The frenzy surrounding artificial intelligence (AI)-related companies’ stocks seems to be sucking the proverbial “oxygen out of the room” for all other sectors. Already robust valuations are being pressed ever higher as “there simply is not enough market cap available to support the buying mania for artificial intelligence,” a particularly apt observation made by Joseph Zappia, Co-CIO at LVW Advisers.
For example, the stocks of most oil and gas companies have traded poorly in 2023 even though their relative valuations are quite low — for example, the supermajors Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) each trade at just over 10x projected 2023 earnings — and most analysts expect oil demand to increase markedly in the second half of this year.
Of course, a key factor in the disappointing performances of the energy stocks has been the lackluster trading pattern of oil over the last six months. West Texas Intermediate (WTI) crude has oscillated between US$70 and US$80 per barrel over that time and sits now toward the lower end of that range.
Oil has been treading water despite a surprise OPEC+ oil production cut announced in early April and about a 10% reduction in the number of active U.S. oil rigs over the last six months, as measured by Baker Hughes Company (NASDAQ: BKR). OPEC+ includes the OPEC countries plus Russia and other allies. In the week ended May 26, 2023, the number of oil rigs operating totaled 570, down five from the previous week.
The trajectory of oil prices could be affected by another key OPEC+ meeting scheduled for June 4 in Vienna, Austria. In advance of this meeting, the number of short positions in oil has risen to its highest level since March 2020 (according to analysts at Standard Chartered), after which oil demand and prices plummeted due to the beginning of the COVID pandemic.
Building up such a high degree of bets against oil seems surprising given the commodity’s trading toward the bottom of its current range and recent comments by Saudi Arabia’s oil minister. Prince Abdulaziz bin Salman warned market speculators to “watch out” for news presumably at the June 4 meeting.
We do note that the Saudi minister’s statement, however straightforward it reads, cannot be considered completely reliable. Alexander Novak, the Deputy Prime Minister of OPEC+ member Russia, said on May 25 that he expected no new steps to be taken at the Vienna meeting. Of course, it is also difficult to accept the word of a senior Soviet official on its face.
Information for this briefing was found via Bloomberg, Trading Economics, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
