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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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How Oil Traders Are Playing Hurricane Harvey

Trading Screen

In my last column, I opined that oil was on the verge of the supply turnaround that we have been waiting on for the better part of a year, and that buying targets for a true renaissance in oil prices was the order of the day.

In the interim, Hurricane Harvey decimated the Gulf Coast, sending all of the energy markets in as much of a state of panic as the residents of Houston have been forced to endure. All of the ‘sure things’ that oil traders have banked upon during storm season were multiplied tenfold, as crude oil got destroyed while refined products, particularly gasoline, soared.

For the inside baseball oil traders who have seen this before, it was a jackpot in crack spread trading, but for us as stock traders, we also have witnessed a major acceleration of target finding in the last week. Instead of waiting weeks for targets to be met, several key stocks reached them in the last week --- and are preparing to take off, in my view.

The storm shut in all Gulf Coast refining, forcing produced crude to disappear into storage, temporarily swelling gluts that were in the process of clearing. This had the effect of collapsing oil prices and most of our shale oil companies with them – allowing them to hit targets we should have been waiting for.

Let me give you two quick examples from my own trading:

(Click to enlarge)

EOG Resources, under tremendous pressure from less than impressive 2nd quarter results and reeling from generalized pessimism in the oil patch, was further hit to near $82 a share as Harvey hit. But between the Accumulation index and the Relative Strength and Stoicastics directly beneath the chart, EOG has already begun to reconcile the added supply that will clear as the storm continues to clear. Despite the last two days of strong rally from EOG, it still represents a terrific entry point.

(Click to enlarge)

SM Energy is another with the same general chart pattern as EOG. Despite being a far less liquid and more leveraged Permian producer, it also is poised to benefit from an oil price that I believe is preparing to become constructive for the first time in 2017, rallying steadily to the end of the year. Again, with crossing stoicastics and a turning MACD, SM Energy represents a terrific technical entry point for a high beta oil play going into the Fall.

While Harvey has sent the Gulf Coast and the markets into chaos, it also has accelerated some trends I was hoping to see to get constructive on oil stocks. I think a great opportunity has finally arrived.




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