Can the Russians and the Saudis keep oil up beyond this morning's jump? We know two things: First, they are not nearly as important swing producers as they once were, even if Russia is the largest producer and the Saudis are the largest exporters. That's because Libya, which had been offline for a time, is now capable of putting out an additional 600,000 barrels a day, and a crucial Nigerian pipeline is ramping up to 200,000 a day.
Second, the United States is back to pumping what it was producing in 2015, which is something neither the Saudis nor the Russians could count on.
We had Noble Energy (NBL) on last week, and it is clear that it has been able to produce enough energy profitability at half the price at which it could produce back in 2014, and that's leading to a flood of oil that nobody could have expected.
Now, it is true that not every oil company is as proficient as Noble. But last week, we heard from Apache (APA) and from Cimarex (XEC) , and both are putting out far more oil than anyone would have expected -- especially the Saudis -- two years ago.
This oil is the oil that the Saudis totally misjudged when they set their quotas. They just didn't foresee such a decline in drilling costs and such a change in the way oil is drilled -- deeper, wider -- in the Permian. We are on schedule to produce and additional 100,000 barrels per month and we just got a big boost in oil from some gigantic wells in the Gulf of Mexico that just came online. This oil, plus the oil from Libya and Nigeria, will overwhelm the cuts.
Not only that, but it is so clear that the amount of oil futures selling above $50 from the U.S. producers will keep a lid on oil unless the Saudis can coerce other big producers to cut back, besides Russia and themselves. Or if Venezuela is somehow knocked offline by the chaos in that country, although so far that's been a real long shot.
All that said, the momentum is with the bulls for the moment. Oil has stalled out at the $52-$53 level over and over again; because of that futures selling at the producers in this country lock in prices that make it so there's a few bucks made per barrel. Some producers have prices that are about $25, but the transport costs jack it up to where they are making about $15; however, those are few and far between.
I think you hold on to the oil stocks for now, especially if you bought some into last week's capitulation. But it makes a ton of sense to trim when we get to that fabled $53 level just as everyone grasps that the U.S. is making up the difference.
Cocktails & Cramer
Join Jim Cramer on May 23 for an exclusive party at Bar San Miguel, his Brooklyn tavern.
You'll get to watch a screening of Mad Money, after which Jim will arrive fresh off of the CNBC set to mingle, pose for photos and answer your investing questions.
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When: Tuesday, May 23, 6 p.m.-9 p.m. EDT
Where: Bar San Miguel, 307 Smith St., Brooklyn, N.Y.
Cost: $375 per person
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