Commodities Today: Shale Oil Names Leading Us Higher, Coal Disappoints Again

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 |  Includes: ANRZQ, EOG, FANG, GPOR, ROSE
by: Matthew Smith

Our thesis that one would want to move out of the metals and into the energy sector via oil and the NGLs is proving to be a winning trade and yesterday we saw a strong move higher across the board. Coal continues to be a loser, as Alpha's quarterly results prove this morning and as more and more of the integrated oil companies announce production numbers which are lagging we think that our positioning in the shale oil names may in fact pay further dividends if 'Big Oil' makes a move to buy up more of these names.

Chart of the Day:

Our attention is once again turning towards the US Dollar Index as it has fallen from yearly highs but recently perked back up. Another move higher could have a negative impact upon the oil stocks we have used to provide gains for the portfolios. We would look, and hope, for resistance in the 83-83.5 range to kick in and halt the move higher.

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Source: BigCharts

Commodity prices this morning are as follows:

  • Gold: $1310.70/ounce, down by $0.50/ounce
  • Silver: $19.885/ounce, up by $0.261/ounce
  • Oil: $106.74/barrel, down by $1.15/barrel
  • RBOB Gas: $2.9892/gallon, down by $0.0392/gallon
  • Natural Gas: $3.384/MMbtu, down by $0.003/MMbtu
  • Copper: $3.199/pound, up by $0.033/pound
  • Platinum: $1437.60/ounce, down by $6.20/ounce

Oil & Natural Gas

Yesterday was a big day for our portfolios and many of the names which we do not personally own but have highlighted in our various morning updates.

One name which we do not directly own, but own via Gulfport Energy (NASDAQ:GPOR), is Diamondback Energy (NASDAQ:FANG). The stock has defied logic in its rise higher and trying to catch this one on the way up via buys on pullbacks has been quite difficult. Part of the reason is due to the company's operating performance but the main issue is because the analysts simply love the stock. The company has a solid capitalization structure with two large shareholders, Gulfport being one of them, which has provided the company with credibility and a large block of shares which until recently were tightly held. Diamondback also received another 'Buy' rating earlier this week as coverage was initiated on the stock by Miller Tabak. After rising $4.43 (11.60%) yesterday to close at $42.61/share and hit a new all-time high in the process we think that this one has a bit more room to run, especially now that it took out its old highs. Operating results should continue to impress, however the one thing that investors need to pay attention to is whether there are further share sales by their two large shareholders.

Diamondback has been a huge winner since its IPO, and as the company moves to develop the multiple targets it has in the Permian Basin we think that shares shall only continue to get more expensive - albeit at a slower pace.

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Source: Yahoo Finance

As mentioned previously we hold our exposure to Diamondback via Gulfport Energy and aside from a few trades we engaged directly in (in Diamondback shares) this has been how we have gained exposure to the name. Our longtime readers know that Gulfport Energy has been one of our best picks over the duration of our morning updates and that Gulfport's success has not hinged upon that of Diamondback's, but rather the company's ability to develop their prime acreage in the Utica Shale. Gulfport also set a new all-time high yesterday as shares rose $3.19 (6.00%) and closed at $56.39/share on volume of 1.6 million shares. Our focus is beginning to shift from the Utica to the company's other assets and what they may or may not do with them now that they have proven how valuable the Utica acreage is. This name will go higher as more wells are brought online and tied into sales pipelines, something that Gulfport is ahead of the pack in as it pertains to the Utica.

The chart on Gulfport had stalled out somewhat in the $50-55/share range, but with the latest move higher we think that this provides traders with enough ammo for the next step higher which could see shares hit $70/share.

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Source: Yahoo Finance

Whereas Gulfport and Diamondback are a bit on the speculative side, the name we have proposed for our more conservative readers also saw a strong day yesterday. We are discussing EOG Resources (NYSE:EOG) which finally broke through the $150/share level we figured would provide resistance simply because it is a psychological milestone. Not the case, especially after investors who were hoping for growth in the large integrated oil companies saw 'Big Oil' abandon their production targets and announce higher costs. It is obvious that the shale drillers are finding the easy oil and have much more leeway in managing their growth once they have their acreage held-by-production and enough infrastructure in place to support operations. These facts continue to support many who believe that 'Big Oil' is not yet done picking off the larger names in places such as the Bakken and Eagle Ford Shales.

Which brings us to Rosetta Resources (NASDAQ:ROSE) and a name we traded in and out of over the past year or two as the shares move between the low to mid $40s and $50/share. We cannot understand why this name is not at the minimum a $50/share stock when we think it is a $60/share stock. If one factors in the Permian assets they recently bought and uses conservative estimates both on production and speed in which the acreage is developed then it is, in our opinion, easy to see this stock somewhere around $75/share a few years down the road. That is assuming of course that oil prices stay around $95/barrel and NGL and natural gas prices can maintain current levels. It sounds crazy, but in reality it sounds just as crazy as when we said Gulfport was a $50/share stock back when it traded between $17-28/share. Long-term this will be a winner and should it be purchased by a bigger name in the industry those gains would come quicker.

Rosetta Resources, for those not trading in and out of it, has been quite frustrating. The shares have traded sideways for over two years and investors have been disappointed with the Bakken extension play which never panned out. The Permian purchase gives the company a second prime asset and we think that this shall be enough to return the company's shares to a solid performer over the next few years.

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Source: Yahoo Finance

Coal

Alpha Natural Resources (ANR) shares are indicated lower today in pre-market trading as the company reported another loss as prices realized on the sale of production continued to fall. The news is not what investors wanted to hear and depending on the overall market's move this one may very well test its 52-week low today. The company indicated that they would see production costs rise due to the previously announced suspension of production from one of their mines in Appalachia, but they also indicated that at today's prices selling thermal coal to export markets via the Atlantic is not an economic endeavor...not just for Alpha, but the US industry as a whole. It is really hard to get bullish after a report such as that one, and so this morning we shall not.

Disclosure: I am long GPOR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.