After insane volatility in oil and oil stocks, a recap on the macro scene in energy and the few specific stocks need updating after this week's carnage (and only partial recovery).
First, to the macro: Oil and oil companies continue to follow the timetable of destruction whose path began almost exactly one year ago today. Of the five major inputs to the decline on oil that I outlined in my book leading to oil's continuing price collapse, it is obvious that the Chinese GDP fantasy (and also the Yuan devaluation race) was the straw that broke oil's back on Monday (as well as the major averages). I was rather certain that oil's lows of the early spring would not be significantly broken, but the power of the Chinese disaster was enough to send it briefly down to $38. To be instantly clear about this, this move did NOT signal a sell, nor upset my macro scenario in oil or oil stocks.
We have always maintained that oil's bust would be a very long process, with no significant bull market reestablishing itself until at least the end of 1Q 2016. Production from OPEC sources is inelastic in that there are no incentives to impose tougher quotas – the Saudi plan is working in destroying US production competition and hobbling Iran and they won't let up until there is quite a bit more blood on the streets in the form of bankrupted shale players and reduced projected supply from other OECD sources.
And the signs for that coming soon are everywhere. Rigs, down 1000…