$100 Oil and the Case for Energy Stocks
Oil sits above $100, with WTI and Brent both around that mark and Brent in the high 108 range. Two things pushed it there. Anthropic's CEO Dario Amodei raised worries about the AI trade over the weekend, and the Houthis joined the oil trade. Both give reasons to hold energy stocks.
The link between AI worries and natural gas is about how you set up a portfolio, not about demand. More data centers would normally need more energy, so AI weakness cutting energy demand is a fair worry. I am not worried about that now because of everything happening in the Middle East. The point is different: hold AI stocks, but balance them with energy names. If you own energy this morning, you are calm about what is happening to AI names. Positioning drives this choice, not a demand call.
Where to Own Energy
Stay diversified across energy, including the oil, gas, and natural gas parts. The goal is US-based production where barrels are not trapped somewhere.
Names I like:
- Occidental Petroleum (OXY): a big winner from higher gas prices.
- Viper Energy (VNOM): a Permian Basin royalty play, so it is capital light.
- Venture Global (VG): more of a natural gas play, and a higher-beta name.
- EQT (EQT): a strong natural gas name, owned as well.
- Chevron (CVX): a name to own, held in the HALX ETF.
Natural gas deserves clear exposure. Qatar is the natural gas giant but sits on the wrong side of the Strait of Hormuz, which is why US-based gas plays look better.
Not Too Late, and Buy the Dips
Energy is in a bull market, and it is not too late to get in even if you feel late to the trade. I am a dip buyer. At some point Trump will tweet that the war in Iran is over, and all these oil companies will drop. That is when to buy them. Every time someone in the government says the war is over, it is a good buying chance, and someone will say it at some point. What is happening to AI names right now proves the case for holding energy.
Chevron and Venezuela
Chevron's investment in Venezuela matters over the long term, playing out over the next five years, but it does nothing now. The Middle East is a now issue. No one expects Venezuela to save supply today, which is part of why oil is over $100.
Example Trade: Chevron Covered Call
Chevron (CVX) is hitting new 52-week highs in a steady uptrend. Investors often hold it as a dividend proxy or to boost cash flow. Instead of just buying the stock for the dividend, you can boost the position by selling a covered call against long stock.
With the stock near $215.50, sell the October 220 call with 32 days to expiration. That call is out of the money and earns about $4 to $5 per share. Selling the $220 call cuts the position's cost basis to about $211, so your break-even is around $211.
The trade-off: you still carry unlimited downside risk, the same as buying the stock at $211. Your profit is capped if the stock rises to $220 or above before the 32 days end.
Rates and the Broader Market
The Anthropic story is about regulation - regulators protecting the company against open-source competition. That is the whole narrative. The expected AI slowdown will slow investment and capital, and that is showing up in the hardware parts of the tech stack.
Oil is the other problem, since it creates inflation pressure. Two-year yields sit around 4.66%, meaning the federal funds rate is behind the curve. Expect higher rates, and if that feeds more stock weakness, that is what markets must deal with. The 10-year is around 5%. The FOMC decision lands Wednesday, so some of Monday's action is positioning ahead of it, mixed with AI slowdown fears. Financials slipped too, and the market lost steam through the day.
