Zman's Energy Week in Review (3/7/08)

1) Oil and the 12 month oil strip chalked up more record highs.

• OPEC Held Production Quotas Steady. Despite their better judgment, the Cartel maintained production at 29.67 mm bopd in the face of declining near term demand. Two weeks ago everyone thought they would be curtailing production…if they had we'd be at $115, not $105. OPEC reiterated their position that "its the speculators stupid" and not a question of inadequate supply that has driven oil to its current all time record levels. Click here to read my notes from the conference.

• Venezuela Invented A Flap with Columbia. Hugo Chavez, like a kid who doesn't get the difference between good attention and bad attention, took issue with Columbia this week after the killing of a rebel leader in Ecuador. It turns out the rebel group FARC has been a long time supporter of Hugo and he in turn of them. FARC is a hostage taking, drug smuggling, communist enabling bunch of thugs labeled terrorists by the U.S. and E.U. … so it should be no surprise they are Hugo's kind of guys. Columbia took out the second in command at FARC, this time within their own borders, on Friday.

• Nigeria Watch: Rumblings that more attacks are on the way and Nigeria levels 14 charges against MEND leader Henry Okah, some of which (treason) carry the death penalty.

2) Natural Gas Rig Count Jumped by 38 Rigs This Week. Many recent converts to natural gas bullishness have cited the flattening of the natural gas directed rig count over the last year. In fact, despite a large jump in the past week, gas directed rigs are still 9 rigs short of year ago levels (see the first and second graphs below). The bulls say that if this continues, flush production from the resource plays (primarily shales) that have driven this growth will fall off allowing storage to do the same or at least refill at a slow rate. Here's where they are either wrong or in some case deliberately omitting a simple fact. Large and small cap E&P's participating in these plays are finding increased efficiencies and better initial production from going horizontal. The number of rigs drilling horizontal in the Lower 48 has never been higher (see the third and fourth graphs below). Moreover, an increasing number of wells are being drilled with dual or multiple laterals and in general lateral lengths are increasing. While this has been found to be efficient from both an economic and a resource recovery potential perspective it does take longer to accomplish, hence the flattening of the gas directed rig count.

By the way, natural gas shorts crept up to another record for the week but were outpaced by the late comers, jumping onto the natural gas bandwagon. I feel we're closer to a top than many of the new entrants realize as supply is currently running well ahead of demand on a seasonally adjusted basis. See the Thursday night post here for an updated natural gas supply discussion.

3) Dry Bulk Rates Continue To Recover…

click to expand chart.

… But The Stocks Continue To Languish. Despite rising rates and recent higher priced charter signings, the dry bulk group under-performed even the broad markets last week. Something has gotta give here. More on that in Monday's post.

Stocks Written Up On ZEB This Week Watch:

(BZP) - Click here to see the first in a series of reviews/reports on this Houston based Peru-centric E&P.

HEMI - Check back on Sunday.

EVEP - ditto.

February Performance:

Comments

[Georealist]

Lots and lots of graphs and info..and USELESS. There is..and never has been...any geopoltical svvy or insight.There's no direction..just lots of...crap.

[CM in MA]

Zman, including links to information that requires a subscription without saying so isn't appreciated. I stopped reading your article when I encountered this and never went back to reading it.

[zman]

Greg Pinelli (Georealist).

I suggest that if you don't like my posts you don't read them. The occasional piece you see here is picked up by SeekingAlpha whenever I have post a free one. These people and hundreds more like them would seem to disagree with your assessment of my product as useless.

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I manage a 50 story office building in Houston and buy the electricity for it, which is based on the NG price. I like this site because it helps give me a feel for whats going on day to day. I am close to buying the rest of 2008, but interested what the opinions on how low this NG price can go. Thanx

--Dave J

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Zmann,

Love the site, I read it before bloomberg etop.
—Matt (President MB Explore)

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Zman’s Energy Brain offers interesting insight to the energy complex (I have added the blog to the blogs I read page)

—The Kirk Report

www.thekirkreport.com /

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Thanks for all your work. Have found it very useful in trading nat gas

futures. Looks like we will have highs in the mid 30’s here in Mn next

week, Feb 19th.

—Chris L.

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zman - I just want to second John’s comments. You are very much appreciated by myself and I’m sure many others - probably all others. I’m amazed at your knowledge and insights into the oil market and put a lot of weight on your analysis and calls - particularly when you and Phil are on the same page. Have to admit some of it is still gives me a bit of a headache trying to understand it all, but I’m getting a good education - and actually made some decent money today on my XOM puts! —Bill P.

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I am a retired army lieutenant colonel playing petro and gold a bit, and this is the best source of info i have come across, and i have looked around quite a lot, including flynn, energy intelligence newsletter, etc. keep up the good work, and know that we value your thoughts, however riddled with self doubt you may become, at times, as we all do. god bless. — Robert
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Zman….enjoy and appreciate your hard work. As “janitor emeritus” of the Natural Gas Traders Hall of Fame, I have mentioned your blog to our energy group. We are trying to dumb-down energy trading from black-box alchemy back to fundamentals. Your site is an excellent resource and we hope that all your fills are complete! --Randy Brown

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Thanks. Just made 500%+ on “your” CHK. ~ Irished