Cramer's Mad Money - Two Tell Stocks for Crude Oil (5/15/09)

Stocks discussed on the his Stop Trading! TV segment, Friday May 15.

Transocean (RIG), Schlumberger (SLB), J.C. Penney (JCP), Google (GOOG)

Cramer addressed worries that rising oil prices might cause a price hike at the pump and exhaust the consumer. However, he found hopeful news from two "tell" stocks for the price of crude: Transocean and Schlumberger. The prices of both are declining, particularly in the case of Transocean, which has already peaked: "To me that means you may be out of the woods," Cramer said. "Gasoline may stop." He predicts that oil may plateau at $60.

Cramer thinks predicting a recovery is similar to looking at the electoral map; some states have more pull than others. If consumers in California and Florida, (states that have been the hardest hit by the crisis) are buying again, there might be hope for a recovery sooner. Cramer gleaned some good news from JC Penney's earnings call on Friday during which the company said sales were up in California. However, Florida still hurting.

Google has been "en fuego" so far this month, commented Cramer, given the returning strength in advertising.

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Comments

[Jonathan Ch...:]

For contango to continue, the cost of holding oil in ships needs to be lower than the difference in the forward price compared to the spot price. One thing that reduces shipping cost is low demand compared to shipping capacity.

If shipping rates hold at low levels (compared to the peaks of last year), that confirms low near-future demand, and prospective oil prices.

The profits available from contango are decreasing (look at the oil futures curves, and the difference between spot and future prices).

Expect contango to vanish by December, freeing up tankers and resulting in a sharp decrease in shipping rates and shipping company stocks?

May 18 08:57 AM

[bbbill65:]

Hi Jonathan,

Pardon me if I sound naive...

I read your comment and followed you until the bottom line... What exactly is the relationship between tankers and other types of shippers? I would have thought that the freeing up of tankers would only increase available oil-shipping capacity. Oil tankers aren't of any use for shipping other goods or materials, are they? And so, shipping companies would see lowered revenue from oil, but dry bulk rates shouldn't be affected (?).



On May 18 08:57 AM Jonathan Christopher wrote:

> For contango to continue, the cost of holding oil in ships needs
> to be lower than the difference in the forward price compared to
> the spot price. One thing that reduces shipping cost is low demand
> compared to shipping capacity.
>
> If shipping rates hold at low levels (compared to the peaks of last
> year), that confirms low near-future demand, and prospective oil
> prices.
>
> The profits available from contango are decreasing (look at the oil
> futures curves, and the difference between spot and future prices).
>
>
> Expect contango to vanish by December, freeing up tankers and resulting
> in a sharp decrease in shipping rates and shipping company stocks?
>
>

May 18 10:50 AM

[toobad41:]

There is no significant storage of oil on tankers offshore. Where does this idea that oil is being held in tankers for future price increase come from? Granted there is some tankers designed to hold oil but only until it can be off-loaded to tanker trucks. Imported oil is coming in faster than we can off-load it.

May 18 03:00 PM

[William Dav...:]

Re "There is no significant storage of oil on tankers offshore" yes but someone has said there is 100m barrels in tankers somewhere. The oil bears jump on numbers like that, without realising the world uses that much every 30 hours.

If your interested the world uses over 80m barrals a day and about 30 billion barrels a year. About equal to the estimate size of the recently discovered Brazilian fields which are 200miles offshore, in 6,000ft water and then they drill a further 15,000ft.

May 19 02:05 PM