Do you know how many people went short oil ahead of this Doha meeting? They are scrambling like mad to cover their shorts and get some oil exposure in, and all I can say is, "How much do I hate it when you have to chase."
Cases in point: Today a firm downgrades Freeport McMoRan (FCX) from Underweight to downright Sell. How much does it propel the stock? How about more than 6%!
Last week, drilling company Ensco (ESV) needed capital real bad. It priced a deal in the hole, meaning the stock had been at about $11 and the company sold 57 million shares at $9.25.
Normally, you would think that would obliterate any interest in the company. What major enterprise has to sell that much stock down so much from where it was selling if it isn't in such trouble that you would never want to own it?
But now that it's almost back to where it was, we have to take stock of what's happening here, namely that an oil company that doesn't have cash is an oil company with a stock that's going down. However, an oil company that raises cash in the equity market? That's a keeper. Think vicious cycle down and virtuous cycle up.
Now, how did all of this happen? Once again, the drill: There is increasing demand, you can see that from the Baltic Freight Index, which has never let us down (thank you Matt Horween for that insight). And there is decreasing supply, notably from the ones that are going belly-up.
Plus, the drilling count is telling you there's nothing in the pipe for the second half.
In that scenario, you want to own oil stocks, not sell them. You want to be in Schlumberger (SLB), not short it. And you want to make your peace with a big oil, perhaps one with a dividend -- we own Occidental (OXY) for Action Alerts PLUS (SLB, too) -- and you wait for a better time to buy more because one thing we do know about oil is, at $50, oil comes out from the woodwork.