Yes, it is true that natural gas is taking out $2, and many oil and gas companies will not be able to withstand that decline. But it is also true that oil stays up, stays up stubbornly, especially when you consider how companies make so much money pumping the stuff out of the ground.
In fact, for many companies, the component of natural gas is so small that it shouldn't even matter. But they are almost all being taken down together.
To me, this is a moment when the oil companies are just going to make fortunes, and it seems more than sustainable, precisely because natural gas isn't displacing it at all in this country, and it is too expensive in other countries.
It's precisely why I was so impressed by Energy XXI EXXI when the CEO came on "Mad Money" last night. Here's a company that is almost entirely oil. It's having a remarkable run using the new technologies that have been invented here to get much more oil out of Gulf of Mexico fields, some of them more than 60 years old!
But it's headed down, as it is levered to natural gas.
How about Chevron CVX ? Last night it said that the oil business is so strong that its numbers are too low. What happens? It, too, is treated as if it is a natural-gas play.
Or Ensco ESV . This company is, quite simply, a deep-water oil driller. It's raising rates. Its equipment is in tremendous demand. Long-term contracts. And yet it has just shed 8 straight points.
To me, the trade here is clear: Get long oil, still sell nat gas. Until natural gas trades to $1.50, because if all of this shutting in and all of these drilling cancellations haven't stopped the decline in natural gas, I don't know what will, given the lack of political desire by either party to use it as a bridge fuel.