In today’s episode of the 24/7 Wall St. podcast Doug McIntyre and Lee Jackson discuss the tenuous place the oil markets sit at today. In the next few weeks we could see some news that sends oil back above $100 a barrel, which could cascade through the economy and push inflation back above 4 or even 5%. Doug and Lee consider four dividend stocks that could benefit, and all have juicy yields today.

Transcript

This is Doug McIntyre, the editor-in-chief at 24-7 Wall Street, and I’m here with Lee Jackson, who’s our specialist on everything that has to do with the financial markets, public companies, and today, oil.

So looking at oil, we opened at about 71 this year.

We’re around 85, and you’re starting to see calls from investment banks for $100.

A lot of that is not what I would describe as demand driven.

It’s nervousness about supply.

OPEC holding production, saying they’re not going to go up, worries about the Ukrainians attacking Russian oil installations.

But the primary thing is you’ve got an awful lot of some of it military, in the Middle East.

And there’s a history of Middle East conflicts causing interruptions in the supply of crude.

So if you put those things together, Lee, where do you think we’re going in the next three to six months?

Well, I think you’re right.

I mean, sheer demand is still solid, but it’s not the kind of demand that drives prices higher like they’ve gone, say, over the last month.

And the energy sector was a leading sector in the first quarter after being flat to down last year.

And like you said, oil had hit 67 at one point in the fall.

But you hit the proverbial nail on the head, is if Iran gets involved more than they are in what is turning into a proxy war for us once again, and Hezbollah starts to attack, and if we start to attack Iran, it’s going to be a nightmare, and 100 will seem cheap.

You know, people don’t remember this.

I don’t know why, but June 2022… Just as Russia goes into Ukraine, we do see oil jump way above $100.

We saw gasoline for the first time in history hit $5.

If there’s anything that hurts the U.S. economy, It’s high oil prices because gas prices, heating oil prices, petrochemicals, the trucking industry, the airline industry.

So it seems to me that the anxiety right now is that if oil price jumps above $100, you’re back into an upward spiral on inflation.

Yep.

And what happens to the whole, you know, Fed is going to cut rates and all that when the inflation numbers spike back up to 3% or 4%?

I mean, they’re ostensibly right there now, but if they spike above the current level to say 5% or even 4.5%, that’s going to change that narrative fast.

There are two other things that are going on, but I don’t think they’re important, but we should mention them.

In December, the United States produced more oil in a month than any month by any country in history.

So the U.S. is doing its job moving crude into the international markets.

And China’s economy has started to get a little better.

They’re the largest oil importers in the world, that stuff gets a lot of press, but it doesn’t impress me as those things being significant drivers.

No.

And like you said, even though we’ve had big production and most of it shale driven, the reality is what, and they tap the brakes on, on refilling the SPR because we have, which is the strategic petroleum reserve, which is supposed to be for emergencies.

We have 17 days in there now, 17.

And, and now they’re backing up on refilling it because why?

Because oil prices are too high.

So, Take oil where it is now and take it at $100.

What are your investment calls?

What stocks do you want to be in if it’s headed that direction?

I would stay, for retail investors, I would stay with the big boys.

And one of our favorite stocks is Chevron because it pays a sweet 4% dividend and is in the process of buying Hess, which makes its footprint even bigger.

So I would look at Chevron.

I’d look at Exxon.

Exxon pays a 3.25% dividend.

And if you want to take a swing at overseas or across the pond, look at BP or Total, which is the big French integrated.

They pay dividends over 4%, both of them.

Now, just for everybody who’s with us right now, if you’re Exxon and oil goes from $70 to $100, what does it do to your revenue and earnings?

Well, it certainly doesn’t hurt.

And then there’ll be howls from the people that howl that, oh, big oil makes a lot of money and this and that.

Of course, they never howl when oil was 60 or 50 and they’re barely breaking even with huge capital costs.

So you know what’ll happen, Doug.

Yeah, listen, I mean- It’s a good time to position yourselves in those stocks.

It is.

Also, it’s the sort of thing where the yields on some of these are so good that even if those stocks were to, for whatever reason, tumble a little… there’s still an upside if you just want to put some money into something that is going to get you a yield every year.

Oh, absolutely.

If you’re a long-term investor, especially one looking for passive income, what’s better than Chevron or Exxon?

You know that dividend is safe and you know it will be there.

And also on both of those stocks, you can write covered calls against your position if you’re worried that it could trade down and even add to your income stream.

Yeah, very true.

Well, look, we probably are going to get some news that’s going to affect oil, I would think, in the next three or four weeks.

At least it wouldn’t surprise me.

So let’s come back in that time frame and revisit this again.

Yeah, I think it’s a good idea to do it.

Good.

Good to see you.

Good.

Enjoyed it.

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