I'm going to sound like a broken record, but right now is the key moment to develop a long-term energy portfolio, if you haven't already. If you have, you've already amassed some profits on these positions and need to be looking for opportunities to add to them.
And today, I won't bury the lede, if you're confused about whom to bet on: My favorite stocks in each shale play have remained the same throughout this crude bust -- EOG Resources (EOG) in the Eagle Ford, Cimarex (XEC) in the Permian Basin and Hess (HES) and Continental (CLR) in the Bakken.
Now, let's dig a bit deeper into my macro thoughts and micromanagement of these positions.
My old mentor when I first began trading in 1982 had a saying: "In bull markets, all news is bullish." What he meant was that sentiment was often represented in the way news was presented, adding fuel to a trend fire already beginning to rage. Two big news stories in energy last week included the "loss" of the Energy Information Administration (EIA) of 800,000 barrels a day of oil, somehow disappearing between their accounting of production and usage. This implied that reported global gluts were not quite as bad as once thought (and a bullish sign).
These kinds of discrepancies have been an EIA staple for years, and part of the reason the crude bust caught so many of us by surprise (analyst and energy CEO alike) is that the gap between supply and demand was always fairly large and IEA gaps are also standard operating procedure. OK, so this time the IEA was "missing" 800,000 barrels as opposed to 500,000? ... So what? Well, it does become a big deal when markets are rallying, when it wasn't even a story when they were under pressure.
Another news story described the increase in pricing of barge and VLCC storage -- and the concurrent drop in floating storage demand. This relates to my January "most important column" idea of a flattening of the curve showing the bottom in crude prices and decreasing the financial incentive to "pump and store" as opposed to just stop pumping. The quick analysis, if you're unwilling to go back and read that column, is that this is another firm indication that the bottom of oil is in -- a story you'd never have seen four weeks ago.
Add that to a continuing drop of fund spec shorts and increase of fund longs in oil and the suspicion I have that Janet Yellen won't bother with another raise of the key rate while Donald Trump is the apparent Republican nominee and you get the full point:
If you've been waiting to buy oil stocks for the coming up cycle, now's the time to start.
My main play remains with EOG Resources, which I consider the most disciplined in shale. On a side note, I'm looking closely at (ex-EOG CEO) Mark Papa's SPAC Silver Run Acquisitions (SRAQU), which raised $450 million last month. This is the smartest man in shale (in my view) getting back into the game and being able to raise $50 million more than originally requested to acquire shale acreage from other distressed E&Ps. It is precisely the kind of "blank check" vehicle that Aubrey McClendon tried to generate to keep American Energy Partners alive but raised only $11 million of an intended $1 billion of share units. At a 3%-5% premium over the initial offering price, I think a long-term stake in this real "guru" of shale might be worth a punt before Papa begins buying.
And finally, if you're wondering when I talk positively about something besides U.S. E&Ps, it's coming -- there is a moment when oil services will be an even better place to be than the beta oil producers, but that's not now. For example, I might have wished I bought Helmerich & Payne (HP) nearer to $45 a share, but at $60 right now, the shale specialist is way out over its skis at this point in the cycle and will represent a much better opportunity later.
