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OPEC: Not the Force It Once Was

06/03/2016 9:28 am EST


Michael Berger

President & Founder,

All eyes are on oil prices after OPEC failed to reach a freeze agreement and Michael Berger, Associate Editor of highlights why oil prices continued to rally and which energy stocks and master limited partnerships he would buy on weakness.

Although the OPEC meeting in Vienna ended without an agreement to cap production, oil prices continued to move higher as the market responded favorably to a larger than expected decline in US oil inventory.

After the OPEC meeting ended, the Energy Information Administration announced that domestic crude inventories fell by 1.4 million barrels. This marked the third week of declines in a row.

Not the Force It Once Was

OPEC’s war for market share has impacted the organization more than it expected. OPEC is no longer the force it once was, as tensions between members are high.

Oil was trading higher at the start of the OPEC meeting and OPEC Secretary General Abdalla Salem el-Badri said that there was a very positive atmosphere among the cartel's members for the first time in many months.

The tone of the meeting, and the price of oil, changed when Saudi Arabia’s oil minister said that it is not increasing capacity now but would not rule it out.

Iranian Oil Minister Bijan Namdar Zanganeh took a firm stance on how OPEC’s oil production quota is structured and said, “A general quota for OPEC with no country quotas has no meaning. It’s not possible to control or supervise and what it means is that anyone can do whatever they like and just say that it’s within the share.”

Stocks Continue to Rally as Market Sees Value

While commodity price volatility should continue to act as a headwind, we recommend incorporating energy and MLP investments into any diversified portfolio.

We would take advantage of any continued weakness in the energy sector and buy quality companies trading at a discount. Of such companies, we continue to see upside potential in the following:

  • Concho Resources (CXO),
  • Memorial Resource Development (MRD)
  • Halliburton (HAL),
  • Baker Hughes, Inc. (BHI),
  • Occidental Petroleum Corp (OXY),
  • Tesoro Logistics LP (TLLP),
  • Enterprise Product Partners (EPD).

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