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Trying to predict the direction of energy prices is difficult enough, but in times of war it is even more difficult. Add to that a war that is also causing a massive slowdown in shipping on one of the world’s most important canals. It may not be an impossible task, but it’s pretty darn close.
Even the world’s smartest energy insiders are now guessing a lot. If you tell us when and how the war will end, it might be a little easier. But right now, it’s not embarrassing to admit “we don’t know,” because we honestly don’t know.
The US “blockade” of Iranian ports around the Strait of Hormuz (SOH) was less than a week ago. When the U.S. naval blockade was announced, some feared it would make matters worse by further angering Iran or the rogue Iranian military, which could then attack shipping, ports or people. Luckily it was relatively quiet. However, we may just be a single drone strike, a stray Iranian missile, or a nasty Hormuz mine explosion as a result of escalation. A direct attack on an American warship would cause oil prices to skyrocket. It is a scary and timid time.
That means…
MY OPINION → The Strait of Hormuz is no longer as important for global energy supplies as it was just a few weeks ago. Here’s why. In recent years, both Saudi Arabia and the United Arab Emirates have very intelligently built replacement pipelines. These pipelines – a capacity of a whopping 7 million barrels per day in Saudi Arabia and about 1.5 million per day in the United Arab Emirates – have reduced the flow of shipping oil from Hormuz by half.
We know that the strait is of enormous importance for more than just oil. I have made my concerns very clear about shortages of fertilizers, kerosene, other refined products and even helium for semiconductor manufacturing. Even if the Strait soon returns to pre-war shipping levels – which absolutely no one expects, by the way – it could be months before energy supplies and associated supply chains return to anything like normal. The understatement of the year is that this is an incredibly uncertain time. So much so that I’m really sure about two things:
FirstMarineTraffic.com’s live ship map is currently the world’s most important map for global markets.
Second, This war will end. If so, then what? Will the US carry on as it did before the war or continue to push to become the world’s largest energy power?
Many investors are betting on the latter. Although oil production in the United States is already at a record high and we are currently not seeing a significant increase in drilling activity, this is a sign that the major players are not yet ready to spend more money.
There are some smaller players that have the flexibility to add more barrels, but we’ll have to wait for ConocoPhillips, ExxonMobil and Chevron to provide earnings and investment updates at the end of the month (dates at the bottom of the calendar).
With all this and many unknowns, what is an investor to do? So where can you invest now?
MY OPINION → After speaking with energy investors and insiders, this theme became clear: Invest in the companies that ensure America’s energy security.
Tom Lee, founder and CEO of Fundstrat, says to keep an eye on the longer-term prize and focus on three types of security: sovereign security, cybersecurity and energy security. On the energy front, Lee also recommends focusing on trillion-dollar electricity expansion. He and his team love GE Vernova (GEV). The Boston-based company is winning on many fronts in the energy industry, from natural gas to wind power, the Binghamton, New York-born CEO told us in a recent interview in Houston. However, note that GE Vernova’s share price is almost $70 above the average price target of $917. Shares are up 51% this year. Maybe you’ll be waiting for some upgrades soon.
Lee is also bullish on pipeline company ONEOK (OKE), whose stock at $84.84 is 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 these analysts has a rare Sell rating on TPL, while another has an Underweight rating. Lee is clearly not concerned, perhaps considering the 23% decline from recent highs. The Fundstrat boss also clearly likes the insider line in power lines and prefers industry giant Quanta Services (PWR).
Tom Hulick of Strategy Asset Managers agrees with Tom Lee on the pipeline issue and recommends giant Kinder Morgan (KMI) to his clients. He says there’s never been a better time to be an oil and gas transporter and he’s not worried about the price trading near all-time highs. Hulick loves KMI’s nearly 80,000-mile pipeline, calling it “great nuclear energy infrastructure.”
Here are some other energy stocks worth adding to your shopping list. These are the 10 energy stocks with the most upside potential, according to analyst consensus price targets.