We have seen both natural gas and gasoline head lower in recent trading sessions and although this is bad news for commodity investors in the short-term, it might very well be good news in the long-term. Our concerns regarding gasoline have been well documented in our morning commentary and with prices falling back towards the $3/gallon level the U.S. consumer finds extra disposable income to spend on restaurants, retail and other discretionary items. The same goes with lower natural gas prices as the consumer benefits from lower utility bills.
So yes, in the short-term commodity investors are taking one on the chin, but as those savings get spent elsewhere in the economy it shall create further demand and gradually increase prices over the long haul...although one does have to be a bit careful making that assumption about natural gas with new dry gas coming online as a by-product of liquids and oil production from shale plays. And that might be reason enough to go bearish the U.S. Natural Gas Fund (UNG) once again.
Chart of the Day:
Commodity prices this morning are as follows:
- Gold: $1318.60/ounce, down by $6.20/ounce
- Silver: $19.59/ounce, down by $0.09/ounce
- Oil: $103.30/barrel, up by $0.22/barrel
- RBOB Gas: $2.9851/gallon, down by $0.0334/gallon
- Natural Gas: $3.449/MMbtu, up by $0.017/MMbtu
- Copper: $3.0705/pound, up by $0.0285/pound
- Platinum: $1433.50/ounce, down by $4.00/ounce
Yesterday was a very interesting day among the potash names, and fertilizer names in general. Shares were hit hard across the board early on and then we saw buyers emerge and push prices higher. Potash Corporation of Saskatchewan (POT) was the most heavily traded name on the New York Stock Exchange and the second heaviest traded name on all of the exchanges yesterday. That is one of the companies which controls its own destiny, but the names which investors need to be truly worried about are those marginal players such as Intrepid Potash (IPI) which have higher production cost mines and are smaller players in the bigger picture. One could set up some long-short trades here and position them either for the worst case for the industry or the best case. Those looking for a best case scenario would go long those names with high cost production while going short those with low cost production and vice versa for the worst case scenario.
It has been 5 years since we last saw prices that were hit yesterday during trading in shares of Potash. The stock has been in a protracted downtrend for quite some time, but does yesterday mark a bottom?
Source: Yahoo Finance
Oil & Natural Gas
Following the solid earnings posted by Anadarko Petroleum (APC) earlier this week, we want to point out to readers that Chesapeake Energy (CHK) will also be reporting earnings this week and we suspect that investors will be pleasantly surprised by what the company has to say. All the research and data we are seeing come out of the Utica indicates that the NGL window is turning out to be the real deal and although the company is not in the very best acreage there, they still have considerable acreage in very good NGL areas. The joint venture continues to drill and have success in the area and we know from others that those costs and time are declining. We also know that the midstream assets are now being completed and more wells are being tied into sales pipelines.
Chesapeake Energy continues to rise out of the ashes and it appears that the $25/share level shall be the next level the stock will test. Will what they have to say tomorrow provide investors with enough ammunition to push shares above that level?
Source: Yahoo Finance
Anadarko's properties in Colorado, Texas and the Marcellus Shale powered production growth in the continental U.S. of 26% and with production from the Wolfcamp play now coming online should see production easily climb above 100,000 boe/d in the next quarter. The Texas and Colorado properties are key to cheap organic growth and is a big reason why exploration costs continue to drop. We expect the same to happen at Chesapeake over time as their focus shifts from getting acreage into the HBP (held by production) category to pad drilling and being more efficient.