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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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It’s Not Over For OPEC Just Yet

Nigeria

OPEC extended production cuts that were originally agreed in December 2016 for another 9 months, delivering both OPEC members and Russian discipline that will last well into the Spring of 2018.

And still the Saudis and OPEC continue to get no respect at all, like Rodney Dangerfield.

The oil markets, in fact, after a two-week boom in prices, used the actual date of the meeting to retreat from their highs, ending the day below $50 a barrel.

This could be a reaction to the very late speculative players trying to take advantage of a decision that was reached many weeks ago catching them as the last longs in a market already up from the mid-$40’s. But more than that, there is a deep disappointment from many market players, who were now expecting even more than a 9 month extension and perhaps even deeper cuts.

Goldman Sachs is apparently preparing already for a replay of oil gluts in late 2018.

Bloomberg’s oil geopoliticist, Leonid Barshinsky is quick to take OPEC to task for their mistake in changing course in December, shoring up production and starting the global rebalancing process.

Wow – a lot of negativism still overwhelming this oil market.

I, for one, have marveled at how the Saudis have managed to put and hold together their strategy for regaining control of global oil pricing. Five years ago, we’d be suspiciously betting on who would be first to cheat on quotas, not whether they would be cheated on. Now compliance is above 95 percent, Iran and Iraq are on board – and there is a historic new deal between OPEC and the Russians.

Suspicions continue among analysts that these arrangements cannot last – and they do have good historical precedent to believe that.

But I believe they will hold.

In my 30+ year career in oil, the Saudis have been transparent in their goals. They say what they’re going to do, and then they do it.

I could tell you a story of how they ‘predicted’ triple digit oil in 2003, long before we got anywhere near there – and then they got there.

In 2014, they told the world they were going to flood the markets, fight for market share and try to bury U.S. shale players. Oil dropped below $30 a barrel.

Now they’re saying they’ll ‘do what it takes’ to stabilize oil prices and shepherd them higher. They’ve made a historic effort to reassemble the cartel and included some other unlikely partners in their reemergence to control supply.

I believe them, and think it would be foolish not to.

Oil stocks still have time before they show the positive results of the Saudi and OPEC efforts. As I have spelled out in several other columns, U.S. oil companies are still barely profitable at $50 oil and many continue to run at a negative cash flow.

The market will need to recognize that oil prices are inevitably headed there, which they are so far not willing to do, before our oil stocks begin to take the buying, and the price they deserve.

Which doesn’t mean you shouldn’t be buying them now – you should.

Because the majority of the analysts are wrong – OPEC efforts will force oil prices higher and with them, our beloved oil stocks.




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