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Traders: Here's what we're watching in the oil sector

A crude conundrum?
VIDEO2:3602:36
A crude conundrum?

The "Fast Money" traders debated how to trade the oil sector, after Brent crude and West Texas Intermediate crude hit their lowest levels since May 12 and 13, respectively.

Trader Guy Adami said that the oil names have "traded extraordinarily well now for quite some time." He added, however, that the valuations are starting to worry him.

"These are rich stocks at $80 oil. So I think they're extraordinarily rich stocks at $50. Exxon, probably close to 22 times forward earnings," Adami said, adding that investors are piling into energy stocks because "the move in energy has been exacerbated to the downside."

"It's all about yield," says trader Steve Grasso. He explained that companies like Chevron, Exxon, Valero Energy and Tesoro, all these energy companies also come with a dividend yield.

"Everyone's reaching for yield, so they bloated that multiple on them, but I still think they hang in," Grasso said.

Trader Tim Seymour agreed and added that the best in the sector are the ones that "can be opportunistic and have operational leverage to be able to be buying assets." He said that he likes the oil services part of the space the most.

Trader Brian Kelly said he thinks these names are actually cheap on a relative valuation. Kelly, however, said that he sees oil trading in a wide range, which would mean markets could see a $20 level again.

"We've seen rig counts increase. We're now probably through the bulk of the speculative summer driving season run up and you're seeing oil down quite a bit," he said.

Grasso said that even if Kelly's view is correct, Grasso thinks the big integrated oil companies will be "impacted a lot less than those other names."

— CNBC's Christopher Hayes contributed to this report.

Disclosures:

Guy Adami

Guy Adami is long CELG, EXAS, GDX, INTC. Guy Adami's wife, Linda Snow, works at Merck.

Steve Grasso

BA CC EVGN KBH MJNA MU OLN PFE PHM T TWTR UA GDX KIDS own EFA EFG EWJ IJR SPY. Grasso currently has no short positions. Stuart Frankel & Co Inc. and some of its Partners: CAH DAL LUV HLT AAPL TOL UAL WHR LDP WDR AVP CVX FCX IBM ICE KDUS KO MAT MCD MJNA NE NEM OLN OXY RIG STAG TAXI TEX TITXF URI VALE WDR WYNN ZNGA CUBA HSPO ICE AMZN MJNA TITXF NXTD

Brian Kelly

Brian Kelly is long Bitcoin, GLD, SFK, SLV, TLT, US Dollar UUP. He is short CS, DB, UBS

Tim Seymour

Tim Seymour is long AVP, BAC, BBRY, CLF, DO, EDC, EWZ, F, FCX, FXI, GM, GOOGL, GRMN, GE, INTC, LQD, M, MCD, MPEL, NKE, RACE, RAI, RH, RL, SINA, T, TWTR, UA, VALE, VZ, XOM. Tim's firm is long ABX, BABA, BIDU, CLF, EWZ, F, HD, KO, MCD, MPEL, NKE, PEP, PF, SAVE, SBUX, SINA, VALE, VIAB, WMT, WEN, YHOO, short HYG, IWM, WYNN, XRT