Fed cuts 1/2 point in coordinated move with at
least five other central banks. Markets and commodities bumped on the news then
started selling again. Crude has been all over the map overnight hitting a new
low of $86.05 before heading back towards $90 as a little wind comes out of the
dollar’s sails. Equities are barely reacting to the news with an hour to go
before the open and the question remains, "so now what?". I won’t buy further
into this event for the time being other than perhaps the occasional
opportunistic trade as I await some sort of catalytic event in the group be that
a large acquisition (come XOM, what’s that $40 billion cash position for?!) or a
reverse in natural gas. If this proves to be the medicine the market needs (sort
of doubt it) then the recovery will be a long and arduous one with plenty of
opportunities.
In Today’s Post
- Commodity Watch
- Oil Inventory Report Preview
- Stuff We Care About Today - Debt and Living within One’s Mean
- Stocks We Care About Today
- Odds & Ends
Commodity Watch:
Crude Oil rose $2.25 to $90.06 on OPEC production cut
rumors. After a brief rate cut inspired rally crude is trading off
another $1 to $2.
- OPEC Watch: Rumors bouncing around include an imminent
production cut to hold the line around $90 or maybe $80. The head of Libya’s
national oil company said it was better to leave their oil in the ground than to
produce it for these prices. I think its a bit tougher for the head of the
cartel and the leading members…more of a tightrope they will be walking between
holding prices up and further pushing on the weakened economies of the developed
countries.
- Gasoline Demand Watch: The Mastercard Spending Pulse
survey shows gasoline demand down 9.5% YoY last week which is down 5% from the
prior week. That 9.5% number is the largest year over year decline we have yet
seen and is inline with another Mastercard survey showing retail down purchases
down 10% in September.
Natural Gas slid 7 cents to $6.77 in another step closer to getting
me into a long trade there. This morning gas is off another dime to a
one year low. And still winter approaches.
- Weather Watch: Cold starting to creep in with heating
degree days up to 38 vs 20 in the year ago week.
- Imports Watch: Imports ran 8.8 Bcfgpd last week with LNG
remaining low at 0.7 Bcfgpd. This is off about half a B a day from the prior
week and 2 Bcfgpd lower than last year.
- Tropics Watch: Tropical Storm Marco came and went through
the Gulf with little to no impact on Mexican offshore production. Otherwise, all
is pretty quiet in the Atlantic Basin.
Oil Inventory Report Preview (estimates from the Dow Jones
survey)
ZComment: Most important number
will be the products demand numbers. If the gasoline number backs up what Master
Card says look for further weakness. Either way, oil is likely to track more
what the broad markets do. I would expect little sustainable upside were we to
get bigger than expected draws and an absolute pummeling if we see larger than
expected builds. Buyers are on the sidelines at this point and I don’t think
this shoulder season report will provide much motivation for them.
Stuff We Care About Today
When a bounce does occur I think that the following will trump
production growth:
- Less debt on the balance sheet.
- 2009 capital budget should closely match or underspend cash flow.
- Size will matter more as investors will likely wait for the smaller names to
fall even further.
- Higher Hedges - this one may take time…it still has not mattered yet for the
highly hedged and the unhedge have seen like size thrashings.
On the subjection of capital budget cuts, we have already heard from a number
of big and medium sized E&P names. This morning the list grows to include
KWK, DNR, EQT and I expect that with a very few exceptions all of the E&P
universe will be tightening their belts for the end of 2008 and into 2009.
