Oil Stocks Just Got CRUSHED- Now Buy Them!

| October 3, 2014 | 0 Comments

oil explorationNo doubt about it, the stock market took a rather hefty dive the past few days.  As of last night’s close, the DOW was down 1.5% on the week.

While a 1.5% weekly drop isn’t exactly a big deal, there was a considerable amount of investor fear in Wednesday’s trading session, which sent the Dow plunging 230 points.  Worries carried over into yesterday morning’s session before bulls pushed stocks higher into the close.

But nowhere was there more fear this week than in oil stocks.

Let me show you what I mean…

SPDR Oil & Gas Exploration & Production

As you can see, the SPDR Oil & Gas Exploration & Production (XOP) is down a whopping 6.5% since Monday.  The XOP is filled with small- and mid-cap oil explorers like Matador Resources (MTDR), Murphy Oil (MUR), and Abraxas Petroleum (AXAS).

This week’s XOP downturn comes on top of hefty losses from the past few months.  In fact, the exploration and production industry ETF is down an eye-popping 19.5% since July 1st.

Why such weakness for an industry that recorded incredible gains earlier this year?

Obviously, the recent downturn in the price of oil is playing a major role in the XOP’s late-summer wipeout.   West Texas Intermediate (WTI) crude dipped to $88 a barrel in yesterday morning’s trading session- an 18-month low.

But that’s not all…

Abundant US crude supplies have some analysts projecting crude may fall to $75 by year-end.  Clearly, this bearish talk is having a very negative effect on oil exploration stocks.

However, I’m not buying it…

Oil is cheap right now.

While I can’t argue the fact US supplies are rising to multi-decade highs due to surging production, I will propose oil is closer to a price bottom than bearish analysts realize.

Remember, oil is a globally priced commodity.  And that means actions taken by producers on the other side of the world will affect prices here in the US.

Speaking of which…

The Organization of Oil Producing Countries (OPEC) is gathering on November 27th.

I suspect the international oil cartel will cut its 2015 production outlook at this meeting.

With crude prices at multi-year lows, countries like Saudi Arabia are seeing a substantial drop in revenues.  In fact, the Saudis already cut production in August by the most in 20 months.

Given this information, WTI is likely very close to a bottom…

As a result, deeply oversold US oil explorers are a screaming buy right now.  Names like EOG Resources (EOG), Whiting Petroleum (WLL), and Penn Virginia (PVA) are deeply oversold and ready to bounce.

Of course, don’t limit your watch list to the names above.  The market is awash with oil exploration and production stocks that have been sold to unreasonable levels in recent weeks!

Until Next Time,

Justin Bennett

Tags: , , , , , ,

Category: Crude Oil, Energy

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.