Jim Cramer: Don't lose sight of oil economics
By Jim Cramer, host of CNBC’s “Mad Money”
No, I don’t think you can call a bottom in oil. Not when our own Carley Garner indicated we could have a bounce before we head down again because there are still way too many “longs.”
But the reason I thought that we wouldn’t go into the $30s still stands: Almost all drilling is uneconomical below $40, so 1.) why wouldn’t the rig count go down, and 2) how could inventories go up if there is such gasoline demand as demonstrated by the pivotal numbers we got Wednesday?
How much I would like to take my cue from the stocks, but they are all over the map. The drillers aren’t much help, either.
But the most important thing is that it is very hard for the market to get head-slammed with oil stubbornly clinging to the 40s.
I know that oil has become the plaything of speculators, but the economics do not lie. There’s no sense drilling if you are going to lose money drilling. The argument that you need the cash flow makes no sense at these levels.
And always remember how bullish everyone was at $50, so you can keep in mind how bearish everyone is at $40.
This article originally appeared on Real Money on AUG 04, 2016.