Paul Sankey talks how to play oil after worst month of 2024

Paul Sankey talks how to play oil after worst month of 2024

it’s turned to oil crude settling down more than 1% today closing out its worst month since November of last year as the OPEC plus conference kicks off Sunday with some major headlines already breaking here to discuss what we know what we can expect how investors might get ahead of the game is sanki research president lead analyst Paul sanki Paul happy Friday to you it’s good to have you so in person now is that what we found out uh no Bloomberg reported this morning that they had switched to iners in Riad the capital of Saudi Arabia which was a shock and a negative shock to the market because as of last night we just assumed it would be a roll over here and the meeting would be very fast but it was pretty much misreporting from Bloomberg unfortunately and it seems it’s still a virtual meeting it’s just that the kazak oil Minister will be visiting Riyad uh probably to take a carpeting uh to use probably the right phrase um because of overproduction you know they’re not they’re not respecting their quotas as much as they should and they were also meant to cut additional barrels to make up for previous loss quoters so that’s where the ball argument comes in well this today the news it was going to be held in person made everyone think there’s a huge disagreement and we’ve got a problem and they can’t roll over the cuts as expected but the fact that this is actually just you know a Roundup of certain members by the Saudi oil Minister indicates that we will get a roll over and there may be a push through into 20125 of cuts which would be in theory a bullish outcome probably bullish for the equities you know that the market would like the knowledge that Saud is going to continue the cuts since 2025 so so Paul in terms of speaking what does Drive equities and I think that the the Le in was something along the lines of oils had its worst month in a while I mean oil prices have been flat the sideways I mean frankly there’s been a lack of volatility in oil prices in my view as someone that’s been investing in the sector for a long time um doesn’t that open up the fundamentals to to people about just uh the deleveraging that’s already going on the free cash flow generation that’s part of the Gospel that I think management teams have to follow but but the other real driver here is it seems like we’re in a huge period of m&a um and you know kaco who to me five years ago seven years ago 10 years ago was leading all the majors in terms of divesting and getting lean and mean and yet they’re buying and they look like they’re late to the party so talk about the m&a Bonanza because to me it’s what’s next well the good news in what you were saying is that you’re getting the lower oil volatility because you have the Saudi spare capacity and then you have the US producers that will cut in um that can’t handle low prices so you know that the oil price can’t go too low overall we’ve stayed in a Range as you said and we think that gives the oil big oils a a higher multiple because the market just couldn’t handle the volatility having said said that you mentioned that the previous worst months was November that’s typically a seasonally bad month for oil the problem is we just went through a really bad May which is typically a good month for for oil right into driving season obviously and so the the action of May is is concerning uh o eyes obviously on The Usual Suspects like China Etc but really Saudi has little Choice it has to maintain the cuts because if they increase production oil’s going to head towards 60 for the m&a absolutely the companies are consolidating they’re cutting costs they’re maintaining Capital discipline uh in the case of Kono they’re adding free cash flow with Marathon to get them through a major capex phase while they build some huge LG projects and the Alaska Willow project so uh yeah I mean I wouldn’t say Kono was late to the to the trade because obviously they did K show right at the bottom which got them big in the peran and they’ve continued to add stuff what’s unusual for us is we like the big guys so we like Exxon we like Chevron we like Kono we’re now looking around at the midcap guys and it’s a little bit tough to know to love you know do you really get excited about a Devon ovv merger I don’t know how exciting that really is and then finally the the performance of the stocks for example today has been great given the commodity and particularly great for the refiners so your overall point that people are buying into the oils seems to be holding up despite a very weak commodity yeah so uh we’re not a political show but just walk through what do you think the implications of a trump presidency versus a Biden presidency would be on the space um you know historic you the the classic is that actually the oils perform better during the Democratic administrations and worse during the Republican and so you saw a really tough time during Trump’s first presidency not withstanding all the deregulation and everything it was just a terrible time for oil prices and obviously you had covid but the sector was terrible under Biden the sector’s actually had some great years in fact we had two consecutive years where we were the best performing sector in the market we do need deregulation the big theme the mega theme that everybody’s talking about is AI energy and how much electricity is needed and we’re increasingly thinking you’re going to have to put power plants in the gas fields and actually this is a Rob West idea Thunders said energy and actually you’re going to have to move the data by fiber optic because you can’t build pipelines and you can’t build wires and that’s fascinating because it’s such realtime stuff that’s happening right I mean this is just so quick and we’re having to think so fast about how this all plays out last week in my research I was quoting Mark Zuckerberg saying you’re going to have to build a nuclear power plant a th000 megawatt gwatt power plant just to feed a model you know the idea of a nuclear power plant that just feels a model and of course the interviewer points out Amazon just did that they just did a deal with Talon for 935 megaw of power just to feed feed their big data so you know it’s the scale of the dynamism here is really remarkable and we’re all turning our attention towards energy e

Paul Sankey, Sankey Research president and lead analyst, joins ‘Fast Money’ to talk how to navigate oil and energy investing right now.