On Monday, the U.S. the Department of Energy announced a notice of sale for as much as 15 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) that President Biden unveiled on October 18 to help address the market supply disruption caused by the Russian invasion of Ukraine and to attempt to lower energy costs. This is the last tranche of the 180 million barrels that was approved for sale last spring, and it is expected to be released in December. It should be noted that the United States uses 20 million barrels per day, and many feel that the SPR sales are nothing more than political moves.
What stunned many across Wall Street was the administration’s plans to start refilling the SPR at prices at or below $67 to $72, which effectively puts a floor under oil pricing as traders know that the government is a buyer at those levels. Many across the industry said they have no intention of hedging oil production by selling at those levels.
In a new research report, Goldman Sachs feels that the administration has limited options going forward and noted this:
Additional headlines since the OPEC+ meeting have highlighted other policy options available to the Administration. We find incremental SPR sales as the most likely action (16 million barrels is available from fiscal year 2023 Congressionally mandated sales), although this remains price dependent: requiring higher prices than present, and likely closer to $125 per barrel following the midterms. Such a release is likely to have only a modest influence (<$5 per barrel) on oil prices however. All options have trade-offs. Product export bans in particular could send wholesale global distillate/gasoline prices up $150/$50 per barrel respectively (to $300/150/per barrel) and still risk shortages and higher prices domestically – especially in coastal regions. All responses leave the ultimate cause of energy underinvestment unaddressed.
The bottom line for investors is that lack of production investment, much of which is due to government regulations and policy, and the potential for a variety of supply issues should keep the black gold in place at current levels, with the potential for a big move higher. The Goldman Sachs analysts also feel that there is limited downside at current levels. So we screened our 24/7 Wall St. energy coverage universe looking for stocks rated Buy with dependable dividends and solid upside to the price objectives. These seven look like outstanding ideas now.
It is important to remember though that no single analyst report should be used as a sole basis for any buying or selling decision.
This integrated giant remains a safer way for investors looking to get positioned in the energy sector. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.
The Upstream segment is involved in the exploration, development, production and transportation of crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas (LNG); transportation of crude oil through pipelines; and transportation, storage and marketing of natural gas, as well as operating a gas-to-liquids plant.
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