The Oil Gang Makes an Inflationary Move
An 'unexpected' move by the oil cartel... Unapologetic price fixers... A global story... A whole lot of bad news... The biggest possible winner... Our Greg Diamond and Eric Wade take your questions...
The oil cartel is at it again...
As our Stansberry NewsWire analyst Kevin Sanford reported first thing this morning in his daily market preview, oil prices were spiking after several large OPEC+ countries and a few others announced Sunday an unexpected cut in daily crude-oil production.
The cuts will start in May and are intended to last through the end of the year.
By this afternoon, prices for West Texas Intermediate crude oil – the U.S. benchmark – and a barrel of Brent crude, the international standard, were each up almost 7%... their biggest one-day gains in nearly a year.
The move higher for oil drove several leading commodities indexes higher as well... along with names tied to higher inflation and possible recession. The S&P 500 Index's leading sectors today were energy (up 4.5%) and health care (up 1%).
Explaining OPEC+...
The Organization of the Petroleum Exporting Countries ("OPEC") began as a group of five nations in 1960 and currently has 13 member states. In 2016, these unapologetic oil price fixers joined forces with 10 more nations known as OPEC+.
Today, the group produces about 40% of the world's crude oil and controls more than 80% of the world's oil reserves. Members include Saudi Arabia, Russia, the United Arab Emirates, Kuwait, Iraq, Oman, Algeria, and Kazakhstan. All announced that they'd cut their production or extend existing cuts.
In total, more than 1 million barrels per day will disappear from global oil markets...
Pair that with previously announced OPEC+ cuts of 2.6 million barrels per day that have occurred since November, and that amounts to nearly 4% of global demand.
That's significant.
Then there's the U.S., a non-OPEC country that passed both Saudi Arabia and Russia in crude oil production back in 2018. It has little influence in the matter other than to say, "We don't like it." For example, a spokesperson for the U.S. National Security Council told global news service Reuters on Sunday...
We don't think cuts are advisable at this moment, given market uncertainty — and we've made that clear.
Still, the cuts are happening...
I (Corey McLaughlin) will explain some of the consequences of this move from the OPEC oil cartel today. I'll look at the topic both for everyday folks on Main Street and the opportunity it might present for long-term investors.
This development raises concerns about higher prices and the global inflation picture in general... It also boosted shares of energy stocks today, which for the last several years have been an effective inflation hedge for these and similar reasons.
First off, let's acknowledge this is a deliberate move by OPEC nations...
Oil demand typically peaks in the summer. And a few months ahead of summer (for us Northern Hemisphere dwellers, at least), these oil-producing nations are planning to cut supply.
And all of this is happening with the war in Ukraine and its knock-on effects as the backdrop. Plus, it's not like the U.S. government can merely tap the U.S. Strategic Petroleum Reserve again.
U.S. oil reserves are at their lowest level in 40 years, as our DailyWealth team showed recently...
In fact, the U.S. government started to replenish these reserves, though the U.S. energy secretary recently said it could take years to refill the reserve because the government wants to only buy when oil is under $72 per barrel... And the OPEC countries know this.
Couple that dynamic with coordinated tighter global supply by U.S. adversaries like Russia and constant (if not increasing) demand for oil, and you get... higher oil prices. Today, several Wall Street firms raised their outlooks for oil prices to reach $100 per barrel by the summer.
That translates into higher expenses for folks already dealing with high inflation in gas and food. It could also mean more income for Russia as its military continues to fight a bloody war in Ukraine.
Russia had already been cutting supply by 500,000 barrels per day since November and, in concert with the moves from Saudi Arabia and others yesterday, extended those plans through the end of 2023.
Another effect could be persistently elevated inflation numbers, which could give the Federal Reserve and other central banks a reason to keep interest rates high... possibly sparking an economic slowdown.
That's a whole lot of bad news.
Now, here's the bright side for investors...
Our game here is finding moneymaking opportunities that protect and grow wealth over the long run...
In that vein, a cut in global oil supply could also create another big opportunity for oil and gas companies.
In a recent issue of DailyWealth, Briton Hill, a new analyst on the team of our corporate affiliate Chaikin Analytics, posited this scenario...
So far, the current [U.S.] administration has made life difficult for domestic oil producers. But even the strictest policies can reverse course if times get too desperate...
It happened recently when China caved to COVID-19 protesters and reopened for business.
And if gas prices surge high enough this summer, the U.S. government could give in, too.
The U.S. government could provide relief for U.S. oil prices and replenish its oil reserves at the same time with one simple move... bringing back domestic oil production.
Briton says he is keeping an eye on "picks and shovels" oil and gas companies that build pipelines and supply refining equipment... and is using Marc Chaikin's "Power Gauge" to spot the companies showing the most bullish signatures. You can learn more about that here.
This idea should sound familiar...
It's one Stansberry Research senior analyst Brett Eversole has shared here before, and it's all part of the long-term bullish thesis for higher oil prices despite the global push for alternative energy sources.
As Brett wrote in a September 2022 Digest...
The U.S. is not going to get enough supply online to outpace demand anytime soon. And that means prices could stay where they are – or go even higher.
That's the truth at a high level...
The perception is that fossil fuels are dead. The reality is that they've got a long life ahead. And as investors, we can exploit the masses getting this completely wrong.
Contrary to popular belief, this setup ensures a continued boom for oil and gas companies. And it'll be one unlike anything we've seen before.
That's because high prices will mean record revenues for these companies. That's typical in a boom. But the companies usually reinvest those sales into future production.
Activists and certain folks on Wall Street and in Washington are telling these companies not to invest in growth, Brett said. So as prices go higher, the next oil and gas boom will lead to record sales... record margins... and record profits. As he wrote...
These companies will turn into cash-gushing machines the likes of which we've never seen.
Brett recently gave a comprehensive update on this thesis and his "Oil Boom Portfolio" in the March issue of True Wealth Systems and added a brand-new recommendation he says has 50% upside in this "hated" sector.
Existing subscribers and Alliance members won't want to miss it.
Moving on to a special session with Ten Stock Trader editor Greg Diamond...
On Friday, Greg published his first video question-and-answer session of 2023, and existing Ten Stock Trader subscribers and Alliance members can click here to see it... They won't want to miss it. As Greg says...
In this session, I addressed general questions about position sizing and options trading. I also discussed numerous charts to review risk-on and risk-off behavior in relation to stocks. Finally, I shared my view of where markets are headed in 2023.
Greg's usual Weekly Market Outlook today followed up on that last part about his outlook for the markets. Here's a sneak peek: In the parlance of an old Ohio pig farmer, Greg says we're in a period of "hard times and low prices," which means time to buy...
Continuing the trend, here's a conversation starter...
In his weekly video update on Friday, Crypto Capital editor Eric Wade took advantage of the relative calm in the cryptocurrency market to try something new... He asked his subscribers some thought-provoking questions, like...
When it comes to investing and specifically investing in cryptocurrencies, owning cryptocurrencies, dabbling in cryptocurrencies, speculating in them, what are you hoping to achieve?...
Does any part of you separate your digital assets from their fiat worth? Fiat, meaning dollars, yen, euro, yuan, pesos... Do you care about the technological innovation going on in this space?... What's something you think the crypto space is lacking?
Eric ended up raising 15 really great questions for his subscribers to consider and encouraged feedback. Stansberry Alliance members and existing Crypto Capital subscribers can check out Eric's latest update with all the details, including how to contact him with your answers.
The Year of China's Consumer
Brendan Ahern, chief investment officer at KraneShares, joins Matt McCall for the latest edition of his podcast to talk about what China's reopening means for its economy and investors...
Click here to watch this video right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 3/31/23): Analog Devices (ADI), Ansys (ANSS), Activision Blizzard (ATVI), CBOE Global Markets (CBOE), Copart (CPRT), CTS (CTS), SPDR EURO STOXX 50 Fund (FEZ), Hershey (HSY), McDonald's (MCD), MarketAxess (MKTX), Motorola Solutions (MSI), MYR Group (MYRG), Novo Nordisk (NVO), NVR (NVR), Kering (PPRUY), Sprouts Farmers Market (SFM), iShares 0-3 Month Treasury Bond Fund (SGOV), Stryker (SYK), and Texas Instruments (TXN).
In today's mailbag, feedback on Dan Ferris' latest Friday Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Dan, Thank you. I'm 73 and not cranky and I've been around the block and seen this story before. It never ceases to amaze me that people always think 'this time is different,' like human nature changes.
"It constantly amazes me that proper blame isn't affixed to those most deserving – the federal government for locking the economy down, giving away 'free' money (??????) coupled with the Fed luring business in with 'free' money (what else can you call borrowing at .25%). It's so insane that so few people get it." – Paid-up subscriber Tim P.
"Dear Dan, I will continue to express my gratitude for your informed bluntness and finely curated sarcasm, i.e., 'For a brief moment as I listened to [Cathie] Wood speak, an image of Mary Poppins flashed in my mind. I could've sworn that I heard her promise that the companies in ARK Investment Management's ETFs would soon deliver supercalifragilisticexpialidocious growth.'
"We need you, so kindly forget about ever retiring." – Paid-up subscriber John C.
All the best,
Corey McLaughlin
Baltimore, Maryland
April 3, 2023