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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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The Oil Market Is Destined To Re-Balance

Rigs

It’s been one week after the ‘magic’ oil supply deal was extended between OPEC members and Russia and it’s been followed by just about the most pessimistic response I’ve ever seen to bullish news.

Now as a trader, no one is more familiar with the axiom to ‘buy the rumor and sell the news’, so this drop in oil prices and even more vicious drop in oil stocks should not have come as much of a surprise to me.

But quite frankly, it did, as has the pessimism that has surrounded the oil markets since the announcement in Vienna. I suppose it’s an easy position to take; after all, if a combined OPEC/Russian deal to limit production through the Spring of 2018 can’t make prices go higher, what can?

I’ve seen analyst after analyst quaking in their boots over the continued production of U.S. frackers and the unintended consequence of derailing the OPEC deal and keeping prices low.

Others continue to wonder whether OPEC could have cut even more to out balance whatever increases U.S. producers were going to deliver.

Others have even managed to challenge the Saudis themselves, calling into question their strategy of re-balancing global oil, either suggesting that the Saudis work more like Central Banks in telegraphing their long-term intentions, or just abandoning production guidelines entirely and forcing some well-deserved bankruptcies to remove uneconomic oil production the old-fashioned way.

The pessimism is universal it seems. Both Goldman Sachs and Morgan Stanley have seen the Saudi plan, measured it against the suicidal pace of U.S. fracking and deepwater drilling advances, and decided that oil is going to have a secondary swoon in 2018.

I’ve even seen a few analysts who are ready to say it’s totally over: Oil prices are here in the $40-$60 range to stay.

I’ve been following and trading oil for thirty years. Every time oil goes up, analysts opine that it’ll never come down again When it’s down, those same voices very carefully analyze why it’ll never go up again.

Don’t these guys ever get tired?

I could give you my own analysis of the future marginal price of a barrel of oil, or my analysis of the financial market cycle and where we are in their influence on global oil prices.

Further, I could start showing you with the indicators of the other side of the oil equation that convinces me that this is hardly a ‘new normal’. While it is clear that oil markets are experiencing new factors of efficiency and investment pressures, there remains nothing that I see that is capable of stopping the global oil price cycle that has been in play, in one form or another, since the 1950’s.

Now is not the time to believe the naysayers on the ultimate result of that cycling – an opportunity to find quality oil investments in a market that is still destined to re-balance and rise – even if that rise has been forestalled by new pressures we could not predict even two years ago.

I’m not convinced in any kind of ‘new normal’ in oil price cycles. And remain committed to oil stocks here.




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