The stock market may be signaling something is awry in the oil market.

Like a seesaw, oil prices have gone up in February, while energy stocks have gone down. Matt Maley of Miller Tabak Securities says the action in crude oil creates a "conundrum."

"Energy stocks usually lead crude oil ... so if history is any guide, the decline in the XLE should be telling us that the recent bounce in WTI is not going to last," Maley said in a recent note.

The Energy Select Sector SPDR fund (XLE) is down more than 5 percent in one month, while West Texas Intermediate crude futures are up almost 2.5 percent. Energy is the worst performing sector in the S&P 500 over the same time period, logging a near 6 percent loss.

Still, investors have been piling into crude futures and traders say there aren't really signs of a pending correction. But the buying by speculative traders in oil futures has created the biggest net 'long' position in history, signaling that if there is a break in prices, investors running for the exits could cause some calamity in the market.

"The Commitment of Traders data shows that the 'specs' are loaded to the gills in crude oil — they have their largest net long position ever. Similarly, the 'commercials' have their largest net short positions ever," Maley notes.

He also indicates that the specs tend to be wrong when the commercials tend to be right.

"I think there are two different "agendas" allowing for the open interest to hit a record," said Andy Lipow, president of Lipow Associates. "At these price levels, the specs are more inclined to enter the oil market on the long side as they feel we just won't go below $30 as world demand keeps rising."

The factors supporting crude at the moment include OPEC's production cut, a possible Saudi Aramco IPO, and seasonal demand starting to pick up in the United States.

The downside factors include U.S. shale producers aggressively pumping, and the potential for a producer like Russia to not keep up with compliance with the OPEC deal. So far, both OPEC and non OPEC seem to be complying with the plan to hold 1.8 million barrels a day off the world market, so that prices stabilize.

"The big bet is that OPEC/non-OPEC complies with the cuts and inventory draws. If over the next few months inventory surveys show little in the way of confirming the cuts, back to the mid $40s we go," Lipow said.

In December, Russia surpassed Saudi Arabia as the largest producer at roughly 10.5 million barrels a day. U.S. production is coming back strong, with the government's weekly report showing U.S. crude production was back at 9 million barrels a day last week, a level not seen since April of 2016.

Even though the market hasn't been that kind to energy stocks of late, the industry is making a big bet on stock prices holding up. Estimates suggest that the market could see as many as 40 IPOs launch this year. If that number of deals comes to market, it would be triple the deal flow of 2016.

Deals are expected across energy sub sectors. Everything from producers, to pipelines, to frackers, a group that faced particular hardship as oil prices got close to $26 a barrel in February last year.

But these energy deals are contingent upon crude over $50. Right now, Wall Street analysts are split. This week, Citi said crude could hit $70, while ANB warned that WTI could fall closer to $30 if OPEC does not follow through.

While $30 is not what most analysts expect, the movements in the XLE would suggest a re-test of a sub-$50 price might not be as far off as some would think.





