Bill Cara’s Blog for June 16, 2010 [See post-close report]

Last night President Obama addressed the nation. I suppose this was to ease concerns about the gulf oil mess. I actually felt pity for him. I saw a man who has accepted responsibility far beyond his experience and capability.

What I thought as I watched him looking straight at me saying, "We're going to do whatever it takes." (paraphrased) was:

When you were in the Senate representing my state of Illinois you set a record for the number of "Present!" votes. Then you were but one percent of the decision process. You could hide in the crowd and avoid making a call which could come back to bite you.

You pushed your way to the top slot with grand promises and little competition.

Now promises like, "We're going to do whatever it takes." have a hollow ring. The time to have done the "whatever" is long passed.

A few weeks ago you said, "I take full responsibility." But mostly you have passed the buck and looked for "whose ass to kick."

I'm a bit too late, but be careful what you wish for seems appropriate.

Leadership is about making the tough calls in a timely fashion. It's about protecting the nation and the people — not shoving your ideas at them for "their own good."

The Declaration of Independence concludes with these words, "...we mutually pledge to each other our Lives, our fortunes. and our sacred Honor."

Do the honorable thing, Mr. President and don't run for another term. The nation can't take it.

Bev and Bill.... since estimates put ' algo trading ' at about 70% of daily activity now, thought this might wake a few of us up this am !! ( and not all is in jest ...).. http://www.imdb.com/video/screenplay/vi2710044953/

managing money, trading, and investing is a business. After several years I have found the biggest enemy is emotion. Everyone wants immediate results and unfortunately thats the biggest problem with people and money. Being patient having cash and waiting for opportunities to come to you is difficult at times. Thats really what separates the good from the bad. When the financial crisis hit I watched Warren Buffett lend money to entities at ridiculous interest rates. Why, because he was liquid. Stay liquid and relax. Its worth the wait

George,

Don't presume by a lack of response that your posts fall completely on deaf ears. I recall your comments and that I read them respectfully, but as I had nothing of value to add, mulled it over in silence. Your comments did actually resonate with my similar concern that there was a little too much negativity, (I have a loose notion that if there's 70-80% similarity of opinion on the site, then it's probably right; but if there's >90%, then it's probably wrong - 'cause the market won't ever be that obvious!).

There are indeed times when some people seem to go off on tangents, but I think that's inherent in a blog and I would suggest that attempts to stifle that can tend to stifle valuable contribution as well, so maybe some latitude and tolerance is appropriate.

As to your comments on possible BP scenarios, there're so many variables at play, (spill rate, currents, weather, not to mention our limited understanding of species interdependency and therefore the environmental fallout), it's a guesstimate at best to suggest what the ultimate cleanup costs will be. Ergo, it's a crap-shoot to try and figure out what kind of price is reasonable for BP shares. If you make money, good on you, (and maybe you can make a donation to an environmental charity with some of it). I'm just saying I'm inclined to think luck will have more to do with success on that one than will clever calculation.

I look forward to hearing more of your thoughts!

It has been done before, in Russia. It worked very well. The explosion crushed the surrounding rock leaving it to plug the hole. The heat created a permanent seal.

The shape of the solution must fit the shape of the problem. In this case the shape of the problem is "extreme." The solution then must also be extreme.

AAPL - price target raised at Piper Jaffray to $348 from $330. Maintain Buy.

BBY - price target sunk at Credit Suisse. BBY shares now seen reaching $48, down from $56, on weak comparable store sales. BBY has most promise relative to its competition, but every few quarters the stock get derailed by some negative surprise. Outperform rating.

Yeah, manx cats are an interesting breed - but, hopefully I'm more like the human occupants of the island than the feline! :)
Daphne? Am I not clueing in because I'm Canadian? (Don't read too much into that besides my tendency to focus on the TSX!)

Surely this bomb stuff is tongue in cheek.

It's not, George.

See http://tinyurl.com/28mzwv3

for a Lawrence Livermore report on "The Soviet Program for Peaceful Uses of Nuclear Explosions".

good trading,

kp84

kp84, that was a wonderful document. Thank you.

It seems that most of the people here have never heard of a small yield nuclear explosion. The real advantage of the explosion is that the heat will fuse the rock that was pulverized in the explosion.

The Soviet Union used that technology sevearal times. The one that was most similar to the problem in the gulf was a natural gas leak that couldn't be stopped after two years of trying. After the explosion it continued to burn for about 15 minutes,until the fuel in the line was used up. It was totally sucessful.

Does anyone know who the regulators are for the oil industry? I'm referring to the ones responsible for looking over the oil spill? I'm curious to see what kind of financial backing they have gotten from oil companies over the years.

IT's George.
Want to congratulate you on your Evelyn Wood speed reading ability. Digesting a 99 page reasonably technical document in less than 30 minutes is quite a feat. Remember Chernoble.

Hey guys,

The whole floor of the gulf is crisscrossed with natural fracture lines. A nuclear device would stress these fracture lines to a very unpredictable degree. The repercusions (earthquakes, fault shifts) could travel vast distances, including inland into our nation, with potential harmful impact to several of our major cities.

In addition to the fracture issues, a potential tsunami has also been discussed; Two scenarios here. The first scenario is based on "leaked" information indicating that a massive pressure bubble is building up beneath the leak... not a single leak by the way as additional sites of seepage have been located up miles away from original well-head. Imagine an aneurysm of sorts that bursts as the floor bed is weakened by the sand-blasting effects of high pressure flow through geological cracks. The sudden release of this pressure upwards through the atmosphere would generate a wave powerful enough to reach 10s of miles inland. This would devastate habitation and agriculture. Contingency plans exist for the evacuation of millions upon millions of US citizenry in this region... and after watching Katrina, we all know how well that is likely to come off.

The second tsunami scenario involves the eventual diminishment of pressure, as, over time, the liquids and gasses equalize. This would allow relatively cold seawater to seep back down into the fracture where it would ultimately encounter elevated geothermal temperatures. The seawater is super-heated into steam and the steam rushes up creating a massive displacement of seawater, again inland.

The problem is that the pressures represented in this well had are several times greater than what our engineers are able to model. As I understand, typical head pressures are 18k psi. This head is estimated to be 100k psi. The Russians are the only people on the planet to have developed drilling techniques to approach extreme pressure well heads. They pursued deep drilling techniques on the theory that oil was abiotic in nature and therefore would be found at depths beyond what would be biologically and geophysically feasible given the organic model. This was a few decades ago and, of course, they found oil. But even these guys only utilize these techniques inland... they wouldnt tempt tapping these pressures a mile underwater.

The nuclear option may be a red herring anyway. Contrary to popular belief, and against national security policy to disclose, the magnitude of a nuclear explosion will be directly related to its location of detonation. Read that again; location has direct effect on explosion size and viability. You cant just set off a multi-kiloton explosion anywhere. For full effect, it must be detonated at very precise, predictable positions on the planet based on a very elaborate geo-magnetic grid system. On top of location, the time of the detonation must be perfectly calculated to achieve maximum effect.

I could go on, but you guys are probably bored or lost by now.

THERE ARE TECHNOLOGIES THAT CAN BE USED. The russians have them, the chinese have them and the US has them. But to use them would be a breach of "policy" because it would let the whole world know what has systematically and criminally been withheld from mankind. THIS ELITISM HAS GOT TO STOP! The ramifications of what is going on in the gulf are currently being covered up and repressed in the media by our government and by BP. ALready we have vast areas of agriculture in the area dying from poisoned rains. What doesnt die, you are not going to want to eat anyway.... elevated toxins.

Should this catastrophe be permitted to continue, the quibbling over the value of BP's stocks will seem very, very, very, juvenile and ignorant to the generations beyond ours who will have to live with the repercussions.

I would beseech each of you to reiterate vociferously to our elected officials that EVERY technology at mankind's disposal needs to be considered... not just those technologies acknowledged by the masses!

I got up this morning knowing I am out of the market, thinking I need to hit the mouse to refresh. Time clocks and seasons all take their toll, but the last two months or so seem to have been more than a toil mentally. Bad negative full moon harmonics slow the alpha waves dude, Europe, Gulf, and other negative waves lack positive momentum in the spirit relm, hell, even the sun is losing luster. Time to contemplate the navel of the market, refresh the chi and smooth on later. I am going to observe tomorrow and see what next week brings after options expire.

Crude shakes off bad report and futures blast higher:
Oil inventories up 1.7Mb, gasoline down 700K and distillates up 1.8Mb

SPY has shaken off everything that can be dumped on it.
Nasdaq 100 futures took out their high of yesterday at 11:00am EST

BP is moving up towards it's high for the day.

"The problem is that the pressures represented in this well had are several times greater than what our engineers are able to model. As I understand, typical head pressures are 18k psi. This head is estimated to be 100k psi."

SAY WHAT??? I am a petroleum engineer by degree. Typical shut in well head pressures especially in oil wells are well below 5000 psi. A geo pressured gas well completion will be much higher and when I was with Shell Oil we had a few in Mississippi at the time just under 20,000 psi.

As for the BP well MC252 the well head pressure is [at the BOPs] only 3500 psi [est]. Bottom hole pressure is estimated at only 9000 psi.

http://markimoore.com/pressure-data-mc252-wellhead/

I am not an oil engineer... I certainly defer to your expertise... I am looking back through files to find the quote referencing this pressure point. It may very well be an inadvertant statement on my part confusing "head pressure" with a deeper source pressure. Regardless, the estimates of pressure within this pocket of crazy horse are in the range of 100k. We are being told the depth of this well was 18k feet, with a max permit depth of close to 30k feet. Someone leaked actually depth closer to 50k feet.

For a nuclear warhead... they (BP, Govt, ???) will have to drill another well and then place the warhead inside the well. If the well needs to be present for the nuclear option, then a traditional relief well (think Ixtoc) will be a much less risky option... either way we are in for a long summer for another one/two well(s) to be drilled

Sounds like everyone needs a holiday!

http://www.youtube.com/watch?v=q-KZdKvHoXs

"When life sucks, things always look better in the Sun" :)

2nd_ave,

You wrote 'Maybe if we all stop playing, they'll be stuck with black boxes competing against each other, and we can watch from the sidelines rooting for our favorite algo. Much more fun'

But the problem isn't that THEY are launching Black Boxes to do the trading - the problem is that they are using our taxpayer money to do it. Even worse, they always write off the costs of doing business, their own bonuses etc. regardless of how their bots fare in the casino.

The solution is that we must try to stop them trading - at least with our money. Anyone ever ask why the 'financial industry' is 15%+ of the US GDP from less than half that a decade or so ago?

March 27 press conference CNN

QUESTION:

First of all, Elizabeth Birnbaum resigned today. Did she resign? Was she fired? Was she forced out? And if so, why? And should other heads roll as we go on here?

Secondly, with regard to the Minerals Management Service, Secretary Salazar yesterday basically blamed the Bush administration for the cozy relationship there. And you seemed to suggest that when you spoke in the Rose Garden a few weeks ago when you said for too long, a decade or more -- most of those years, of course, the Bush administration -- there's been a cozy relationship between the oil companies and the federal agency that permits them to drill.

But you knew as soon as you came in, and Secretary Salazar did, about this cozy relationship, but you continued to give permits, some of them under questionable circumstances. Is it fair to blame the Bush administration? Don't you deserve some of that?

OBAMA:

Well, let me just make the point that I made earlier, which is Salazar came in and started cleaning house. But the culture had not fully changed in MMS. And absolutely, I take responsibility for that. There wasn't sufficient urgency in terms of the pace of how those changes needed to take place.

There's no evidence that some of the corrupt practices that have taken place earlier took place under the current administration's watch. But a culture in which oil companies were able to get what they wanted without sufficient oversight and regulation, that was a real problem. Some of it was constraints of the laws I just mentioned, but we should have busted through those constraints.

Now, with respect to Elizabeth Birnbaum, I found out about her resignation today. Ken Salazar has been in testimony throughout the day, so I don't know the circumstances in which this occurred.

I can tell you what I've said to Ken Salazar, which is that we have to make sure, if we are going forward with domestic oil production, that the federal agency charged with overseeing its safety and security is operating at the highest level. And I want people in there who are operating at the highest level and aren't making excuses when things break down but are intent on fixing them. And I have confidence that Ken Salazar can do that.

June 15 AP story:

Obama appoints Michael Bromwich to head the MMS.

Very good idea. With the Tsunami following the explosion you can spread the oil far beyond the coast.

Nah, couldn't get past the first page of the first chapter, in which Soviet reps. say that nukes can be used to move mountains and divert rivers.

The idea of a low yield nuclear device even being considered for the Gulf is a bit repulsive.
I merely wanted to point out the document I think is the basis for all the chatter on nukes.

Let us hope that the drilling started in early May by the drillship DDIII on relief well #1 is successful.

FD: not an engineer/not a BP holder.

We haven't had 3 up days in a row on $spx since the series ending April 16.
As the market isn't closed yet, we have a string of one as yesterday was up.
Maybe this is the week for 3 or 4 even with witching day Friday.

I guess the bull market is back!

http://nyti.ms/bbFChI

Depending on the mix of $199 or $299 units, that is a pre sold revenue of $119.4M - $179.4M.

Talk about melt up.

$TRAN stalled out at 50 day line after a number of extremely positive days.

$20 B fund for damages and claims:

$16 B administration and overhead

$ 4 B claims and damages

$20 billion is sufficient to get Obama past the November elections and to remove BP from the bad publicity related to claim denials. There will be many claims that are denied, particularly those related to the lost value of real estate.

Smart move by BP. The story has peaked even though the damage continues. The American Public is ready for the next crisis. Move along please.

No kidding. Anyone even remembers about Toyota now? We crunch through two-letter crises faster than a squirrel through peanuts - TM, GS, BP...

All;

Another credible source of information on well pressures, etc supporting bev's comments.

http://www.theoildrum.com/node/6609#more

S&P numbers appear off. I thought I missed a big day when I saw 920. :)

The article is making assumptions... First it is based on an unruptured well... We have documentation of oil plumes emerging from the ocean floor up to 20 miles away from the well head. Secondly, it estimates a total flow of oil at the well head of 80k barrels per day. And comments attached indicate an estimate daily seepage of 60k. The official estimate as of 5:30 national news... 2.5 million gallons (an exxon valdez every 4 days). My statements, and insider estimates stand quite clearly given facts on the ground.

correction: 2.5million gallons (not 2.5mill barrels) = 80k barrels per day.. my mistake, but he is still only calculating flow at the original well head.

British Petroleum plc CEO: Gulf spill is a "complex accident"; Need further study to fully understand the cause (comments ahead of tomorrow's Congress testimony)
- Company deserves to be "judged by response".
- Company continues to use subsea dispersants.
- Early review of accident suggest fault with process, system, and equiment

8:57:34 PM
British Petroleum plc Director of the environmental law program at Harvard Law School Jody Freeman: BP may be forced into bankruptcy protection under threat of "avalanche of litigation" - Times
- Says the govt boosting its leak estimate to 35-60K BPD was potentially "devastating" to company, since it is liable to pay $1.1-4.3K per barrell spilled in restitution (implies $38.5-258M/day). Figure excludes Clean Water Act violation penalties and $20B compensation fund set aside for those affected by the spill in the Gulf.

... http://www.energylegalblog.com/archives/2010/06/15/2860?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EnergyLegalBlog+(Energy+Legal+Blog)&utm_content=Google+Reader

Natty had a big drop today and I’m not sure why. I was busy doing other things so I didn’t get a chance to go through my daily reports. I did see that Henry Hub cash was trading over the Jul10 futures. For those of you not familiar with the natty cash market, each business day, producers, utilities and marketing companies trade their physical natural gas positions for the next day’s gas flow. Most of the trading takes place between 7:00 AM CT through 9:30 AM CT but I think the official prices used for gas daily are from 6:00 AM CT through 11:30 AM CT. Usually the only time you see a lot of volume trading that late is when there is a big move in the screen or the weather is significantly different than what was forecasted. So today we traded “cash” for tomorrow’s gas day. There are also lots of intraday trades (trades executed today for today’s gas flow) taking place too. When you look at the natural gas prices on the internet, such as Bloomberg’s website, the Henry Hub Spot price is the weighted average cash price that traded this morning and the Nymex Henry Hub future price is the last trade for prompt month on a 15 min delay. I once tracked the Henry Hub weighted average cash price by taking a snapshot of the price every 15 to 20 min from 7:00 AM until 10:30 AM for a week and I found out that the price is pretty much set (within a couple of cents) by 9:00 AM.

Some of you know a lot more about this than I do but many don’t so I hope you find this useful. On the blog tobyt mentioned selling the Jun 40 strike puts on RIG on June 2. I read that, liked the idea and did it. I sold on June 2 @ $1.31 and bought them back on June 15 @ $.14. I thought about letting them expire but I have several other positions open and I wanted to start closing some of them out. Thanks tobyt!!!

The first chart is the Jul10 Natty contract with all of my support and resistance lines along with the natty continuous contract and UNG. I missed buying UNG on the natty rally above my resistance line of $4.58 and I have no interest in chasing it here. I might be interested if natty falls and bounces off the $4.58 line but I would probably buy UNG with a $.10 to $.15 stop. I’m becoming more bearish on natty and I’d be more interested in shorting if natty trades up to the $5.45 to $5.60 level.

The second chart shows the natty calendar strips for 2011 through 2013 followed by the natty continuous chart. No rally here but maybe some good consolidating. I’ve started going through some of the energy presentations presented at the LDC Forum in Boston and Bentek’s BENPOSIUM over the last couple of weeks and from my initial read it sounds like producers do make money at these price levels. For now I’m watching the EIA storage reports that come out every Thursday along with the rig counts that come out every Friday. This BP well has turned the whole industry upside down. As if things weren’t already hard enough to figure out. What a mess.

FWIW

IMHO. Natty went down today for the same reason it went up on Tuesday. Oboma's speech!
Gas had a run on Tuesday in anticipation of the mention of NAT gas in the speech. No mention last night it faded back to Mondays levels.
Bob

WOW!

I have been thinking this to be underplayed by all in the know and the media simply parroting as usual — but if accurate, your assessment will NEVER be admitted — simply discovered over a long period so blame will never be really assigned.

Already Congress and those who were assigned oversight and enforcement have managed to divert attention to minor issues. (I have heard BP had over 700 violations prior to this catastrophe.)

If Bush were in office we would be told to go shopping, Obama is looking for someone's "ass to kick", and God can take the rap to additional weather conditions.

Back to political "business as usual".

Bill said: "I believe that there is a strong possibility that the risk of a catastrophe from this well was so great that BP CEO Tony Hayward rushed to sell over $10 million in personal stockholdings in BP a few weeks before the well finally blew up..."

and here I thought that was coincidence. Any evidence that they were covering there butts weeks in advance and adios CEO BP...

1. That means Mexico is stuffed - short those Mexican airport stocks.
2. BP is a dead duck. Just be careful of the squeezes its now showing itself capable of
3. Whatever hotel chains are big in Florida are dead ducks. Real estate will take a hit.
4. Domestically sourced seafood companies of lobster, crab, fish take a hit

$150B seems like chump change when you think of all the economic linkage to tainted water.

Companies like Clean Harbours (CLH) are setting up breakout patterns which are worth watching. A manifest change in economic activity for a substantial part of a regional economy.

http://markimoore.com/mc252-reservoir-pressure-and...