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Prepper

Further consolidation is coming to the energy sector as Diamondback Energy (FANG) and Endeavor Energy Resources finalized a merger to create an oil-and-gas behemoth worth more than $50B. The deal, announced early this morning, will combine two rivals in the Permian Basin, where M&A activity has been on fire. Many have been scrambling to scoop up top-tier drilling acreage in the area that extends from West Texas to New Mexico, which has helped propel American oil production to record levels.

Drill, baby, drill: The U.S. is currently producing around 13.3M barrels of crude per day, which is way more than any country on the globe, including Saudi Arabia. The output growth has helped tame gas prices and, perhaps more importantly, undermined the influence of OPEC and Russia following the invasion of Ukraine in 2022. At times, this has clashed with the Biden administration's clean energy agenda, though for the time being, inflation concerns and energy independence seem to be the top priorities, especially if they can be paired with climate spending towards the green transition.

Producers also know that while times are good, demand can come down or eventually plateau, especially with the U.S. currently exporting more oil than nearly every member of OPEC. One doesn't have to look too far to the 2014-16 downturn, which hammered the industry and was largely driven by a supply glut. Boom-bust cycles are normal for the oil sector, but many are preparing in advance this time around, turning to mergers and consolidation to squeeze more profits from their production and raise their competitiveness as the cheapest barrels on the market.

Economies of scale: Jumpstarting M&A in the Permian Basin, Exxon Mobil (XOM) agreed to acquire Pioneer Natural Resources (PXD) in a deal valued at $60B last October. It was followed by Chevron's (CVX$53B all-stock deal for Hess (HES), while Occidental Petroleum later announced a $12B agreement to buy West Texas producer CrownRock. Last month, APA (APA) also agreed to purchase smaller rival Callon Petroleum (CPE) in an all-stock deal valued at $4.5B, boosting its presence in the Permian. (2 comments)

Robotaxi ablaze

As safety concerns over driverless vehicles continue to mount, a Waymo robotaxi was vandalized and set on fire in San Francisco's Chinatown district Saturday night, in one of the biggest attacks on a self-driving car to date. "Waymo Vehicle surrounded and then graffiti'd, windows were broken, and firework lit inside the vehicle, which ultimately caught the entire vehicle on fire," the San Francisco Fire Department said on X. The cause of the attack remains unknown but happened as people were celebrating the Chinese Lunar New Year with fireworks. Waymo, a unit of Alphabet (GOOG) (GOOGL), said the vehicle was not transporting anyone at the time of the incident and no injuries were reported. (13 comments)

Love is sweet

It's the time of year when swooning sentimental souls overspend on flowers and candy, while cynics roll their eyes at the silly waste of money. Wherever one falls on the romance spectrum, they are going to be paying a lot more for chocolate this Valentine’s Day. Fueled by hostile weather conditions in western Africa, cocoa futures (CC1:COM) have more than doubled since March 2023 to their present rate of around $5,800/metric ton. Top U.S. candy makers Hershey’s (HSY) and Mondelez (MDLZ) have also warned of significantly high cocoa prices eating into their profits this year. (11 comments)

NATO watch

Nearly three weeks after Ankara ratified Sweden's entry into NATO, the U.S. Congress has cleared the $23B military sale of Lockheed Martin (LMT) F-16 jets, as well as missiles and bombs, to Turkey. Jeff Flake, U.S. ambassador to the country, lauded the approval, saying it was "critical to NATO's strength," but tensions were mounting elsewhere over the weekend. NATO Secretary-General Jens Stoltenberg slammed Donald Trump's threat of encouraging Russia to "do whatever the hell they want" if it attacked a NATO member who didn't contribute enough to the alliance. "Any suggestion that allies will not defend each other undermines all of our security," he warned, "and puts American and European soldiers at increased risk." (5 comments)

Today's Markets

In Asia, Japan closed. Hong Kong closed. China closed. India -0.7%.
In Europe, at midday, London -0.1%. Paris +0.4%. Frankfurt +0.3%.
Futures at 7:00, Dow -0.1%. S&P flat. Nasdaq flat. Crude -1.2% to $75.89. Gold -0.1% to $2,036. Bitcoin -1.1% to $47,892.
Ten-year Treasury Yield -3 bps to 4.15%.

Today's Economic Calendar

1:00 PM Fed's Kashkari Speech
2:00 PM Treasury Statement

Companies reporting earnings today »

What else is happening...

BetMGM (MGM) inks deal with X before Chiefs win Super Bowl LVIII.

Amazon's (AMZN) Jeff Bezos sold more than $2B in stock last week.

Younger adults see wealth rise the most since the pandemic - NY Fed.

Tower Semiconductor (TSEM) files proposal for $8B chip plant in India.

Goldman Sachs sees continued improvement for U.S. IPO activity.

Joby (JOBY) stock rises on plans to launch air taxi services by 2026.

Tesla (TSLA) temporarily lowers prices for some Model Ys in U.S.

Despite BTC rip, most institutional traders don’t want crypto exposure.

Stronger standards for soot pollution finalized in latest EPA action.

Jefferies lists 'pick-and-shovel' plays in booming weight-loss drug market.

More on today's WSB topics

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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