OK, who is wrong, the oil futures traders or the oil stock traders? These two have been in lockstep for ages, but they are diverging today. The stocks are headed higher and the futures are headed lower.
Some of this can be explained by the remarkable production growth and health of the independents. Today was Concho's (CXO) turn to tell its tale of 28% to 32% production growth. That's phenomenal, and the company, like so many others in the patch, is well hedged against declines -- something that many have neglected to point out about so many of these companies.
We tend to think that they were all pie in the sky. Hardly. For the most part, they wanted to invest in production growth and smooth out the price, and they've done a terrific job doing so. (Thanks, Matt Horween, my Real Money colleague, for pointing that out.)
But we also have the no-growth majors rallying, so the strong production growth at the independents only tells part of the story.
Could it be the supply-demand thesis that I articulated earlier at work? It's possible. If you were an airline, wouldn't you be hedging here, locking in these terrific prices? You really want to bet on a major fall from here, especially when you probably budgeted your year for much higher numbers? If you can hedge your gasoline for a big consumer-products group company like PepsiCo (PEP), wouldn't you want to take down these prices?
Supply and demand may very well be at work.
Somehow, the groupthink on the coming collapse in oil is becoming, well, too groupthink. I still can't see it slicing through $70. Sure, the rest of the world is weak. But when I look at the retailers today and I consider the jobless claims, I don't really want to make a big bet against oil, even with the glut that everyone sees developing.
Nor, it seems, does Harold Hamm, CEO of Continental Resources (CLR), who told CNBC that he took off his hedges expecting a rebound to the mid-$90s soon. I get that people could be excited about the group, but Hamm's been bullish -- and wrong -- at higher levels, and his stock is at its low, unlike so many of the larger independents that are in the middle of the range. Not picking on him -- just saying, be a little careful of his bullishness. It is not newfound.
The biggest question to ask is this: In a robust economy, what if demand kicks in? For so many people it is inconceivable to think that such growth could occur. We are either so conditioned to a sluggish, stop-start economy that it is difficult to fathom at times or, politically, some would argue we will never have a good economy as long as Obama is president, even though job growth has been the best in 14 years and GDP growth north of 3.0 ain't so bad.
I think demand could be a big factor. Stranger things have happened.