I remarked to Jim that I had never seen a market with as many geopolitical stresses in my almost 30 years of oil trading with so little price response.
Sanctions on Russia, specifically targeting the three largest state-controlled oil companies, will constrain credit and certainly impact Russia's ability to grow new production and maintain current levels. Russia is the world's largest provider of energy with almost 11 million barrels of oil a day and 21 trillion cubic feet of natural gas.
Iraqi oil production remains at risk from the growing ISIL threat with the Kurdish Kirkuk superfield at greatest risk of reduced output. Add the continuing issues in Libya, Syria and Egypt and the risk of a widespread Ebola outbreak in Nigeria cutting output and I have to wonder how oil prices can possibly drift lower.
And yet, the oil market seems much more concerned with the relative strength of the dollar and some weak Chinese data points. In the last several years, financial connectors like these to oil prices have always been trumped by supply chain risks of geopolitical dust-ups -- but that doesn't seem to be the case today. Jim and I both agree -- oil is headed lower, at least at first.
One way to position your energy portfolio for a period of weaker oil prices is to turn to the more "bond-like" of the energy stocks like the super majors ConocoPhilips (COP) , Chevron (CVX) and Royal Dutch Shell (RDS.A) .
But I told Jim that I believe that weaker oil prices are a temporary phenomenon and the weakening prices of high-beta U.S. exploration and production companies are also opportunities at key levels. I write on Real Money about target prices for when to buy great production companies like Cimarex (XEC) , Pioneer Natural Resources (PXD) , EOG Resources (EOG) and others.
I talk more with Jim about oil prices in the video above.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time. Action Alerts PLUS has a holding in Royal Dutch Shell.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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"We rate CHEVRON CORP (CVX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity." You can view the full analysis from the report here: CVX Ratings Report