The parallels are scary.
Last year, as the OPEC meeting approached, oil prices were under pressure and much of the world hoped the Saudis would call for a production cut from the cartel, stabilizing prices. On Thursday, a report filtered out from Vienna that the Saudis were looking for a collective plan to cut production by a million barrels a day, hoping again to stabilize prices. Oil prices, closing in on $40 a barrel, took a small break from going down, hoping Saudi Arabia would deliver a cut to the global market.
And just like last year, they won't.
To further remember what happened last year, the Saudis made an even more extensive attempt at finding consensus on a production cut before the OPEC meeting, visiting Venezuela and Russian representatives and finding zero support. This year, the prospects for cooperation inside the cartel, despite a year of devastatingly low prices, is even less likely: The Iranian Oil Minister Bijan Zanganeh completely shut the door to a production cut on Wednesday and Russia is even more compelled to pump at full steam, as its economy is at a breaking point now.
So, just like last year, there will be no production cut and the meetings will end without any change to cartelwide quotas.
Last year, the lack of a production cut was the straw that broke the oil market's back, sending prices down more than $30 a barrel.
Will the lack of a cut bring the same result to oil and oil stocks this year?
I think this is where the parallels end.
First, there is the relative price of oil -- there's far less downside to be had as oil hovers near $40 as compared to last year when oil was closer to $80. But that's not enough of an excuse for oil to stay here, despite the expected bearish news.
Secondly, there are the positions of traders entering the meeting -- futures and options markets are loaded with speculative short players, to a degree not seen in several years. Not only is a failed OPEC meeting expected, according to the traders, but a massive drop in oil prices is also being planned for.
That's quite different from where we were last year.
Finally, we have the ongoing results of the low price of oil for the last year on oil producers -- results that have frankly surprised an industry that did not believe oil would stay low for even this long, but now believes can stay low for several more quarters to come. Efficiency improvements and the 2015 hedges that floated many of the threatened, marginal U.S. independents are reaching their limits. Core wells are running dry, efficiencies have been booked and financial tricks, from offsetting losses from remaining hedges to refinancing equity and debt, have also been pushed as far as they will go.
There are single-digit prices in energy stocks that no one could have seen coming last year at this time -- stocks like Chesapeake (CHK), trading at $5 a share. Others like Oasis (OAS), Continental (CLR), Hess (HES), Devon (DVN) and a host of others are at multiyear lows.
All of that is different from last year.
The market has done a lot to differentiate between oil companies that are in real threat of bankruptcy or restructuring and those that are more likely to survive the oil bust. We see the relative strength of names like EOG Resources (EOG), Pioneer Natural Resources (PXD), Cimarex (XEC), Concho (CXO) and bigger names like Chevron (CVX) and Exxon Mobil (XOM). (EOG Resources is part of TheStreet's Action Alerts PLUS portfolio.)
That's different from last year.
So who will sell oil when the inevitable nothing happens Friday in Vienna? Who will sell oil stocks?
It can only be those that are short already -- more of the momentum players and hedge fundies who are already loaded up with options and futures contracts.
That is a horrible recipe for a good result for them. And no good reason, despite my conviction of a non-result in Vienna, of being short oil or energy stocks.
No, now is the time to pick a target on the downside, wait for it and buy.
And that is what I'm going to do.
