OPEC and its allies reach deal to cut oil production by nearly 10 million barrels per day

On Sunday, OPEC and its allies said they agreed to a production cut of nearly 10 million barrels per day to help ease a mounting supply glut. Ben Cook, Hennessy BP Energy Fund Portfolio Manager, joined Yahoo Finance's Myles Udland, Jen Rogers, Melody Hahm, and Dan Roberts to discuss.

Video Transcript

MYLES UDLAND: Let's switch over to the energy space right now, and bring in Ben Cook. He is a portfolio manager of the Hennessy BP Energy Fund. So Ben, let's talk about the big news of the day, and how you're thinking about the OPEC announcement that we got last night, the president tweeting about it this morning.

The price of crude maybe didn't pop as much as a novice observer of this space may have expected it. How are you thinking about this news with respect to where we've seen oil prices go and which companies are trying to stay afloat here?

BEN COOK: Yeah, thanks for having me this afternoon. You know, I think the muted response in oil prices we saw today was-- was largely a function of the recognition by the market that, really, the demand loss overshadows the amount of supply that's being removed from the market. You know, as a group, the OPEC+ Quota Alliance and, in addition, a number of G20 countries are estimated to be pulling about 15 million barrels of crude oil off the market.

The reality is-- is, look, we're seeing demand losses estimated near 30 million barrels a day. So you know, I think that the market recognizes that, over time, as-- you know, as we work our way through this oversupply situation and we make our way through this-- this global pandemic that-- that demand will resume.

But for now, and as-- as you saw today, with the price action in crude oil, look, there's still a fair amount of oil on the market. And that's why oil prices stay where they were today.

JEN ROGERS: I just want to get you to follow up there on the idea that demand is going to come back. So we were just doing a story about groceries. And-- and Myles said he doesn't see himself, you know, going back to the store anymore. Going to get that delivered. Do you think that we are going to change our behaviors so much that oil demand-- there is a chance it's not going to come back to those levels?

BEN COOK: Well, I think we have to think in terms of-- of what normal means. And you know, to assume that we're going to revert back to a-- a pace of demand that we saw prior to the-- you know, to the pandemic, I think that's probably unrealistic, at least on a short-term basis. You know, and ultimately the trajectory of economic recovery and the normalization that-- that we'll experience over the next 12, 18 months, that's ultimately going to dictate the pace of demand growth.

But I think what you're alluding to is that, look, there will be an uneven pace of of, you know, restart to the economy. There will be fits and starts if you will. And that will have implications for-- for crude oil pricing and-- and broader economic data. I mean, the jobs report, economic growth, a variety of metrics will probably be uneven as-- as we restart the economy.

MYLES UDLAND: And then, Ben, just in terms of, you know, names you like here and what criteria you want to see in a company to make it investible at this point-- we've seen some bankruptcies already in the energy space. I think, you know, from the outside, energy seems monolithic. But on the inside, there's a huge difference between, you know, what part of the process you're playing in.

What companies do you like right now? And what characteristics do they have that make you feel like you're not going to get stuck in a value trap with some of these names?

BEN COOK: Yeah, that's a good question. So you know, I would say that our investment process has not changed even though this pandemic has-- has created a tremendous amount of volatility, not only with the commodity but-- but throughout the-- the energy universe.

And you know, look, you know, our investment process is-- is fairly disciplined. We're looking for three key things with the companies that-- that we focus on. First and foremost, we want companies that have, you know, very strong asset bases. Those are asset bases that are capable of generating strong cash flows even in a stressed commodity-price environment.

We're also looking for balance sheets that are strong and capable of allowing these companies to-- to live through the depths of commodity troughs such as what we're experiencing right now, you know, companies without excessive leverage that might put them in a difficult position should the downturn be prolonged. And then ultimately, you know, we want to see management teams who have been through a variety of cycles or a number of cycles, and they've demonstrated an ability to execute on their operating strategy, both at good times and bad.

And so there are a number of companies that-- you know, that we're excited about given the volatility we've seen in the marketplace that extend across the energy value chain.