Is It Time To Get Back In?

This is getting frustrating. Oil stocks are acting like there’s a bull market in force, or soon to be in force – yet oil is still below $60 a barrel. I know that the market is over skating the puck here, trying to force in a trade that’s not ready yet, that still needs far more percolating before it’s really ripe. But I also know that there is a next oil boom on the tail end of this shale bust that I just cannot and will not be left out of. I’m ready to start to accumulate some choice energy stocks now, even if they are, for the moment, overvalued.

Look, you can’t help but notice some conflicting trends as you’re trying to time this next great trend trade. Projections from the Energy Information Administration (EIA) are still for a sharp rise in US oil production this year. Saudi Arabia is at full throttle production with the hopes of crushing US competition and securing long-term markets. Iran still looks on track to reenter the global marketplace as nuclear deal specifics get worked through. Libya’s 1 million barrels will reappear at some point. And US producers, while cutting capex and working rigs, are still turning what’s left up to 12 (one more than a Spinal Tap 11).

Financially, there’s been a huge influx in speculative positions in both WTI and Brent crude where the long to short ratio is above 6 to 1. That’s been associated with a massive move of money in the last two months into dedicated commodity funds chasing the crude trade while the dollar has shown some, perhaps temporary, weakness. None of these indicate a long-term trend change and keep me wary of buying oil and oil stocks – in fact, it all would make me more likely to sell.

Sitting alone on the other side are rig counts that have finally slowed in their descent and a production chart that looks like it might finally be topping out – even if the EIA and the projections of the oil companies themselves don’t agree. I’ve always said that real production cuts are the spark that will indicate the end of the oil bust – but this is far too soon, I thought, to be expecting that turnaround. Far, far too soon.

Still, oil has crept back to close to $60. And oil stocks have had some stellar days that I’ve not been a part of. When a high-beta name like Oasis (OAS), where I’ve made some money earlier in the year goes up 6% without me in it, it physically hurts.

I can’t take that anymore. I know that the next boom will be big. Huge. I believe it will make the seemingly lunatic predictions of OPEC Secretary General Al-Badri - of $200 a barrel crude - very plausible indeed. Slashed capex here in the US, as well as in offshore projects, the Arctic, Brazil, Africa and just about everywhere the majors were looking and aren’t looking anymore leads inevitably to a production shortfall in late 2016 which will demand a spectacular crude rally.

I refuse to miss that. And I won’t by being too cute here with timing. I want in (again). I am adding to very small remaining positions in EOG Resources (EOG), Anadarko (APC), Cimarex (XEC), and restarting a position in Oasis (OAS). These are very, very small commitments to start, and I fully expect, even hope, to lose money in them to begin with. I will buy these the next time oil has two down sessions in a row of any size.

While I think my analysis on timing has been right, I just cannot bear to see oil, and my favorite oil stocks, rally without me. So, I’ll content myself with a small position in them – and hope to buy more later and more cheaply.