(This is CNBC’s “Power Insider” newsletter, your inside look at the investments, people and companies powering the global energy industry. Click Here to subscribe.)
Trying to predict where energy prices are going is hard enough, but in times of war it’s even harder. Now, that includes a war that also involves a massive slowdown in shipping in one of the world’s most important channels. It may not be an impossible task, but it’s very close.
Even the smartest energy insiders on the planet are now largely guessing. It might be a little easier if you tell us when and how the war ends. But it’s not shameful to admit right now that “we don’t know” because, frankly, we don’t know.
The US ‘blockade’ of Iranian ports around the Strait of Hormuz (SOH) is less than a week old. When the US naval blockade was announced, some people worried that it would further anger Iran or the rogue Iranian military, which could then attack ship traffic, ports, or people. Thankfully, it remained relatively quiet. However, we could just be getting a drone strike, a stray Iranian missile, or an aggressive Hormuz mine explosion. A direct attack on a US warship would send oil prices soaring. This is a scary and temporary time.
Said that…
my take → The Strait of Hormuz is not as important to global energy as it was a few weeks ago. here’s why. Over the past few years, both Saudi Arabia and the UAE have very cleverly built back-up pipelines. Those pipelines – which have a capacity of 7 million barrels per day in Saudi and about 1.5 million barrels per day in the United Arab Emirates – have halved the flow of oil by ship from Hormuz.
We know that the Straits are important for much more than just oil. I am very clear on concerns about helium shortages for fertilizers, jet fuel, other refined products, and even semiconductor manufacturing. Even if the Straits soon return to pre-war shipping levels – something, by the way, that no one is counting on – it could take months for energy and related supply chains to return to any sense of normality. The sense of the year is that it’s an incredibly uncertain time. So much so that I’m really sure about two things:
Firstlive ship map from MarineTraffic.com The most important map of the world at the moment for global markets.
Second, This war will end. When this happens, what then? Will the United States continue as it was before the war, or continue to push to become the world’s overall energy superpower?
Many investors are betting on the latter. However, the United States is already at record high oil production, and we are not currently seeing any meaningful uptick in drilling activity, a sign that the big players are still unwilling to spend more money.
There are some smaller players that have been nimble enough to add more barrels, but we’ll have to wait until ConocoPhillips, ExxonMobil and Chevron release earnings and capex updates at the end of the month (dates below in the calendar).
Keeping all this in mind, and with so many unknowns in mind, what should an investor do? So where to invest now?
my take → When I talked to energy investors and insiders, this theme became clear: Invest in companies that are securing America’s energy security.
Fundstrat founder and CEO Tom Lee says keep your eyes on the long-term prize and focus on three types of security: sovereign security, cybersecurity and energy security. As for energy, Li also calls for a focus on trillion-dollar power construction. He and his team like GE Vernova (GEV). The Boston-based company is winning on multiple energy fronts, from natural gas to wind power, as the Binghamton, New York-born CEO told us in a recent interview in Houston. However, keep in mind that GE Vernova’s share price is about $70 higher than the average price target of $917. Shares are up 51% this year. Maybe look forward to some upgrades soon.
Lee is also bullish on pipeline company ONEOK (OKE), which has a price per share of $84.84, about $12 below its average Wall Street price target of $92.53. He also likes Texas Pacific Land (TPL), a unique company that only four analysts follow, according to data research firm FactSet. One of those analysts has a rare sell rating on TPL, while the other has an underweight rating. Lee clearly has no concerns, perhaps eyeing a 23% decline from recent highs. Fundstrat bosses also apparently prefer the insider line over power lines in favor of industry giant Quanta Services (PWR).
Tom Hulick of Strategy Asset Managers agrees with Tom Lee on the pipeline topic, recommending giant Kinder Morgan (KMI) to clients. He says there’s never been a better time to be an oil and gas transportation company, and he’s not worried about trading at its all-time high. Hulick likes KMI’s nearly 80,000 miles of pipeline and calls it “great core energy infrastructure.”
Here are some other energy stocks worth adding to your shopping list. These are the 10 energy stocks with the most upside, according to analysts’ consensus price targets.
