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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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What Explains The Divergence Between Oil Prices And Oil Stocks?

Oil Rig

These last few weeks have been confusing, even for a 35-year oil trading veteran like me.

There are some things I’m recently seeing in energy stocks vis-a-vis the energy markets that I’ve rarely seen before.

I’ve done exceedingly well during my career by investing in energy stocks using my understanding of the underlying energy markets.

If I went back and charted both of them using data from 2010-2014, or 2003-2007, or 2013-2016, you’d be hard pressed to tell the difference between the two lines on the chart.

But have a look at this:

(Click to enlarge)

There’s been a huge divergence between oil prices and oil stocks, starting most apparently in the early winter of 2017 and currently flat-lining the stocks right now compared to oil.

So, what the heck is going on? I suggested a couple of possible reasons in my last column, including rising interest rates, EIA forecasts for future production and a few rogue shale players screwing it up for everyone with continuing breakneck drilling. My old friend Jim Cramer suggested on his show that younger hedge-funders are uninterested in ‘old-fashioned’ fossil fuels and won’t buy. If that’s true, they’re going to be left out of a global demand picture that, in even the most aggressive estimates, won’t begin to flatten until 2040.

Frankly, I’ve discarded all of these as insufficient to derail a correlation that’s…

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