Oil prices are hovering around 10-month highs, as a stout summer rally extends into the fall and delivers additional gains for the Club’s energy stocks, Pioneer Natural Resources (PXD) and Coterra Energy (CTRA). And Jim Cramer believes it’s not too late to buy either of them. West Texas Intermediate crude, the U.S. oil benchmark, has jumped 32% since its lows of the summer on June 12, to nearly $89 a barrel. Meanwhile, global oil standard Brent crude has climbed 28%, to around $92 a barrel. Both WTI and Brent on Tuesday settled at their highest levels since November. Over the same stretch since June 12, Pioneer stock has risen 17.1%, while Coterra gained 16.4%. That makes them the fifth and sixth best-performing Club stocks during that time — ahead of artificial intelligence winner Nvidia (NVDA), but behind pharmaceuticals giant Eli Lilly (LLY). Coterra on Tuesday closed at its highest level of the year, at $28.47 per share. Pioneer is about 3% off its 2023 peak of $243 per share, reached on Sept. 5. “I think that it is not too late to buy either of these,” Jim Cramer noted on Tuesday. The rise in oil prices largely boils down to a mismatch between supply and demand. Production cuts from major oil exporters such as Saudi Arabia and Russia have contributed to tighter supplies at a time when major economies have remained healthier than expected. Indeed, prices took a major leg higher last week after Saudi Arabia and Russia said they’d extend through year-end their voluntary output reductions of a combined 1.3 million barrels per day. This week’s move in crude was helped by a new report from the Organization for Petroleum Exporting Countries , which projected that oil demand will grow by 2.25 million barrels per day in 2024, citing economic resiliency. Saudi Arabia is the de-facto leader of OPEC. Russia is the oil cartel’s largest partner producer in an expanded group known as OPEC+ . The current backdrop may keep oil prices supported through the fall, according to the U.S. Energy Information Administration’s short-term outlook published Tuesday . Citing Saudi Arabia’s production-cut extension and an expected further drawdown of global oil inventories, the government statistics agency forecasted Brent crude will average around $93 a barrel in the fourth quarter, less than 1% above where it settled Tuesday. If higher oil prices – and by extension fuel prices – are sustained in the coming months, the investment implications may be somewhat mixed. On one hand, Pioneer and Coterra would likely generate more free cash flow than in the first half of 2023 , which could lead to increased share repurchases and higher dividend payouts — key reasons investors like us are in the stocks. On the other hand, it may complicate the Federal Reserve’s efforts to squash inflation through higher interest rates. For much of this year, the downward trend in oil prices contributed to lower year-over-year inflation readings . Now, “oil is the wildcard” that might prompt the U.S. central bank to rethink policy and raise interest rates more aggressively than previously thought necessary, according to Jim. In the Labor Department’s monthly consumer price index report for August, released Wednesday, higher gasoline prices were responsible for more than half of the headline 0.6% month-over-month increase. Currently, the Fed is expected leave interest rates unchanged between 5.25% and 5.5% at its meeting next week, according to the CME Group’s FedWatch tool . The Fed had paused raising interest rates in June, before instituting another quarter-percentage-point increase in July — the central bank’s 11th rate hike in 17 months. There was no policy decision in August. Put another way, our energy exposure’s role as an inflation hedge – on display throughout 2022 following the crude-price surge tied to Russia’s invasion of Ukraine in February of that year – may become more apparent. And it adds to the attractiveness of owning Pioneer and Coterra here. Jim sees additional upside for both. Pioneer’s stock is less than 2% higher than where it traded back in April, in the days following a “bogus” report that Exxon Mobil (XOM) held talks to acquire the Club holding, Jim pointed out. Shares of Pioneer “should be much higher,” he said, noting the potential for more robust capital returns due to higher oil prices. Plus, he said, Pioneer’s natural-gas offerings are another potential plus for the stock. “I hadn’t figured it would matter that much, but any increase in nat-gas prices could be an added benefit,” he said. Coterra offers a quality mix between crude and natural-gas exposure. While natural gas prices are dramatically lower than a year go, the commodity has gained in recent months. And it’s currently riding a four-day winning streak, settling Tuesday at $2.743 per million British thermal units. That has helped Coterra shares. But Jim said the stock has still yet to break out in a meaningful way. “There’s more room to run,” he said. “I could see the stock busting through the $30 level.” (Jim Cramer’s Charitable Trust is long PXD and 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 . 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An oil pump jack in Great Plains, southeastern Wyoming.
Marli Miller | Universal Images Group | Getty Images
Oil prices are hovering around 10-month highs, as a stout summer rally extends into the fall and delivers additional gains for the Club’s energy stocks, Pioneer Natural Resources (PXD) and Coterra Energy (CTRA). And Jim Cramer believes it’s not too late to buy either of them.
