Sullivan: Wall Street admits it doesn't know where oil is headed. There's one stock they do agree on

The three hardest words for anyone on Wall Street to utter. Knowing things — or at least knowing enough to make a solid estimate — is one of Wall Street's core jobs. Analysts, bankers and traders have access to the best information and systems. They are paid very handsomely to know more than we do.

So it's refreshingly honest to hear someone on Wall Street admit they don't know. Which is exactly what the team at JPMorgan just did. They write:

"For the first time since the start of the Iran conflict, we don't have a baseline view. We simply don't know how to model the endgame. At the onset, we thought we did. We assumed there were economic red lines the U.S. administration would be unwilling to cross: $100 oil, gasoline near $5 a gallon, 4% headline inflation or a 5-handle on the 10-year Treasury yield. Those constraints gave us an implicit timeline, and we expected that by June there would be some form of agreement to reopen the Strait."

"Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more. Oil is above $100 and the 10-year yield has a 5-handle. Gasoline, at $4.37, remains at record seasonally adjusted levels even though peak driving season is behind us. More concerning, diesel is at an all-time high of $6.31 a gallon heading into winter — the period of peak seasonal demand — while inventories sit at all-time lows."

This is one of the best and most useful research pieces I've read in years. That may sound counterintuitive, but let's be direct with each other: no one really knows what is going to happen or how this is all going to play out. No one.

I'm sorry if that's not useful. We in the media and broadcast business also like to be sure of things. It's not in our best interest to say, "We don't know," but sometimes we just have to admit it. This is one of those times. In fact, there are only four things I am relatively certain about right now.

One: nobody knows how this plays out. Kaneva is correct. It has now been six months since the Iran war/conflict began. It could be another six months before it is over. Or it could be six days, or six weeks. Or maybe it is never really "over" and simply burns out and slowly fades away. Or it could escalate dramatically.

President Trump has said that oil and gasoline prices will not fall until after the November 3 elections in America. What exactly did he mean by that? Why would those elections — which will determine the balance of power in Congress —matter to Iran? We don't know for sure, but some sources I speak with believe that, after those elections are over, Trump will feel free to become hyper-aggressive, potentially destroying or taking control of Iranian oil and energy assets. If so, that would spike prices in the short term, but the market would anticipate higher oil exports later, bringing prices down. That may sound odd, but it's what some of my smarter sources are whispering about.

Two: this could go on longer than many think. Yes, Iran is suffering. Its economy is hurting, its currency is collapsing and whatever news we get from inside the closed kingdom implies tough times. But historically, Iran has a way of toughing through things and figuring out workarounds, like ship-to-ship oil transfers—a "trick" the U.S. has adopted.

Three: the market really, really wants oil prices to go lower. Oil futures are hovering right around $100, and the cost to buy an actual barrel of oil in the Middle East is much higher than that. But oil is not at $125, $150 or more, despite many very smart people making a good argument that it should be.

I mean, Saudi Arabia's massive East-West pipeline was hit in a drone attack. Oil is flowing through Hormuz, but at levels far below where they were when the war began. So why isn't oil higher? It sure seems that "the market" wants to push it lower. Whether that's because of demand destruction, a belief that this "ends" sooner rather than later, Saudi engineers getting the East-West pipeline back up and running soon, higher actual flows than are being recorded, or some combination of all those things — who knows? Oil could easily be at $150 per barrel. But it's not. That should tell you something.

Four: Russia may be more important to global markets than Iran right now. Oil is a problem, but diesel fuel prices and supply are a more immediate threat. Russia is a massive refiner of diesel fuel. Ukraine has been systematically bombing some of those refineries, severely curtailing the global supply of diesel fuel. This has sent nominal diesel prices to record highs, though it has been higher when adjusted for inflation. In some areas of Europe, diesel fuel is over $10 per gallon and moving higher. The world runs on Rudolf Diesel's invention, and it's possible some areas won't be running much longer if prices keep going up and supply keeps going down.

Insider take → Next week's Power Insider will dive deeper into Europe's natural gas woes. You can get a sneak peek below in this week's Inside Line interview with the co-founder of Venture Global.

Four things I'm certain of. At least, I'm pretty sure I am. Maybe. These days, certainty is a rare commodity, and history has shown that anything having to do with Iran is often far from certain.

See you Monday through Friday at 2 p.m. ET on CNBC's Power Lunch!

While parts of Wall Street struggle to figure out what's going to happen around Iran, oil and energy, stock analysts were busy making calls this week.

The biggest stock getting some analyst love is Chevron (CVX).   Goldman Sachs reiterates a buy rating and raises its 12-month target by $15 to $240.  Venezuela — which we wrote about extensively last week — plays a role here.  The Goldman team notes that Venezuelan production is expected to double to about 600,000 b/d by 2031.  The firm is also bullish on Chevron's power generation opportunities.   The $240 target is above Wall Street's median target of $223 and about 17% where the stock is trading today.

Also watch BP (BP).  The British energy giant continues to evolve, and Evercore ISI is here for it. The firm added BP to its Tactical Outperform list, though keeping its $52 the same.  Analyst Stephen Richardson notes that BP's balance sheet "promises to be one of the most transformed" in the second half of this year.  He likes the commodity "tailwind" and that BP is cutting debt levels to narrow the "valuation gap."   BP may be the most interesting company and stock to watch in 'big oil' over the next 12 months. After aggressively pivoting away from oil and gas, the company is now aggressively pivoting back toward oil and gas.  It has a new(ish) CEO in Meg O'Neill, who is likely to keep driving BP back toward its core competencies in energy.   Watch this space (and watch the stock!).

The calls are also coming on smaller cap stocks.  Truist is bullish Crescent Energy (CRGY).  It's got a buy rating and $19 target.  Crescent is an oil producer that Truist analyst Gabe Daoud likes because it trades at an earnings discount to its peers.  The firm adds that Crescent is doing "more with less rock" and has a nice free cash flow yield to its enterprise value.  The $4.5 billion company operates mostly in the Permian Basin and Eagle Ford Shale regions of Texas.  Truist's $19 target is high relative to Wall Street's median target of $17.44, though research firm Stephens takes the top spot with its $21 price for CRGY. The stock is trading around $13 currently.

The big macro stock story right now remains around refiners.  They moved lower to start the week as oil fell, but otherwise have been hitting new highs nearly every day.   Valero (VLO), HF Sinclair (DINO), and Marathon Petroleum (MPC) just hit new highs last week, while Phillips 66 (PSX), Par Pacific (PARR), PBF Energy (PBF) and Delek (DK) also remain close to record highs.   They are benefitting from the jump in crack spreads.  The EIA helpfully defines the term as the difference between the price of oil and the price of refined products, and notes that it helps determine the "relative value" of those products.  Investors have figured out that the real value may be the earnings of these companies, bidding up the stocks massively in the last few months.

That said, caveat emptor around the crack spread!  With the exception of Delek and Par Pacific, the refining stocks are all above their Wall Street price target.  

The big question mark around these companies is whether the White House pushes through a ban or restriction on diesel fuel exports.  As Citigroup notes, calls for restrictions are "intensifying," and the firm says that if a complete ban were enacted, refineries would "likely reduce throughput in response to sharply lower margins, which would have a cascading impact on the price of gasoline and jet fuel" … but, worse, if a complete ban on exports were to happen, it would likely "spell the end to [the] historical run in refining margins and share prices."

In other words - if you own any of the stocks below, pay close attention to any headlines around a possible diesel fuel export ban.

My take → Industry contacts all whisper to me that a diesel ban would ultimately have the opposite intended impact on higher prices as refiners cut their output to manage storage levels.  Diesel fuel isn't like other products that can be easily rerouted; the distribution systems are locked in.  That's the industry view anyway, and you can believe it or not … but it's a battle going on behind the scenes.  

It's not just about the price of oil itself.  It's about getting oil from where it's produced to where it needs to go.  That price is soaring.  So much so that you almost can't even believe how much shipping costs have gone up.   Well, believe it.  And here it is.

This week's Inside Line is with Venture Global CEO Mike Sabel. We discuss the company's new China Gas deal, rising demand for U.S. LNG and the impact of Middle East disruptions.

Catch up with more on energy including interviews and video content from CNBC and Power Insider.   

Read the last issue of Power Insider here.