Cramer: Get ready, oil is set for a U-shaped recovery
The hot conversation on Wall Street Tuesday was whether oil will bounce back rapidly in a V-shaped recovery, or more slowly in a U-shape. Jim Cramer determined he's with the U-shape crowd.
"I think the proponents predicting what will happen with oil actually have gravitas for once. That said, I'm going with the U," the "Mad Money" host said.
The prevailing perspective was reiterated by Morgan Stanley (NYSE: MS) in its research note entitled "The Forgotten Barrels." It did a deep dive on the future of the supply side of the oil patch in various countries around the world, and indicated that "oil markets appear weak until mid-2017."
Another perspective came from David Demshur, the CEO of Core Laboratories (NYSE: CLB), who appeared on "Mad Money" last week and said there would be a V-shaped recovery. He believes there will be a strong comeback with crude moving almost 50 percent higher by the end of the year.
Cramer interpreted Demshur's perspective as meaning that there are oil well depletions that are being ignored, and the supply side is not nearly as large as many think.
But it was Schlumberger (NYSE: SLB)'s CEO Paal Kibsgaard that turned the tables for Cramer. Following its earnings release last Thursday, Cramer listened to the company conference call and found many details that signaled the direction of oil's comeback.
On the conference call, Kibsgaard reiterated that while the oil industry is in the most severe industry downturn on record, there has been a slow and steady increase in prices due to a tightening of both supply and demand. The outlook clearly suggested to him that the trends will accelerate in the future.
"We are heading toward a significant global supply deficit as the exploration and production spend rate is now down by more than 50 percent," Kibsgaard said. Additionally, he saw that non-OPEC production numbers are "set to drop by 900,000 barrels a day."
"Kibsgaard does give that out, the assumption of steady demand, but I see no reason why he should be wrong," Cramer said.
No other country besides Venezuela has been falling off a cliff recently. Both China and the U.S. remain strong consumers of oil.
"More importantly, though, is that I believe it's a sucker's game to bet against Schlumberger," Cramer said.
As much as Morgan Stanley's investigation was impressive, there was nothing reported that Kibsgaard wouldn't already know about. Additionally, Schlumberger's past performance has clearly given it a reputation of accuracy. It was one of the first to see the length and depth of crude's decline.
"The firings, the downsizing, that's what is allowing Schlumberger to make fortunes even at these prices. The company had been unfailingly negative until now. Why take the other side of the trade?" Cramer asked.
So, while Cramer's charitable trust does not trade oil, it has been buying Schlumberger on this newfound optimism. In Cramer's opinion, oil is bottoming once again and recommended investors to buy Schlumberger for a U-shaped recovery.
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