We've been inundated of late with buy recommendations from the oil patch. Analysts can't resist the stock of the world's largest oil company, Exxon Mobil (XOM) , with a phenomenal and highly unusual 5% yield. Exxon always trades with a spartan dividend. Not anymore.
It's tough to resist buying the stock of Chevron (CVX) when its big projects are hitting paydirt and CEO Mike Wirth is at the helm trying to get Permian on the cheap. The major with an almost 7% yield, BP (BP) , the one that is growing the fastest and most sustainably, is a terrible holding -- as we know all too well from the charitable trust, something you can follow the picks from by joining the Action Alerts Plus club.
There's only one thing wrong with these upgrades and table pounders: none of them are working. If you did any of them, you are mostly likely down on the choices even as the market's up.
Iran's being boxed out to the tune of 2 million barrels. Venezuela is falling apart. No international oils, save Saudi Arabia, are spending enough to replenish their coffers.
These should be halcyon days for the group. Yet it is lower, much lower, than when oil was half as high. No wonder you get the best of the best service company, Schlumberger (SLB) for an unheard of 6% yield.
So what's the deal? Simple:
1. These stocks have become pariahs. The President took to the tweet waves to pummel Ford Motor (F) for caving into California's higher emission standards, ignoring Trump's wishes that would slow the pressure on autos to conform to higher miles per gallon rates. Fossil fuels are hated by even the autos.
2. The U.S. is pumping far more than we thought with the Permian leading the way. We are producing 12 million barrels per day and we are going to 17 million barrels in a few more years, says Scott Sheffield, the CEO of giant independent Pioneer Natural Resources (PXD) . We were producing 9 million barrels just two years ago. We have to export so much just to be sure we aren't over flowing.
3. The actual stocks aren't showing any lift because they are being so disciplined. We don't see companies anymore producing more than they should ,given their weak balance sheets. They are too dangerous to own, which means a lot of little oils are uninvestible.
4. Not only are we now the world's largest producer, we produce an immense amount of natural gas but we have no place to put it. We are shipping about six million BCF out of the Louisiana docks. The world loves our liquified natural gas but because of pipe issues, we still don't have enough capacity to rid ourselves of the stuff, especially because there isn't enough pipe to go to Mexico and the Mexicans seem recalcitrant to accept pipeline natural gas even though they need it, especially propane. That has severely constrained the drilling in the western part of the Permian. No wonder Apache trades where it does.
5. The mergers that we thought would occur aren't occurring. That's because Occidental Petroleum (OXY) paid too much for Anadarko, as we know from the action in OXY's stock after it picked up Anardako or Carrizo after its unfathomable merger with Callon Pete.
6. Finally, the greedy bankers brought a ton of pipeline and individual oil names this year; we have no room for either.
This group is simply terrible -- a house of pain. Skip it or, to use a Fantasy Football term, wait until the last rounds to buy.