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Production Freeze is at Risk: MLPs to Suffer?

04/01/2016 10:08 am EST


Michael Berger

President & Founder,

Saudi Arabia says Iran must cut production if they are to participate and the price of oil has declined following this announcement; Michael Berger of highlights stocks that he would be buying on further weakness.

An oil production freeze agreement looks a lot less likely after Mohammed bin Salman, the deputy crown prince of Saudi Arabia, said that Saudi Arabia will only freeze its oil output if Iran and other major producers do so.

Salman said, “If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers decide to freeze production, we will be among them.”

Iran’s Oil Minister Calls Proposal Ridiculous

Iran’s Oil Minister Bijan Namdar Zanganeh plans to attend the Doha proposal discussion on April 17 but won’t join a production freeze.

In late February Zanganeh said, “It is very ridiculous, they come up with the proposal on freezing oil production and call for this freeze to take place in their 10 million barrels a day production vis-a-vis Iran’s 1 million barrels a day. If Iran’s crude oil production falls, it will be overtaken considerably by the neighboring countries.”

Iran said that they do not plan on cutting oil production after the lifting of sanctions following a deal to curb the country’s nuclear program. Iran actually plans to increase production and we think this leaves the outcome of a meeting between OPEC and non-OPEC producers this month in jeopardy.

The International Energy Agency said Iran produced 3.22 million barrels a day, a four-year high, during its first full month of production. During March, Iran increased oil exports by another 100,000 barrels a day.

Price of Oil Falls After Comments

The price of Brent crude and West Texas Intermediate are down more than 2% after the comments by Salman and we expect further weakness if this proposal falls apart.

While commodity price volatility should continue to act as a headwind, we recommend incorporating energy stocks and MLPs into any diversified portfolio. We continue to prefer companies that have strong balance sheets, premium acreage, healthy debt-adjusted production growth, and seasoned management teams who can find value in a weak market.

Some of the companies that we expect to outperform the market on a longer-term basis are: Concho Resources (CXO), Halliburton (HAL), Baker Hughes, Inc. (BHI), Occidental Petroleum Corp (OXY), Tesoro Logistics LP (TLLP), and Enterprise Product Partners (EPD).

By Michael Berger President of