We saw a bounce in some of our oil related plays on Friday, which was a carry through from the end of trading on Thursday. This morning oil is down another $0.46 and we now find the price closer to $100/barrel than $110 which should be adding a bit of stimulus to the economy should prices settle down at that lower range.
It came out at the end of last week that China was trading Iran actual goods to skirt the trade restrictions. This is not the cash Iran needs, but it delays capitulation on their part and could prolong negotiations or force Israel's hand. This is why we shall remain long US players and remain relatively bullish oil moving forward.
Let us take a look at rig counts this morning, based on news that came out at the end of last week. As everyone knows by now, Chesapeake Energy (CHK) has been cutting back on dry natural gas production at the same time it is ramping up drilling for natural gas liquids and oil. The company has also shifted rigs and capital expenditure plans from dry gas plays to wet plays in order to produce more of the high margin NGLs and oil. Others have followed suit in regards to rig utilization, however last week we saw dry natural gas rig counts actually increase for the first time off of multi-year lows. At the same time, we have rig counts at 25-year highs for oil focused exploration. You can get more on this from the Reuters article found here.
Also of interest to investors, is the fact that the state of Ohio - home to the Utica Shale - will release production numbers to five wells which have been producing since last year. This will be the first data we have on the play, and although it will not be enough to deduce a whole lot, it will be news which could excite investors if those numbers are respectable. We suspect that they are, based on initial measurements, but there is always the possibility that those initial numbers are dramatically higher in new plays when the best drilling technique is still unknown. We would suspect that this news would move Chesapeake as the largest player, EV Energy Partners (EVEP) as the second largest land holder in the play. One could also see Hess Corporation (HES) move as well as they have been working in the play for some time and it figures prominently in their future plans.
Gold & Silver
Gold seems to be settling into this $1665 range, where it finds itself this morning and has traded around for nearly a week. It appears to be building a base, one of those areas where the gold bears come out to battle the gold bulls in what can sometimes be epic battles. One of the parties will always overextend themselves, and based on recent action, we would suspect the bulls to make a move in the near future. That is our gut talking, but we find it to be right far more often than not.
Silver too finds itself trading in a bit of a range, but we are simply glad that it finds itself on the right side of $32/ounce. We could see the metal move higher this week, as we have a diverse range of economic news coming out - some of which is industrial and would impact silver far more than gold. It is our favorite precious metal at this time, and we hold it in physical terms.
Molycorp (MCP) found its shares lower on Friday, but a big winner for the week. The news out of China was a big help, but we also suspect risk-on money is finding its way back into the sector and that is why we were bullish on Molycorp and Rare Element Resources (REE) which also had a strong week last week. There are some other good plays in the industry which can really move, however at this time as the market tries to figure out which way it wants to move we would stick to these two trades as they are quite liquid and have small spreads when trading does slow. We call them how we see them, and many in the rare earth space will not like this play call because it lacks sophistication but it is right and it is just. Until we have more conviction of where we are going, we shall err upon the side of caution and maintain our capital to invest another day.
Disclosure: I am long EVEP.