There continues to be a failure to communicate with physical oil and the oil equities. Each move higher in WTI and Brent prices has not been met with a follow through move in the oil equities, although one can say that oil equities at least appear to have bottomed out. Yesterday appeared to be the day when we would see some solid moves to the upside, but trading quickly became choppy and by the close many of the gains had disappeared.
For those who have used the gold trade we recommended where one would go long physical gold via the SPDR Gold Shares (GLD) and short the gold equity names, either individually or via the Market Vectors Gold Miners ETF (GDX) we think now is the time to close that trade if it is still open. Much of the short-term market events have passed us and we think this risk is better suited to the long side of some of the names we have been doing research on lately, which we hope to begin discussing in the next week or so as well as during our 2014 outlook article.
Chart of the Day:
The long gold and short gold equities trade has worked out well. Yes both positions were down, but the goal was to play the volatility and hedge a little. The spread is the profit and looking at that as well as the news flow moving forward we think it is time to close this trade.
Commodity prices this morning are as follows:
- Gold: $1,256.50/ounce, down by $4.60/ounce
- Silver: $20.335/ounce, up by $0.02/ounce
- Oil: $98.38/barrel, down by $0.13/barrel
- RBOB Gas: $2.6658/gallon, down by $0.0167/gallon
- Natural Gas: $4.188/MMbtu, down by $0.049/MMbtu
- Copper: $3.3075/pound, up by $0.006/pound
- Platinum: $1,386.80/ounce, down by $1.90/ounce
It has been our thinking that markets will see little impact of the new crude to be flowing out of Iran in the next few months. We think that the Saudis will keep new supplies from both Iraq and Iran in check with cuts of their own as they have a vested interest in protecting the $100/barrel Brent price. It seems that the market generally agrees with this, and as such we have seen Brent remain relatively strong and above $100/barrel.
Another story we have seen, although it has developed little traction, is Iran's wish to have some major western energy companies allowed to develop energy fields within the country. This is an interesting proposition, as it would assure Iran that western governments would have something of a vested interest in the most important sector of its economy - and possibly even a reluctance of these companies' home countries to use economic means to punish the companies along with Iran. It is an interesting proposition, but something we doubt gets very far, especially when one considers that there is the nuclear element in play here.
If one wants to play the exportation of natural gas, there is no better way than Cheniere Energy. They will be the key exporter here in the US and the Europeans will be very important customers.
Source: Yahoo Finance
We have also seen comments floated where some energy people think that Iran is going to be exporting natural gas through LNG terminals and competing with the likes of Cheniere Energy (LNG) for Europe's natural gas market as well as Shell (RDS.A) (RDS.B) and BHP Billiton (BHP) for the Asian market. That seems pretty far off in our opinion and is not something we would see in the next few months, let alone the next few years.
Truth be told the Iranian oil fields are in a poor state of repair. Much like Iraq's oil fields the government has been investing very little in them and as investment goes down so too does production. We would not be surprised if it was revealed that the infrastructure in Iran needed billions of dollars in upgrades to normalize production.