Oil: With Iran proving that it can indeed hit targets outside of its borders (although the effectiveness can be debated) and a willingness to do so, we can see the probability increasing of an Israeli attack on Iranian nuclear sites. It has been well covered as to the trouble that Iran could cause in the Persian Gulf using numerous guerrilla tactics, but it would be but a matter of time before the U.S. armed forces neutralized Iran and took control of the situation. We do believe that one should own oil here, and preferably oil near the United States, Europe and China - but an emphasis on American oil.
With a potential war in the Persian Gulf a growing possibility, Europe initiating its own QE1 and factories in America and China cranking back up, we could see $120 oil before we see $90 oil again (Speaking in terms of NY Mercantile pricing, of course). Play the companies with increasing reserves, those in the Bakken, Utica, Eagleford and Mississippian Lime plays.
EV Energy Partners, LP (EVEP) is one play leveraged to the Utica, and Rosetta Resources (ROSE) is an Eagleford Shale play with considerable landholdings west of the Bakken- which the jury is still out on. Sandridge Energy (SD) is a leveraged exploration and production player in the Mississippian Lime and the company should have a few more asset 'monetizations' coming up as its CEO has repeatedly stated that Sandbridge has a very large drilling inventory.
Later today (Tuesday) we have the oil inventory numbers out from the American Petroleum Institute which should shed some light on the economic recovery and its relative strength at this point. This could very well be 'tradeable' news, whether the numbers are positive or negative.
Natural Gas: It is tough to say natural gas is looking strong, so let's just say it is not looking as weak. In truth, it is bouncing off of its lows due to production cuts from the #2 natural gas producer in the U.S. - Chesapeake Energy (CHK). Chesapeake alone cannot keep cutting back without it affecting earnings and cash flow. Unless this becomes an industry-wide initiative to shift exploration efforts from dry gas to wet gas and oil plays, then a shadow inventory is going to build.
We were told by one of our friends that natural gas has gone negative before. Only it did not happen in America but rather the United Kingdom, as the country was dealing with its own energy renaissance with the successes in the North Sea. So for those saying that natural gas cannot go lower, it can and it will if all of these companies continue to produce. And produce they will as dry natural gas is a by-product of the NGLs and oil that everyone is chasing in the shale plays these days. The next few months should be interesting, especially as winter comes to an end over the next month in the southern U.S. states.
Precious Metals: Gold and silver are trading slightly down from their close in New York trading yesterday (Monday).
Zinc: Speaking of gluts, it appears that a glut of epic proportions has formed in the Zinc market, according to Bloomberg. The excess supply is the largest since the early 1990s, and it is due to the increase in production over the past few years. The zinc in storage is the real issue, reaching levels not seen since 1984, also according to Bloomberg.
All is not bad however, as many expect the economic recovery to help gobble up the excess zinc in 2014. In the meantime, it does appear that prices must fall unless producers cut back on production. For investors looking for exposure to the play, Xstrata (XSRAY.PK) is a large producer of zinc via its Mt. Isa Mine in Australia.
Disclosure: I am long EVEP.