It's open warfare on the oil stocks. They've all been painted with a black brush and the worst splotches have been sprayed by hedge fund kings David Einhorn and Jim Chanos. This, however, doesn't mean that the sector is toxic to us as investors – in fact, it is again creating opportunities that we haven't seen since oil dipped closer to $40 a barrel.
This is not because I am not in agreement with Einhorn and Chanos – the points they make are macro but smart and you know that both are brilliant in their arguments because they can be explained on the back of a napkin. Chanos is simple in his short argument, not just on shale oil producers but on oil majors as well; he simply points out the increasing costs of producing marginal oil and the shrinking profits from producing them. In short, Chanos points to the good old days when oil was bought for $3 a barrel by giving a buck and a half to the corrupt government somewhere in the Middle East or Africa – with that math, a $25 retail price makes for a helluva 6 time profit. Chanos is less impressed by a $55 barrel being produced in the Gulf of Mexico, even when the retail price of that barrel is above 100 bucks – although it's nowhere near that now.
Use that math and you'd hate the oil companies too.
Einhorn has literally called a massive short on the US shale players, and not the marginal ones, either – he's gone big with hate mail directed at Pioneer Natural Resources (PXD), EOG Resources…