U.S. crude prices continued to fall Wednesday, settling below $70 per barrel for the first time since early July and at their lowest levels since June. That’s good news for the Federal Reserve in its battle against inflation. While the impact on oil and natural gas stocks has not been as cheery, companies across many other industries stand to gain. At session lows, West Texas Intermediate crude dropped more than 4% Wednesday afternoon to just over $69 a barrel. The U.S. oil benchmark has been drifting lower since late September when WTI settled at its highest levels of the year — at nearly $94 per barrel. Energy , meanwhile, has been the only sector in the S & P 500 in the red since the fourth quarter began Oct. 1 — down about 10.7% compared with the broad market index’s 6% advance. Our only remaining oil and nat gas holding, Coterra Energy (CTRA), has also struggled — losing more than 8% quarter to date, including Wednesday’s more than 2% drop. However, more than two-thirds of our stock portfolio has been higher so far in the fourth quarter. “Oil is the key to this market. If it doesn’t hold $70, I don’t know where the thing goes,” Jim Cramer said earlier Wednesday. “But, boy, is it going the way of the Fed.” In its effort to cool inflation, the central bank has been tightening monetary policy since late 2021 and began aggressively raising interest rates in March 2022. Since then, the fed funds overnight bank lending rate has risen from near-zero to the current range between 5.25% and 5.5%. In early 2023, lower year-over-year oil prices helped slow the rate of consumer inflation, which reached its Covid-era peak at 9.1% in June 2022 . But, as oil climbed higher in the summer and into late September, concerns mounted that crude was once again becoming a thorn in the Fed’s side. With recent data pointing to cooling inflation, including falling energy prices, the market is trying to decide if the Fed’s rate-hiking cycle is done. The odds favor a rate cut as early as the Fed’s policy meeting in March, according to the CME FedWatch tool . @CL.1 YTD mountain The year-to-date performance of West Texas Intermediate crude futures. Oil impacts inflation data in more than just the gasoline prices paid by consumers at the pump. It also figures into corporate transportation and freight costs. If those input costs stay consistently higher, companies may choose to raise prices on the goods they’re making and shipping to protect profit margins. That will eventually show up in inflation readings — and, in theory, require the Fed to keep making policy decisions designed to slow the U.S. economy. The other side of the coin is that lower oil prices can be a boon to both consumers and companies, including those in Jim’s Charitable Trust, the portfolio we use for the Club. The less money people need to spend to fill up their gas tanks, the more cash they have available to spend on other goods and services — a positive for the economy. Similarly, lower fuel costs can help cushion companies’ profit margins — a positive for their investors and the stock market, more broadly. To be sure, falling crude prices can be worrisome if the decline is tied to a dramatic slowdown in economic activity. In a recession, demand would weaken for not just oil, but many other products sold by companies, too. The current picture on this point is not exactly black and white. For starters, oil production in the U.S. has been hovering around record levels , leading to a robust supply landscape even after oil cartel OPEC+’s latest production-reduction effort in an attempt to shore up prices. There are some fears about demand in China, the world’s second-largest economy. Economic activity in the U.S. also is slowing, but so far not in a manner that is troubling or suggests a severe recession is around the corner. To date, consumer spending and employment data have remained relatively resilient, while inflation is gradually cooling and oil prices are retreating. It’s possible upcoming economic reports could begin to scramble this picture — starting with Friday’s November jobs report — and eventually prompt us to read the oil market differently. At this point, the weakness in crude prices is a win for the Fed and large swaths of the Club’s portfolio, particularly a company like Amazon (AMZN) that benefits when consumers have more money to spend on its online marketplace and when its costs to deliver those products come down. It’s also led investors to sell Coterra Energy’s stock. Lower oil prices will hinder Coterra’s free cash flow , which the company returns to shareholders through stock buybacks and dividend payouts. Those are key reasons investors, including us, own the stock. We’re hardly panicking, though. In fact, we used Wednesday’s declines to add to our position in Coterra , which now holds a roughly 2% weighting in our portfolio. The fact that Coterra has fallen out of favor is precisely why we want to buy. Coterra, which has significant oil and natural gas exposure, can make plenty of money at current commodity prices. Plus, the company has done a commendable job managing its expenses this year — and encouragingly, expects to see service cost deflation in 2024. In other words, Coterra is controlling what it can. The price of oil is not one of those things. (Jim Cramer’s Charitable Trust is long CTRA and AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
An oil rig in front of a sunset
Andrey Rudakov | Bloomberg | Getty Images
U.S. crude prices continued to fall Wednesday, settling below $70 per barrel for the first time since early July and at their lowest levels since June. That’s good news for the Federal Reserve in its battle against inflation. While the impact on oil and natural gas stocks has not been as cheery, companies across many other industries stand to gain.
