Oil at $70, NG close to $12 on NYMEX in Sunday pre-market
Posted by Prof. Goose on August 29, 2005 - 5:29am
Nautral Gas (NYMEX Henry Hub) was up to $11.81, up 2.02 or 20.61%
Gasoline up to 212.53, up 19.84 or 10.3%
(prices delayed, these are at 7:22 EDT)
Update [2005-8-29 5:12:10 by Prof. Goose]:The latest GOMEX numbers are out. They say that 86% of Gulf oil production is predicted to be cut for less than 10 days, 51% of oil production is predicted to be cut for 10-30 days, and 23% cut for over 30 days. Natural gas is just about as bad (52-26-10). That, folks, is a big deal if it's right. (Ironically, that little jog Katrina took to the NNE at landfall may benefit NOLA, but may be worse for the oil industry, more rig damage and more exposure to the offshore areas of MS and AL)
Update [2005-8-28 18:26:45 by Prof. Goose]:Here's a link to a really good map of oil refining/SPR storage facilities in respect to the current path of Katrina.
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(just posted it in the post prior to this one in an update...)
For companies losing production in the Gulf, even temporarily, I'd say it's a slight negative (but not as negative as this will be for the rest of the market).
Frankly, I don't much care. The markets will go nuts for a few days, wild swings, predictions all over the map from experts who don't really know what they're talking about--and then they'll sort themselves out. My concern is for the people in NO and the general area; their situation won't become orderly and comfortable again nearly as soon as will that of the energy markets. If we see the kind of storm surge that various weather experts are predicting (15 to 25 feet are the numbers I've heard), and that hits NO, it will be a very, very bad scene.
As of right now, all of us, including me (born and raised in the NE US, with the NY accent to prove it) should declare ourselves Louisianans and pledge to give to the Red Cross or similar relief organization until it hurts.
It's time for The Oil Drum to make the transition from being a bunch of people with similar interests to being a community.
Governmental, community and business leaders should all take steps to reduce consumption as deeply as is possible without disrupting critical economic activities. Together we can beat back the impact of high prices with the one weapon we have - reducing waste and unnecessary consumption.
Even opening the SPR will take months to impact the supply problems.
Lou, PG, and all Oil Drummers (or dare I say, Citizens for Sustainable Living?), this is our chance to have an impact. Contact your local officials and ask them to find ways to conserve fuel. Contact your federal officials (www.senate.gov, www.house.gov) and send them something like this:
"With Katrina threatening to cut oil and gas supplies significantly (10-20%) for months if it causes severe damage, I urge you to push for all reasonable ways to reduce consumption of gasoline instead of opening the SPR. Decreasing demand voluntarily is the quickest way to keep prices stable in the short term. For more information, see www.theoildrum.com"
- gap down for the broader market - between 1/2 and 1 percent; perhaps reverses intraday but the market has been pointing lower anyway so nothing in this week's news (except for the miraculous) is likely to turn that sentiment for longer than a short term bounce.
- energy may even sell off in sympathy, certainly there will be a little pressure on any company that has a majority of assets in GOM / affected areas -- sometimes sympathetic selling catches the entire sector up for a while.
- ultimately I would think domestic natural gas producers with no GOM exposure will fare the best. Probably EnCana will be among the leadership stocks there, but there are others. Canadian crude suppliers ought to come out of this looking sweeter too, within not too long.
- The US Dollar will probably hold its weakness (off near half a percent) -- it had been trying to hold support last week > 87.50 on the DXY index - currently its testing these lows right now. Gold will no doubt benefit some as a result.
- There may be some Lowes / Home Depot etc bounces but that's not my cup of tea except for short term plays.
What really matters is whether public perception is finally tipping the scales to "oh my, there's not enough black gold" around. Before this event I do believe we'd be on safe ground in assuming that the vast majority of market analysts and strategists have little exposure to the concept of peak oil. Simmons book and this event may do more for awareness than could possibly have been planned for, unless Simmons decided to release it near hurricane season 'just in case'.When the herd switches directions in thinking in a hurry, it can be frightening.
And forget about the stock market, did everyone hear what Greenspan said about housing. http://news.yahoo.com/news?tmpl=story&u=/nm/20050828/bs_nm/economy_fed_greenspan_dc
Talk about a perfect economic storm for next week!
Not to trivialize the oil production setback, but looking at PG's fine map, it seems to me that refineries are going to take the biggest hit. After all, the timing of this is astonishing, peak of the summer driving season.
"Refineries operated at 93.4 percent of their operable capacity last week". Not next week.
My financial advice is to refrain from selling first thing tomorrow morning: believe me, the big boys will beat you to it and you will end up selling very close to the bottom. Your best chance to sell was at the beginning of hurricane season. At this point it's better to let the dust settle over the next week or two and consider shifting assets from cash and bond positions into beaten-down equities. Market moves in the short term reach extremes governed by emotion. Don't panic and keep to your long-term game plane. While you are at it set something aside for a charitable contribution - a lot of people will need your help to get through the next few months.
On the other hand it might not be a bad idea to fill the gas tank tonight before the brokers send out new numbers tomorrow.
"Jane was there and Tammy and Gary were going out the door. They were on their way to get their gas tanks filled. Jane had hers filled. On my way home, I thought about how hurried Tammy and Gary seemed to get to the gas station and thought ... it's beginning."
Feel better with a full tank, but I have to imagine that there is a week or two lag in the transportation of gasoline to buffer supply. Am I wrong? How long does it take the imported refined gas or new refined gas to make it to the pump?
Obviously price would shoot up, but when would true decreases in supply be felt after a disruption like this could be?
Yet "longer term game plan" can take into account prolonged market weakness... lightening up on bounces may be part of one's plan.
Myself over the past month in my long-only accounts I've trimmed all non energy with the exception of a little bit here and there where an individual story still makes sense. Index futures I got short again early last week after returning from a week off.
Suspect we'll have to break out the Dow 10K party hats again before too long; whether it holds below there or not is another matter.
http://www.rigzone.com/news/article.asp?a_id=24770&rss=true
James Howard Kunstler interview with Robert Birnbaum
In Brief: A simple statement but a nightmarish one: we can no longer expect to have more energy, only remorselessly less energy. An intense chat with author James Howard Kunstler about the chaos that will rattle our society once the energy disaster takes hold.
http://www.globalpublicmedia.com/interviews/471
That said, I expect few buyers at the open tomorrrow.
The very nimble do well in these periods of high volatility; for everyone else there's real danger of making a bad situation worse.
Your mileage may vary!
On the other hand, 1,200 has been breached on the downside and that is psychologically important. Which would support others' comments about sales into strength.
It is a confused situation and must be monitored closely. Don't mess with this unless this is what you do for a living. It is what I do and I don't always get these sorts of chaotic markets right, they are stressful to trade. Personally I prefer markets that have enough volatility to yield trading profits but not these markets that has the whole world lining up to take bets that tend to change on a dime.
I don't trade the overnight futures markets - volumes are generally too low and moves are often exagerrated in such conditions and very frequently price moves opposite by the time markets open or shortly afterward. That doesn't mean prices won't head lower in the end...
Markets have already broken below any upper-most trading range of significance - that happened last week. The key question is whether they can hold and rise back into the ranges above without weakening appreciably down the road. If not, then the odds of retesting July lows go up.
Given by Tuesday we'll start to have a sense of the damage, I would not count on much upward movement (if any at all) on Monday.
However if energy prices stay as is, I doubt any bouncing from here will hold... professionals will be unloading what they care to unload into such short term strength.
Myself... I hold a fair swack of cash and am completely overweight in energy... with zero GOM exposure. I decided to take advantage of Fridays sell off and jack up my exposure fairly significantly - I may end up paying the price for that at the open but such is this game.
Ecuador is still not settled here, by the way... 48 hour ultimatum being issued. My largest holding, EnCana, has some exposure there (they are trying to sell that off) but I doub't it will ripple the stock if NG holds up 20% into tomorrow.
These energy commodities are already well-stretched to the upside by any normal measure. In normal times, we'd be expecting a decent size pull back - 10 - 15% perhaps even more, some consolidation, and then, if the sector and broader market fundamentals agree that price should go higher and the crowd buys in, back up again. Rarely to markets go straight up with no pause... we've had pauses in these markets but they have not been terribly long... further evidence of a very strong trend.
Still I get nervous when price appears to be going parabolic on the daily or weekly charts.... sharp reversals are often not far away at such times.
Now... are these "normal" times? Wouldn't seem so...
We have a refinery damage model, but haven't started posting data from it yet. Don't want to scare everybody too bad . . .
Chuck Watson
KAC/UCF Hurricane Damage Forecasting Project
http://hurricane.methaz.org/
http://hurricane.methaz.org/hurapak/AAL122005_gomex_oil.html
For example already over 1 B. cu ft of NG is known to be shut out; the short term estimate is 67433112. ( 55.7% ) per the site. How should we interpret the data?
Thanks for the interesting resource!
The raw numbers are from our internal model runs and I'm working on getting the actual cuft and bbls right on the web pages - the percentage impacts are correct, though, just double checked. The tables and data are very much a work in progress - and we don't often get cat 5 storms to test them out on!
Chuck
Mike
http://www.cme.com/trading/dta/del/globex.html
On the other hand rarely do these overnight moves occur while crude is up at a record high on Nymex and after NG is up > 20%. The context of what is happening can't be overlooked.
My bet is that markets don't perform too badly early on unless before the open its clear that there has been devastation broadly in the area.
Regardless... the important thing is not how markets act at the open but by the close.
http://www.poten.com/?URL=list_attach.asp?table=tmarket&type_id=1
Don't think the market will react much until they see proof
Any price weakness in crude today is more likely going to be tied to expectations that the industry dodged a big bullet... whether traders are right in guessing that or not won't be known until later this week