Commodities Today: Oil Asset Sales, Energy Price Target Cuts And Falling Railroad Stocks

|
Includes: CLR, CSX, CVX, GWR, KSU, NSC, UNG, UNP
by: Matthew Smith

Summary

Railroad stocks are under pressure after a second company made cautionary statements.

CVX is selling its 50% stake in an Australian refiner.

CLR saw its price target reduced at Barrington Research.

Thus far there has not been much fallout with the military action that Saudi Arabia and Egypt are taking in Yemen. We suspect that the action will be swift and sure, with the Arab world's two premier armed forces returning Yemen's president to power in the next few weeks. Currently the rebels are being softened up by Saudi airstrikes, but Egypt will soon move troops into the country and run point on the ground attack. That is when investors should tune in to this battle, because that is when we will be able to tell for sure whether this will be a short battle (where the rebels are routed by ground forces) or something more serious with the rebels digging in to fortified positions and standing their ground.

We are seeing some profit taking today after yesterday's strong move higher across the board. We were not buyers on yesterday's bullishness and we are still not buyers on this pullback. We shall continue to ride out volatility with our current positions before adding to our exposure.

Chart of the Day:

Natural gas is under some serious pressure, having fallen below the $2.70/MMbtu level recently. The current contract, along with the US Natural Gas ETF (NYSEARCA:UNG), appears poised to test annual lows. We would expect weak pricing to remain the norm as we enter a weak demand period ahead of summer.

Source: CNBC

Commodity prices are as follows (at time of submission):

  • Gold: $1,197.80/ounce, down by $7.80/ounce
  • Silver: $17.005/ounce, down by $0.135/ounce
  • Oil: $49.92/barrel, down by $1.51/barrel
  • RBOB Gas: $1.825/gallon, down by $0.0567/gallon
  • Natural Gas: $2.608/MMbtu, down by $0.064/MMbtu
  • Copper: $2.7705/pound, down by $0.0405/pound
  • Platinum: $1,143.00/ounce, down by $11.00/ounce

Railroads Taking It On The Chin

More cautious statements from railroad operators have the industry heading lower today. The latest comments came from Genesee & Wyoming (NYSE:GWR) and followed cautious comments from Kansas City Southern (NYSE:KSU) as well as a cut to their sales outlook. While we will still have to wait to see just how big of an impact falling commodity prices will have on operations, investors are fleeing the entire sector, even taking a negative stance on the best railroads such as Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC) and CSX (NYSE:CSX).

What we do know right now is that coal shipments have slowed along with the rate at which railroads can increase shipping rates on that commodity. Thus far the industry has been able to pick up the slack by focusing on other segments of their business such as oil shipments. Investors have banked on continued production growth to drive earnings higher, but Kansas City Southern dashed those hopes when they warned and blamed the weakness in the oil business as well as the Mexican Peso for their troubles.

Chevron Sells Caltex Stake

As it continues to sell assets which do not have the margins that it requires, Chevron (NYSE:CVX) announced that it will sell its 50% stake in Australian refiner Caltex. The Caltex refinery operations have long underperformed those in North America, and with Chevron's decision to pull out of most of its activities in Australia the company decided to make a clean cut.

While the company has sold a number of assets, it is continuing to develop the two natural gas exporting projects it is developing; the Gorgon and Whetstone projects. The refinery stake sale is expected to net the company around $3.6 billion and is part of the company's planned $15 billion in asset sales.

Analyst Revises Price Target On Continental

Shares in Continental Resources (NYSE:CLR) are lower today along with the rest of the energy sector as oil prices retreat, but we also wanted to point out that there is a research report out from Barrington Research that lowers the firms price target from $62/share to $56/share. The firm maintained its 'Outperform' rating on the stock but explains that the price target reduction is due to the firm lowering its WTI Crude expectations.

Investors can expect many more analyst moves such as this because many have missed the pullback and been wrong on the timing of a recovery. The one thing that readers need to be cognizant about is that if the downturn continues, we could see analysts begin to lower their ratings on the oil stocks and create a fresh wave of downward pressure on equities.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.