Buy Alert: May 20, 2014
Buy Alert: May 20, 2014
Option Strategies:
Buy Petroleo Brasileiro (PBR) July 18, 2014 $16.00 calls for $0.60 or better.
Buy Cabot Oil & Gas (COG) July 18, 2014 $37.50 calls for $1.15 or better.
Commodity Outlook: Energy
After a short bout of selling in late April, West Texas Intermediate (WTI) is back above $102 a barrel. But this time it’s not Ukrainian fears keeping a bid under the commodity.
It’s Libya…
As you may know, the country has the largest proven reserves in Africa. At peak production, Libya put over 600,000 Bopd onto international markets.
But ever since the overthrow of Muammar Gaddafi in 2011, the country has struggled to get exports back online. And last week’s violence suggests the country’s goal of getting exports fully online will likely not be successful- at least not in the near future.
Geopolitics will likely keep oil over $100 a barrel until the summer driving season heats up in a few weeks. At that point, we could see a substantial bullish run for crude as US demand rises.
And that’s not all…
The price of natural gas is rising as the NOAA is forecasting above normal temperatures for the next 8-14 days. With the heat rising, consumers will turn to their air conditioners, which will increase natural gas demand.
What’s more, there’s a very large natural gas storage deficit right now. Investors are concerned the warm weather will keep producers from refilling US storage caverns by Fall.
No doubt about it, the bullish signs for energy commodities are growing.
Here are two companies poised to benefit in coming months…
Resource Company #1: Petroleo Brasileiro (PBR)
PBR is a Brazilian oil producer holding a 40% stake in one of the largest oil fields in the world- the Libra. Libra sits off the coast of Rio de Janeiro and holds an estimated 8-12 billion barrels of recoverable resources.
PBR is in a strong short-term uptrend after dropping to multi-year lows in March of 2014. Given the intense buying interest over the past few weeks, there’s a very good chance PBR continues higher into summer.
Don’t delay in buying the PBR July 18, 2014 $16.00 calls for $0.60 or better.
The current bid/ask spread for this contract is $0.50/$0.52.
Do not pay more than $0.60 per contract!
Our official entry price for performance tracking is $0.52. Your price may be higher or lower.
Exit Strategy:
Remember, we want PBR to trade higher. Our first profit target is the $17.50 resistance area. We could see additional gains for PBR if oil holds above $100 a barrel into the summer driving season. In such a scenario, PBR may jump to our second profit target at $19.00.
The risk control price for this trade is $13.50. If PBR trades below that level, conservative investors should consider closing this trade to conserve capital.
Resource Company #2: Cabot Oil & Gas (COG)
COG is a US based oil and natural gas producer with exposure to the Eagle Ford Shale of Texas and the prolific Marcellus shale of Pennsylvania.
The company’s production profile is heavily exposed to natural gas. And since the lion’s share of their acreage is in the low-cost Marcellus, COG enjoys some of the cheapest lifting costs in the industry.
When natural gas prices are rising, it’s best to look to the lowest-cost producers of the commodity. And COG is certainly one of them!
Let’s buy the COG July 18, 2014 $37.50 calls for $1.15 or better.
The current bid/ask spread for this contract is $0.90/$1.05.
Pay no more than $1.15 per contract!
Our official entry price for performance tracking is $1.05. Your price may be higher or lower.
Exit Strategy:
Remember, we want COG to trade higher. Our first profit target is the $39.50 resistance area. We could see additional gains for COG if natural gas rises to $5 mmBtu in coming months. In such a scenario, COG may jump to our second profit target at $41.00.
The risk control price is $34.85. If COG trades below that level, conservative investors should consider closing this trade to conserve capital.
Category: Commodity Trading
