Oil stocks have been rebounding after the massive sell-off in the fourth quarter of 2018, and Jim Cramer says they could head much higher.
According to Cramer, chart patterns identified by commodity broker Carley Garner, co-founder of DeCarley Trading, point to a continuation of the rally we’ve seen so far this year.
“Oil and technology have led this market higher for months and now the charts, as interpreted by Carley Garner, suggest that they’re running into some resistance,” Cramer said on CNBC. “But she thinks both groups could have, alas, one more hurrah, with oil having more potential upside. My view? Hey, I’ll take it.”
Cramer pointed to Garner’s “terrific” track-record on oil. She called the rebound in oil from the low $40s in late 2018 to $63. West Texas Intermediate crude is at $64.10 as of this writing.
Garner believes the bulls could be in a long-term position to take oil to $80 per barrel, though theres a ceiling of resistance at current levels. According to Cramer, if the price of crude can break up past $64 and up through $79, prices may climb to $85 where the bears could get an edge.
“In the short-term, though, Garner says oil could pull back to its floor of support at $55, but she thinks that’s unlikely and you’d want to be a buyer at those levels anyway,” Cramer said.
Shares of oil and gas companies were broadly higher Friday following Chevron’s (NYSE: CVX) $33 billion cash and stock takeover offer for Anadarko Petroleum (NYSE: APC). Anadarko is currently up nearly 33%.
“This is the biggest upstream deal since Shell and BG in 2015,” said Roy Martin, senior analyst at Wood Mackenzie. “Chevron now joins the ranks of the UltraMajors – and the big three becomes the big four.”
The deal will make Chevron a more formidable challenger to oil giants ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS.A, RDS.B), and BP (NYSE: BP). And after the deal closes, Chevron will go from being the fourth largest international oil major by production to the second largest.
“This takes a great company and makes it even better,” said Chevron Chairman and CEO Michael Wirth on CNBC. “As our company has strengthened its financial situation over recent years, we’re always looking to make our portfolio even stronger.”
“With Anadarko, [Chevron] gets relatively cheap large-scale production, taking their Permian position up a further level,” Mizuho Securities wrote in a note. “They also get West and East African reserves, can roll their Australian LNG development capability into Mozambique.”
Chevron’s bid for Anadarko could spark a new Permian Basin buying spree. Other energy stocks with a presence in the Permian region that climbed on the news include Laredo Petroleum (NYSE: LPI), Concho Resources (NYSE: CXO), and Carrizo Oil & Gas (NASDAQ: CRZO).
Analysts say all three stocks could see massive upside over the next twelve months, with price targets indicating 117%, 43%, and 92%, respectively. And should this Chevron deal spur a consolidation in the space, these three stocks could well soon see takeover bids of their own.
“From a big-picture perspective, the majors have really bought into shale, but from an asset perspective, the majors don’t necessarily have the right asset portfolios,” Tudor Pickering’s Matthew Portillo told Bloomberg by phone. “We do think this is going to be the spark that really catalyzes a lot of M&A.”