Cramer: Oil Stocks Are Not Fossils

 | Jun 14, 2017 | 2:23 PM EDT
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Is oil finished? Is crude done as an investible concept? Is crude now entering a fable death cross where it will fade away to the thirties from its $44 perch? Are we so into alternative energy that crude's days are gone and oil stocks will be on the endangered species list?

I did an Action Alerts Plus club call today that addressed these very issues after spending an hour with my go-to energy call, Rusty Braziel of RBN Energy, who famously came on Mad Money a year and a half ago and said that those who thought oil was going back to the hundreds or even to the sixties or seventies were just going to be plain wrong.

When I consider that most oil guests did cling to that view, especially every time oil breached $50 on the way up, it was a bold call.

Now with oil breaking $44 it's a legitimate question to ask if crude's kaput and going down for the count. Neither Rusty nor I believe that. In fact we've been waiting for the speculators to be washed out and it looks like that is just what's happening.

Before I go into why I think that we are approaching my $43 buy point let me go over what's happening now in oil. First, you know how stocks sometimes trade down sharply in unison on some bit of information? Oil now does that, too. The futures now trade algorithmically, meaning that when the oil inventories that came out at 10:30 today showed a big build, the machines fired off sell orders that brought oil down almost two bucks in a nanosecond.

That kind of trading freaks people out and begets more selling in the oil complex, which happens to trade together, largely bound by oil ETFs.

Second, while it is true that the OPEC cuts have not done enough to stem the glut -- in fact U.S. production, barrel for barrel, is making up for whatever's been taken out -- the demand for oil is not declining as the bears would have you believe. In fact, while alternative energy sources are coming on, for example 27% of the power in Texas is now produced by wind, oil use is not declining in any noticeable way.

Third, the depletion of current wells is going on apace, which means that many of the nation states and large oil companies that have withheld drilling for big projects may have not been replacing production.

Against that, though, is that every time oil approaches $50 you do get our oil companies selling futures that do put a lid on it. Rusty points out that futures, out five years, show $50-a-barrel oil. I don't want to disagree with the futures market but I think if there isn't more drilling away from the U.S. soon, you will see the glut disappear by next year.

Which brings me to the stocks. If you look at a lot of the big ones and the oil service companies, they now reflect all of the fears I heard when we were going to the twenties. I am not saying these are the greatest value stories of all time. I am saying that the pessimism is too thick and I think that picking at the stocks as we get to $43 will make you money even as the long-term doubt is quietly surfacing as a real issue to watch, not for this decade, but certainly beyond.

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