In this issue:

The biggest sale this Black Friday is on oil and refined fuels, with crude futures down more than 6% after the Organization of Petroleum Exporting Countries failed to cut its production target.

Saudi Arabia and other Arab Gulf states sealed the meeting’s fate when they refused to curb their exports. They’re hoping the cuts come instead from the U.S. shale drillers, whose rapid output gains have caused global supply to surge ahead of demand.

These companies are on a shorter commercial leash than the state-owned OPEC producers, but their hedges, falling production costs and considerable debt have so far encouraged them to keep on drilling while reviewing  2015 capital spending plans.

These are now highly likely to be curtailed. But in the meantime, an oversupplied market that saw no change in supply/demand dynamics after a 20% discount is seeing if 35% off might do the trick.

There’s an excellent chance that this will be enough over the long haul, since $75 per barrel Brent crude will discourage deepwater exploration, while West Texas Intermediate at $68 would constrain development outside the “sweet spots” of the most profitable and prolific shale basins.

But in the short term the futures market will remain a creature of trader sentiment — now as bleakly bearish as it was unabashedly bullish six months ago.

So while we believe the bottom for oil and oil stocks is near, we have to respect the possibility that markets could overshoot even further to the downside. And that, in turn, leads us to recommend that you now deploy only some of the cash we’ve been urging you to hold in reserve for opportunities like this one, and save the rest for future ones that we hope don’t materialize, but might.

Also, make sure you’re properly diversified outside the energy sector. The market can remain irrational for longer than we can remain solvent.

When sentiment on crude and oil stocks does turn, as it will, only the capital that’s been safeguarded will benefit.

Until then, keep some powder dry and keep learning. Our series on oil and gas reserve valuations continues this week with a look at the standard measure, an estimate mandated by the Securities and Exchange Commission. It’s not of much use in momentum-driven markets like today’s. But when calm returns it will provide another way to identify the bargains inevitably left by such dislocations.

We’re also adding to our Growth Portfolio Global Partners (NYSE: GLP), a fuel wholesaler and retailer that actually benefits from lower energy prices as demand tends to increase and its margins expand. It’s a master limited partnership with very solid financials, growing scale and an ambition to rise from its single oil truck origins to nationwide, tri-coastal reach as a logistics provider.

The Northeast has become an energy focus because of the Marcellus shale, but it’s also a huge energy consumer. Getting fuel into all those gas and oil heating tanks is  a fragmented business in which economies of scale can make all the difference.

Global Partners is rapidly accumulating such advantages, in a thickly settled region with some of the highest fuel demand anywhere.

Whatever happens with crude, the energy sector won’t stop delivering essential services because of it. And it won’t stop producing winners.  

Portfolio Update

• Global Partners (NYSE: GLP) added to Growth Portfolio. Buy GLP below $50.

Commodity Update

Crude oil futures rose after our last report, but OPEC’s refusal to cut its production target sent futures tumbling. West Texas Intermediate (WTI) fell to $69.16 a barrel (bbl), down $5.58/bbl since our previous issue. Brent was down $5.67 over the past two weeks to $73.09/bbl. The cold weather suddenly has the attention of natural gas traders. Since our previous report, natural gas rose $0.26 per million British thermal units (MMBtu) to $4.21/MMBtu. Last week’s Weekly Natural Gas Storage Report showed that we have now entered withdrawal season with inventories 6% below the five-year average.

In Other News

• The U.S. and China made a joint announcement that sets new carbon dioxide emission targets for the U.S., while China said it would try to reach its emissions peak by 2030  

• The U.S. Environmental Protection Agency announced that it won’t issue a final renewable fuel standard for 2014 by the end of the year

• Halliburton (NYSE: HAL) agreed to buy Baker Hughes (NYSE: BHI) for about $35 billion in cash and stock, creating a Schlumberger-sized oilfield services giant

• French oil company Total (NYSE: TOT) will face trial in France over corruption allegations relating to Iranian contracts

• OPEC’s decision not to curb output signaled a price war with shale drillers and sent U.S. crude prices below $70/bbl