The decision by Saudi Arabia, Russia and other major oil exporters to reduce production to boost oil prices was a positive development for the struggling Club’s energy holdings. Saudi Arabia, the Organization of the Petroleum Exporting Countries’ de-facto leader, announced that it would extend its voluntary cut of oil production of 1,000,000 barrels per day until August. Russia, the cartel’s main oil producer and a member of a larger group known as OPEC+, said that it would cut its oil exports next month by 500,000 barrels a daily. The price of oil rose Monday. West Texas Intermediate crude, the U.S. benchmark, increased by 0.28% to just below $71 per barrel. WTI is down nearly 15% since its April 2023 peak. Haliburton, the oil-services company of The Club, which has fallen nearly 14% in value year-to date, soared by 2.7% on Monday morning to almost $34 per share. Exploration-and-production names Pioneer Natural Resources (PXD) and Coterra Energy (CTRA) edged up slightly. The decision on Monday will benefit our three oil companies mainly because the higher energy prices are expected to translate into more free cash flow generation by these companies. A portion of this is returned to investors like us via stock buybacks and dividends. The Saudis and Russians’ move comes amid concerns about a slowing world economy, and before another possible round of interest rate hikes by the U.S. Federal Reserve in order to combat persistent inflation. The slow recovery of China’s economy after the Covid scandal has also hampered global oil demand. The U.S. wants to maintain lower oil prices in this uncertain economic climate. This could encourage more drilling in the United States, as a higher level of domestic production would offset OPEC+’s efforts to raise prices through supply cuts. While output cuts might temporarily boost oil prices, we are skeptical that they can be enough to increase them materially. We believe that the key to a rise in energy prices will be a recovery in U.S. growth and acceleration of the Chinese economy. Oil prices could rise if the economic outlook improves. It may also cause a shift away from sectors like technology, communications services, and consumer discretionary, which have been driving the equities market upwards all year. If this were to happen, it is likely that investment dollars will flow into the energy, financial and industrial sectors. If energy prices remained relatively low, we could expect year-to date winners to continue to rise, as they would benefit from lower oil prices. A diversified portfolio can help us weather whatever comes our way in the second half of this year. (Jim Cramer’s Charitable Trust owns HAL, PXD and CTRA. Click here to see the full list. Subscribers to CNBC Investing Club will receive a trading alert before Jim Cramer makes a transaction. Jim Cramer waits for 45 minutes after sending out a trade notification before he buys or sells a stock from his charitable trust portfolio. Jim will wait 72 hours to execute a trade if he has discussed a stock with CNBC TV. The above INVESTING Club information is subject to our Terms and Conditions, Privacy Policy, as well as our Disclaimer. A FIDUCIARY DUTY OR OBLIGATION DOES NOT EXIST OR IS CREATED BY YOUR RECEIPT of any information provided in connection with the INVESTING Club. A SPECIFIC RESULT OR PROFIT IS NOT GUARANTEED.
On Wednesday, October 3, 2018, an offshore drilling platform is seen in shallow water at the Manifa oilfield operated by Saudi Aramco in Manifa in Saudi Arabia.
Bloomberg
The Club’s energy holdings are gaining from the decision made Monday by Saudi Arabia, Russia and other major oil exporters to reduce production to try to boost oil prices.
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