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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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Not Yet Time To Get Back Into Oil

Oil stocks are finding some strength this week, even as oil prices remain lagged under $50 a barrel. I see investors again trying to pick a bottom on oil stocks. I say that these efforts are, for now, doomed to fail, as the full brunt of the shale bust is yet to be felt.

I understand the hopes of many investors who have poured money into oil stocks this week, despite an oil price that remains very depressed. I could make the case myself – first, oil stocks have been vast underperfomers of the S+P 500 and are certainly due to have their day. Production numbers for the week are slightly down for the first time in many months, perhaps indicating that the slashing of rig counts we've seen is finally translating into the drops in production necessary to end the crude price slump. Finally, the dustups in the Middle East, from the Saudi military activity in Yemen to the ever more troubling extensions of the Iranian negotiations all seem to point to a moment to shift back into oil. But I say not yet.

It is not that I think that oil is going to again breach the low $40s in price. There is a market theory of a crude 'clearing price', where oil finds buyers and less traditional routes to move out of glutted areas no matter what the fundamentals of supply and storage might say. I think that is right and the idea of low $30s targets on oil, or low $20s as Citibank has called for to be downright ridiculous. But it is the thought that oil can again rally into the profit zone…




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