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Commodity names are in limbo right now as traders do not know whether various commodities should be rallying or selling off. As is usually the case in situations such as these, confused trading has persisted in certain areas and we are seeing some market leaders stall out.

The news we are finding troubling today is this story that has been playing out regarding the oil spill in North Dakota. Tesoro (TSO) appears to have fumbled the ball on this one as they did not even know that their pipeline was leaking and a farmer discovered the leak as he tried to harvest his wheat. We are hopeful that this event blows over without any collateral damage for names like EOG Resources (EOG) which have a strong presence in the state and a good record of operating their many wells and drilling rigs. If the entire industry received a black eye for this it would be a big negative for many investors overweight in the shale E&P names, such as ourselves. Diversification among plays though is key, which is why we find Bank of America Merrill Lynch's note on Pioneer Natural Resources (PXD) interesting this morning.

Credit Suisse also had an interesting report out on the steel companies, which we have covered from time to time in our morning market notes and we think it is worth the read if you can get your hands on it. Although they have both U.S. Steel (X) and AK Steel (AKS) as 'Neutral' ratings, we lay out the way we would play the steel names.

Chart of the Day:

One of those markets which has stalled out as investors await to see if Washington can reach a deal is the foreign currency market. The U.S. Dollar Index tells the story and it has been pegged right near 80 for some time now. The market is awaiting news either way (success or failure) to make its move. Many commodity markets are looking to the U.S. Dollar Index for direction and we suspect that by the end of the day they shall receive that direction ... for better or worse.


(Click to enlarge)

Source: BigCharts

Commodity prices this morning are as follows:

  • Gold: $1273.30/ounce, up by $0.10/ounce
  • Silver: $21.245/ounce, up by $0.054/ounce
  • Oil: $101.79/barrel, up by $0.58/barrel
  • RBOB Gas: $2.6862/gallon, up by $0.0264/gallon
  • Natural Gas: $3.856/MMbtu, up by $0.066/MMbtu
  • Copper: $3.302/pound, down by $0.0055/pound
  • Platinum: $1388.90/ounce, up by $5.50/ounce

Oil & Natural Gas

This morning a lot of the news organizations (see ABC article here) are running the story of Tesoro's oil pipeline leak in North Dakota which contaminated a farmer's wheat field. The size of the spill from the underground pipeline was roughly seven football fields and the troubling fact is that after initial estimates proved too low the company increased them to over 20,000 barrels of oil leaked. We spoke to some of our contacts in the industry, who admittedly deal with natural gas, but they said that if they were to have to estimate what they lost from their pipelines they would look at what was put into the pipeline versus what was sold or stored at various points along that pipeline. This is the largest spill in North Dakota history and a black eye for the industry in what has become an important state in getting America closer to energy independence. We can only hope that Tesoro's public relations folly does not affect the companies which have been good corporate and environmental citizens in the state such as EOG Resources.

Like many names in the Permian, Pioneer has had a very nice run this year. If results hold up, the price target of $275/share might not holdup.


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Source: Yahoo Finance

Pioneer Natural Resources should see a strong day and get some press after Bank of America Merrill Lynch upgraded the stock and moved their price target to $275/share. The analyst sees upside with their oil and liquids exposure and thinks that their Permian plays will drive growth moving forward. The company has some of the best acreage in the Permian and we think that as the multiple pay zones are developed and better understood that investors will see higher margins, a possible expansion of the multiple and both top and bottom line growth to drive the stock price higher. The $275/share price target may prove to be on the conservative side if this area plays out as we believe that it ultimately will.

Steel

Steel stocks had pretty good days yesterday as investors rotated into the sector after Credit Suisse initiated coverage on many names. The brokerage did initiate both U.S. Steel and AK Steel at 'Neutral' but the outlook for the steel companies as a whole is bullish. Dennis Gartman, the commodities newsletter writer who frequents CNBC was also talking up the merits of steel yesterday and thinks that the new trade is to own steel and not gold. Mr. Gartman has many detractors out there, however we have always found him to provide interesting commentary and investable ideas. Even with U.S. Steel's move yesterday, up over 5%, we still believe it provides the better play for investors in the steel sector when compared to AK Steel. The risk with AK Steel is a bit too high for our liking in this environment and we do value being able to sleep at night.

Source: Commodities Today: An Oil Gusher In North Dakota And Steel Names Moving Higher