• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 2 hours Iran Is Winning Big In The Middle East
  • 4 hours Trump cancels Denmark visit amid spat over sale of Greenland
  • 7 hours Nor Chicago, nor Detroit: Killings By Police Divide Rio De Janeiro Weary Of Crime
  • 5 hours Strong, the Strongest: Audi To Join Mercedes, BMW Development Alliance
  • 38 mins Not The Onion: Vivienne Westwood Says Greta Thunberg Should Run the World
  • 3 hours US to Drown the World in Oil
  • 1 day Danish Royal Palace ‘Surprised’ By Trump Canceling Trip
  • 8 hours With Global Warming Greenland is Prime Real Estate
  • 6 hours Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 18 hours OPEC will consider all options. What options do they have ?
  • 1 day A legitimate Request: France Wants Progress In Ukraine Before Russia Returns To G7
  • 2 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
  • 23 hours What to tell my students
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…

More Info

Have Oil Prices Stagnated?

Oil Rigs

Two events this week give us some insights on how to trade the oil markets and oil stocks for the next few weeks.

First, there’s been a tremendous financial move in the oil futures market. Most energy hedge funds and other speculative non-commercial traders have been looking at the oil markets in 2017 much as I have – and betting that the OPEC production guidelines and an inevitable re-balancing of global oil supply would lead to a constructive price spike for oil. In CFTC commitment of traders’ reports, we’ve generally seen energy hedge funds with a fairly bullish stance.

Twice in the past year, we’ve seen that those bullish bets were premature and have been very instrumental in causing short-term mini price busts. If you know me, you know that I am keen on the financial inputs to oil prices, often finding them far more important than the fundamentals that underlie them.

In the last week, there’s been a flight from oil – now to the point that oil speculators, while not quite short, are at their lowest ‘long ratio’ levels we’ve seen in 2017, and nearly match those we saw in November of 2016:

(Click to enlarge)

What’s interesting is that those November levels led to a nearly ten-dollar rally in the price of crude last year – it was an important indicator of an entirely technical short squeeze of positions that occurred then, and is in the process of occurring now.

So, while oil has had a technical rally of three dollars to above $45, we should expect the short-term squeeze to dominate the very short-term trading of oil and our oil stocks – if you were waiting for a moment to improve your basis prices on some E+P players, now would be a good time.

On the other side, we saw more indication that this technical rally won’t likely translate into a bullish trend in oil – at least not yet. Pioneer Natural Resources Chairman Tim Dove reinforced the death march of U.S. shale production when he presented this week at the JP Morgan energy conference in New York.

He basically offered two insights there – One, that Saudi Arabia would be unable to withstand prices below $50 for much longer and would therefore be obliged to extend cuts themselves, perhaps another million barrels a day or more.

On this, Dove is only surely right about the unsustainability of low oil prices for the Saudis, but certainly is speculating that it will lead to even more draconian production cuts.

As for Pioneer, also not exactly raking it in with oil prices below $50, Dove didn’t see the parallels to their OPEC competition:

“We will not drill into oblivion”, Dove said, but "we can pare away and still be a growth company even in a $45 (per barrel) environment”.

Now, nobody is more cost-effective and has a lower break-even point for oil production than Saudi Arabia – nobody. So, for Dove to suggest that he somehow has the upper hand in production and profitability in this low and unsustainable oil market compared to OPEC is the major reason that we’re all here – and why U.S. oil producers continue to push for higher outputs throughout 2017 and 2018. They continue to be their own worst enemy and have been the main roadblock to higher oil prices.

So, these two events, taken together, tell me a very simple story: Oil may have found a technical bottom for now, but oil prices are unlikely to break out of their range over $52 any time soon.

Invest with these two ideas in mind.

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play