It was a strong week for the major oils and oil service sectors. E&P and the gassier names were tempered by a 5% drop in natural gas futures, as an even-smaller-than-expected storage injection failed to lift the slumping commodity. I know I sound like a broken record, but I think we’re nearer the bottom than the top on gas prices. We have been looking to get long and I think that opportunity is close at hand -- maybe in the next week or two as natural gas gets closer to $6.
Interoil Corp. (NYSE:IOC) -- Bought July $22.50 Calls for $2.15 Monday after a $44 to $19 drop in the stock struck me as too much over last weekend. Sold Thursday for $4.70 -- a 119% gain. The stock continued a bit of a rally after my sale, but close Friday off and against the direction of the group as people started to worry about the final drilling report at the Elk2 well which caused all the hubbub in the first place. Last bid of the week on those calls was $4.40, so I don’t feel too bad about the few hours they spent just over $5. I’ll be watching the stock for more news regarding the Elk2 well and will keep you posted and play accordingly.
Oceaneering International Inc. (NYSE:OII) -- Bought August $60s for $1.10 on Friday as the stock is breaking out of a short-term base to new all-time highs. Though not a pure “hurricane play,” they definitely would benefit in the event of one.
Petrohawk Energy Corp. (NYSE:HK) -- Bought the August $15s for $1.55. This is one of my three favorite gas shale plays and a good stock in general.
Tesoro Corp. (NYSE:TSO) -- I was faked out by Thursday’s oil report and added a small TSO July $57.50 put position for $.1.80 (last bid $1; a 44% hit in two days, ouch!). Though we got much bigger-than-expected product builds in oil, gasoline, and distillates, all rallied last week sending the refiners higher (despite the fact that cracks only treaded water -- I guess they were shedding a sigh of relief that prices didn’t tumble). I expect a reversal in the oil markets next week, and for this and my other refining puts to come back to life.
Open Positions (I’m biding my time until I see some a stabilized natural gas price and falling gasoline prices):
Recently Closed Positions:
Oil Service HOLDRs ETF (NYSEARCA:OIH) continues to rally. I’m still thinking a quick trip to 185 is in the cards.
So far Monday is a slow news day. I still think crude traders have a real mission to get $75, and are likely to look at any weakness today as a buying opportunity. Of course, since last week’s low-volume rally occurred without any substantive reasons, we may see a bit of strong profit taking early today.
Oil trading slightly lower after a three-year-old hostage was released in Nigeria. As in the 3-year-old daughter of a British worker. That’s pretty low even for MEND. Of course, three foreign oil workers were subsequently kidnapped, but that’s more of the norm than the exception over there.
Predictions of warmer than seasonably temps are likely to put a floor under natural gas this week, which at $6.45 appears to be holding up just above support levels in the $6.30s. We’re getting closer to that buying opportunity. Natural gas is up slightly this morning, but a sharp spike in temperatures and the not too distant heart of the Atlantic storm season could forestall and begin to reverse the recent decline in natural gas prices.
Heat Wave. 46 states reached 90+ on Sunday. Forecasters are calling for continued intense heat (above normal temps) out West with sporadic bouts of extreme heat in the majority of the country, especially the Northeast.
Last week was cooler than forecast; this week is expected to be very hot. According to Accuweather, oppressive heat is expected to grip the Northeast for the next several days. CDDs came in at 66 vs. 68 in the prior week and a forecast of 71. The CPC shows this week’s number jumping up to 85, the hottest of the year, and well above normal and year-ago levels.
Analyst Watch: First Solar Inc. (NASDAQ:FSLR) initiated as hold at Deutsche with a $90 target, while B of A lifted its price target there from $91 to $115. FBR had a busy weekend raising price targets on the “mini majors” Occidental Petroleum Corp. (NYSE:OXY), Murphy Oil Corp. (NYSE:MUR), Hess Corp. (NYSE:HES), and Marathon Oil Corp. (NYSE:MRO). FBR also cut Chesapeake Energy Corp. (NYSE:CHK) and Apache Corp. (NYSE:APA) to hold. Credit Suisse cut ENSCO International Inc. (NYSE:ESV) to hold and JP Morgan upgraded Weatherford International Inc. (NYSE:WFT) to neutral.
North Sea Watch: BP plc (NYSE:BP) may be forced to closed four North Sea oil fields with combined production of 75,000 bopd. The closure of the recently damaged CATS gas delivery system is to blame. No time line has been put forward for repair of pipeline, which was closed July 1 after being damaged by a ship’s anchor.
Hugo Watch: PDVSA sees a mini-strike. Workers walked off the job at three rigs in Venezuela on Friday as Chavez laid out plans to replace them with military troops with no oil and gas operation experience. I’ve said it before and I say it again: Chavez’s Venezuela is a model of how not to run an oil rich country.
Iran indicated production may fall 5% per annum without access to foreign. Comment: If you’d just learn to play nicely with the other children, you and your buddy Hugo wouldn’t have such problems.