It could have gone either way. I am talking about how the market chose to rally in the later afternoon yesterday, rather than sell off, and it rallied because oil, which looked like it was faltering, rallied big. Why? Because some Venezuelan oil minister said there will be a meeting in March among his team, Russia, Saudi Arabia and Qatar in order to stem the inventory glut to keep prices from plummeting.
This is about the tenth one of these, and they really are amazing in how they can't be killed.
Meanwhile, we are getting inventory data -- the true indicator of the situation -- that is just horrendous for the oil bulls. According to the EIA, we are still producing 9.3 million barrels a day in this country, which is up from November of 2014, when we were producing 9.2 million barrels a day. That's astounding, given that all of the problems started at that point.
Now, some wags have said that increased gasoline consumption could be playing a role in how sticky the price of crude is. But Rusty Braziel, my go-to oil guy and author of The Domino Effect, says that neither U.S. gasoline demand nor demand from overseas is up much at all. The stuff just doesn't get used more as it goes lower. I am sure the more efficient engines have something to do with that.
However, he points out, it is easier to get prices to go up by press release than it is by putting through actual cuts, and given that we are pumping more than when the Saudis set out to break us, I don't think they will relent and stop pumping any time soon.
So what do we do with the stocks? That's a good question, because every time you want to buy an oil stock, another one issues equity. Last night was Newfield Exploration's (NFX) turn, offering 29 million shares after having its stock fall from $41 in November to $24 now. If you own too many of these stocks, you are just getting crushed here.
I have been reading Carleton English's non-stop coverage of this group, and I cannot believe how many $3-$4 oil stocks there are that are kicking around, which were substantial companies with big market capitalizations not that long ago. Take WPX Energy (WPX). This is a pretty decent oil company run by Rick Muncrief, who used to run the day-to-day operations for Continental Resources (CLR), building that company into one of the great oil and gas companies in this country, before taking this gig.
You go read that conference call and tell me you won't want to buy hundreds of thousands of shares of this one. Muncrief has made some fabulous deals, he has terrific assets, world-class, and he has lowered costs pretty much better than anyone out there. His Delaware Basin tracts may be the best there is.
That said, WPX is losing money, it needs borrowing capacity and while it has stated that it has the liquidity in place for a long-term downturn, who the heck knows anymore? It's been good like this all year, but the stock's been terrible, down 32%.
So all I can say is that you might want to take a flier in the darned thing, but wouldn't it be opportunistic for Muncrief to raise even more capital to become less dependent upon debt?
I would normally say that's ridiculously unnecessary. I mean, they spent the whole call talking about how they don' t need money. But so did Devon (DVN), and then they filed a gigantic deal the next day! It's almost as if Muncrief, who, again, is among the best, can't control his own destiny anymore, even as his cost per barrel is between $10 and $11.50, which makes WPX one of the best specs out there. Mighty tempting.
So we wait. We watch. But there is no sign right now that anything is different: inventories are still too high, there is still too much drilling because we have lowered the breakevens so much, and the companies need the cash flow and we keep getting short-covering spikes like we did yesterday.
In other words, it's just too hard and too dicey to consider this sector investable, unless you are talking about a company like Exxon (XOM), Chevron (CVX), Action Alerts PLUS portfolio name Occidental (OXY) or Schlumberger (SLB), and even then you will have to be very careful once the short squeeze ends.
But if you really believe oil's going right back up to $50 this year?
WPX will suit you fine.