Why energy could be a great place to invest even with oil prices retreating

While the world watches and waits on every word around the Strait of Hormuz, investors are moving on. Mostly. It’s ‘mostly’ because no one is suggesting that the troubles are over and things are back to normal. Far from it.  But as I write this, the Joint Maritime Information Center notes that “traffic flows began increasing with improvements in anchorage congestion across the region” near the SOH. Marine Traffic and Kpler also tell us that the number of ships steaming through the Strait is rising.  

United States Central Command highlighted that as of a few days ago 55 merchant ships transited [the Strait]. Moving “large amounts of cargo and more than 17 million barrels of oil to global markets.”

While that number is well above where it was for much of the past few months, it remains below the prewar levels. Still, the recent news flow around ship traffic has undoubtedly been positive.  

MY TAKE →   It’s less how many ships are leaving the Arabian Gulf than how many are going in.   That is the key data point and number I’ll be watching the next few days.  

As we’ve talked about here and on CNBC, contradictory or often conflicting headlines are the norm not the exception. To make sense of it, just follow the data and the trade. Oil just broke below $75 for the first time since the Iran war began.  Gasoline prices will be slower to react but you should still see some relief at the pump. Things can always change, but for now enjoy some lower prices.

Let’s move on, because there are other critical headlines in energy outside of Iran and Hormuz.

While what happens in the middle east is important, the focus of the market remains on artificial intelligence. The A.I. buildout and related capital spending remain the most important market story, and at least so far there is no indication of that slowing down. A good example is that this week Chevron (CVX) announced a 20-year natural gas deal with Microsoft (MSFT) to power a new data center in Texas. The data center will be what they call ‘behind the meter’ – meaning it’s not connected to a wider electricity grid and thus won’t compete for the power with anyone else.

GE Vernova (GEV) and Caterpillar (CAT) are selling the turbines to make it all happen. While we don’t know the numbers, you can bet that this project will be a huge economic boon to the region. It should also benefit jobs, incomes and, yes, corporate earnings in and around projects like this.

Wall Street expects S&P 500 earnings to keep rising over the next year and a half. Headlines like the Chevron deal contribute to the bullish tone.  

Microsoft, by the way, is a really interesting stock to watch. The stock is on pace for its worst month in 25 years. It is now about 30% lower than its $559.29 average FactSet aggregated price target. Either some of the 60 analysts surveyed start to cut their price target, or the stock recovers. Something has to give.

Yes, Microsoft is partly an energy…