Oil-Stock Trade Is ‘Too Obvious’
The oil market is “overextended,” There are better stocks to purchase than Exxon Mobil Corp. XOM, -1.23%, and Chevron Corp. CVX, -1.20%. Warren Buffett, CEO of Berkshire Hathaway Inc. BRK.B, -1.78 percent, favors Occidental Petroleum and has amassed a substantial holding in the company’s stock. It was followed by a protracted rise to $77 in October 2018 and a brief dip into negative territory during the early pandemic doldrums of April 2020. The current cost is around $121.
Tuttle anticipates a modest dip in oil stocks when it is simple to expect oil to rise. Domestic producers continue to underinvest in supply for fear of being burned again if prices fall.
Benchmark The price of U.S. crude oil for July delivery decreased 60 cents to $121.51 per barrel on Thursday. Brent crude lost 51 cents to $123.07 a barrel for August delivery.
The wholesale price of gasoline for July delivery increased by 6 cents to $4.28 per gallon. Heating oil rose 9 cents to $4.40 a gallon in July. In July, natural gas jumped 26 cents to $8.96 per 1,000 cubic feet.
The price of gold for August delivery declined from $3.70 to $1,852.80 per ounce. July silver dropped 27 cents to $21.82 per ounce, while July copper fell 7 cents to $4.38 per pound.
Russia Adds $9.4 Billion of Oil Revenue
Russia announced on Thursday that it had added the equivalent of $9.4 billion to its government emergency reserve fund; the funds came from additional oil and gas income collected in 2022.
The Russian government can readily use the rainy-day fund and has been doing so actively since the invasion of Ukraine and Western sanctions, which have wrecked the Russian economy and propelled inflation into the double digits, the highest figure in over two decades.
On the other hand, Russian oil and gas income continues to flow and exceed prior budget predictions due to the Ukraine conflict, which has sent oil and gas prices skyrocketing. Through embargoes and sanctions, the E.U., the U.S., and the U.K. hope to reduce oil money flows to Russia. The E.U.’s current sanctions package, the most severe, bans Russian seaborne oil imports within eight months and bars E.U. insurers from providing insurance for Russian oil traveling anywhere in the globe. This insurance prohibition might be a death blow to Russian oil exports because it would destroy Russia’s capacity to ship crude anywhere in the world.
With this embargo, the market will experience a significant shift within a six-month transition period. Still, oil money will continue to flow to Russia at high rates until then.
According to the finance ministry, Russia expects to collect up to $6.37 billion in additional oil and gas revenues since energy commodity prices have risen since Russia invaded Ukraine. Oil revenues continue to flow; however, the Russian economy is in free fall due to Western sanctions, double-digit inflation, and dramatic reductions in consumer spending power.
The Russian federal government announced last month that it would raise minimum salaries and pensions beginning June 1 to combat the consequences of double-digit inflation connected to Western sanctions. A slew of Western firms has fled due to the sanctions and reputational pressure; contributing to the sanctions’ negative impact on Russia.
Oil Dips on China Lockdowns and Stagflation Risks
Crude prices fell as stagflationary threats in the U.S. increased, and China’s reopening faced a major stumbling block, with Shanghai scheduled to lock down seven districts this weekend. The oil market remains extremely tight, but the short-term crude demand outlook has hit today. Whatever weakness arises for crude will undoubtedly be temporary since this will be one of the busiest driving seasons in history. Pent-up demand for vacation and travel will be front-loaded; moreover, demand for petroleum will remain healthy even if gas prices rise to $6 per gallon.
Global economic concerns will eventually drive some safe-haven flows into gold. Still, the immediate shock of a high inflation report may be painful for bullion investors. The USD 1785–1800 range should provide some support if gold falls. If inflation unexpectedly eases, selling will emerge ahead of the USD 1890 level.
