Energy Stock Trader: Monday Outlook

Includes: BPG, TK
by: Steve Zachritz

If you missed the weekend wrap post, stop reading and click this link. Done? Ok, on with the show!

Oil Continues To Slip: June Crude fell every day last week, and now has its sites set firmly on $60. Sorry Phil Flynn - your $68, ten day target just wasn't meant to be. Nor was the flip back to the normal Brent discount to WTI (that'll take months [not]. The fact that WTI is an inconsequential scrap of production and that we need to find a different standard -- a world oil price -- is an entirely different matter. But that's ok, I'm sure CNBC won't mention it and will get you in front of a camera to defend oil before it falls to far.

OPEC Watch: Cheating. April production was up 50,000 bopd (0.2%) for the OPEC 12 to 30 mm bopd according to Bloomberg. I've been waiting for a retrenchment in Teekay Shipping Corp. (NYSE:TK) since I sold my calls over the second half of April. Between incremental supplies from Nigeria and cheating on the part of the other OPEC countries "bound" by quotas, the tanker routes are going to be increasingly crowded.

Nigeria Watch: More of the same. More kidnappings over the weekend including a British worker off a Transocean Inc. (NYSE:RIG) rig, 12 workers at a power plant in the delta, and a protest that shut down a Chevron (NYSE:CVX) flow station which feeds a 160,000 bopd export terminal. Meanwhile Addax Petroleum Development Nigeria, by employing predominantly domestic workers, gingerly sidesteps most of the hubbub here (and the stock continues to edge higher but still remains woefully undervalued).

Even RBOB is slipping (down another two cents) in pre-market trading this morning. I'm sticking to my prediction of an earlier than normal peak in gasoline this year as we've come "too far, too fast" for the fundamentals.

Natural Gas: Remains lofty. Yes we have a lot it in storage. Yes production is rising not only in Tx, Wy, Ok and in places not conventionally normally known for their gassiness, but also in the Gulf of Mexico (I'd add with the benefit of a fairly lofty gas rig count). But then you've got an expected decline in Canadian gas imports and another increase in volumes sent south of the border to feed gas-fired generators in Mexico. These two will likely offset the expected surge in LNG imports this year (maybe doubling it). However, industrial demand, in the form of ethanol and fertilizer consumption might tick up a bit this year, so, relative to recent years, the supply demand balance should be tightening. I'll be doing an update piece on natural gas soon and will let you know.

"Every time I Think I'm Out ...They Pull Me Back In." -- Another item supporting gas is that everyone (every one with money on the line that is) believes gas will fall as evidenced by the record short position amongst speculators. Each time gas has started to correct over the past two weeks it has been met with fervent buying (short covering?). See my latest thougts on gas storage here

Earnings Watch:

  • Monday, May 7: Bois D'Arc Energy Inc. (NASDAQ:BDE), Comstock Resources Inc. (NYSE:CRK), Forest Oil Corp. (NYSE:FST)
  • Tuesday, May 8: Atwood Oceanics Inc. (NYSE:ATW), Bill Barrett Corp. (NYSE:BBG), Bronco Drilling Company Inc. (NASDAQ:BRNC), Holly Corp. (HOC), Parker Drilling Company (NYSE:PKD), Stone Energy Corp. (NYSE:SGY),
  • Wednesday, May 9: Carrizo Oil & Gas Inc. (NASDAQ:CRZO), Frontier Oil Corp. (NYSE:FTO), Goodrich Petroleum Corp. (GDP), Pacific Ethanol Inc. (NASDAQ:PEIX),
  • Thursday, May 10: Petrohawk Energy Corp. (NYSE:HK)
  • Friday, May 11: Petroleo Brasileiro S.A. (NYSE:PBR)

Analyst Watch: Delta Petroleum Corp. (DPTR) picked up as a Buy at Deutsche. Transocean Inc. (RIG) downgraded to neutral at AG Edwards. Chesapeake Energy Corp. (NYSE:CHK) price target increased from $35 to $38 at Calyon who rates the stock "Add" (who along with a lot of analysts are missing the boat here). Add, because you think it's worth $2.50 more than you did Friday when it was $1+ over your target? If you're not going to keep up with your price targets, don't bother.

How Soon Our Memory Fades Watch: Berkshire Hathaway Inc. (NYSE:BRK.A) has cut its exposure to hurricane losses by half this year due to falling catastrophe reinsurance prices.

BPI Energy (BPG) Misses The Mark At Shelby Pilot. That's ok -- it's good news if you didn't get in when I first wrote up this little gem back in early April. BPG will continue to monitor one of its pilot CBM projects that so far has shown lower coal thickness and gas content than its other core plays in the Illinois Basin. The pilot represents a fraction of the company's acreage, and if the news knocks the stock for a loop, I'll be looking at taking a toehold here. Remember that management and science here are world class and their decision to delay expending capital on what may be a marginal pilot speaks volumes about discipline/forward thinking.