Thursday, March 10, 2011
3/11/11 Oh Girl
I walked out of the bar this afternoon to see J6P drive by and heard the sound of the Chi-lites trail off behind his new positions...
Oh, girl
I'd be in trouble if you left me now
'Cause I don't know where to look for love
I just don't know how
Oh, girl
How I depend on you
To give me love when I need it
Right on time you would always be
All my friends call me a fool
They say, "Let the woman take care of you"
So I try to be hip and think like the crowd
But even the crowd can't help me now
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ENER - Ouch! What I want to know is who's been pumping this thing lately? It popped up on my radar scope a few days ago and I don't recall from where. Motley Fool, I think it may have been.
ReplyDelete"February budget deficit highest ever for any month- AP"
ReplyDeleteEven "hopeless" budget deficits growing ever larger can't push PM's up?
I think it has to be international demand that pushes the metals higher. It will take a while, years probably...
ReplyDeleteMost Americans believe in the Fed's paper because they have never been devastated by a currency collapse, and of those few who might see it as possible, how many of them might allocate what percentage to metal? The net effect is that its a small percentage of a small percentage.
ENER and many other corps are hurting because gov's at all levels including foreign are hurting. So much profit at the margin is dependent on gov business whether it be direct sales or subsidies. Even CSCO admitted its shortfall was due to gov/local tightening. Here in USA things will really go downhill when the Federal spigot is turned down, as it must eventually.
ReplyDeleteENER/BCOND...I'm glad I got out of my gizmo for a few clams.
ReplyDeleteSeoul- just 5 weeks ago was looking bullish at 2100.
ReplyDeleteI'm still in BWEN at quite a % loss but on a small position. Can't say the same for CSCO, RJA and more recently RBY. My mental (stop) faculties seem to fade under duress. I think I will go hide under a rock. Or maybe just engage in March Madness for the rest of the month (B Ball on TV).
ReplyDeleteP.S. I don't think I would sell RBY now even if I had all my marbles.
illini- Stop out if you need to. Believe me, I know it's painful. But it beats even more pain.
ReplyDeleteIf it makes you feel any better, Bill just posted a comment probably intended to mitigate a lot of the pain being felt in the community.
ReplyDeleteOn the other hand, I suppose gold/silver could spike again tomorrow. That's the nature of the sector, and one reason I'm unable to successfully trade it.
ReplyDeletehttp://www.youtube.com/watch?v=c_KVsJLFxz0&feature=related
ReplyDeletet3d
Jeez look at nak
ReplyDeleteNice choice, t3d.
ReplyDeleteT3D- Didn't the Kinks do that one first? :)
ReplyDeleteMark- Come on, man. Those guys ARE the Kinks.
ReplyDeleteHmm, the max pain calculator hasn't been working for a couple of hours. Maybe it's recompiling the database...
ReplyDelete2nd- :)
ReplyDeleteWow! "Toughest day for me in eight years." That would have to include late 2008 and early 2009. In SEP 08 he was optimistic that the Gov bail-out would solve the problem. Wrong! The problem for him today must surely be an overexposure to silver and small miners.
ReplyDeleteJust a tid-bit...I've finally gotten the flue from my 3 little TM'ys. Last time that happened, being in cash like now, I crashed on the couch the next day only to watch a 300pt sell off. Trade accordingly. ;)
ReplyDeleteMark - Thanks, it can't happen twice.
ReplyDeleteWill the Saudi protesters be carrying bullet-proof signs?
ReplyDeleteI guess BC fired one of his traders. Note Pat's lengthy dissertation as well, I guess he put a little extra effort into it.
ReplyDeleteBill might've had a gaggle of qualified traders to choose from had he taken an active interest in teaching his craft.
DEER - The flatest chart in the world, has a 16% short float and just reported earnings. I guess the shorts gladly paid the divy, or whomever controls the stock had no problem controlling the disturbance they attempted to create.
ReplyDeleteToday's volume was 6x, it lost yesterday's gain.
Landry-
ReplyDeleteRandom Thoughts:
Yuck. The Ps, and everything else for that matter, were creamed yesterday. This action puts them just below the 50-day moving average and right at their recent lows. This is the inflection point that I have been talking about lately. It's not the end of the world, but any additional weakness would be concerning.
When a market reaches an inflection point like this, it's important for it to turn right back up. This type of action catches the eager shorts off guard and it doesn't give nervous longs time to think about dumping.
As usual, one day at a time. One or two big up days would make all the difference in the world. And, I reiterate, any additional weakness at these levels would be concerning.
So, should we bail? No, as usual, let the market make your decisions for you. Honor your stops. If the market takes you out, so be it. This is the price you pay to play. Yes, Elizabeth, this might be the big one but if you bail at ever sign of adversity, you'll never capture a longer-term trend.
Cara-
ReplyDeleteCTA Trading Desk Morning Report
[7:00am ET] Good morning.
As yesterday morning unfolded, I became very concerned that the market could evolve into another Black Monday (October 19, 1987) style crash episode. Judging from the various market actions overnight, it might yet happen. I do expect further losses, particularly in the precious metals market, over the next couple weeks as the US Dollar strengthens. Accordingly, the bulk of my client accounts are now at about 75% cash and many are at 100%.
This morning, I can see an attempt underway to rally market prices that started at 6:20am ET. Time will tell if the Bulls can hang in. I couldn’t. But the pain I suffered in getting out yesterday was nothing compared to what I watched people endure in October 1987 and to a much lesser extent in 2008.
As a reminder of the crash in 1987, which eliminated about 30% of the value of the highest quality portfolios and as much as 80% of the higher risk portfolios in a couple days, I reproduced the chart here. I marked the preceding Thursday with a yellow arrow because that’s what I think might have been happening yesterday. Today is Friday, which will be crucial to markets. The central banks will try to support the Bulls. We will just have to wait to see the outcome.
My own take is why play in the Street at rush hour? We have Tokyo, Saudi Arabia, and the PIGS in the news. Miners sold off hard yesterday. We've all been waiting for a pullback.
ReplyDeleteWhere we are II newSubmitted by Vadym Graifer (1802 comments) on Fri, 03/11/2011 - 09:28 #81335
ReplyDeleteAs market trades under critical area of support which we discussed a few days ago, want to remind this post: http://caracommunity.com/content/bill-caras-blog-m...
If we close anywhere under 129.70, major trend reversal is very likely.
Feeble attempt to rally so far...I'll give it another hour though. I suspect if bulls can't muster a rally soon the ship is going down. Being 0% long, I would love to see a 1987 style crash but I highly doubt it could happen at this juncture.
ReplyDeleteSo let me get this straight; two sessions ago the market was a buy b/c EU banks were green, and today it's a sell and get the hell out prior to black Monday?
ReplyDeleteJesus H. Christ!
Hey, just think about it for a split second... If someone(s) with deep pockets wanted to buy equities on the cheap, he could simply run oil up to some level of concern sufficient enough to create the desired effect.
ReplyDeleteNo matter the fundamentals, to perhaps even a great extent, for short periods of time.
Somebody isn't telling the truth.
Rinse and repeat.
ALU - I haven't even looked at the chart yet, but I bet (imaginary money) it closes green today.
ReplyDeleteLong NLS at $3.05. I played this quite a bit last year...earnings were better than expected and the stock was just upgraded. There is a lot of room for upside movement if the economy continues to expand.
ReplyDeleteGLD gonna bust out soon.
ReplyDeletetoday is yet another reminder that fear should be bought. I made $500 yesterday on my longs. Had I held one more day I would have made about $3k.
ReplyDelete57% increase in Chesapeake Blue Crab population count this winter.
ReplyDeleteI noticed lots of conch here now as well. Funny, I don't recall ever seeing them 50 years ago...
Nuclear plant emergency declared in Japan, cooling system failure, increased(ing?) reactor pressure, hydrogen fire in turbine hole?
APPL - $7 as of today, in 2003
ReplyDeleteI am shocked and awed: the two very different position on which I decided to place stops, F and GDXJ, both opened with HUGE gaps down, hit my deeps stops and then rallied hard. Amazing. Naturally, with all the fear and uncertainty, I don't feel like chasing them now, and so they will most likely keep rallying...
ReplyDeleteThe only "consolation" in this respect is that ECUXF hit my buy limit at $1.01 for 5000 shares, and then I just bought manually 7800 shares of ECU.TO at $1.00. If the shakeout is indeed over and the market will now keep going up, then ECU must join the party soon. Just to get my "money pump" going, I placed a sell limit order at $1.10 for the 5000 shares of ECUXF purchased at $1.01.
Gold/oil - I'd really like to see oil come off to provide some feeling of comfort, people are saying gold is following oil but I hope they're wrong about that...
ReplyDeleteAnd if this rough patch is all about European debt, then how does that speak to today's oil prices?
TRP - I guess traders aren't projecting a collapse in oil/gas demand yet today.
Sold my NLS at breakeven. This ship is going down methinks.
ReplyDeleteThe indices broke out above their previous intraday peak. We may very well have seen the bottom of the pullback this morning, as MANY weak hands did get shaken out yesterday and this morning. So the Northbound train has definitely become "lighter," which is bullish. Instead of dwelling on the pain of being shaken out of F and GDXJ this morning, I figured I will look for opportunities among the "laggard" stocks, which will inevitably move up if the indices keep rallying. So I just bought 500 shares of WATG at $6.37.
ReplyDeleteAlso, just bought 1K more shares of RBY at $4.63. It is not exactly a laggard today, but it was knocked down pretty hard recently, and with the price of gold still hovering near its all-time high, there is no reason for RBY to be so much lower than its January highs.
ReplyDeleteCLNE - Pow!
ReplyDeleteENER - I miss Sharkey's "little dogie" commentary.
David - yep...i think you're right. look at how it pushed all of us off board. Classic maneuver. I actually am happy sitting in cash until we get a move above 1,325 or until we break that downward trendline. If that happens then i'm 100% bullish again.
ReplyDeleteRBY - I'm prepared to be a buyer if further shakeout were to culminate in a huge and unanticipated price collapse absent substantiated negative news.
ReplyDeleteTherefore it won't happen, neither do I anticipate my Baptism ceremony ending anytime soon (insert happy song here). ;)
Japan - Venting radioactive gases to alleviate excessive reactor pressure, US military aircraft have been delivering "coolant", to supplement inadequate supply.
ReplyDelete"Japan quake shakes UK gas market LNG supply fears"
ReplyDeleteAll right, all right -- bought back 1K shares of F at $14.42, after getting stopped out of 2K shares at $13.90 this morning. USO is down for a third day in a row, and so F has all the ingredients for a rally now.
ReplyDeleteWow, "they" have a good reaction: within 10 seconds of me buying F, they take it down by 7c. Amazing...
ReplyDeleteI'm 100% in cash now...just gonna wait for either a drop to create better buying opps or a pop above the downtrend line.
ReplyDeleteBy the way not that it matters but the close on the S&P was below the close on the S&P on the previous lows in this downtrend
ReplyDeleteMark: your puking didn't make you miss anything. market is still in the box
ReplyDeleteUgh.....
ReplyDeleteOh lookie there, oil fell 2%, south of 101 while PM's and equities managed to advance.
ReplyDeleteImagine that! To my own detriment, I no longer feel the sudden urge to take the Slauson cutoff exit! Can't wait to see the minute to minute dialog account of how a train wreck trade turns into an 8 yr flashback, all in anticipation of black Monday!
I'll even bet somebody lost their job during the pooch screw!
How's that song go? Me,me,me,me,me....me,me,me!
Octa-mom is financially destitute. Well whod'a thought!
ReplyDeleteWow, they're estimating that Honshu island has shifted by about 8ft.
ReplyDeleteTBT? - Hmm, maybe now we can anticipate rising interest rates since Japan, a major buyer of US debt, will be looking for ways to finance their earthquake recovery efforts.
ReplyDeleteCAST - Really having trouble climbing out of the ditch, wonder why?
ReplyDeleteThis sounds like Euro QE, I bet Germans start buying gold again.
ReplyDelete"BRUSSELS (AP) -- Eurozone leaders say they have agreed on the cornerstones of a comprehensive solution to the currency union's crippling debt crisis.
EU President Herman Van Rompuy says governments will boost the effective lending capacity of the region's bailout fund to euro440 billion.
He says they will allow the fund to buy government bonds on the primary market as part of a national bailout program."
Chinese stocks - I just remembered, their 10K's are due end of this month, which might explain the nervousness.
ReplyDeleteOh boy, Donald Trump is gonna be my neighbor!
ReplyDeletehttp://finance.yahoo.com/family-home/article/112329/rise-fall-of-patricia-kluge;_ylt=An7LIAN27gkL4VMnxfMcls5O7sMF;_ylu=X3oDMTE5b3AzbzVtBHBvcwM1BHNlYwN3ZWVrZW5kRWRpdGlvbgRzbGsDaG93YWJpbGxpb25h?mod=family-love_money
Apparently I'm going to live....apparently.
ReplyDeleteGlad to hear it, now get back to work you slacker!
ReplyDeleteBW - I check this one occasionally in attempt to figure out what exactly makes it tick. Sure bolted out of the gate, ticker change to MTRN?
I'm trying buddy :)
ReplyDeletePansy takes another entire day off due to a case of the sniffles.
ReplyDeleteJapan - Well it appears plenty of people died from the earthquake when structures collapsed, and the tsunami came ashore, but there are no fatalities reported yet concerning the hydrogen explosion at Fukushima.
ReplyDeleteIt appears the 40yr-old reactor will no longer function since it's been flooded with corrosive seawater and no doubt contaminated to hazardous levels of radioactivity.
Quite unfortunate their emergency diesel generator(s?) were in some kind of flood zone and failed to come on line, amazing this could have happened and that at least power couldn't have been fed back into the plant from the grid to power the cooling system...?!?!
iPhone 4 disassembled - You can see who the various component manufacturers are (according to this article):
ReplyDeletehttp://www.ifixit.com/Teardown/iPhone-4-Teardown/3130/1
UCSB is tourny bound, baby!!
ReplyDeleteOur friend Jesse sent this...
ReplyDeleteQuick bullets:
*Natural gas closed at $3.89/btu on Friday.
*Natural gas 10 year average is $9/btu.
*Natural gas has blockbuster seasonality from now heading into October- +7.14%, +1.71%, +2.6%, -0.55%, -2.48%, +2.22%, +11.69%, and +9.01%. November to January are -1.65%, -3.06%, and -4.76%.
*Semi-annual price spike is to $10-$16/btu. Average period between price spikes is 28-34 months. We are at 33 months since the last one.
*Historic crude oil to natural gas ratio is 9 (as low as 6 just a few years ago.) The all-time high was 26 and change. Last week, it hit 28.7. $5.80 in crude oil provides the energy of 1btu of natural gas. So, scientifically, the ratio stands at 5.8 to 1.
*Lower monthly trendline for 20 year natural gas bull market was precisely hit at $3.50 in the fall.
*Average cost of production is $5.11-$7.80 in many parts of the country (see graph) Per Chesepeak's CEO, the average cost of production is $5.50. Crude oil's cost is somewhere around $40/barrel.
*Producer's long-term contracts above $6 are now expiring. What will they need to do to lock in their next series of contracts above their cost of production?
*CEO of Contango energy says producers in the lower 48 need $7 natural gas to make profit (see below)
*The historical crude oil to natural gas ratio is 9. The previous all-time high was 26 and change. The ratio spiked to over 28 last week.
*The historical ratio of all commodities (DBC) to natural gas is 4.5. Last week, it reached over 8 which is the highest as far as my charts go back. The historic band is 3 to 7.5.
*Bottom pickers have been burned over and over and over again. If anyone remains bullish, I can't fathom that 1) they would admit it, 2) they have any funds left to invest, and 3) they wouldn't know where to invest as it is universally understood that ALL natural gas etf's are "flawed instruments" destined to go to zero over time (perhaps).
*Bearish sentiment and short positions reached an all-time high in natural gas last week (below).
*The dreaded "Contango" is all but over as futures are just about $4 for the next 7 months.
I've never seen all of the futures aligned so closely together. A one month 10% contango is quite common (as well as 10-30% contango going out a few months). This time of year, December's futures can be upwards of 50% higher than the current month. They are at about 17% currently. This all sets up a unique opportunity should one choose to invest in the natural gas etf's facing very little contango risk (price risk is still present, however).
*Given the government's catch-22 position in regards to Quantitative Easing 1,2,3,4.....8 etc. (they will never admit to any beyond 2), at some point, natural gas will provide a hedge for a declining dollar.
*Natural gas is $9-$17 today in various parts of the world.
*What will happen if the market hears ANYTHING (and I mean anything) regarding the government's promise to switch to domestic cleaner fuels or if there is the slightest hint of a ban on fracking (poisons leaking into the groundwater)???? Remember that virtually nobody is long and short positions are at an all-time high.
*Contrary to popular belief, March is one of the most bullish months for natural gas as it represents the calm before the eventual "Oh my lord, hurricanes will take out the rigs and natural gas will triple overnight" banter. Average March return is 8%. April and May are about 5% added together.
Cont...
ReplyDelete*Contrary to popular belief, March is one of the most bullish months for natural gas as it represents the calm before the eventual "Oh my lord, hurricanes will take out the rigs and natural gas will triple overnight" banter. Average March return is 8%. April and May are about 5% added together.
*The natural gas fracking "Gold Rush" began in 2008. Many, if not most of the fracked wells have lifespans of 2-3 years (see chart).
*Big oil has been buying smaller natural gas companies in record numbers in the past year (below).
*Rare analyst "group-think" is taking place regarding price estimates going forward. They are all predicting ~$4.50 natural gas with very little deviation. This gives no incentive for clients to be long (everyone on the sideline situation).
*Some Elliot Wavers are predicting $15-$60 for natural gas in its ongoing long-term bull market.
*For what its worth, the weekly chart finally looks "good" to me and the 200 day moving average has finally flat-lined after a 2 year descent. This is needed before a resumption of a bull market and before any possible long-term price spike.
*Natual gas stocks have been spiking over the last month, perhaps in anticipation. ROYL spiked 400%, DPTR 80%, and the big daddy CHK up 60% in 3 months.
*Full disclosure: I picked up some UNG and a tiny portion of DPTR earlier this week slightly below current levels. I could make an argument for UNG outperforming natural gas going forward due to possible backwardation, but I don't want to open myself up to that much ridicule:) As I am a much more disciplined trader than I was in my earlier days, I have a strict 3% stop-loss order in place which if triggered most likely means that natural gas has a bit more downside before its ultimate bottom. FYI- UNL is a much better option for more conservative investors who want 1/12th of the contango exposure. I like GAZ, but don't trade it as it doesn't trade outside of market hours. NAGS is an interesting new natty etf which invests in "the 4 most interesting" futures months. I am hesitant to buy stocks of the producers given that OEX trader's ("smart money") put positions are at an extreme signaling a major market downturn in the months ahead (there's a good chance the most recent downturn is mostly over due to some studies I've seen over the past few days).
I don't know when or where the bottom will ultimately be for natural gas, but the return from current price levels will be substantial.
Cont...
ReplyDeleteINTRO:
Its time again for another "special situation" investment analysis. This one
is a repeat. Natural gas in particular. Natural gas sitting at $3.89 would
present a 40% return just to hit its average cost of production and about a 400%
return if it were to reach its semi-annual price spike. Since my last
report in September focusing on uranium and natty, some uranium stocks have
exploded up to 400% while natural gas has languished.
I've been watching natty like a hawk during the past 3 years. Admittedly, natural gas has
looked very compelling to me in the past, but for once, a bunch of bullish
factors are all coming together at the same time to create potential
rocket fuel for the commodity.
Before I begin, the first thing to come to anyone's mind regarding natural
gas is the argument regarding oversupply, vast pools in storage, excessive
rig count, fracking, and the 100-200 year supply in the U.S.. We must first
look at the conditions which exist during commodity tops and bottoms. From
a very basic perspective, at the very peak, (before a commodity heads for
the cellar) we see very tight supply/demand dynamics. In some cases, demand
actually outweighs supply and there is very little excess available in
storage. On the other hand, at the very bottom of any commodity cycle, we
literally see mountains or pools of the unwanted commodity rotting in
storage. At these times we often see the commodity selling below the cost
of production.
I vividly remember the situation in crude oil and aluminum in 2009 when
ReplyDeletethere was a huge supply-demand imbalance. There was zero demand and there
was so much excess supply that investment banks were renting crude oil
tankers to store vast amounts of black gold to be sold at a later date. As
we currently see with the spike in crude, we know all too well what has taken place since
those lows of 2009. I don't remember the exact price of aluminum at the time, but I
followed the aluminum producer CENX very closely. They had vast stockpiles which
they could not give away at anything approaching their cost of production.
There was absolutely no reason to own the stock or the commodity. No reason for aluminum to increase in price until excess inventories were worked off, which would be
WAY off in the future. Well, aluminum prices started rocketing even while
the mountains of aluminum sat untouched in storage. What happened to the
stock? $1.04 to $20 in 9 months. I bought it at 1.10. I rock! Where did I sell it?
$1.19:)
Lastly, fracking and oversupply were in existence in 2008 when natural
gas sat just under $15. And all of the highly publicized negative imbalances were in place
just last year when natural gas was $6 (which is around 55% above today's price).
Here are some excerpts from some very interesting articles I've run across recently along with some of my thoughts.
*"Producer's long-term contracts are beginning to expire. Most contracts are
in the $6 range, thereby producing a slight profit for these producers.
These companies are refusing to enter further long-term contracts below
their cost of production (for obvious reasons), so what do they do? They
simply shut down drilling projects (even temporarily) to get the overall rig
number down (rigs are down from 1200 to 882 I believe. (analysts say 750 appears to be
the key level for a price spike) and wait for the price to spike where they
will re-enter their long term contracts with customers. The producers have
tremendous control over the price of natural gas in the short run just by reducing
the rig count."
cont...
ReplyDelete-"Around March, natural gas stockpiles tend to reach their annual low, with
late winter weather providing the demand. This is reflected in positive
seasonality for March"
- "At a recent conference, Ken Peak – CEO of Contango Energy and
the largest stockholder, with 19% of the shares – shared the following
chart, which makes the point. It shows the cost curve for the lower 48
states in the US. This chart shows that these producers need $7 gas to make
money."
-I read a great article last year on Seeking Alpha when natural gas was at
$5 illustrating that the long term monthly natural gas lower trendline was
sitting at roughly $3.50. His argument was that there was no reason to own
natural gas until it reached that buy point, at which time the next long term bull
market would commence. Natty hit that price to the penny during a
pre-market session in October (some charts list 3.20ish as the year low
which I don't understand since I've seen every natty open and close this
year...it could have something to do with the continuous contract price)
which has thus far been the year low. Unfortunately, I can't locate the
article at this time:( .
-Natural gas is around $9 in Europe and $17 in Asia. There is significant
investment taking place in liquified natural gas tankers and terminals to
export U.S. natural gas to exploit that differential. Take a look at LNG
stock to see the trend.
-I read another great article last week by a natural gas analyst (I believe
from Barclay's). He was saying that his target for natural gas was around
$5 this year, but went on to say that he felt very uneasy about his target
as there is a tremendous amount of group-think currently among natural gas
analysts. He said that he had never before seen all of his peers predicting
prices in such a narrow band. They are virtually all predicting $4.50 for
this year. Meaning there is no incentive for clients to hold long positions
in natural gas as there is no upside according to the analysts. So all of
the potential investors are on the sidelines or short. If they decide to
get in for any reason, the commodity would explode. He said he wouldn't be
at all surprised to see that happen and surprise the analysts and the investors
who follow them.
-Any news whatsoever regarding the U.S. administration's desire to switch to
non-foreign-dependent/cleaner fuels- natural gas- or any news regarding
total or partial banning of fracking (harmful drilling chemicals leaking
into the water supply) will send natural gas soaring.
-
cont...
ReplyDelete-Lastly, elliot waver's analysis of the long-term natural gas bull market is
eye popping. According to one analysis I read yesterday, "The target of
this grand supercycle wave is from my point of view presumably 2.62x of WAVE
I which topped at July 2008 at around 15 US$. The target range will be in
the longterm at around 45-60 US$ of GRAND SUPERCYCLE WAVE III to the UPSIDE.
-"From a strictly scientific standpoint, 1 barrel of crude oil should cost
about 5.8 times 1 mmbtu of natural gas, because 1 barrel of crude oil has
5.8x as much energy content as 1 mmbtu of natural gas. The last time the
ratio was this high was September 2009, and natural gas proceeded to rally
138% until the end of 2009. While much of this was due to the front month
expiration and contango in the natural gas curve, one still could have made
68% being long the front month contract and rolling it over each month. The
chart above shows statistics on the ratio between natural gas and crude oil
over the last 21 years. As can be seen, the highest ratio seen was 26.35 in
late August 2009. The ratio as it currently stands is 26.11. ally in the
past month to a current reading of 173,434 net short contracts. This reading
is in the 5th percentile of readings over the last 5 years, and almost twice
the median."
-"Since 2000, there have been four price spikes and each spike is followed by
a big valley. The duration between two spikes are 26 - 34 months. Now it has
been 33 months since the June 2008 natural gas price spike."
-"Most of the Haynesville acreage was leased in 2008, meaning the initial
three-year term is over this year; since it takes time and equipment to
cover such a large area, there has been a steady drilling program in place
now for the past couple of years to complete regardless of commodity price."
Not all shale is alike, and none are as prolific as the Haynesville (yet).
Looking at the type curves for the other plays where these rigs are
migrating to, the IP (initial production rate) is much lower and the EUR
(estimated ultimate recovery) is much lower as well. The rapid growth
experienced in supply from the HBP operations in Haynesville will not be
repeated with these other plays. Haynesville IP rates are roughly 14
MMCF/day and decline an average of 75% in the first year, (much of that in
the first six months). IP rates in these other plays are averaging under 5
MMCF/day and have a steady decline in the first year as well."
Cont...
ReplyDelete-"Additionally, the current reading of crude oil to natural gas is in the 99.82nd percentile of readings
over the last 21 years, meaning that it is almost the highest reading ever
seen (set last week) Considering that the median reading was 9.02, the current ratio stands
almost 200% higher than the median."
-"Many people’s claims saying that natural gas prices will continue to be
depressed cite all the new supply due to shale gas discoveries. Because of
this, they say, natural gas prices are *forced* to stay depressed. The one
mistake in this argument is that it assumes all supply sources are equal.
Judging from the chart, this is hardly the case. Simply put, there are low-cost
gas fields and high-cost gas fields. As you
can see from the data, cost structures of different gas fields vary wildly.
Currently, natural gas prices sit just above $4. According to the above
data, many gas fields have breakeven levels much higher than this to achieve
the industry standard 15% after-tax rate of return. A good number of these
gas fields even range from $5.11 to $7.81.
-"The chart below plots the average price going back ten years as the dotted
line. The next closest lines underneath and overtop of the average price
represent one standard deviation, which in simplest terms refers to the
normal price channel over this period. Right now, the price of natural gas
is BELOW the normal range. In even simpler terms, buying an asset when it’s more than one standard
deviation below its normal price is a great way to make sure you’re buying
when it’s cheap on a historically relative basis.It’s not fool proof, of course, because prices could always go lower. But they’re not likely to go much lower."
-"But there is more. The world’s use of natural gas is growing faster than its
use of oil. The IEA’s guess is that oil consumption grows half a percent a
year. Natural gas consumption, by contrast, should rise more than 50% in the
next 20 years. Total, the big French oil company, is even more bullish. It
estimates that China will use much more natural gas than is commonly
assumed. Only a lack of infrastructure keeps China’s appetite for natural
gas under wraps. But China is in the process of building that infrastructure
today. It is only a matter of time before the nat gas markets feel its
impact. Finally, natural gas is cleaner burning. There is a lot of talk of carbon
taxes of one kind or another, not only in the US, but abroad. I believe it
is a matter of when, not if, governments punish dirtier fuels. Natural gas
will benefit."
-"Longer term, the current low nat gas price is not sustainable, as most of
the industry seems to lose money at these prices. As old contracts (made
when natural gas prices were higher) roll off, these producers will start to
shut down production."
-"At a recent conference, Ken Peak – CEO of Contango and the largest
stockholder, with 19% of the shares – shared the following chart, which
makes the point. It shows the cost curve for the lower 48 states in the US.
This chart shows that these producers need $7 gas to make money. “If this is
right,” Peak said, “I believe we will make a lot of money.”
finally.....
ReplyDeleteRISKS
1) Natural gas simply continues trading down below its cost of production.
2) Judging by the smart money put option exposure, OEX traders are predicting a large drop in the
market sometime in the near future (I hope to send out chart). The bearish extremes in the market have
been piling up since December. Historically, the longer these extremes
persist and the more the rubber band is tightened, the bigger and longer the
resulting drop. Fortunately, natural gas has historically had a neutral
correlation to the general market.
3) Historically, when commodity performance gets this extreme and this
stretched from its 60 week moving average (VERY, VERY rare), commodities do
not pull back. They simply crash as can be seen from the chart below (will send).
Fortunately, natural gas can have an inverse relationship to some
commodities (especially crude oil), but nonetheless, its worth keeping an
eye on. For the 2 reasons above, I am hesitant to put money into any natural
gas stocks. Having said that, I like GMXR and DPTR in particular. CHNG in China is one I'd like to spend some time researching.
Regardless of natural gas prices, if the market crashes, the producers will probably go with it.
I am only interested in UNL, GAZ, and UNG. UNL is by far the safest play
as it invests equally along the full curve (12 months) and is currently
minimally exposed to contango as most of the next 12 months are very close
to the spot price. Ordinarily, this time of year, the December price is as
much as 50-60% higher than the spot price. Its about 17% at the moment making UNL the "safest play" as it will probably track the price of the forward natural gas curve very closely over the next few months. As always, keep stops in place and should the etf's spike below their 52 week lows on Monday due to any resulting fear caused by Japan, they will most likely trend down for a week, if not longer, prior to another potential bottom.
Jesse
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Great work Jesse!!
I forget his greeting...
ReplyDeleteHello all-
Greetings from Beijing, China. Contrary to popular belief, I am still alive and ticking after many months on the road in Asia. If you are at all interested in the markets and commodities in particular, you may really enjoy the research I've put together here. Its about a 10 minute read. I spent much of the week working on it, the extensive time partly a result of using the world's slowest computer (anybody seen 128 ram lately?) while my laptop continues to have electrical issues. Additionally, it does not help being behind the "Great Firewall of China". Its a bit frustrating not to be able to access most of my bookmarks which are mostly blogs, Google docs, Facebook, Youtube, and some key financial websites. Anyway, if you have time, enjoy what I've put together. Assuming my computer is fixed once and for all by next weekend, I will send out an update of my travels as well as some pictures.
PS- As I think I noted below, Gmail took out all of my graphs and charts due to an html issue. I will attempt to send those separately if I have time tomorrow. There are some good ones.
Cheers,
Jesse
So is Jesse bullish nat gas?
ReplyDelete