Cut and paste from Oil and Gas News letter .Probably a...

Cut and paste from Oil and Gas News letter .Probably a contrarian point of view ; but still an interesting read.
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Junior oil stocks were having the same inverse relationship to oil that the Dow Industrials were; a high oil price will cause recession so sell riskier and junior stocks ? including junior oils.

The first clue that this thinking was affecting junior oil stocks was when they did not benefit from the last $20 move in the price of oil, up to $125/barrel.

Then as the Arab Spring did NOT move into Saudi Arabia, the world's largest oil producer, the political risk premium came out of the global oil price, and oil fell back to $100.

But that wasn't enough for junior oil stocks to move again. Partly that's because it's summer ? many investors leave for holidays, and trading volumes dry up. A lot of these stocks have raised hundreds of millions of dollars and now have hundreds of millions of shares issued ? and need lots of volume to keep their share price up. So in one sense, the value reset button has already been pushed on many junior oil stocks.

For over a month now I've been reading into the junior energy markets that until oil gets under $90 and stays there for a short while, the market is not willing to buy the juniors in such a wave that a rising tide will lift all boats like it did from September 2010 to March 2011.

Another way of saying this is that junior oil stocks aren't low because the market has no faith in the oil price; rather, it's because the market has too much faith in it.

So once the market is convinced the oil price will stay low enough to not cause recession, it will again buy the juniors, as even at $80/bbl these companies make GREAT money. Some valuations will get reset (though much of that is now done), but the fast growing, discovery making juniors will once again get rewarded.

ends.....