3 Oil Stocks OPEC Does NOT Want You to Own

They can run, but they can’t hide from higher oil prices forever. 

Last week, I made a point to tell you that OPEC+ was actually right to raise production. If you recall, the group and its close allies decided to accelerate the unwinding of their output cut of 2.2 million barrels per day. 

The plan was to add 411,000 barrels per day to July production. Doing so would bring more barrels back onto the market, and the fear was that prices would crater again. This is why we saw WTI prices briefly dip back below $60 per barrel at the end of May. 

Naturally, the market conveniently forgot that OPEC+ has explicitly stated that they’d be willing to pause or reverse this action based on certain market conditions. 

Look, nobody in the OPEC+ alliance wants oil prices to shoot back to record highs above $120 per barrel. Sure, it would benefit them in the short run like it did back in 2008, and again in 2022. 

However, there is one thing far more profitable for Saudi and friends than $100 oil — stability! They know just as well as we do that exorbitant crude oil prices will only serve to accelerate demand destruction and cause another price crash. 

So in order to meet healthier-than-expected global demand, unwinding those year-old production cuts seemed a prudent move… didn’t it? 

And yet WTI crude prices are rising despite the July production hike.

It turns out that we might’ve been duped all along. 

For all the huffing and puffing the media have been doing recently to blow oil prices back down into the $50/bbl range, Morgan Stanley cast a shadow of doubt on whether those extra barrels ever made it to the market. 

In fact, lifting production quotas hasn’t yet shown up in actual output. As One Morgan Stanley analyst put it, “Notwithstanding the around 1-million-barrel-a-day increase in production quotas between March and June, an actual increase in production is hard to detect. Notably, it does not appear that production in Saudi Arabia has ramped up significantly.”

So why is it important to note that bit about the Saudis? Well, for starters, the Saudis are the ones taking the brunt of the production cut deal. 

However, perhaps a more interesting question to ask is if some members are even capable of boosting output to begin with!

But let's push aside that fact for a moment and look at another potentially strong catalyst for oil prices — compensation cuts. Think of these as additional output cuts that are made by OPEC+ members who exceed their production quotas; members like Iraq, Russia, and Kazakhstan have been guilty of overproducing on their quotas.

The 3 Oil Stocks OPEC Does NOT Want You to Buy

Yesterday, WTI crude was trading over $65/bl for the first time since the end of March. We’ll delve into a few other price catalysts later this week, including the ongoing spat over Iran’s nuclear deal. 

Although we’re long past the days of timing the bottom in oil this time around, that doesn’t mean there aren’t opportunities lying around. 

The first is simple. For those of you with an eye over the short term who want to capitalize from cheap oil prices right now, one of the easiest solutions is to look at who’s benefiting most from $60/bbl oil. 

It certainly isn’t the drillers, who are forced to cut drilling activity and capital spending until more favorable conditions appear. 

Look no further than the refining stocks that are scooping up dirt-cheap barrels and using them for feedstock to fill those demand needs. Independent refining stocks like Valero Energy Corp. (NYSE: VLO) and Phillips 66 (NYSE: PSX) are a strong starting point. 

On the flip side of the supply/demand equation, major players like Chevron (NYSE: CVX) are starting to show solid output growth offshore in the Gulf of America and are still trading at decent valuations. Chevron’s goal is to produce 300,000 boepd from the area by the end of 2026, and it recently started production from its Ballymore project in the Gulf. 

The veteran members in our investment community here already know what I’m about to say next. For us, there’s no better place to capitalize on rising oil prices than the hottest oil region on the planet — the Permian Basin. 

But there’s a huge catch to pay attention to…

You see, the Permian has been unquestionably the most important area for output growth in the lower 48 states. Almost 7 out of every 10 new barrels of oil production growth in the lower 48 states has come directly from the Permian Basin. 

Cheap oil prices are going to have a huge impact on the amount of drilling activity in the play, which means that any oil company looking to turn a profit in the years ahead has to focus on one thing — efficiency. 

The oil game is no longer about how many debt-fueled wells you can drill, but rather how efficiently you can drill your wells. In this low oil-price environment, it’s all about cutting both the time and money it takes to drill your wells. 

For us, it’s not even close, and my readers have seen this tiny independent oil stock do precisely that — I suggest you take a look at this one for yourself, all the details behind this investment gem are right here.