Very large macro financial pressures are working on the oil market right now, but I will again reiterate my call that a generational opportunity is emerging here, where oil will not go significantly lower and the oil stocks that are dependent upon its price are reaching levels you won’t ever see again. I particularly want to point out EOG Resources (EOG) at $77 and Hess (HES) at $57.
Horrible Chinese data has brought a stock market collapse in the last several days and oil is never outside of the ‘risk off’ trade. As prices for oil dropped insignificantly past the lows set in the spring, oil stocks took another tumble, placing them back into the ranges we wanted to see to unload some capital on them.
One indicator taken as extremely bearish this week was the Wednesday crude oil build in Cushing of 2 million barrels, in contrast to an expected 800,000 barrel draw. For many oil observers this is just any kind of build and meant to be sold. But this one is very, very different indeed. Most of this new supply is coming from Canada, where the basis differentials are forcing bargain basement crude oil into the U.S.. Encana (ECA) is the worst case in point and has become the poster child for bad management in the Canadian oil sector; forced now to pump and sell at any price and fully worthy of their single digit stock price.
As bad as it is for many U.S. E+P’s, they are not in nearly the same leaky boat as the Canadians. With the crude contango…