Fed Up Friday: Green Day in the Offing

Green day in the offing:

1. Resolution Trust style fix is in the works to buy mortgage backed securities and de-leverage the financial institutions. 
2. Treasury to guarantee money market funds, This is essentially designed to forestall a "run on the bank" that we saw the beginnings of yesterday after one fund "broke the buck" earlier this week. Press conference at 10 EST.
3. The SEC has placed a temporary ban of short selling of 799 financial institutions through October 2. The SEC is also looking into bringing back the uptick rule and forcing institutions to verify that securities have indeed been borrowed prior to selling short (to eliminate naked shorting).  The short’s life is getting more difficult. See a list of energy sector short interest below.

Some impacts of the above include:

• sharply rising index futures and world stock markets (Russia closed up 20% yesterday…maybe they should only be open 1 day a week),
  
  
• falling gold (it’s now being dumped as a source of funds for re-entry into the equity markets),
  
  
• rising financial sector stocks across the board (duh) as the biggest short squeeze in the history of market kind begins,
  
  
• a jump in the dollar as the yen which had been seen as the "safe currency" over the last few days is now abandoned,
  
  
• higher oil (hmmm, that must be geo-political given the dollar move and oh yes, the fact that oil has fallen out of bed and perhaps the moves taken by the Fed/Treasury/Congress overnight will lead to an ecnomic recovery (don’t laugh) over the medium horizon which would mean "demand construction".
  
  
• Oil also may be up due to the anemic energy bill being touted in the halls of Congress which will do little to get the U.S. "off foreign oil" but will serve as talking point for Congressional leaders on the Sunday morning shows.
  
  
• Finally, energy stocks are trading higher as well. Not as much as the financials but hey, its still ok to short our group and if you look at the attitude of Congress even encouraged. Keep it up Nancy and you’ll be a) walking and b) in the dark (ok more in the dark). As she said earlier this week, there is incentive to drill if oil is over $35…she just didn’t say where (Saudi, Iran etc).

In Today’s Post:

1. Holdings Watch
2. Commodity Watch
3. Stocks We Care About Today
4. Natural Gas Weekly Storage Review
5. Odds & Ends

Holdings Watch: The Wiki Holdings tab is updated

• ProShares Ultra Oil & Gas (DIG) - Exited the DIG $66 September Calls (DHBIN) for $3, up 58%.
• Petrohawk (HK) - Added the HK $22.50 September Calls (HKIX) for $0.50.

Commodity Watch:

Crude oil rose $0.72 to close at $97.88. Early in the day crude topped $101 briefly but could not hold onto the century mark as the dollar began to rally. This morning oil is rising back above $100 as Shell indicates earnings are going to take a hit after further hostilities in the past week.

• Nigeria Watch: Nigeria claims up to 150,000 bopd have been shuttered by renewed hostilities with MEND in the last 6 days. MEND claimed to have blown up another pipeline (Cawthorne Channel) in the Rivers state on Thursday, a claim operator Shell has not yet confirmed. 
• Refinery Watch: Exxon is on the tape saying its 349,000 bopd Beaumont, Tx refinery sustained "some water damage". You heard it here first on Sunday (thanks Bleemus!). And I quote:

Friend who works at XOM Beaumont refinery said “was under 8 feet of salt water, probably be shut down for months”.~ Bleemus

This is a big refinery and these kind of things can skew products vs crude in the region and beyond through completion of repairs because despite all the slack demand (and moreover, all the talk of slack of demand), capacity for refined products remains extremely tight in the U.S.. No details for repair and restart were available at the time of posting.

Natural Gas fell $0.29 to close at $7.62 after the EIA reported a bigger than expected injection to gas storage. I have been thinking gas is trying to bottom out in the $7.00 to $7.50 level. After a couple of days of flight to commodities due to financial market fears gas had run too far for the fundamental/sentiment related weight that burdens it at the present time. See the storage review below.

Ike Damage Update and Impact:

• 49 platforms destroyed…still does not add up to a lot of production (13,000 bopd and 84 MMcfgpd)
• Still Shuttered Production as of Wednesday
  • Oil: 93% shuttered
  • Gas: 78% shuttered 

Stuff We Care About Today:

PQ Announces Minimal Ike Impact. (PQ) announced a minor amount of damage to one platform and indicated that 2/3rds of its offshore production is offline and the timing of reestablishing production will be contingent upon the ability of third parties (pipelines and processing) to get back in business. You are going to see a lot of Gulf Coast players miss top line and  volume numbers by a small amount in the third quarter and my sense is that the producers will be granted a "get out of jail free" pass for this meaning the Street generally does not hold the storm related miss against the stocks unless it has ongoing impacts.

Short Squeeze? Just a quick list of short interest in the energy sectors:

Natural Gas Storage Report Review: In a nutshell, the EIA reported an injection of 65 Bcf, I was at 67 and the Street was at 61 Bcf. Gas did not like the number however I think gas storage levels will take a backseat to fears of a gas glut and then winter weather in coming weeks so that even better than expected numbers will likely be met with a muted price response.

As you can see from the following table, average injections from current storage levels to the end of the traditional storage season would yield peak storage of 3.3 Tcf (trillion cubic feet) which would be somewhat bullish. Add one or two Bcfgpd due to the higher production to reflect the incremental YoY net change in supply and you can see peak storage gets to 3.4 Tcf using the average number and 3.5 Tcf if we see maximum historic injections plus another 2 Bcfgpd. 3.5 Tcf would definitely put a cap on prices until we see some extreme cold take an extended stay in gthe U.S.

Odds & Ends

Analyst Watch: (SD) started at UBS at Buy, (MUR) upped to Neutral at UBS.

Comments

[Ozarker:]

I especially like the long term gas storage graph. It has illuminated my day and told me exactly what I need to know. Not!

2008 Sep 19 10:16 AM

[john s. gordon:]

yes must reinstitute the uptick rule asap.
> jack

2008 Sep 20 09:17 AM

[An Investor:]

OZARKER .... See the little squiggly lines. Well, you buy at the bottom of one of those dudes and sell at the top, OK. Geez, what I have to go through somedays.

2008 Sep 20 03:52 PM

[Greg Pinelli:]

As usual..a day late and a dollar short..The Treasury bailout will yield DECREASED gold prices??? The dollar will rise...? Amazing..it's hard to believe tinkerbelle is even read....

2008 Sep 21 09:27 PM