POWER POINT
What I’m hearing from energy insiders
While the world watches and waits on every word around the Strait of Hormuz, investors are moving on. Mostly. It’s ‘mostly’ because no one is suggesting that the troubles are over and things are back to normal. Far from it. But as I write this, the Joint Maritime Information Center notes that “traffic flows began increasing with improvements in anchorage congestion across the region” near the SOH. Marine Traffic and Kpler also tell us that the number of ships steaming through the Strait is rising.
United States Central Command highlighted that as of a few days ago 55 merchant ships transited [the Strait]. Moving “large amounts of cargo and more than 17 million barrels of oil to global markets.”
While that number is well above where it was for much of the past few months, it remains below the prewar levels. Still, the recent news flow around ship traffic has undoubtedly been positive.
MY TAKE → It’s less how many ships are leaving the Arabian Gulf than how many are going in. That is the key data point and number I’ll be watching the next few days.
As we’ve talked about here and on CNBC, contradictory or often conflicting headlines are the norm not the exception. To make sense of it, just follow the data and the trade. Oil just broke below $75 for the first time since the Iran war began. Gasoline prices will be slower to react but you should still see some relief at the pump. Things can always change, but for now enjoy some lower prices.
Let’s move on, because there are other critical headlines in energy outside of Iran and Hormuz.
While what happens in the middle east is important, the focus of the market remains on artificial intelligence. The A.I. buildout and related capital spending remain the most important market story, and at least so far there is no indication of that slowing down. A good example is that this week Chevron (CVX) announced a 20-year natural gas deal with Microsoft (MSFT) to power a new data center in Texas. The data center will be what they call ‘behind the meter’ – meaning it’s not connected to a wider electricity grid and thus won’t compete for the power with anyone else.
GE Vernova (GEV) and Caterpillar (CAT) are selling the turbines to make it all happen. While we don’t know the numbers, you can bet that this project will be a huge economic boon to the region. It should also benefit jobs, incomes and, yes, corporate earnings in and around projects like this.
Wall Street expects S&P 500 earnings to keep rising over the next year and a half. Headlines like the Chevron deal contribute to the bullish tone.
Microsoft, by the way, is a really interesting stock to watch. The stock is on pace for its worst month in 25 years. It is now about 30% lower than its $559.29 average FactSet aggregated price target. Either some of the 60 analysts surveyed start to cut their price target, or the stock recovers. Something has to give.
Yes, Microsoft is partly an energy story.
One thing we’re watching – and you should too – is the growing public pushback against data centers. This is one of the greatest risks to the A.I. buildout boom. Time recently wrote about the growing political power of those opposed to the projects. Some recent polls show that the public is against data centers in their communities. Water use, electricity costs and more have riled up large portions of the electorate. Not be outdone, a couple of New Jersey towns even ‘rebelled‘ against data centers despite there being no plan to actually build them! Ah, Jersey.
Also keep a close eye on interest rates. The 10-year treasury is stubbornly sticking around 4.5%. The new Kevin Warsh-led Fed is getting more hawkish, and the bond market took notice. Given much of the recent boom is built on borrowing, higher rates may pose a risk to some of the more marginal players and projects. Warsh-ington and its monetary policies may be the most interesting and important energy story out there today.
U.S. 10-year Treasury yield, 1-year
Speaking of D.C. and our great nation: happy 250th birthday America!
Having traveled to all 50 states, 5 continents and over 40 countries, there is no place I would rather live than the U.S. We may have a goal to be a more perfect union, but we certainly aren’t perfect. No place is. But there is a reason millions want to live here, and many risk their lives to try to reach our shores. It’s the promise of opportunity. One of the only countries in the world where dreams can come true. They may not, but they can, and that’s more than many other places. That possibility is the real promise of this great land.
I’m taking next week off so Power Insider returns the week of July 6th. Have fun!
WALL STREET’S TAKE
With the SpaceX IPO and two national holidays two weeks just apart, Wall Street has largely taken a much needed breather on big stock and research calls over the past few days. That said, it seems that buzz is building on investing in energy stocks in the wake of the Iran conflict.
First let’s address the big macro call of the week Wednesday morning from JPMorgan’s Natasha Kaneva, who we’ve been chronicling here in Power Insider for weeks. Kaneva lowers her Brent crude oil price forecast for year-end 2026 to $64 a barrel. Brent futures just fell below $74 a barrel Wednesday, marking their lowest since before the Iran conflict started.
She believes oil is falling faster than many believed – including her – because crude is starting to flow through the Strait of Hormuz even before any official declaration of a peace agreement.
“Over the last three weeks—particularly since Memorial Day—an increasing volume of oil appears to have been finding its way through the Strait,” she writes.
Turning to stocks, long-time equity market strategist Adam Parker is turning bullish on energy despite the pullback in oil.
His Trivariate Research team upgraded the entire energy sector to overweight from equal-weight. Parker’s firm writes that the “persistent action where positive Hormuz-related news made the energy sector go down more than the bad Hormuz news made energy go up” caused it to make a “good downgrade” in March. But Trivariate Research now sees a positive risk-reward ratio in part because of lower prices. Parker’s team thinks that oil prices may be too low based on what could happen around the Strait.
He gave five energy stocks below as value ideas given their strong expected EPS growth for 2026 and low valuations.
TAKE A LOOK
Watch my interview with Jeff Gustavson, Chevron’s president of New Energies. He discusses the company’s 20-year agreement to supply natural gas to a massive Microsoft data center in West Texas:
INSIDE LINE
This week’s Inside Line is with James West, Managing Director and Head of Energy and Power Research at Melius Research. We featured part of his call on nuclear stocks in last week’s Power Insider and wanted to add to the insight.
RANDOM, BUT INTERESTING
Oil’s recent slide triggered selling in oil and gas stocks. With declines between 10% and 20% in the past month, most oil big cap stocks are now well below their analyst average target price. Here are the 5 largest gaps between the current stock price and where Wall Street thinks they should be.
