A slide in crude oil prices has weighed on the Club’s three energy holdings. But given the uncertainty around OPEC+’s output policy ahead of a key meeting this weekend, coupled with growing concerns over the health of the global economy, we’re sitting tight on buying the dip — at least for now. The Organization of Petroleum Exporting Countries and its oil-producing allies, collectively known as OPEC+, are set to convene Sunday to discuss their next move on production. But the strategy is so far unclear, given mixed messages from Saudi Arabia — OPEC’s de-facto leader — and Russia, the biggest member of the partner producers. Saudi Arabia’s energy minster, Prince Abdulaziz bin Salman, last week warned investors betting on oil prices to fall to “watch out,” alluding to OPEC+’s substantial surprise production cut in early April and the subsequent near-term jump in crude. A few days later, Deputy Russian Prime Minister Alexander Novak minimized the need for OPEC+ to take further action . In general, a decision to reduce output would be seen as an attempt to prop up prices. Brent crude — the global oil benchmark — and West Texas Intermediate Crude, the U.S. oil standard, have fallen roughly 7% and 8%, respectively, over the past week. During that same period, the Club’s three oil names — Coterra Energy (CTRA), Pioneer Natural Resources (PXD) and Halliburton (HAL) — have come down 9%, 6.7% and 6.5%, respectively. The conflicting signals from OPEC+ have agitated an oil market already dealing with numerous drags on prices, including Russia’s resilient oil output in the face of Western sanctions and fears that China’s economic recovery from Covid-19 restrictions hasn’t been as strong as expected , according to Cowen energy analyst Jason Gabelman. “In the U.S. and Europe, too, there’s a lot of concern around a freight recession and just a broader demand slowdown,” he told CNBC, noting an elevated number of investors are positioned to profit if oil prices weaken . Considering the mixed commentary, Gabelman said the market may be expecting OPEC+ to deliver a “very modest” production cut Sunday, “or a cut in name only… where some of the non-formalized cuts become formal.” In those instances, Gabelman said he thinks oil prices are unlikely to react significantly. “If they don’t cut further, there could be additional downside reaction in the immediate aftermath,” Gabelman said. However, he cautioned a downside move may not hold during the summer months in the U.S., a seasonally strong period for demand. In sum, we find the situation leading up to the OPEC+ meeting too murky to make a move on our oil stocks, despite their recent swoon. Our investing style is usually to look to buy high-quality companies when they fall out of favor — but it’s too early to do the same with oil, considering the economic crosscurrents and uncertainty around Sunday’s OPEC+ decision. We’re willing to be patient with these positions — particularly as the…
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