Dicker & Cramer: Oil Nears $40 a Barrel (Again) -- Why You Should Be Buying

Dan Dicker, energy contributor at TheStreet, talks with Jim Cramer about oil's latest move down to near $40 a barrel. Dicker and Cramer discuss which stocks to buy, and when.
By Daniel Dicker ,

Oil prices have been plummeting, and are now again close to $40 a barrel. Most of the observers of oil have been quick to jump on the momentum bandwagon, again claiming that oil will now head towards $30 and perhaps even $20.

I have been clear that I think oil is bounded for the near term between $40 and $50 a barrel. Just as I said that oil would stop its rally as it reached $50 in September, so I believe it will stop going down here in November.

Of course, we look at fundamentals when trying to figure out where oil is going. Stockpiles have again been growing and most of the reports from the oil producers for the third quarter again showed sequential projected increases in production.

But I believe that most of the quarterly reports are smoke from companies trying to retain good bond ratings and stable share prices. Oil markets already are showing signs of rebalancing with production down in every U.S. shale play except the Permian -- which is also leveling off.

And money managers look like they're about to make the same mistake with oil they made in August:

Speculative short positions are reaching their all-time highs, with the possibility that another short-squeeze is likely, as happened in August. Commercial producers are far less likely to sell futures contracts as oil nears $40, as hedging at those levels yields little benefit or protection.

It's dangerous to bet on a short position when many of the non-commercial players are already short in the market and those with a real commercial interest in oil are unwilling to sell. Who is going to sell the market down further from here? It's difficult to know.

For this reason, I continue to recommend using these drops in oil's price and concurrent drop in energy company shares to begin to accumulate for the long haul. Some of my favorite energy companies are EOG Resources (EOG) - Get Report , Anadarko (APC) - Get Report , Hess (HES) - Get Report and Cimarex (XEC) - Get Report . Because, while I feel that oil is bounded between $40 and $50 right now, I don't see it staying there through 2016.

I see it starting to make a much, much higher move.

This article is commentary by an independent contributor. At the time of publication, the author was long EOG and HES.

Loading ...