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Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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Don’t Chase The Oil Trade Yet

A bit of a conundrum going on in oil these days, as money continues to pour into energy companies and their bonds, mostly through fully subscribed secondaries. Valuations are still very high compared to $50 oil and cash rich companies like Exxon are chomping at the bit to buy core assets from the walking dead. All this money makes for a very bullish picture on oil, right? Contrast that with a US oil market that's about to reach full saturation, without a drop of storage left in a few weeks and you've got two colliding ideas.

Looks to me like more pain is ahead for those who are getting too enthusiastic too early – I think oil is headed back down again first.

Major names in oil are still being valued by oil prices in the far back of the curve. While we know quite well that oil prices are unsustainable below $75 forever, that doesn't mean that the weeding out of weak players does not have to happen first before a recovery can begin. Right now, it's hard to see where that blood is going to come from. Even the most financially challenged oil company has had some success in finding new financing to extend their time limits. Look at Oasis Petroleum, which easily oversubscribed a $400m secondary, even though shares immediately traded under their inside pricing. They follow Diamondback Energy (FANG), Noble (NBL), Bonanza Creek (BCEI) and others in being easily able to raise fresh capital and extend their timeline before assets need to be sold. Rex Tillerson of Exxon-Mobil…

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