U.S. crude prices fell for the fifth straight day Tuesday, but we remain committed to our lone oil-and-gas stock in Coterra Energy . West Texas Intermediate has been moving lower since its early April peak, with Tuesday bringing the U.S. oil benchmark to its lowest settle since Feb. 5, at $73.25 a barrel. Some of the declines may be because the geopolitical risk premium factored into the commodity is fading amid hopes for a cease-fire in the war in Gaza. More recently, Organization of the Petroleum Exporting Countries and its partners, collectively known as OPEC+, indicated over the weekend that some of its production cuts will begin to be phased out later this year, which Goldman Sachs called a “bearish surprise” for the market. There are also some concerns about a slowing U.S. economy contributing to the decline, given demand for oil is closely tied to economic activity. The drop in oil prices has implications for the economy and stocks overall. While a material slowing of the economy — basically, a hard-landing scenario — certainly would not be a great backdrop for the market, some slowing is exactly what investors want to see. As we’ve become painfully aware over the past few years, energy represents a major, unavoidable input cost for both the average consumer and companies paying for transportation and electricity. Elevated oil prices have, as a result, pressured discretionary spending and corporate margins. For that reason, any relief in energy prices will have the opposite effect — freeing up more money for consumers to spend away from the gas pump. Corporations, meanwhile, can see a boost to profit margins as their costs to make and ship products comes down. Throw in the potential for lower interest rates beginning as soon as later this year, and it all amounts to a pretty positive setup for equities. We’re looking for that sweet spot in economic growth that allows the Fed to cut interest rates while keeping unemployment low. If we get that, then we should see lower oil prices and sustained buying power along with a healthy environment for business investments. That’s goldilocks for the economy and the stock market, aside from the energy sector. CTRA YTD mountain Coterra’s year-to-date stock performance. And yet we still see reason to stick with Coterra Energy. In fact, one of the key reasons we like the company so much — its roughly equal exposure to oil and natural gas — has been on display lately. While oil has been pulling back, natural gas prices have rebounded from their steep sell-off to start the year, climbing about 23% over the past month. Coterra has the ability to shift production resources between oil and nat gas, based on whichever commodity offers the more favorable economics. In the first quarter of this year , that meant more of a focus on oil. Another reason to stick with Coterra: Deal activity has continued in the energy complex, the most recent of which being ConocoPhillips agreeing to buy Marathon Oil in a $17 billion all-stock transaction . To be sure, we don’t invest in companies based on takeover probabilities, but the industrywide trend toward consolidation — sparked by Exxon Mobil ‘s takeover of ex-Club name Pioneer Natural Resources in the fall —is hard to ignore. Indeed, analysts at Citigroup published a research note Tuesday exploring potential takeover targets for Devon Energy, another ex-Club oil stock. Coterra was among the three names analysts mentioned alongside Ovintiv and Permian Resources . Admittedly, the analysts don’t believe any of the three companies have a high chance of being bought by Devon or, in the case of Coterra, probably a merger of equals. Still, the note supports the idea that more deals could be announced in the future, which generally should be supportive of Coterra’s valuation multiple as competition declines. The bottom line: When we initially took on exposure to the energy market, we told investors that the positions needed to be partially viewed as a hedge on the rest of the portfolio. After all, that is what a well-diversified portfolio looks like — some parts have the ability to work well when others fall out of favor. If the economy holds in while energy prices and interest rates come down, Coterra’s stock could see some pressure while the rest of our portfolio benefits. That is how it’s supposed to work with a hedge. However, we still want to own shares because weaker commodity prices may be offset by the higher demand resulting from increased consumption and sustained economic growth, even if at a slower pace. It’s also possible geopolitical tensions could heat back up. Now layer in Coterra’s ability to swing resources between oil and natural gas, continued consolidation in the oil patch, and management’s strict financial discipline, and we come away with the view that the downside from here is limited. (Jim Cramer’s Charitable Trust is long CTRA. 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. 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An oil pumpjack in a field in Grandfalls, Texas, on March 24, 2024.
Brandon Bell | Getty Images
U.S. crude prices fell for the fifth straight day Tuesday, but we remain committed to our lone oil-and-gas stock in Coterra Energy.
Tesla CEO Elon Musk is to officially join Trump’s administration as the co-head of the new US Department of Government Efficiency – a second federal department with the goal of making government spending more efficient.
You can’t get more ironic than that.
Throughout the elections, Musk, who is already CEO of Tesla, and SpaceX, a well as the defacto head of X, xAI, Neuralink, and the Boring Company, has been floating the idea to add to his workload by joining the Trump’s administration to lead a new department aimed at making the federal government more efficient.
He has been calling it the “Department of Government Efficiency”, which spells out ‘DOGE’, a meme that Musk appears to enjoy.
Well, now Trump appears to want to be going through with this idea.
He announced the new department and Musk as head, along with Vivek Ramaswamy, in a statement today:
I am pleased to announce that the Great Elon Musk, working in conjunction with American Patriot Vivek Ramaswamy, will lead the Department of Government Efficiency (“DOGE”). Together, these two wonderful Americans will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies – Essential to the “Save America” Movement. “This will send shockwaves through the system, and anyone involved in Government waste, which is a lot of people!” stated Mr. Musk.
What’s most ironic is that there’s already a federal department with the goal of cutting government waste and ensuring efficiency: the Government Accountability Office (GAO).
The GAO’s main objectives are:
auditing agency operations to determine whether federal funds are being spent efficiently and effectively;
investigating allegations of illegal and improper activities;
reporting on how well government programs and policies are meeting their objectives;
performing policy analyses and outlining options for congressional consideration;
issuing legal decisions and opinions;
advising Congress and the heads of executive agencies about ways to make government more efficient and effective
It sounds similar to what Musk described when talking about his DOGE, but Trump hasn’t gone into many details other than it will “cut waste.”
He also has a confusing message as he compares the initiative, which is supposed to cut government spending, to “The Manhattan project”, a massive and expensive government project.
Trump said that DOGE will help the government “drive large scale structural reform”:
It will become, potentially, “The Manhattan Project” of our time. Republican politicians have dreamed about the objectives of “DOGE” for a very long time. To drive this kind of drastic change, the Department of Government Efficiency will provide advice and guidance from outside of Government, and will partner with the White House and Office of Management & Budget to drive large scale structural reform, and create an entrepreneurial approach to Government never seen before.
The statement also noted that DOGE will only operate until July 4, 2026.
Musk has previously claimed that he could cut at least $2 trillion dollars of the $6.5 trillion dollar US federal budget.
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A pump jack in Midland, Texas, US, on Thursday, Oct. 3, 2024.
Anthony Prieto | Bloomberg | Getty Images
Oil prices may see a drastic fall in the event that oil alliance OPEC+ unwinds its existing output cuts, said market watchers who are predicting a bearish year ahead for crude.
“There is more fear about 2025’s oil prices than there has been since years — any year I can remember, since the Arab Spring,” said Tom Kloza, global head of energy analysis at OPIS, an oil price reporting agency.
“You could get down to $30 or $40 a barrel if OPEC unwound and didn’t have any kind of real agreement to rein in production. They’ve seen their market share really dwindle through the years,” Kloza added.
A decline to $40 a barrel would mean around a 40% erasure of current crude prices. Global benchmark Brent is currently trading at $72 a barrel, while U.S. West Texas Intermediate futures are around $68 per barrel.
Oil prices year-to-date
Given that oil demand growth next year probably won’t be much more than 1 million barrels a day, a full unwinding of OPEC+ supply cuts in 2025 would “undoubtedly see a very steep slide in crude prices, possibly toward $40 a barrel,” Henning Gloystein, head of energy, climate and resources at Eurasia Group, told CNBC.
Similarly, MST Marquee’s senior energy analyst Saul Kavonic posited that should OPEC+ unwind cuts without regard to demand, it would “effectively amount to a price war over market share that could send oil to lows not seen since Covid.”
However, the alliance is more likely to opt for a gradual unwinding early next year, compared to a full scale and immediate one, the analysts said.
Should the producers group proceed with their production plan, the market surplus could nearly double.
Martoccia Francesco
Energy strategist at Citi
The oil cartel has been exercising discipline in maintaining its voluntary output cuts, to the point of extending them.
In September, OPEC+ postponed plans to begin gradually rolling back on the 2.2 million barrels per day of voluntary cuts by two months in an effort to stem the slide of oil prices. The 2.2 million bpd cut, which was implemented over the second and third quarters, had been due to expire at the end of September.
At the start of this month, the oil cartel again decided to delay the planned oil output increase by another month to the end of December.
Oil prices have been weighed by a sluggish post-Covid recovery in demand from China, the world’s second-largest economy and leading crude oil importer. In its monthly report released Tuesday, OPEC lowered its 2025 global oil demand growth forecast from 1.6 million barrels per day to 1.5 million barrels per day.
The pressured prices were also conflagrated by a perceivably oversupplied market, especially as key oil producers outside the OPEC alliance like the U.S., Canada, Guyana and Brazil are also planning to add supply, Gloystein highlighted.
Bearish year ahead for oil
The market consensus is that there’ll be a “substantial” oil stock build next year, said Citibank energy strategist Martoccia Francesco.
“Should the producers group proceed with their production plan, the market surplus could nearly double… reaching as much as 1.6 million barrels per day,” said Francesco.
Even if OPEC+ doesn’t unwind the cuts, the future ofl prices is still looking break. Citi analysts expect Brent price to average $60 per barrel next year.
Further fueling the bearish outlook is the incoming administration of U.S. President-elect Donald Trump, whose return is associated by some with a potential trade war, said analysts who spoke to CNBC.
“If we do get a trade war — and a lot of economists think that a trade war is possible, and particularly against China — we could see much, much lower prices,” said OPIS’ Kloza.
For that to happen to retail gasoline prices, oil would need to drop to “below $40” per barrel, said Matt Smith, Kpler’s lead oil analyst.
Right now, retail gasoline prices are at a “sweet spot” at $3 per gallon, where consumers do not feel the pinch and input prices are still sufficiently high for producers, Smith added.