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The Cyclone That Drowned The Desert 2007 Watch: If there's nothing going on of interest in your own hemisphere, hype a disturbance somewhere else.

The fact that it was blamed for the rally in natural gas yesterday is bizarre. A rally in oil is to be expected. It's now a Category 5, storm and 40 foot waves tend to cause problems with just about everything including shipping. Here's a very well written article outlining the potential impact on the regions production. The obvious plays here are the majors, and I like Apache Corp. (NYSE:APA) and new comer Continental Resources Inc. (NYSE:CLR) as quality names among the oily independents. If there's actual damage or pictures of wrecked tankers on CNBC, you should be able to throw a dart at the energy complex and win a daily prize of 2 to 3% (on the common). Even no damage will result in a small impact to U.S. imports (in about 6 weeks).

One last word on hurricane plays: I don't get attached, as selling into to these big up commodity moves is often the right move.

Call The Ball Watch: Petroquest Energy Inc. (NYSE:PQ). At 2:34 EST on the PSW site I wrote (pardon my grammar):

PQ up 8% to all-time-high. No news on the well I thought we'd know about 2 weeks ago. I'm be out of that name shortly and not just b/c I'm selling my positions. They've run so hard so fast they have to make the well to stay up here.

That was the top to within 5 minutes -- the stock sold off completely and ended down 1%.

After The Close (PQ) Watch: After the close PQ provided an operations update. Probably a net downer.

  • The company led with good results at it's third Woodford Shale well, although they're not of the caliber Newfield Exploration Co. (NYSE:NFX) has been seeing in the play, they are respectable.
  • Other wells listed as about to commence production in the PR were old news.
  • They then mentioned a dry hole at the Pelican 2 prospect -- (20,000 foot, 61 Bcfe gross unrisked reserve test for which they held 25% -- it was their biggest test of the year).
  • Finally they mention that the drilling still continues at the Atchafalaya prospect (also 61 Bcfe and 23% working interest).
  • As of the last conference call five weeks ago, Atchafalaya was a week from TD and Pelican 2 was five weeks out. Hmmm. Sounds like mechanical problems at Atchafalaya as they said it won't be logged this quarter. That's a very lengthy, very costly over run on one and other is dry. Yep, sounds like the stock could come under pressure early today.

Tankers In The GOM Watch: Shell, Vitol, and Koch have hired tankers to store oil in the Gulf. Some sources say the move is to give Gulf Coast refineries an alternate supply in case a storm comes ashore and cuts lines to the facilities. Maybe, but the facilities are likely to be damaged in that scenario, so demand would be unlikely to be very high from those facilities that are underwater. Other sources indicate the purpose is give oil a place to go since the facilities onshore are nearly full. That sounds pretty plausible.

Early Read On Oil Inventories (from the Bloomberg survey)

Crude -- estimated up 250,000 barrels. Doesn't really match up with the higher expectation for gasoline production implicit in the next paragraph.

Gasoline -- estimated up 1.6 million barrels. It's hard to get a handle with what's on line and what's going down right now. It appears that utilization will be up slightly in this week's report. The real wildcard will be demand, and I think it may be less wild than some are hoping for. More on that tomorrow.

Natural Gas Rallied Close To It's 2007 Highs. Gonu madness.

Imports -- Gross imports 1.4 Bcfgpd vs the prior week

o LNG dipped a bit to 2.8 Bcfgpd, down 0.5 from the prior week's 3.3 Bcfgpd. Obviously the drop has nothing to do with price, but almost certainly logistical in nature. Maybe the harbors were too crowed with pushy gasoline tankers. On a year-over-year basis, LNG still ran 0.6 Bcfgpd high.
o Canadian pipeline imports declined as well, falling 0.9 Bcfgpd from the prior week to 8.0 bcfgpd. Despite occasional fits of rising imports like the last two reports, this situation is only going to get worse.

Weather -- Heating Up

o Cooling Degree Days hit the high of the year at 44. Still nothing compared to summer, but it made many more AC units come on for the first time this year.
o Heating Degree Days fell to 6 from 20 in the prior week. Note to Al: this is far warmer than normal.

My estimate for the week: 90-95 Bcf. As such, it's more than likely that the y/y storage deficit falls from 8% to 7%.

Holdings Watch:

CALLS: Should have taken my own advice and punted PQ at the peak. Alas, I won't be slow to listen to myself next time.

Analyst Watch: CRZO raised to buy at SunTrust, Plains Exploration & Production Company (NYSE:PXP) cut to hold at Matrix, FBR raises price targets for the independent refiners.

AFRICOM Standup Watch: The U.S. Africa Command is preparing for stand up in sub-Saharan Africa in October 2007. It's old news, but many will say it's another recent chapter in the story of the U.S. going toe to toe with the Russians (Ruskies?) and Chinese for "strategic resources." Just another source of geopol tension supporting crude prices. A host country is still up in the air, as Algeria said no, but neighboring Morocco has offered itself up.

Source: Energy Stock Trader: Tuesday Outlook