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One Way To Play A Pullback In Oil Prices

A couple of weeks ago, when the rumors started about the production cuts that OPEC+ confirmed yesterday, I wrote that, from a long-term perspective, the cuts didn’t alter my bearish view on oil. That view, I said, was based on economic data that suggested the US, maybe even the world, was entering into a period of stagflation. Well, OPEC+ not only confirmed the rumors of cuts, but set them at the upper end of expectations. After trading lower for a couple of days after I wrote that, oil bounced back strongly as those rumors gained legitimacy, and is higher now than it was then as a result. However, the economic data is, if anything, worse now than it was then, and with the Fed indicating more rate hikes to come and earnings that are generally anticipated to be disappointing getting underway next week, the rally doesn’t look sustainable.

So, while things haven’t worked out exactly as planned to this point, I have been looking for stocks that I think are vulnerable should oil, or stocks in general, head lower again over the next couple of weeks, as I expect both to do.

It seems to me that the answer lies in things that will be hit by a reduction in output, whether that comes on the supply side, from the cartel, or from a drop in demand as economic conditions worsen. Oilfield services stocks fit that bill and the one that stands out as a sell is Schlumberger (SLB), based on the fact that SLB has bounced back, their earnings aren’t due out until…

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  • Oilysmartypants on October 07 2022 said:
    “Ouch” like hell

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