As temperatures heat up across much of the country, M&A activity and earnings season are bringing some sizzle to the commodity sectors as well. Investors, meanwhile, are feeling a different kind of heat, as they try to make sense of declines in oil and natural-gas prices, continued weakness in many mining stocks, and a sudden onset of headlines heralding the end of commodity demand growth.
Oil and natural gas deliver a gut check
As we saw with gold and silver back in March and coal earlier this month, corrections within long-term commodity bull markets can occur suddenly and without warning. After climbing beyond $145 a barrel, oil slipped down to the $130 mark last week, where it continues to hover. More surprising to this Fool was that natural gas retreated twice as far on a percentage basis, down 22%, from around $13.50 to $10.50. Sure, U.S. inventories rose more than expected, but I believe the drop smacked of an overreaction. A look at my colleague David Lee Smith's discussion of several energy myths might help restore some confidence.
Meanwhile, Royal Dutch Shell (NYSE: RDS-A ) (NYSE: RDS-B ) announced a $5.8 billion deal last week to acquire Canadian natural-gas play Duvernay Oil. Shell also ditched plans to build a refinery in Canada. Pipeline operator Kinder Morgan Energy Partners (NYSE: KMP ) delivered robust earnings, in part because of stellar volumes out of the prolific Barnett Shale. Meanwhile, following terrific second-quarter results from Korean steelmaker POSCO (NYSE: PKX ) , Russian competitor Mechel (NYSE: MTL ) revealed first-quarter results that were simply stunning.
Despite a nice pop today and continued interest by major miners to secure coal assets, coal stocks have languished over the past couple of weeks. Cleveland-Cliffs (NYSE: CLF ) , for example, announced that it will acquire coal giant Alpha Natural Resources (NYSE: ANR ) in a $10 billion deal to create a new entity called Cliffs Natural Resources.
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