Oil dad joke Walking Dead meme

Crude Intentions

Great Ones, we’re talking oil again today. You know, black gold? Texas tea?

Unlike back in old Jedd’s day, crude doesn’t just bubble up anymore. You have to drill, drill, drill and pump, pump, pump for those greasy dinosaur bones these days.

Now, you’d think that with gas prices remaining stubbornly high, and global economies experiencing massive supply issues for literally everything, oil producers would be pumping full tilt right now. But that’s simply not the case.

In fact, there’s about to be a lot less drilling and pumping all around the world.

OPEC+ is reportedly about to cut crude production by a rather large amount. According to some analysts, OPEC+ could cut production by more than 1 million barrels per day.

But why? Why would OPEC+ do that?

Honestly, because it can. You see, OPEC+ leaders believe that global oil demand will fall in the next year from the current average usage of about 3.1 million barrels per day to roughly 2.7 million barrels per day.

In order to maintain prices — and OPEC+ profits — the cartel will slash daily oil production.

“We expect a substantial cut to be made, which will not only help to tighten the physical fundamentals, but sends an important signal to the market,” analysts at Fitch Solutions said in a note.

It’s an “important signal” all right. A signal that OPEC+ can do what it wants, when it wants in regard to oil prices … and the U.S. Strategic Petroleum Reserve won’t be able to do squat about it.

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But what about U.S. oil production? Won’t this be an opportunity for them to make money?

It would, if they were prepared. But supply chain and labor issues still abound, resulting in the U.S. shale oil industry largely sitting on its hands and waiting. Here’s Patterson-UTI CEO Andy Hendricks with an explanation:

I don’t know of any producer that looks at the supply shortage and says “I have an opportunity to fill that.” Nothing is going to ramp up fast.

Hendricks also noted that it takes about six months of lead time to acquire and hire a quality oil-drilling rig and drilling team.

In other words, no one is riding to the rescue for U.S. consumers this time around. But honestly, that might not matter at all.

You see, part of the reason OPEC+ is cutting production is because of global economic growth concerns. We already have a recession in the U.S., and the situation definitely isn’t improving in Europe either. Meanwhile, China could be a hot mess right now … or it might not be … and the uncertainty is roiling Wall Street.

Crude oil futures (CL=F) rallied more than 2% today, with oil prices up more than 10% since September 17. If I had to make a prediction here, I’d bet that oil tops $90 per barrel following the OPEC+ production cut. Where oil heads from there depends on economic data and the U.S. Federal Reserve.

For instance, if the Fed continues to hike interest rates, that works directly against U.S. oil producers.

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“Until more capital is made available for U.S. producers, they’ll be hard-pressed to increase production and OPEC will continue to have control over pricing,” says Brad James, CEO of Enterprise Offshore Drilling.

Rising interest rates are the exact opposite of that “more capital” James is talking about. So if the Fed keeps raising rates, oil producers will remain short on capital to expand and deal with rising oil prices.

On the other hand, if the Fed doesn’t keep raising rates, soaring inflation could reignite — assuming it’s already been tamed — which would create higher oil prices all on its own.

Oil Be Seeing You…

Basically, Great Ones, it looks like we might be in Catch-22 situation here. Rates need to move higher to combat inflation, but higher rates will keep U.S. oil producers from increasing production.

In the end, it looks like Great One Kathy K. has the right idea:

I’m sticking with dividend stocks and adding a bit of new tech. Fuel stocks, Chevron, BP etc. have proven good no matter what they say with EVs. Oil and gas fuel rule.

I’ve talked about this before … and about the only thing that’s going to save us from skyrocketing oil and gas prices is a deeper U.S. recession — it decreases demand, after all. Even then, oil stocks like Chevron and BP will outperform. People gotta buy gas, after all … even in a recession.

I still believe that the oil market is living on borrowed time. Those pesky EVs that Kathy talks about are gonna take over eventually. It’s inevitable.

Until then, some healthy exposure to the oil market is not a bad idea, as Kathy points out. While it’s not in the Great Stuff Picks portfolio, BP (NYSE: BP) is probably my favorite oil company right now … mostly because of its leadership in the alternative energy market.

But if you want a more pure oil market play, might I suggest Occidental Petroleum (NYSE: OXY)? It’s spent the past several years paying down debt and is now in an excellent position to not only take advantage of rising oil prices, it also has the wherewithal to return some cash to shareholders.

Personally, however, I’m planning for the future…

According to Adam O’Dell, one tiny company could have the answer to the global energy crisis. This Silicon Valley firm has discovered how to use artificial intelligence to crack open the largest untapped energy source on the planet … making it available at scale for the entire globe.

This resource isn’t oil, gas, wind, solar, hydro, nuclear, fusion … or anything you’ve likely heard about before. It’s much bigger.

In fact, just one year of this untapped resource in the U.S. alone provides five times as much power as the largest oil field on Earth.

Which means this breakthrough is set to help launch an era of cheap, abundant electricity the likes of which the world has never seen.

Everything you need to know is right here.

Good, Better, Best

Good: Under JPMorgan’s Eye

Gilead Batman meme

No, we’re not talking about The Handmaid’s Tale. It just so happens that Gilead Sciences (Nasdaq: GILD) has an unfortunate name in that regard.

What isn’t unfortunate, especially for GILD stockholders, is that JPMorgan just upgraded Gilead to Overweight from Neutral while boosting its price target to $80 from $72.

According to JPMorgan analyst Chris Schott:

At current levels, we see Gilead’s HIV business alone supporting the stock’s entire market cap. And with an oncology franchise that we forecast to reach about $5 billion in sales by 2030 as well as potential upside to lenacapavir estimates over time, we see shares as clearly undervalued at current levels.

In layman’s terms, Schott believes that Gilead’s HIV drug, lenacapavir, alone is enough to value GILD stock at current prices. He believes that the rest of Gilead’s offerings, especially its cancer drugs, are not priced into the stock.

Schott is on to something here, as GILD is down more than 12% from its pandemic-related highs. Now that the pandemic is largely over, nobody is talking about Gilead’s remdesivir COVID-19 treatment anymore, and the shares have suffered because of it.

GILD rose more than 3% on JPMorgan’s upgrade.

Better: Avoid The Noid!

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Pizzamakers have been hit hard this year due to inflation, labor costs and soaring wheat and commodity prices. But one pizzamaker has avoided the “Noid” yet again, according to analysts at UBS.

The brokerage firm upgraded Domino’s Pizza (NYSE: DPZ) to Buy from Neutral, stating that demand weakness for Domino’s is “overblown.”

Apparently, many other brokerage firms believe that a U.S. recession and economic troubles will impact Domino’s demand. Clearly, these analysts don’t know people.

There are two pizzamakers that will do rather well during poor economic times: Little Caesar’s — which is not publicly traded — and Domino’s. They are, after all, the best of the cheap pizza places and should fare far better than their competition during a U.S. recession.

Sometimes you’re just too tired to make dinner, ya know? Pizza comes in really handy when you have to feed hungry kids and you’re dead tired, and cheap pizza is even better. Domino’s knows … and so does UBS.

DPZ stock jumped more than 4.5% on the news.

Best: Riveting Rivian

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Let me just say that the irony of an EV maker being today’s “Best” while oil is dominating the headlines is not lost on me, Great Ones. I, too, would like to throw off our OPEC+ overlords for pricing not dictated by a Middle Eastern cartel.

Electric vehicles (EVs) … you’re our only hope!

And EV maker Rivian (Nasdaq: RIVN) is striving hard to be a part of the anti-OPEC solution. The company announced this morning that Q3 production surged 67% from the prior quarter to more than 7,000 EVs.

What’s more, Rivian backed its 2022 outlook, saying it remained on track to build 25,000 EVs this year. That figure is down significantly from Rivian’s 50,000 EV target from earlier this year.

But don’t worry… The company halved its production goal back in March due to supply chain issues.

Currently, Rivian makes the R1T pickup, the R1S SUV and delivery vans for Amazon at its Illinois manufacturing plant. Rivian did not say how many of each EV it produced during the quarter.

Overall, Rivian has made 14,317 EVs this year, leaving it well within reach of the 25,000 target with one quarter left in 2022.

RIVN stock soared more than 12% on the news … and was likely juiced by rising oil prices and OPEC+’s rumored production cut as well.

That’s all for today, Great Ones.

If you have a stock or investing idea you’d like to see Great Stuff cover, let us know at: GreatStuffToday@BanyanHill.com.

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Joseph Hargett. Editor of Great Stuff