Energy Stock Trader: Friday Outlook

Includes: CHK, VLO
by: Steve Zachritz

A Brief Recap of Yesterday’s Action:

Oceaneering International Inc. (NYSE:OII): Great numbers, great conference call. EVERY ANALYST will be raising numbers for 2007. They’ve got to feel a lot better about bolstering their 2008 numbers as well based on the long-term favorable fundamentals set before this company. Stock closed up 7% on the day yesterday, and I’ll likely cash out of my position. I failed to sell my position near the top of the minute chart twice, and still hold my August $60 calls now bid $2.20 -- up 175% in two weeks.

This was also a perfect reason why we follow the adage “always sell the initial excitement.” I could have hit the bid at 9:35 for $2.20 and reloaded after stock holders took easy profits. Note to self: Get one more tattoo on the back of your trigger hand. SELL THE INITIAL EXCITEMENT!

At 9:02 ET I said:

Forgot to mention Chesapeake Energy Corp. (NYSE:CHK) reports after the close. I’m in longer-dated options there (Jan-08s), and I’d bet they have a very upbeat call. Don’t see a miss as likely. If you’re not in, the gas number may give you an opportunity to get in lower.

The Valero Energy Corp. (NYSE:VLO) trade: Nice contrasting move in the refining sector. VLO ended up 1.2%, while the smaller names traded lower for most of the day and many closed lower despite the second late day of DJIA rallying. Maybe, just maybe, my thesis is coalescing. Maybe the bathwater panic is over, and we’re looking at valuations and fundamentals. Puts remain in place on TSO, Frontier Oil Corp. (NYSE:FTO), and Western Refining Inc. (NYSE:WNR)

Gas Storage: 77 bcf. High to me, but generally in line with consensus. September gas tumbled a quarter to close at $6.10. The response was delayed if it was to storage, and I think it honestly had more to do with the continuation of relatively benign tropical forecasts than to the storage number (see more details on gas below).

Southwestern Energy Company (NYSE:SWN): Great Opening, Lousy Close: The stock has great fundamentals, monster growth, and a good hedge position -- but a strong morning rally was met with day-long selling as natural gas slid.

Earnings We Care About Today: (AKA Knock Cover Off Ball Day!)

See separate posts on CHK and EOG earnings.


  • CHK -- Added August $35s for an average of $0.77. Last bid $0.80. We also continue to hold the Jan 08 $37.50s.

Natural Gas Report Review: 77 bcf injection.

Storage as of July 27, 2007: 2,840 Bcf (updated August 2, 2007).

Max storage for this week in history: 2,775 Bcf (2006).

We are now 65 Bcf (2%) higher than year ago levels.

We are now 17% (422 Bcf) above the 5 year average which includes 2006’s record levels (see third chart below).

Looking Ahead:

My God… It’s Full Gas ~ Dave Bowman if he saw the projected gas storage levels which as you can see from the following table appear monolithically high.

Gas 03 08 2007

As you can see in the table, average injections from now through the end of the traditional injection season get us to “high” levels of storage. Even the minimum level of injections, which occurred last year and therefore in both the 3 and 10 year scenarios, gets us to a lofty 3.5 tcf which by historic standards is more than “full”.

The record short interest on the part of the non-commercials will be supportive of prices, but apparently only once covering is induced by either sharply lower injections or a storm.

Where we are now:

Gas summary graphs 03 08 2007

This week’s heat, the first real summer heat of the um, summer, should get injections down towards the half century mark, but it will need to last, and the long-range forecast at present remains mixed.

Weather Forecast 03 08 2007