Looking over the commodity complex yesterday we noticed that oil has been taken down hard over the past two weeks or so and we found that rather surprising, especially if people are beginning to believe that quantitative easing may be becoming more of a reality with the issues in Europe. Gold is one area where we have been spot on, and we would continue to shun the yellow metal until it can show us that it is being moved with some conviction - something the bulls have lacked over the past few months. We would rather use oil to play a possible further easing by central banks than gold simply because gold appears broken right now. Both will rally on any news such as that, but oil appears the safer bet right now.
Oil & Natural Gas
Chesapeake Energy (CHK) rose $0.55, or 3.25%, to close at $17.48/share yesterday on volume of 32.5 million. The stock opened down, in fact it set a new 52-week low but had a steady rise after that early weakness. According to a partner of theirs in the Utica, the company is not backing off of developing the play and is moving forward with the liquids play - so much for this storm to be stalling their aggressive plans. One thing we wanted to point out this morning which no one is talking about is that Chesapeake pays a 2% dividend right now, and we have not heard one person talking about the need to cut this. Granted it is funded with financed cash and not free cash flow, but a cut would at least help bridge the gap. Problems are not at their peak until people are calling for a cut, and we do not think it will get anywhere near that bad for Chesapeake - just thought that we would put that in perspective this morning.
Marathon (MRO) was up $0.27 (1.03%) yesterday to close at $26.44/share. The chart mirrored that of Chesapeake yesterday as it opened up weak and then rallied throughout the day to finish higher. The company recently announced that they would be purchasing acreage in the oil window in the Eagleford Shale and we were told via press release that the majority of that acquisition will be $750 million for 17,000 acres that currently has production of 7,000 BOE/day. We thought that this was interesting due to our propensity to invest in the oil window plays of other shales such as the Mississippian and the Utica and that people are fretting over what that acreage is worth. With prices in the Eagleford having now reached almost $45,000/acre for derisked property, there is a lot of fun one can have with an Excel spreadsheet and attempting to figure out what the future value of certain assets are worth moving forward.
Refining
Phillips 66 (PSX) received some positive analyst comments yesterday which pushed volume up to 14 million, about 3.5 times what the stock had been trading daily. Shares rose $2.39 (7.94%) to close at $32.49/share and the chart was a thing of beauty - having risen from the bottom left to the upper right. Phillips 66 is a recent spin-off from Conoco-Phillips and the shares had initially come under pressure with the initial selling which usually accompanies spin-offs. This is one of the better refiners out there, and should be one of the top performers in the sector in the years to come.
Rare Earths
Molycorp (MCP) releases earnings today. There is a large short interest in the shares so volume could very well spike along with the stock price on good news, that could also serve to mitigate losses on a mild miss as most of these shorts are in the green and may look to take profits. Prices in China are up, but it will be important to watch what the company has to say regarding pricing there and updating investors on production from competitors. We are also interested to hear what they have to say on their current integration of purchases and updated timelines on production.
Coal
We wrote an article about coal yesterday and you can find that here. That covers our current thoughts on the industry, but we did want to point out this morning Arch Coal (ACI) which was up 9.74% yesterday to close at $8.34. Volume was above 28 million shares and the shares rallied strongly once commodities decided that they wanted to head higher. We do not think that share prices in the sector have bottomed, but it was an impressive rally and shows just how quickly these can move.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
