
$110 in the near term if the dollar rally re-exerts itself.
At present, I'm largely positioned in longer dated calls, in relatively
inexpensive names; names that aren't discounting $100 oil in their valuations,
let alone $115 (see bullets below). However I will be quick to take profits or
losses in names that disappoint or in any name that looks to be becoming
technically abandoned AND that lacks near term catalysts in the form of earnings
or other expected news.
Oil Strip:
* 12 month: $112.01
* 24 month: $109.89
Street Estimate:
* 2008: $90.67
* 2009: $86.67
Note that for 2008, the second through fourth quarter estimates by Wall
Street average $88.50 meaning that the Street is using prices in its models that
are roughly $25 below current strip pricing. So oil could fall to $90 today and
stay for the rest of the year and actual results for the group would still climb
relative to current estimates, and that's before you consider the boost in
production profiles brought about by recent increases in capital spending.
Holdings Watch: We did a little bottom fishing in yesterday's sea of red.
Painful, at lease as the first few hours go.
* (CHK) - Added CHK May $55 Calls for $1.25. Last bid $0.70.
*
(HK) - Added HK May $22.50 Calls for $1.95. Last bid $1.55.
* (EOG) -
Entered EOG June $140 Calls for $3.90. Last bid $3.50.
Commodity Watch:
Crude Oil tumbled $3.12 to $115.63 with the return to service of (BP)'s
Forties oil pipeline and an ever so slightly stronger dollar. This morning crude
is up slightly despite dollar fears and the end of the strike in Nigeria.
* Nigeria Watch: Union workers under contract to (XOM) have agreed to
return to work.
