Monday, May 31, 2010

Itz Weekend Market Review

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The best hope for stopping the flow of oil from the blown-out well at the bottom of the Gulf of Mexico has been compared to hitting a target the size of a dinner plate more than two miles into the earth, and is anything but a sure bet on the first attempt. >>READ MORE
Crude oil prices declined slightly but oil drillers and service companies imploded on the six-month moratorium mandated by the president, which will be shutting down 33 deepwater rigs operating in the gulf and putting a halt to new drilling permits for six months. President Obama's decision seems like an extreme over reaction and politically driven. As is most common with our government, it's a reactive and not proactive decision maker. One should question as to- why did this administration exempt BP's Gulf of Mexico drilling from an environmental impact study? >>READ

Deutsche Bank (DB) estimated a six month shutdown would reduce gulf oil production in 2011 by 160,000 to 200,000 barrels per day. Over 80% of gulf oil production comes from deepwater wells along with 46% of gulf gas production. Over the last 50 years there have been 50,686 wells drilled in the gulf. Through 2007 more than 16.8 billion barrels of oil and 173 trillion cubic feet of gas have been produced. Out of 50,686 wells the number of major spills are in the low single digits. There were 19 blowouts in the last 20 years and none produced a material spill. The biggest gulf spill came from the Pemex Ixtoc 1 in 160 feet of water in 1979. >>READ
On top of this NOAA said that this could prove to be one of the most active seasons on record. The predictions exceed the averages of 11 named storms, 6 hurricanes and 2 major hurricanes. 2005 was the record with 28 named storms.

Transocean's stock is down more than 30 percent since the Gulf oil spill. Waqar Syed, of Macquarie Research, tells CNBC whether investors can use this as an entry point.

From the trouble in the Gulf to Wall Street...the month of May ended with the worst S&P performance in May since 1962 with an 8% loss. For the week ahead, one can expect geopolitical events to weigh on markets. Weighing in will be several economic data points: The ISM report on Tuesday could be market negative if it falls below 59. The ADP report could be negative below 150,000 jobs. Traders will take positions ahead of Friday's Non-Farm Payroll report based on the numbers from the ADP report.

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