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Strategies & Market Trends : Natural Resource Stocks

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From: Julius Wong7/3/2022 7:02:40 AM
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Crude could soar to $380/bbl in worst-case Russian output cut, J.P. Morgan says

Jul. 02, 2022 8:30 PM ET Energy Select Sector SPDR ETF (XLE) AMTX, CGRN, BORR, MMLP, PEGY, IREN, RFP, NG1:COM, CL1:COM, OILK, OLEM, NRGU, USOI, DBO, SCO, USL, UCO, USOBy: Carl Surran, SA News Editor 125 Comments

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Global oil prices could climb to a "stratospheric" $380/bbl if the G7 nations succeed in imposing caps on the price of Russian oil and prompt Vladimir Putin to inflict retaliatory production cuts, J.P. Morgan Chase analysts warned this week.

Given Russia's robust fiscal position, the country can afford to slash crude output by as much as 5M bbl/day without excessively damaging its economy, but the results could prove disastrous for much of the rest of the world, as a worst-case 5M-barrel cut to daily supplies could push Brent crude prices to $380/bbl, according to JPM.

"The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports," the analysts wrote. "It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia's side."

ETFs: ( USO), ( UCO), ( SCO), ( USL), ( DBO), ( USOI), ( NRGU), ( OILK), ( OLEM)

WTI crude oil ( CL1:COM) edged 0.7% higher for the week at $108.43/bbl, after June marked its first monthly decline since November, as signs emerged that the U.S. economy was on weaker footing than expected.

U.S. natural gas ( NG1:COM) fell 8.7% to $5.73/MMBtu this week, largely due to massive losses on Thursday after U.S. regulators pointed to an extended outage at the Freeport LNG export terminal in Texas.

In the stock market, energy (NYSEARCA: XLE) added +1.4% this week, trailing only utilities on the S&P sector leaderboard.

Energy was easily the best performer during the first six months of 2022, rising 29% compared to a 21% drubbing for the broader S&P 500 in the index's worst H1 since 1970.

Top 3 gainers in energy and natural resources for the past 5 days: ( IREN) +18%, ( PEGY) +13.6%, ( MMLP) +10.1%.

Top 3 decliners in energy and natural resources for the past 5 days: ( CGRN) -22.3%, ( BORR) -21.4%, ( AMTX) -20.8%.
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