As the worldwide price of oil hit its highest level for 2018 on Wednesday, CNBC’s Jim Cramer mused on what the milestone could mean for the U.S. energy market.
“When it comes to energy, we have a big problem in this country,” the “Mad Money” host said, referring to the holdup in the Permian Basin in Western Texas.
Numerous oil and gas producers are discovering large quantities of new, untapped oil in the Permian oilfields, making it something of a hot spot for the U.S. energy industry.
But “the oil is basically landlocked,” Cramer explained, because “there’s not enough pipe to take it to the Gulf Coast, where it can be refined or shipped overseas. That’s why this kind of crude, from the Permian, trades at a big discount to the global price.”
But after Wednesday’s surge — during which Brent crude futures grazed the $80 level and West Texas crude futures topped $70 — that discount looked like it could soon be eradicated, Cramer said.
“At that price, our producers can make a lot of money at the Permian,” he said. “This is a violent move, hence why a major independent like Diamondback … can rally more than $4 bucks in a single session. That’s total bull market behavior from a group that had been in bear market mode for ages.”
And for those worried that the bear market would snap back after what may have been a lucky day for oil prices, Cramer put forth a counter-theory.
“Not many people are betting on oil these days, … and recommending these stocks is such a contrary call that I bet some analyst comes out tomorrow and calls a bottom in the whole sector,” the “Mad Money” host predicted. “If the oils start getting some sponsorship, I bet their stocks can go up substantially and big from here.”
That could bring the bearish oil plays back into Wall Street’s good graces, particularly if the effects of Hurricane Florence leave much of the East Coast in need of power.
“My favorite? We’ve been telling ActionAlertsPlus.com club members that BP — yeah, the old British Petroleum — is the cheapest and fastest-growing of the majors,” Cramer said, referencing his charitable trust. “[BP]’s got a bountiful 5.71 percent yield.”
BP’s stock finished Wednesday’s trading session up 1.08 percent at $43.11 a share. Shares of Diamondback Energy ended the day up 3.53 at $120.51.
Disclosure: Cramer’s charitable trust owns shares of BP.
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