• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Jim Cramer

Jim Cramer: 4 Reasons Why Oil Has Not Recovered

Oil is perceived as being an unavoidable loser as long as trade tensions rage.
By JIM CRAMER
Jul 22, 2019 | 07:11 AM EDT
Stocks quotes in this article: PXD, CRZO, SLB, OXY, APC

I can't blame anyone for being confused about the price of oil -- or the oil stocks -- here, given what's going on in the Straits of Hormuz. When you have a couple of Iranian speed boats pulling over a British flagged tanker -- yes, a tanker flying the flag of what was once the mightiest navy on earth -- you would expect at least a 10% increase in the price of crude... if not more.

Instead, West Texas went up a buck. It is still down $20 from the October 4 peak of last year, the double whammy moment when Jay Powell said the Fed had to overshoot and Vice President Mike Pence said it was time to go to cold war with China.

Oil simply hasn't been able to recover. And the stocks? They keep getting worse and worse.

What's going on?

Four things.

First, even though 21% of the world's oil goes through this 24-mile Straits of Hormuz choke point, the market doesn't' seem to be taking this Iranian-British strife seriously. It's almost as if the Iranians are taunting and the British are saying "hey we are working on Brexit over here let us come back with a response. Give us some time, we're jammed."

Second, oil traders are simply looking at shrinking global growth and determining that until Europe starts growing and the Chinese-U.S. trade wars cease, there will not be a turn in the price of oil. There is too much supply versus global economic demand.

Third, it should be monumental that Russia and the Saudis have gotten together to restrain supply. There has never been such ironclad cooperation between these two gigantic producers. But it hasn't impacted the market, because the U.S. just keeps growing -- and being unrecognized as a supply force to be reckoned with. Both the Saudis and the Russians at various points figured if they could lower the price of oil to a certain point, say low $30s, the U.S. oil spigot would dry up.

It didn't happen. We have gone from 5.4 million barrels a day in 2005 to 12 million barrels a day, now. Scott Sheffield, the dean of oil in this country, the man who leads Pioneer Natural Resources (PXD) , says we will be up to 17 million barrels in a few years' time.

The market can't handle that. It's a cap on everything. No wonder a shrewd and solvent operator like Chip Johnson, CEO and co-founder of Carrizo Oil & Gas (CRZO) , would take $13 and change from Callon Petroleum last week, even as Carrizo's stock was at $57 a little more than four years ago. Amazingly, oil was at $57, too at that time. A good company sells out for $44 less than it was trading for with oil at the same price!

That's incredible.

Finally, there's the holder dilemma. This industry has promised higher prices for ages. Even on the Schlumberger (SLB) call last week, management says the turn is here. Now if you genuinely believe in Schlumberger and think the stock is a buy simply because almost every line is turning up, most showing high single-digit growth and they have the dividend and the cash flow to back it -- and are strongly committed to, by the way, with the new CEO -- but no one believes. Why not?

Perhaps because there is a realization that North America is all that matters and production is growing despite a decline in the rig count. Perhaps because conservation is playing a more powerful, unseen role? Perhaps because younger portfolio managers think oil is the new coal?

No matter. I think that oil, the commodity, is perceived as being an ineluctable loser as long as trade tensions rage. If they cease, the commodity rallies. I think Schlumberger then moves up as it is down way too much. But I simply do not believe that this group can ever regain its luster.

The Carrizo transaction and the Occidental Petroleum (OXY) overpay of Anadarko (APC) could be the beginning of the so-called, long-awaited consolidation. Still, even as the setup is better, and Schlumberger does have some very positive compares coming, the real issue is credibility: Almost no one has it in the patch, and those that do are bullish on production, which, per se, may mean they are bearish on price.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long SLB.

TAGS: Markets | Oil | Politics | World | Oil Equipment/Services | Jim Cramer | U.S. Equity |

More from Jim Cramer

Jim Cramer: The Market Now Acts Like a Market of Stocks Than a Bushel or a Peck

Jim Cramer
Jan 22, 2021 12:52 PM EST

There was a period before the time of commoditization where individual elan and corporate dominance meant something. And that's back.

Jim Cramer: Housing Is Our Bridge

Jim Cramer
Jan 21, 2021 3:59 PM EST

Do not fear the housing sales boom -- this is good news and I'll tell you why.

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Jim Cramer: Here Are the Biden Stocks

Jim Cramer
Jan 20, 2021 1:59 PM EST

As power has changed hands in the White House, we can expect these names -- and themes -- to benefit.

Jim Cramer: I Pick the Bulls

Jim Cramer
Jan 19, 2021 3:09 PM EST

My trading strategy? Figure out who is the favorite and calculate the 'line.' Here's how that works out today.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I discuss price targets in my Saturday column.
  • 07:54 AM EST GARY BERMAN

    Friday Morning Fibocall for 1/22/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login