Commodities traders are watching the storm in the Gulf of Mexico this morning as it should move from a tropical storm to a hurricane soon. Gasoline prices have been moving up, but oil fell yesterday which could be short lived depending upon the path the storm decides to take. We are watching the refiners and oil and gas plays this morning as everyone waits for what the Fed may or may not do.
Oil & Natural Gas
Talisman Energy (TLM) has been performing quite well recently with shares up over $1/share in trading over the past week. Volume has been creeping up as well, with 8.9 million shares trading hands yesterday as shares rose $0.49 (3.58%) to close at $14.16/share. The company has North Sea oil production along with Eagle Ford exposure - an area they have already joint ventured out. The company is tied to natural gas prices as they were late to that game, but went all in on it and have been increasing dry natural gas production for some time. The company has some exciting shale plays, but nothing that matches the Eagle Ford on production mix or size. We owned shares not long ago, but rotated out into Utica plays and continue to have that trade in place.
Even though oil was down yesterday, we saw gasoline prices rise as Tropic Storm Isaac is heading towards America's refineries on the Gulf Coast and looking to become a hurricane. In the past, hurricanes have damaged refineries but we think that with the size of the storm and the ability of the engineers to fix the problems caused by storms relatively quickly that this should be a non-event. Valero (VLO) saw shares rise $1.53 (5.23%) to close at $30.77/share yesterday on volume of 19.8 million shares. The shares did hit a new 52-week high yesterday and even though we think that gas prices will decrease, we are not willing to go out on a limb and short these stocks as they have far too much momentum.
We continue to watch the coal sector and over the past few trading sessions we have seen shares drift lower. This continues a trend of every time the charts begin to look better, the price action slumps again. With this being the case, it is quite difficult to go bullish as we want to catch these on the upswing and each time it appears the breakout is near we find investors shying away. With the price action in Alpha Natural Resources (ANR) and Arch Coal (ACI) it looks like we may get pretty close to the 52-week and all time lows unless the market gets some type of good news in the next few weeks - which the Fed discussing QE3 would fit that description. Remember, we want to move into the Blue Chip names here first, then wade into the Alphas and Arches of the industry.
We have seen some talk of China doing another round of stimulus to reinvigorate their economic growth, and that is exactly what it will take for Vale (VALE) to move higher. The stock has had quite a few days where shares have trended lower while other peers have ventured higher or held their ground. Investors should watch the US Fed this week and pay attention to what is going on in China and the EU. The EU is China's biggest export market, so growth there does in fact help China.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.