What if oil really is bottoming? What if this decline we see today is buyable if we get to the mid-$40s, where I expect financial sellers to continue to try to pound crude?
Within a span of a couple of hours yesterday, two people I really trust, Dan Dicker, our own energy expert on Real Money, and Charif Souki, the CEO of Cheniere Energy (LNG) both came out saying that the bottom's being put in. I am thinking that into this decline you should start to pick up some stocks if you haven't already.
You can read Dan's well argued piece right here, and I think it is pure gold. Let me tell you about Charif's view. First, he was very negative pretty much all of the way down. When we were in the low $60s I asked him if we weren't near a bottom and he said it could go lower, "a lot lower."
Last night, when I caught up with him after the big $10 increase in three days, I said "do you think it's real?" He said short-term who knows, it can go back down, but longer term yes, the bottom's being put in. I acted with shock until he reminded me that he hasn't liked it all the way down, but it has come down too much.
For the same reason that David Demshur, the CEO of Core Labs (CLB), said on Mad Money not that long ago, when oil was at $47, that we were putting in a bottom.
I felt pretty swayed by Dave until oil then dropped 20% more, and I figured that I guess he was just too bullish.
But given the quick snap back, you just don't know which is real, the drop to $38 or the reverse crash to $48.
One thing is for certain, though; both Charif and Dave say the reason we could be done going down is that the Saudis have used all of their spare capacity and are now faced with a necessity to let oil go up. They just can't keep pumping at this pace. If you recall, that's exactly what Dave said, that physically the Saudis just can't keep this up without wells being overwhelmed by water because of the process of extraction.
Now, because of how aggressive the cutbacks have been, Charif thinks that we can snap back much harder than people realize. The big independents don't have the cash flow to drill like they did, and the majors have cut capex big. When I asked him about Iran, he made it clear that Iran's really bluster, noting that no one from outside has even come in to Iran yet, meaning the ex-pats who do all of the work with the drilling and oil services companies.
I think that there's no doubt this move's about short-sellers -- Charif said it's pretty much all financial guys selling it back and forth -- but it is true that there are plenty of wells that are viable here at these prices and oil can be sold in the future to bring in a decent return and save companies from having to conduct fire sales.
Still, though, that doesn't mean that capex is coming right back on line.
So, here's what I think happens. When we go back down, we are going to catch buyers of crude and the stocks. While I can't share the enthusiasm Dan has about the stocks, given the upcoming quarters, I am wondering if some won't look through them when they are reported. That has NOT been the style of this market, which is what makes me reserve judgment.
But Dicker and Souki, two bears turned bullish? You stay as negative as you've been, you will probably be wrong.