Fundamentals Are Lost, But Upside Visible For Oil

The oil market has become nothing but a rumor mill - rumors of Fed hikes to come, or even Fed cuts - and, over the last few days, a stubborn rumor about a Russian/OPEC summit to cut oil production.

Rumors suck, but this time the fix may be in - I think it's time to put some money into some oil stocks for the quick blast up.

I've got oil stocks, and it's been painful. I've been waiting for the inevitable short-covering rally of overloaded speculators to come since December and wash away a lot of my losses, give me a chance to get closer to even for this, so far, horrible year and have another look at the timing of the crude bust and next boom to come.

I've been waiting for a time to add some money into favorite oil stocks to help turbocharge that short covering rally, and now looks like the time to take that last shot: Having seen a low of $26, oil could go lower, but is bounded by zero - and ludicrousness. Fed dovishness tends to lend at least some support to a few less rate hikes than they might have been leaning towards before stocks fell off a cliff.

And then there's Russia - now twice intimating a willingness to talk about a concerted production cut of 5 percent - first floated through the Iraqi oil minister on Tuesday and today hinted at by the Russian oil minister himself, Alexander Novak. OPEC, and the Saudis have both denied floating a plan, or talking about a meeting.

Oil goes up on these rumors, but tellingly, doesn't go back down quite as much - The Russians are telling the truth - Saudi Arabia has proposed concerted production cuts to the Russians three times previously, most notably before both Vienna OPEC meetings in 2014 and 2015, with nothing more than a terse dismissal from the Russians. This time is different, at least from a Russian willingness to talk.

And Saudi opposition to a calculated production cut is also a wrong media meme - they have been more than willing to talk about an effort to curb production - provided they are not alone in it.

There is one previous incident of a Russian production deal with OPEC in the past, in 2001, which the Russians almost immediately cheated on.

Iran is also entirely unlikely to agree to any production cuts of their own, having suffered sanctions and now hoping to benefit from their first real access to global markets in almost a decade.

OPEC itself is a cartel with a clear history of cheating on its own production quotas, even in the best of times, which this certainly is not.

Is there any chance that a deal will work? Almost none.

Does that matter? Probably not.

With the Russians now behind the rumor mill, they'll keep the pressure on for a meeting, even one that is doomed to fail, putting increasing pressure on speculative shorts and algorithmic momentum sellers that have been unrelentingly pushing prices lower. They'll cause some of them to break ranks, if they haven't begun to do so already.

That should result in an oil rally above $40, maybe as high as $45 - still a ridiculously low price, but enough to make for a solid rally in some oversold oil stocks.

Pick your own favorites - I'm going with Hess (HES), Pioneer Natural Resources (PXD) and Devon (DVN) - looking for the ones that have been beaten down the most, or more than I think their balance sheets deserve. They're also the ones I think will bounce back the strongest.

Do I think the Russians will make a deal? Nah. But it's worth a trade.