Oil is down 1% this morning and is showing continued weakness as Egypt saw some good news with their elections. One needs to watch the Middle East closely over the next few weeks as Turkey and Syria could come to blows and with Turkey being a member of NATO we could see the defense organization forced to enter on the side of its ally. One can only hope that Russia and the US are able to keep this situation from escalating, but if not, oil prices could rally -- especially with all of the new question marks (how the new leaders will act) across the region.
Outside of natural gas one would be hard pressed to find a commodity with a bullish sentiment surrounding it. The precious metals have come under pressure, coal continues to fall, we have already described the situation in oil and the metals miners are faring poorly as well. It is bleak all around.
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Oil & Natural Gas
It appears that the computers are moving out of Chesapeake Energy (CHK) and that we are getting pretty close to the level of volume we were at prior to the avalanche of news regarding the company and dealings with the CEO. The volatility is calming as well, and Friday the shares traded higher by $0.49/share (2.70%) to close at $18.61 on volume of 26.1 million shares. We are waiting for a pullback here before pulling the trigger, and fully expect asset sales to happen -- in fact the Chinese are already rumored to be taking a look. Based on the Utica sales we know to be taking place before the end of the year we could also see the company realize a higher price on the acreage they have for sale in the play. This is a misunderstood play, and it is unfortunate that they do not have the cash flow to develop these tremendous assets, for if they did this would truly be one of the great growth stories out there.
Freeport-McMoRan (FCX) fell by $0.69 (2.09%) to close at $32.30/share on volume of 32.2 million. So goes the economy so goes Freeport, and after the big run-up we see shares coming back down. We do have a bit of economic news this week which could really move markets, and some of that will be out of the EU which is one of the main reasons we have not seen copper or other commodities move sharply higher. That is the anchor for the general commodity market, and if we can clear that up in the near future we could see demand growth for copper as world GDP growth increases. As we have stated previously, any answer to the EU's problems should be answered with easy money and that would further help Freeport as it would conceivably help push up the price of gold and other precious metals.
Patriot Coal (PCX) continues to come under pressure. In trading on Friday shares finished lower by $0.11 (8.03%) to close at $1.26/share on volume of 16.4 million. This is one of the lower-tier plays in the sector, and as such will be quite volatile moving forward. The market is still awaiting news regarding financing that the company is supposedly lining up and this will be interesting to see. One has to be curious as to what terms the company is able to get, especially as we know that Chesapeake got terms that would be pretty unfavorable if they turn their latest financing into long-term rather than the bridge financing it is truly meant to be. This situation will be something to watch, and we will continue to monitor it.
Potash Corp of Saskatchewan (POT) put in a pretty good day after hitting the $39.50 level in trading Friday. Shares finished higher by $0.59 (1.48%) to close at $40.34/share on volume of 3 million. We are not interested in opening positions here and recognize that it was one of our worst calls for the year. For those still in it though, we have to imagine that this is the stock bottoming out, and once the economy gets the green light we could see this one back up in the $50/share area.
Vale (VALE) is holding above the $19/share level, with that having been the low during Friday's trading. Shares finished at $19.16 after falling $0.09 (0.47%) on volume of 15.6 million shares. The stock is yielding 6% these days, and that has been what has helped the stock find support as other commodity stocks have continued lower. For those who doubt that dividends can support a stock, they should use this as their case study. The company continues to expand its portfolio and diversify across the world and across the commodity spectrum. Long-term this will be a winner and for those who want to begin to establish positions now, it is hard to argue about getting paid to sit around.