Why I Bought Range Resources (RRC) Yesterday…
After a month of watching Range Resources (RRC) trade in a choppy downward pattern, I finally added shares of the natural gas producer to my energy portfolio yesterday afternoon.
Let me explain why…
As you may remember, I suggested you put RRC on your watch list here. RRC is one of the lowest cost producers of natural gas in the country. In fact, the company enjoys lifting costs of around $0.60 per Mcfe.
And with natural gas trading just under $4 mmBtu, it’s essential to focus capital on companies bringing the commodity out of the ground cheaply.
Speaking of natural gas…
The EIA reported an 88 bcf inventory addition in yesterday’s storage report. While the number was higher than analysts’ estimates, natural gas didn’t react bearishly.
As a matter of fact, the commodity rose 1.6% in yesterday’s session.
Here’s the thing… when a commodity rises on bearish news, it’s a good sign higher prices are around the corner. And remember, natural gas has a very strong seasonal tendency of rallying in September and October.
Now take a look at this…
The National Oceanic and Atmospheric Administration is expecting above average temperatures over the next 6-10 days. As a result, upcoming EIA injection data will likely be a bit on the low side.
Since storage levels are still 16% below last year and 17% short of the 5-year average, next week’s hot temperatures increase the odds of a looming natural gas rally.
And that’s not all…
As you can see from this long-term weekly chart, RRC suffered a rather dramatic selloff the past few months. But as you can also see, the recent downturn has the top-tier producer trading at an important technical support level near $75 (green line).
Long time readers know I prefer trading opportunities where I keep my risk defined.
The opportunity in RRC fits the bill perfectly…
If RRC drops below the green line over the next few weeks, I’ll close the trade for a small loss. But if RRC rallies, I’ll be sitting on a leading low-cost natural gas producer as the winter heating season arrives.
And before I forget…
Analysts at Canaccord Genuity have a “buy” rating and $98 price target on RRC!
Until Next Time,
Justin Bennett
Editor’s Note: If you’d like to join me on this trade, by all means do so. Just remember, if RRC’s price action tells me to exit the trade, I will do so immediately.
Category: Natural Gas
