Here's how the Club's energy stocks are responding to oil's move higher on geopolitical risk

Here’s how the Club’s energy stocks are responding to oil’s move higher on geopolitical risk

Heightened geopolitical risk following the Palestinian militant group Hamas’ attack on Israel over the weekend helped push crude prices up around 4% Monday — even as the impact on Club energy names Pioneer Natural Resources (PXD) and Coterra Energy (CTRA) has been colored by acquisition talks and surging gas prices. West Texas Intermediate crude, the U.S. oil benchmark, traded over $86 a barrel Monday, and global standard Brent crude traded at around $88 a barrel. While there is no significant oil production in Israel and the Palestinian Territories, a potential broader conflict in the Middle East could create risks for oil supplies, according to Morgan Stanley. Israel declared war on Hamas after the militant group that controls the Gaza Strip launched a deadly surprise attack on Saturday. The rise in crude prices Monday cuts into the losses WTI and Brent saw last week when both suffered their worst weekly performances since March, as fears about weakening demand for oil overtook tightening-supply expectations that had dominated the market for months. To be sure, even with Monday’s advance, oil prices remain well off their late September peaks. On Sept. 28, WTI traded as high as $95 a barrel and Brent nearly touched $98 a barrel. In the near term, there could be “some more upside” to oil prices “because the economic concerns take a backseat to this geopolitical risk that is staring us right in the face at the moment,” John Kilduff, partner at commodities-focused firm Again Capital, said Monday on CNBC. Energy was the top-performing sector in the S & P 500 on Monday, climbing 4.6%, while the broader index was higher by about 0.5%. For the Club’s companies in the sector, Coterra Energy closed up more than 5% Monday, at just over $28 per share, while Pioneer Natural Resources closed down 0.8% in the session, at $235.54 a share. Coterra’s gains Monday are roughly in line with the performance of State Street Global Advisors’ S & P Oil & Gas Exploration & Production ETF , known as the XOP. In addition to receiving a lift from crude’s gain, Coterra is benefiting from the continued strength in natural gas. On Monday, natural gas futures rose another 1%, to around $3.37 per million British thermal units. Last week, natural gas surged 14% to reach its highest price since late January. Jim Cramer on Monday argued Coterra’s stock price still does not appropriately capture the move higher in natural gas and the lift in profits the company should experience as a result. Houston-based Coterra’s revenues are split roughly 50-50 between natural gas and crude, while Pioneer is more levered to oil. “I reiterate that Coterra should go to $35” per share, Jim said. Pioneer’s move lower Monday is also being significantly impacted by reports that Exxon Mobil (XOM) is looking to acquire the company. Pioneer stock surged more than 10% Friday following a Wall Street Journal report late Thursday that Exxon Mobil is in advanced talks to take over the Club holding in a deal that could be valued around $60 billion. The stock’s massive outperformance Friday means that any financial benefit Pioneer would receive from Monday’s higher oil prices was already captured in the session prior. And given a deal has not yet materialized, there could be some selling by traders who jumped into the stock Friday looking for a quick flip. Another factor hanging over Pioneer’s stock price right now is uncertainty around the specifics of any Exxon deal for the company. There’s an expectation among investors that Exxon stock would be a large component, CNBC’s David Faber reported Monday, noting that Exxon’s planned $4.9 billion acquisition of Denbury Inc. is an all-stock transaction. While Pioneer shareholders who hold a bullish view of Exxon’s future might welcome a deal structured in a similar way, sometimes investors just prefer to receive cash since those deals often guarantee a price at a premium. All-stock transactions mean the selling stockholders share some of the deal risk. As Jim indicated Friday, our plan is continue holding onto Pioneer, as we await more details about a potential tie-up. (Jim Cramer’s Charitable Trust is long PXD and CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Silhouette of Permian Basin pumpjacks taken at dusk, north of Midland, Texas, U.S. in late 2019.

Richard Eden | via Getty Images

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