Oil is up and has been up. Even after yesterday's remarks from the President it continued upwards, and that was not to spite the man it was simply because the plan to drive out 'speculators' has hardly any bite to it. That was an election ploy and nothing more and nothing less. If we wanted lower prices at the pump we would be allowing more drilling on federal lands, new pipelines to be constructed across the country in order to correct bottlenecks which have formed due to the recent shale boom taking place. The big move would be to boost margin requirements on the exchanges, thereby taking down traders' leverage and thus their exposure. It would make perfect sense to bring these ratios in line with that which stock traders are forced to abide by, but then again that might make too much sense.
Iran is a part of the problem with current oil prices, and thus prices at the pump but more importantly the country has failed to capitalize on its abundance of natural gas as a fuel source. There is a fight between the right and left over which way to go, but no matter how many billions you throw at clean energy, that money would arguably be better spent utilizing natural gas as the 'bridge' fuel to a day when fossil fuels are no longer needed. This is why we have been watching Clean Energy Fuels (CLNE) which would be a major beneficiary. If Congress had apportioned the $527 million that went to Solyndra, LLC and instead spent it on converting some of the 640k+ vehicles in the national fleet, we could have converted somewhere between 5-10% of the vehicles owned by the Federal Government which would have gotten us well on our way of creating the demand to justify the infrastructure requirements to build CNG/LNG filling stations and drive down the cost of vehicle conversions for the citizens of the country. We would have created far more than 1,100 jobs, more natural gas demand, less demand for gasoline causing prices to be possibly somewhat lower and we would be admiring the returns on our investment rather than the return of our investment from a now defunct solar panel manufacturer. With that said, Clean Energy is backed by serious players and is moving forward plans by the private industry to build a network of filling stations which will make it possible for trucking companies to make the switch as they will be able to fill up around the country. We are not buyers of Clean Energy today, but it is something which we are watching closely, especially as some polls now have Romney ahead of Obama right now. The economics are apparent, the political will is not -- thus our positioning on the sidelines right now.
Oil & Natural Gas
Chesapeake Energy (CHK) was weak yesterday as many think they are now selling their oil services division out of need rather than at will. Either way this adds liquidity to the balance sheet, provides a way for the company to raise funds if needed going forward and adds a bit of transparency as well. Out this morning is a story that the company's CEO has taken out over a billion in loans against his 2.5% interest in the company's wells, and although the headlines look bad - maybe awful - there is little to say here. Mr. McClendon owns that asset and is free to borrow and sell as he sees fit. We would say there is no news here and to move along, but for those who would like to read further on the topic, the story is located here.
Cheniere Energy (LNG) set another 52-week high yesterday as shares rose $0.61, or 3.59%, to close at $17.60/share. Volume was strong as well with it being over 2x the company's average daily volume. The further natural gas prices fall, the better for Cheniere as there will be higher demand to transport the commodity to overseas markets. There are large expenses in the infrastructure and transportation costs, but right now investors are looking at current prices and seeing the large profit margins available. In the future these margins will probably shrink, but for now this is one of the more intriguing trades as it relates to natural gas.
Denison Mines (DNN) did one of the more interesting transactions we have seen in the uranium industry in some time, and maybe ever. The uranium sector is one which we have followed for many years, and have consulted for numerous companies - some even being the larger players in the space. So we know how hard Denison worked to put the US assets in place and get everything working, which is why we were taken aback by this transaction to trade the U.S. operations to Energy Fuels in exchange for a large stake in the company. The press release regarding the transaction is here. Denison is going to take the shares they receive and distribute them to their shareholders, so essentially shareholders in Denison will then own a U.S. focused uranium producer and also a mostly Canadian focused uranium company. It is what it is, but it certainly does not excite us - we fail to see how it benefits Denison in their attempt to become a world class uranium company and shall simply stay away.
This morning we are watching Molycorp (MCP) which has held above the $30/share level and is currently trading above $32. Prices of the REEs seem to have bottomed and appear to also be trending upwards, something the market has pretty much ignored as it focuses instead upon natural gas prices and the economic worries of Europe. This has been one of our best calls of 2012, and until a dip below $30/share we will continue to ride it. The big news to watch will be the WTO ruling on China's supposed hoarding of REEs, which should be an ongoing story moving forward.