Commodities Today: Natural Gas Vs. Coal And The Iran Nuclear Deal

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Includes: ANRZQ, ARCH, BTU, HK, LNG, RDS.A, RDS.B
by: Matthew Smith

Summary

Discuss today's commodity price action and highlight the move in live cattle.

Look at how Shell's latest deal could signal that Big Oil is ready to bet that natural gas does beat out coal, regardless of price.

Highlight the latest concerning the Iran Nuclear Deal talks and how it seems that a framework was not agreed to.

Commodity prices are higher on the session, with WTI Crude remaining above the $50/barrel level and gold once again trading above the all important $1,200/ounce level. Barring any major news, it appears that both commodities will close above those psychologically important levels heading into the weekend. Looking at equities, the oil and natural gas companies are all higher by about 1% with a handful either flat or down marginally. One name that is standing out to the downside is Halcon Resources (NYSE:HK) which is down over 5% on the session and continues to get weaker.

Chart of the Day:

Readers might want to watch live cattle, as prices have fallen below $150, a level which has proven to be a key support and resistance area in the past. This move could signal a large move lower.

Source: CNBC

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

  • Gold: $1,206.10/ounce, up by $12.50/ounce
  • Silver: $16.43/ounce, up by $0.254/ounce
  • Oil: $51.64/barrel, up by $0.85/barrel
  • RBOB Gas: $1.799/gallon, up by $0.0398/gallon
  • Natural Gas: $2.542/MMbtu, up by $0.014/MMbtu
  • Copper: $2.7385/pound, up by $0.0095/pound
  • Platinum: $1,172.00/ounce, up by $18.00/ounce

Big Oil Targeting Coal?

We ran across an interesting article from Bloomberg today (located here) which seems to paint a picture of 'Big Oil' looking at natural gas not just as a fuel of the future to replace oil but also as a replacement for coal. Now it is not news to investors in Peabody Energy (NYSE:BTU), Alpha Natural Resources (ANR) or Arch Coal (NYSE:ACI) that natural gas is a substitute for coal, but the possibility that the deep pockets of the world's largest energy companies are set to make ever larger investments in the natural gas space have to be troubling. After all, the current natural gas glut was not created by the largest companies in the energy business, so the thought of them putting their capital to work in the space and potentially helping companies such as Cheniere Energy (NYSEMKT:LNG) transport natural gas to the remaining parts of the world where natural gas prices remain high has to be a nightmare scenario.

Bloomberg argues that Royal Dutch Shell's (NYSE:RDS.A) (NYSE:RDS.B) bid for BG Group is another bet on natural gas and further highlights the industry's move toward the cleaner burning fuel. As the industry has moved to make natural gas more readily available, consumers have embraced it. China and Europe have both shifted away from coal as they focus on reducing pollution and replaced that generating capacity with cleaner sources of energy, including natural gas.

The issue that everyone has to wonder about though, is at what point does coal's cost advantage come into play and outweigh the health and environmental concerns/costs? That will be key moving forward and could be the deciding factor in how some of these natural gas deals play out.

Iran Nuclear Deal In Trouble?

We expressed our concerns earlier over the Iran Nuclear Agreement, which was marketed as a first step in setting up the framework for getting a deal done in the next few months. The fact that many of the points the various parties agreed to were kept a secret bothered us, and it appears we were right to be bothered! CNBC has an article which discusses how various parties, from the United States to France and Iran, have different interpretations of what all of the parties agreed to! One would think that if you all agreed to something that there would not be any disagreement afterwards, especially since you announced to the world what you had in fact agreed to. Unless of course you did not announce to the world exactly what you had agreed to.

While this could be posturing, we suspect that Iran sees the United States as weak at this point and is trying to renegotiate some items in the press. The United States is probably doing the same, knowing that they will have to revisit these items in a few months. While this could be bad for a deal, it might be good for oil prices.

Disclosure: The author is long HK.

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.