The best energy stocks right now as two major conflicts keep oil prices
POWER POINT
What I’m hearing from energy insiders
Open. Closed. Down. Up.
That’s the recent rhythm of the Strait of Hormuz (SOH). It’s also the subsequent moves in crude oil prices.
I’m almost reluctant to write anything concrete here because by the time you read it, it may already be dated. But Power Insider has to go to ‘print’ (so to speak) and so at some point we have to just call it and go forth!
As I recently wrote, any energy investor has to stay very nimble these days. The news doesn’t change from day to day but from hour to hour. The fluidity of the situation is painted by headlines from the U.S. military’s Central Command. Witness these three only on Sunday.
Just after 8am ET Wednesday, this optimistic post landed.
A few hours later, things turned troubled.
Less than 5 hours after that, it really ramped up.
The speed and direction of the news has been almost impossible to keep up with. In just the past couple of days, the world has seen more Iranian military attacks on ships – including two strikes on U.A.E. oil tankers, one resulting in a death – hits on Kuwait, and then news about a proposed 20% ‘security fee‘ from President Trump, which then went away nearly as quickly as it came about.
By the way, a 20% toll on a supertanker full of oil could cost over $30 million dollars. It would’ve eliminated all profit or economic incentive to move the cargo. That fee was clearly a nonstarter for most shippers and oil companies. Thus, it went away. 20% fee, we hardly knew thee!
So where does the oil market stand right now? I laid out both the bull and bear cases for crude on CNBC TV this week.
Those seeing higher prices ahead point to the Iran risk, the draining of global inventories – including the U.S. SPR – and still-strong global economies. OPEC just released a new economic forecast that keeps its 3.2% global growth estimate intact.
The lower price bear camp also points to the global storage releases, but as keeping the market well supplied. They also note the big drop in China’s oil demand and the increasingly important Russia story. Ukraine is pounding Putin’s refinery assets with long-range drone attacks. Damaged refineries can’t process oil. That oil then has to be sold on the global market because it can’t be refined domestically. That actually increases the availability of Russian oil on the market, helping alleviate any Hormuz-related supply slowdown (see the RBI below).
The supertanker-sized question many of you may be asking: when does the price of oil begin to meaningfully impact stocks and the macro market?
Oil is already moving borrowing costs. U.S. 10-year bond yields here in the U.S. have popped back above 4.6%, and powerful members of our Federal Reserve are saying we may need interest rate hikes to stave off growing inflation.
That’s one part of a succinct…
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