I don't know if you caught it, but something very bizarre happened yesterday, something we didn't see in 2016: crude went down but the oil and gas stocks went up.
That's right; we came in to work with oil up a buck and change, threatening to bust through the $55 level, one that has contained oil during the entire updraft from last year's bottom.
The rally in oil was central to the strong opening in the overall market, something, with all of the hoopla around Trump's election, we didn't seem to remember until it reversed and took the S&P 500 down with it pretty much in lockstep.
But, curiously, when you surveyed the stock universe, the oils gave up very little of their gains, less than every other group I follow save the drug stocks, which were giving you a January effect lift --they had been sold down by tax loss seekers in the month of December and that selling finally abated.
Why is that? Why did the oils hold in or, in some cases, rally harder?
A few reasons. First, our oil companies with assets in the Permian and the STACK and SCOOP formations in Oklahoma are making a lot of rumblings about how they continue to cut costs of drilling so that anything in the mid-fifties means that production growth will exceed expectations. Why not? They make too much money at these prices not to drill.
Second, there have been no signs of cheating yet on the recent OPEC agreement. Best estimates indicate that the cartel's actually controlling production far better than the skeptics thought.
Third, while Marathon Petroleum (MPC) is a refiner, not an oil company, its decision to accelerate its unlocking of value, spurred by Elliott Management, caused the stock to jump -- a reminder that there are still a lot of hidden assets out there within companies, assets that might be worth more now that Trump is going to be president. Remember, he favors drilling and pipeline building, and that's music to the ears of both the refiners and the exploration and production companies.
Finally, there is tons of talk of takeovers and mergers going on behind the scenes. In a little-noticed story yesterday, an activist outfit called Chapter IV investors suggested in a letter that EQT Corp (EQT) , an integrated oil and gas company, consider merging with either Range Resources (RRC) or Antero Resources (AR) . Chapter IV owns 1.35 million Range shares and 765,000 Antero shares, as of the most recent November SEC filings.
The firm suggested that there are obvious synergies and overlaps among the companies that could make for a more powerful combination.
I have always liked Range and feel even more strongly about it this year, because I think 2017 will be the year that natural gas companies outperform their oil brethren, and Range is a company with very inexpensive natural gas holdings in the Marcellus and Utica basins located primarily in Pennsylvania and Ohio respectively.
I don't think anything will necessarily come of it; Chapter IV's not big enough to force anyone's hand in this equation. However, with oil stabilizing in the $50s, scale makes more sense and either of these deals would give EQT a lot more of it.
But let's not overthink this. The main takeaway here is that any decoupling of the price of crude with the stocks, one that sends the stocks of oil and gas companies higher even during a brutal reverse in the price of crude, is especially good news for a group that looked like it was going down for the count a year ago and has now become integral to the amazing Trump rally in everything fossil fuel.