The Short View: Oil Industry Bracing for Cuts

Viewers who tuned in to last week's State of the Union address got an earful on energy policy, and where it's headed. The takeaway: Obama is gung-ho for green initiatives, and gunning for oil.

Up to now, the oil industry has been able to benefit from substantial tax breaks to the tune of $4 billion a year, which purportedly help keep prices in check and preserve American jobs. But the president has been anxious to cut these deductions since his first year in office.

Fearful that he may finally be making good on his promise, oil industry groups are bracing themselves for a battle of the energy sources.

Lobbyists and oil industry reps are countering that cuts will only result in layoffs and derail the very projects that are driving the recovery. And Jack Gerard, president of the American Petroleum Institute, points out that for all the noise around the tax breaks they receive, oil and gas companies also pay out a whopping $95 million in taxes a day. "The federal government doesn't by any stretch of the imagination support this industry," he said. "This industry supports the federal government."

But for his part, Bob Dinneen, president of the Renewable Fuels Association, thinks the bullseye should be squarely on Big Oil's back: "root through the tax code and find all the things benefiting the petroleum industry in very unique ways ... that'd be a place to start."

Fighting words -- but remember, renewable fuels are themselves struggling to stay afloat, and they're trying to make a case to Congress for a program to ramp up renewables over the next 25 years. With only so much proverbial pie to go around, they're going on the offensive to defend their own interests.

Any talk of a shakeup is bound to stir up some anxiety over the future of the industry. But keep in mind that it may be a bit premature to start betting against Big Oil. After all, it's not as though we haven't heard this rhetoric before.

Obama's efforts to cut oil subsidies have already been shut down twice -- and that was when the House was controlled by Democrats. So now, with a Republican-dominated Congress, the odds of seeing any major cutbacks are even slimmer.

So which oil stocks are being targeted? For clues, we took a look at the short-sellers' recent activity. Short-sellers borrow shares from other investors, selling them on the open market, and closing the short by buying back the same number of shares initially borrowed. If the short-seller can buy back the stock at a lower price, turns a profit off the difference. In other words, he sells high in order to buy low.

Here's a list of eight oil stocks with significant short interest. Short-sellers think these names are vulnerable -- do you? (Click here to access free, interactive tools to analyze these ideas.)

Short data sourced from Finviz. The list has been sorted by short float, which represents the percentage of shares outstanding that have been shorted.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.