When OPEC+ announced a surprise output cut earlier this year, oil stocks surged. When oil prices continued to weaken, OPEC+ announced another cut.
Oil prices failed to rebound. What happened?
Russia is supplying Iran, India, and especially China with oil. It weakens the influence OPEC+ has on the energy market. Conservative energy investors who hold Chevron (CVX) and Exxon (XOM) need not worry about oil price fluctuations. Those firms trade at substantial discounts.
CVX stock has an 8.6x P/E, while XOM stock is cheaper at a 7.3x P/E.
Brent crude oil prices traded between $73 to $76 last week. Oil market traders are not convinced that demand will rebound. Additionally, the oil supply is increasing. More producers are coming online. Fortunately, some analysts are optimistic. Analysts at ANZ have a $100/bbl target for Brent crude. However, price gains are limited in the near term.
The market needs actual tightening in the physical market for oil prices to strengthen.
The Saudis and OPEC are acting in their best interest. By cutting production, they introduce market stability. Energy inflation will cause global economies to slow. The recession decreases energy demand, justifying the need for OPEC+ to cut output.
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