The crude oil crush has taken down energy stocks, but there may be some survivors, according to Simpler Trading director of options Danielle Shay.
Crude briefly cracked below $20 on Monday — taking it to levels not seen since early 2002. Energy stocks have been dragged along with the sector tanking almost 53% this year and trading near levels it last hit in early 2004.
Shay said that environment means that only the biggest oil companies will survive given the “disastrous situation” crude now finds itself in. She said energy companies “need oil to be $40 to $50 a barrel” for them to stay afloat.
“The only [names], in this situation, that are going to be able to survive are ones that have enough cash on hand with a low debt-to-equity ratio,” she said Monday on CNBC’s “Trading Nation.”
Mark Newton of Newton Advisors also believes the low isn’t in for crude.
“I know it’s tempting to think we’ve had this giant decline and it’s ripe for this group to bounce back, but you really just need to see more signs of stabilization,” he said in the same “Trading Nation” interview.
He said the oil and exploration space, represented by the XOP ETF, ” should likely continue to underperform the greatest,” even though it is drastically underperforming now.
“To put things in perspective, XOP, the exploration and production ETF, has fallen now 66% in the first 13 weeks of the year, so that’s over 5% a week,” Newton added. “To even expect some type of stabilization, you really need to see a move up over $36, which was hit last Thursday, and that could potentially help this group get into the low to mid $40s.”
ExxonMobil and Chevron have fallen 46% and 40% respectively, but are still outperforming the energy sector as a whole.