Has oil been going down because of a genuine collapse in all commodities? Or has it come down because Iran could come back on line and that would boost production?
Given that Europe and China are growing again, I think that oil can put in a bottom here, if it already hasn't -- and that means you are still safe to buy the independents even as they are skating on the proverbial thin ice if oil comes down more.
That's not because I fear an end to drilling if oil goes lower. The technology is so sensational these days and the costs are going down all the time, but I do think that the earnings estimates will be trimmed if we get much more of a decline because these stocks are all traded as growth stocks, and we know that growth stocks cannot withstand any estimate cuts.
I write this because I thought that Anadarko (APC) should have been up much more on its disposal of some Chinese assets. This news would normally be incredibly bullish because it is a sign that the domestic production possibilities are so great that Anadarko's willing to part with some pretty darned good assets. The muted reaction may very well be because of the decline in oil itself.
My Charitable Trust has been busy accumulating Noble Energy (NBL) as a play on the Niobrara, and Linn Energy (LINE) as a play on the Monterrey now that the deal has been agreed to with Berry Petroleum (BRY). These are both special situations but, again, the worry is a drop in oil.
Meanwhile, estimates may still be too low, as we saw from the Topeka number bump of one of my favorites, Cimarex (XEC), a big Permian play, but monitor oil closely here.
As oil gets toward $90, sentiment will change for the worse. Be ready.