Negativity has almost never been as high as I’ve seen it in the past several days for the oil space. And, to be fair, I can understand it easily – oil stocks have been real dogs.
As the stock market has soared through 21,000, oil stocks have done more than just lag the major indexes, they’ve outright sagged against oil prices that continue to languish near $50 a barrel. It’s been a tough time to be a bull on oil stocks, but it also has been a time that would cause many to reconsider their strategy.
After all, there’s nothing but analysts out there who are pessimistic on oil stocks and oil prices: Read Arthur Berman here, my friends at SCS here and even the EIA getting worried about fast increasing production in the Permian basin here.
There’s a lot of data in those links I just showed you, and they are all admittedly bearish on oil and oil stocks – but there’s a bit of experience that keeps me from bailing on my portfolio choices, and moving out of oil stocks: I love being on the other side of the analysts.
We’ve also seen very aggressive speculative moves in and out of oil futures as traders try to gauge the timing of the rebalancing of global oil supply and demand. And although they’ve already gotten it wrong twice, causing two separate mini-crashes, I still feel good playing this market from the long side.
Nearly everyone’s bearish, so it must be time to buy.
I am still convinced of oil’s rebalancing math, mostly the absolute inevitable OPEC extension of production limits with the Saudis leading the way in trimming global supply.
And there are others, who I find more convincing than analysts who agree with me.
One is Paul Kibsgaard of Schlumberger, who reiterates one of the major points in my latest book, that catastrophic cuts in oil development capex will inevitably result in a major supply shortage.
The other two are traders who are also seeing a lengthening of the bust cycle, but both see a massive opportunity in rising oil prices later this year. Both are multi-millionaire energy hedge fund operators, both with long histories of correctly forecasting oil’s major moves: Andy Hall and Pierre Andurand.
As a trader myself, I have a lot more respect for those who put their own money where their mouth is.
So, seeing Anadarko (APC) fall 5 percent because of a well explosion in Colorado strikes me as an opportunity – the 13,000 barrels a day of production that will only be temporarily lost is not significant enough to move the stock this negatively.
Other stalwarts in the Permian basin strike me as nearly equally good to accumulate: Cimarex (XEC) near to $115 and Centennial Resources (CDEV), now near $16.50.
It’s not going to be easy, riding out this negativity to the next oil boom. But I still believe it’s going to be worth it.