Commodities Today: Oil Production Rising And Gold Rally Stalling

by: Matthew Smith

Earnings season is underway in the E&P sector and for the smaller players the quarterly releases usually have drilling results being released for the first time. A wealth of information is about to become public for the first time and give investors insight into how successful, or unsuccessful, various companies have been in their pursuit of resources. The next two weeks have large number of shale explorers reporting their results and we expect the market to be surprised by quite a few of the drill results that have been held back to be released with quarterly numbers.

Stock To Watch:

Gulfport Energy (NASDAQ:GPOR) released their quarterly results last night after the close and saw a spike in their shares on the news. The company also announced that it would sell shares in Diamondback Energy (NASDAQ:FANG) to raise more cash, thus once again deferring the need to dilute its shareholders as it raises capital to continue its aggressive drilling program in the Utica. For the quarter, Gulfport produced 12,976 BOEPD and they expect this number to steadily rise in 2014 as they bring on another 64-71 net wells. Management's estimated guidance for production in 2014 is to be between 50,000-60,000 BOEPD.

The company's press release announcing the quarterly results is located here and the conference call transcript is located here.

Chart of the Day:

The price of gold has flattened out lately but with the Fed set to relax their purchases of debt instruments in the first half of 2014 we would look to not have gold exposure via the gold names or stock ETFs, but rather the physical commodity if we absolutely had to. In fact, there might be an interesting trade available here for readers who are traders where going short the miners and long the physical metal plays out well. Currently our strategy is simply to stay away as gold does not look to have any fresh legs for new runs at this time and with the Fed preparing to move against it by allowing rates to rise and easy money to end, a bullish strategy outside of becoming a bear is hard to devise.

(Click to enlarge)

Source: Yahoo Finance

Commodity prices this morning are as follows:

  • Gold: $1315.80/ounce, up by $7.70/ounce
  • Silver: $21.855/ounce, up by $0.219/ounce
  • Oil: $93.94/barrel, up by $0.57/barrel
  • RBOB Gas: $2.5585/gallon, up by $0.0424/gallon
  • Natural Gas: $3.478/MMbtu, up by $0.012/MMbtu
  • Copper: $3.264/pound, up by $0.0055/pound
  • Platinum: $1465.40/ounce, up by $15.40/ounce


With Gulfport moving to offload at least another 2,000,000 shares of Diamondback Energy via the secondary market (see press release here), the weakness might be yet another opportunity to purchase on a dip. It is a trend which has worked thus far and as the Midland, Texas company continues to ramp up production of oil it certainly looks like a reasonable speculation.

In other news that could impact the oil and natural gas space, but mainly the oil markets, there is now real fear of the return of Iranian crude to the global market. Iran's crude has not disappeared from the world stage altogether, but sanctions imposed by the UN have greatly decreased the amount of production reaching foreign markets and forced the country to sell crude for cash in many cases as the US and its allies have targeted Iran's bank accounts.

The fear many have is that Iran will undercut many of its OPEC counterparts and potentially overproduce as it looks to sell oil to shore up its finances and help fund its government and other activities. The bigger fear as we see it is not the fact that Iran could over produce, but the risk premium being deflated further as Iran has less of a reason to block the Strait of Hormuz or cause other problems in the region.

We could see oil prices retreat by another $5-10/barrel if Iran has the infrastructure in place to quickly increase production and the capability of being a good neighbor in the tinder box that is the Middle East. It is something we are watching closely as it has the potential to drop oil prices to a range where shale production could become less attractive to many companies, especially the big names such as Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.A).

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.