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BP Bombshell Triggers Sell-Off After Hours

Tuesday, 15 Jun 2010 | 5:34 PM ET

In the aftermarket, shares of BP erased nearly all of Tuesday’s gains after Bank of America told its traders not to enter any trades with BP past June 2011.

According to Reuters, the directive didn't state a reason for the limit on longer-duration trades with the oil company.

A BofA spokesman declined comment.

As if that wasn't bad enough, also on Tuesday a team of U.S. scientists significantly increased estimates on the quantify of oil in Gulf.

The team said the "most likely flow rate of oil today'' ranges from 35,000 to 60,000 barrels per day.

That's a jump from last week's revision upward to 20,000 to 40,000 barrels per day.

Granted the news isn't good, but the traders often say that capitulation comes with a big swoosh. What should you make of these developments?

BP Credit Concerns
Discussing the Reuters report that BofA is ordering traders not to enter trades with BP, with Pavel Molchanov, Raymond James energy analyst.

Instant Insights with the Fast Money traders

The Reuters report is hardly bullish, muses Guy Adami. It just can’t be good.

Clearly Bank of America is seeing something, adds Karen Finerman. It’s not shocking but I agree, it just can’t be good.

If counter-party is going to be at risk, I can’t help but wonder if BP needs to go out and get a partner, speculates Joe Terranova.

I'm more concerned about the higher estimates. For every barrel of extra oil spilled BP’s criminal fine could increase between $1100 and $4300, explains Raymond James analyst Pavel Molchanov. If the oil spill volume doubles the company’s liability doubles with it. And the clean up costs goes up and the civil liability could go up.

What's the trade?

In the energy space I'd play nat gas or McDermott, counsels Guy Adami. But I’d stay away from BP.

I like Suncor and Occidental, says Joe Terranova.

Because liabilities are likely going up broadly, I’d stay away from smaller names in the space like Cobalt , Wipro and McMoRan Exploration , counsels Steve Grasso. Instead play the larger integrated names such as Exxon or Chevron .

I expect that the environment gets worse for BP, adds Gary Kaminksy. If you want to play BP at all I’d only do it with bonds at this point.

Using the Exxon Valedez as a model, the liability cost for BP could be as much as $100 billion, adds Brian Kelly. If you’re in the stock, I’d get out now.


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Trader disclosure: On June 15, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman and Finerman’s Firm owns (AAPL); Finerman’s Firm owns (BAC) stock and calls; Finerman and Finerman’s Firm own (BAC) preferred; Finerman and Finerman’s Firm owns (BBY); Finerman owns (BP) calls; Finerman and Finerman’s Firm owns (C); Finerman and Finerman’s Firm own (CVS); Finerman owns (GLW); Finerman (JPM); Finerman’s Firm owns (RIG); Finerman’s Firm owns (WMT); Finerman’s Firm is short (IJR); Finerman’s Firm is short (IWM); Finerman’s Firm is short (MOY); Finerman’s Firm is short (SPY); Terranova owns (IPSU), (BX), (PFE), (GMCR), (RSX), (TER), (AXP), (BMO), (BBY), (DIS), (XCO), (SWN), (GLD), (AAPL), (IPI), (SU), (V), (TEVA), (FXE), (FXB); Terranova owns UK Pounds; Terranova owns Euros; Terranova is short the US Dollar; Terranova owns S&P Futures; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Grasso owns (ABK), (BAC), (BGP), (C), (DYN), (JPM), (LPX), (NDAQ); Kelly owns (GLD); Kelly owns (GDXJ); Kelly owns (BP) puts; Kelly is short (GS)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (AMKR)
Virtus Investment Partners owns more than 1% of (IGE)
Virtus Investment Partners owns more than 1% of (DBV)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLV)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (DRYS)

For Steve Grasso
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

Dan Niles
Niles and Alpha One Capital own AAPL, BIDU, PWER, VECO, BMI, ITRI, AKAM, AMR & AAI
Niles and Alpha One Capital are short BBY, STD, BBVA, UBS

Scott Nations
Scott Nations owns (MSFT)


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