by Greg Guenthner, Daily Reckoning
I hope you’re sitting down my friend, because what I’m about to tell you is gonna knock your socks off. Ready?
We’re betting on oil today.
That’s right… Shale oil stocks to be exact. You know, the ones that took a beating as the price of oil was cut in half. Still there? OK, good…
Before you start yelling at me, I consider this trade a mean-reversion play. We’re not hanging around if it doesn’t work out-and I certainly don’t think these stocks will regain the momentum they had during last year’s monster run. This is a short-term trade, OK? But a little disbelief rally can hand us some quick double-digit gains.
And to get beyond the cookie-cutter oil news, I’ve brought in our own resource maven Matt Insley to give us the real scoop-and to help us book a lucrative trade.
Matt explained:
“On the one side of the argument you’ve got the guys at Goldman Sachs calling for $39 oil, and on the other side you’ve got shale company insiders looking for a $65 target. The idea behind Goldman’s $39 thesis is that U.S. drillers haven’t shut down enough rigs to reduce production much. On the flip side, the call for $65 oil is banking on an earlier cut in U.S. production numbers. Time will tell of course…”
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In other words, it’s basic supply and demand. If higher oil production continues in the near term, we should see $39 oil. If production drops substantially, we should see $65.
Matt continues:
“Right now I’m inclined to side with the $65 folks. Everything I’m seeing in the field looks like a fairly drastic pullback in production is looming.”
Matt knows his stuff so we’re going with him…
For one thing, oil appears to be stabilizing near $50. Sure, we’re still witnessing some snappy back-and-forth action. But that doesn’t mean oil hasn’t remained stuck in a tight range. That’s a good sign for the shale stocks.
So grab your hardhat and work pants – the roughneck trade is on. I think we can bet on a shale rebound for a nice short-term trade.
Think you’re a contrarian? Alright my friend, let’s see if you’ve got the stones to pull the trigger on this one…
