Yesterday was a decent day to have exposure to commodities, although as the closing bell approached we did see a bit of a sell off. That does not make us feel warm and fuzzy about the recent rally in commodities from the most recent lows, but we will always take an up day over a down day.
We got the production numbers from Ohio yesterday which highlighted the five wells in production which are owned by Chesapeake Energy (CHK). The numbers do not blow you away, but they do not disappoint you either. Investors seemed to be pleased with these initial results as other Utica players rallied on the heels of the release. One needs to remember that these are essentially experimental wells in that as they were being drilled, Chesapeake was testing which techniques would work best in the play so the drilling process was not optimized at that point - and likely still is not. One can read a bit more into the story here.
We have also noticed that ExxonMobil (XOM) has not really been pulling its weight in the switch from oil to natural gas, which we do find a bit surprising. The company is the largest natural gas producer in the US and made a huge bet when they bought their natural gas assets. Some speculated they did it simply to make their reserve replacement numbers moving forward, but we did not take that argument seriously. The company has been aggressive in the Utica and we anticipate after some success by their smaller rivals in furthering natural gas's market, the company will jump in and throw their support behind the initiatives. That could be a market mover, but prices for natural gas have a bit further to fall before Exxon is forced to make a move.
Sandridge Energy (SD) was testing and crossing $8/share yesterday and we found ourselves interested in initiating a trade. Our conviction was not very high on the trade, nevertheless we did purchase shares and watched as the company fell back through the $8/share level and sold off at the end. This was certainly not a strong finish, but one which mirrored the commodities complex as a whole. We will look at this trade this morning and may get out if it appears that it is moving against us.
One company which we have not mentioned before, Cabot Oil & Gas (COG), seems to be getting their issues under control. A fire at a compressor station had seriously hampered output, but production is being redirected to be compressed elsewhere while the operator of the affected station fixes the damages. You can read the latest from the company here.
Gold & Silver
Precious metals shot up yesterday with gold rising to the $1680/ounce level, and we see this morning that the bulls have been unable to hold that level and we are trading just below there. Until we see this trade above the $1700/ounce level for any sustained period or have a serious breakout through that level we are merely spectators on the side holding what we have.
Silver also rallied yesterday, breaking through $33/ounce but like gold it has been unable to hold that level in early morning trading and is trending lower. If the economic numbers are good and the Fed appears to be willing to back the economy right now, we could see a rally today. We are long of silver and do find ourselves buyers on dips for a move towards $40/ounce by the end of the year.
This all brings us to Freeport McMoRan (FCX) which has been on fire as of late and moved up to $39.11/share. The company has its problems, but if the world economy can continue to grow, the U.S. economy continues to grow stronger and inflation worries creep back into the market, then Freeport will be a very strong performer. There is the issue regarding the taxing of their mines in Africa and Asia, but this should be negotiated and resolved by the end of the year and we find ourselves less worried about the prospect of it seriously hampering Freeport moving forward.