Commodities are holding in strong but with the action in Europe this morning, despite the fact that those markets are near two year highs, it seems today will be a test of just how strong the hands are which have moved into the actual physical markets as well as the equity markets. Watching those stocks which have had big moves should be telling, and even more so with those who have moved on little to no news.
Commodity prices this morning are as follows:
Gold: $1691.60/ounce up by $4.60/ounce
Silver: $31.98/ounce up by $0.048/ounce
Oil: $95.27/barrel down by $0.29/barrel
RBOB Gas: $2.7895/gallon down by $0.0073/gallon
Natural Gas: $3.638/MMbtu up by $0.072/MMbtu
Oil & Natural Gas
CONSOL Energy (NYSE:CNX) had a very nice day Friday as the stock rose $1.29 (4.22%) to close at $31.88/share on volume of 7.4 million shares. This move can be attributed to the company's operations update (see press release here) whereby they announced a lot of positive news, with our concern being with the Utica results. Our readers will remember that the company has a 50:50 joint venture with Hess (NYSE:HES), where Hess is paying to run the show and ramp up production on a portion of the acreage and CONSOL operates the other acreage within the overall holdings. The companies have together drilled 8 wells to varying depths with four of those wells having been completed. Their first reported wells have encountered promising results with gas and oil being reported in very respectable amounts. Many of the wells are shut in for dissipation and/or awaiting for take-away infrastructure to be completed. For those invested in CONSOL and Hess for the Utica acreage, it might be a good idea to watch for the next update from CONSOL due out January 31st and listen to the subsequent conference call which will start at 10 AM EST that day.
While discussing the Utica this morning we want to address Gulfport (NASDAQ:GPOR) and our position in the company. As readers know we had a portion of our total position which was in options and Friday we exercised those options and currently hold those shares. Our net exposure on a share basis has not increased, however our exposure on a net cash invested basis has. We may need to adjust this moving forward and we would hope to be able to do so via the options market whereby we would be able to keep our same exposure level to the stock while lowering our capital level required to do so. We are still bullish of the company's outlook but we just wanted to warn readers about this possible disclosure in future articles ahead of time.
Oilfield Service Providers
Chart courtesy of Yahoo Finance.
The entire oilfield services sector took off Friday after Schlumberger (NYSE:SLB) reported earnings which were in-line with analysts' expectations and the company provided an upbeat outlook for the quarters ahead. The industry has had to adapt to the ever changing landscape within the oil and natural gas sector and in our opinion their business is probably past the bottoming phase and moving up. It seems obvious now, but our argument is that as exploration targets were adjusted to higher margin resources equipment and people had to be moved to make this transition but with natural gas drilling at a low and oil and NGL drilling at or near highs one has to believe that the exploration process has normalized and any uptick in natural gas prices would just be icing on the cake at this point. One thing which could slow down the industry as a whole would be dramatic changes to the current fracking rules which the Obama Administration has promised to revisit this term.
China is most certainly a double-edged sword these days and the fact of the matter is that they have far more Enrons operating there than anyone could imagine. Part of this is simply due to the boom times there, but a major cause is the fact that the government protects their own and has effectively made it quite difficult for the outside world to audit the numbers and the results from Chinese companies. This will be an ongoing issue as more companies seek to buy exposure to China in the years to come and risk that they are buying a fraudulent entity. In our opinion Caterpillar (NYSE:CAT) thought the risk was minimal and did their homework yet as is the case with the most complex frauds they are hard to detect. Investors were disappointed with this revelation and despite a solid quarter from Caterpillar the shares fell to around the $96/share level in after hours trading on Friday after the news broke. The cost will be about 1/8th of this year's profits and one could only hope that this serves as a warning signs to other large US and international firms as to the pitfalls in China. It would be even better if this nudged China in the direction of better oversight and more openness in regards to audits of Chinese firms.