War's over, man. Wormer dropped the "Big One." D-Day utters those famous lines in "Animal House," and I felt that way last night, when OPEC-Plus' shocking decision to cut production hit the wires. The shocking thing wasn't the amount -- a combined total reduction of about 1.16 million barrels per day, according to Reuters -- but the duration of the production adjustments -- through year-end 2023.
OPEC+ is cutting production just as demand typically faces a seasonal increase for summer driving season. Eighty-eight percent of the world's population lives in the Northern Hemisphere. Summer is coming. So, why cut now?
Well, the proof is in the details. OPEC member countries are: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, Qatar , Indonesia , Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and Congo. OPEC-Plus countries are; Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
No. 8 on the list is key. Most OPEC countries can live with $60/$70 per barrel oil, with Venezuela as a notable expectation. But Russia, a key member of OPEC-PLUS, needs hard currency as it faces sanctions from the West owing to its war in Ukraine. Putin's ill-advised "special military operation" just keeps biting the West in the butt. Last year, it was natural gas prices, which have since imploded, and this year it will be crude oil prices. Mark my words, crude prices will not implode ahead of Northern Hemisphere summer.
How to play it? Well, in my beloved HOAX portfolio this Monday morning, I sold two stellar performers, the coal names, Arch Resources Inc. (ARCH) and Peabody Energy Corporation (BTU) , and bought two integrated oil producers. Which ones are proprietary to my firm and my clients, but, suffice it to say, I headlined my email to subscribers thusly: "Pivot to black oil."
No, I am not known for my subtlety, when it comes to investing in hydrocarbon companies, subtlety is a complete waste of your time. You must strike when the iron is hot. Exxon (XOM) and Chevron (CVX) hold a venerated place in HOAX, and I am quite certain I will never sell either name. If you had asked me last Thursday (a client did, actually) whether it was "too late" to buy XOM and CVX, I would have (and did) hesitate. As of yesterday afternoon, that hesitation is gone.
Am I buying more XOM at $115/share and CVX at $170/share today? Hellz yeah. Also, I have made known my distaste for the USO (USO) commodity exchange-traded fund known many times since oil's disastrous fall "below zero" during the Covid crush, but I found a new ETF to crush on. And actually this one is issued by the same fund sponsor, USCF Investments. So, no bias here. But Brent is heading back to $100/bbl with a bullet, and I want pure-play exposure to it.
So, check out USCF's Brent Oil ETF, (BNO) . The U.S. and Canada are in neither OPEC nor OPEC-Plus, obviously, so the West Texas Intermediate crude price benchmark is not where the action is it in my opinion, will be this summer. I want Brent exposure, so I bought some BNO calls Friday Afternoon. Man, are they rockin' today. Can't complain.
So, that's what we aim for at my firm, Excelsior Capital Partners. Marginal changes in supply and demand. For consumer products, as Tesla (TSLA) showed by missing its third consecutive quarterly deliveries consensus forecast, it is about demand. Also, with oil prices on the rise, the consumer will once again be flattened by rising inflation, of which energy costs are a material component. That hurts consumer demand for ... everything.
For hydrocarbons, and hydrocarbon stocks, I have learned through years of experience, investing is about supply. When that supply is curtailed...we buy. Don't miss the flashing signals. OPEC+ dropped the Big One. Make sure you have heavy exposure to Black Oil in your portfolio.
