We have some merger mania underway in the energy sector.
Just yesterday, ConocoPhillips (COP) announced that it would buy Marathon Oil Corp. (MRO) for $22.5 billion in an all-stock deal.
It’s important to note that Marathon has a lot of domestic assets, and my guess is that Conoco might be anticipating a Trump election victory. So, buying Marathon could help Conoco’s domestic energy expansion significantly.
But the reality is this acquisition follows a string of deals in the energy space. Oil giants are flush with cash and looking for ways to put it to use. For example…
On May 3, Exxon Mobil Corporation (XOM) announced that it had finally closed its $59.5 billion acquisition of Pioneer Natural Resources. The deal will make Exxon the largest player in Texas’ Permian Basin, the largest and most important oilfield in the U.S.
And just this past Tuesday, Hess Corporation (HES) shareholders voted in favor of Chevron Corporation’s (CVX) $53 billion buyout offer. The deal would give Chevron exposure the oilfields in Guyana, home to the biggest new discovery in the Western Hemisphere in decades.
It’s clear energy companies have been making some big moves lately.
However, in today’s Market 360, I want to touch on a different angle of the energy sector. With all this merger mania in the news, it seems folks are missing a key takeaway when it comes to the energy sector this summer.
I’m talking about how oil prices are headed higher… and how investors can profit from it. So, without further ado, let’s get into it.
Oil Prices are Hitting the Gas
Folks, there are two big factors right now that I believe will drive oil prices higher in the coming months.
Factor No. 1: The Season for Traveling
First and foremost, the summer season is the season for traveling. And the long Memorial Day weekend has kicked off the start of the vacation season. In fact, The Vacationer’s 2024 Summer Travel Survey revealed that more than 80% of Americans, or more than 212 million people, are set to travel this summer.
So, as more and more folks are comfortable taking to the roads and skies again this summer, oil prices will go higher.
Don’t believe me?
Well, the Organization of the Petroleum Exporting Countries (OPEC) announced that it anticipates summer travel demand will boost crude oil demand in the second and third quarters of 2024.
They also noted that jet fuel/kerosene demand is expected to increase by 600,000 barrels per day in the second quarter. Likewise, gasoline and diesel demand are forecast to rise by 400,000 barrels per day and 200,000 barrels per day, respectively.
Overall, OPEC expects oil demand of 2.25 million barrels per day this year, as travel in the U.S., Europe and Asia heat up in the coming months. I should also add that the recent heatwave in the U.S. caused natural gas prices to surge. Remember, demand at natural gas power plants rises for air conditioning. Add in the fact that Asian demand for liquified natural gas (LNG) remains high, and natural gas prices are near their highest levels this year.
Factor No. 2: The Russia-Ukraine Conflict
The second factor that could be an even bigger driver for energy prices in the near term happens to be a bit of a wildcard.
I’m talking about what’s happening in Russia and Ukraine.
You’ll likely see this conflict begin to dominate the news in June as the fighting between these two countries escalates even further. According to Britain’s Express, in its attempt to capture more villages in Ukraine, Russia recently lost 1,740 troops in just one day.
The reality is that the Russia-Ukraine conflict is a war of attrition. Russia advances at tremendous costs, with an estimated 500,000 troops killed so far. Ukraine has also suffered massive losses and is reportedly running out of troops. As a result, Ukraine is growing increasingly desperate.
In recent months, Ukraine has attacked Russian oil refineries and railroads. Personally, I would not be surprised if Ukraine were to sabotage Russia’s Arctic oil pipelines. And that event is growing more and more likely by the day…
Reports indicate that Russia has amassed 500,000 troops for a fresh offensive on the city of Kharkiv, Ukraine’s second-largest city. If Russia captures Kharkiv, I suspect that crude oil could jump to $100 per barrel, because either Ukraine will sabotage the Russian Arctic oil pipeline in retaliation, or Western nations will place an embargo on Russian crude oil.
The Best Profit Strategy for the Summer
The bottom line is that it doesn’t look like we will find much relief from elevated energy prices this summer. But you can use this to your advantage.
With energy prices set to spike due to seasonal demand and international chaos, your best defense is a strong offense of fundamentally superior energy-related stocks.
Now, if you’ve been a longtime reader of mine, you’ve heard me say this before… Energy stocks tend to show tremendous relative strength as temperatures in the Northern Hemisphere begin to warm, thanks to increasing demand. What’s more, these stocks tend to “zig” when others “zag”, so they can actually lower the risk of your portfolio.
For that reason, I think just about every portfolio should have some exposure to energy stocks.
As far as the energy sector goes, there are a lot of options. Personally, I like the LNG tankers and the energy refiners. I also think a lot of the integrated energy stocks make sense right now.
And both of my Growth Investor Buy Lists are the perfect place to find them.
In fact, I just added two new energy stocks with robust forecasted earnings growth to the Buy Lists on Friday. And in less than a week, one of them is already up almost 5%.
Outside of these new buys, both my High-Growth Investments and Elite Dividend Payers Buy Lists are chock-full of energy companies with superior fundamentals. Between the two lists, I have 13 energy companies rated as “Buys” or “Strong Buys” – and some are already up by as much as 36%, 44% and 58%.
(Already a Growth Investor subscriber? Click here to log in to the members-only website now.)
Sincerely,
Louis Navellier
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
ConocoPhillips (COP), Marathon Oil Corp. (MRO) and Exxon Mobil Corporation (XOM)
