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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 Break-Even Myth Is Suffocating Oil Stocks

Oil

Oil prices, as I have said for the last few columns, seem range-bound. But rarely do they remain range-bound for long. As oil’s pessimism begins to gain steam, oil stocks look less and less like an exciting investment, at least for the next few months of the summer.

Last week we were able to predict and use a rally in oil prices that came from a very large financial short covering move from speculative hedge fund and energy traders. That was busted briefly on Wednesday as the markets, back from the July 4th holiday, decided to take advantage of the rally to re-initiate short positions. And while that move has also been punished on Thursday by the unexpected 6 million barrel drop in stockpiles, that return above $46 has not managed to pull oil stocks strongly along.

We’ve been quick to note why, in several previous columns: I don’t care what oil executives say, including this frankly hilarious graphic that supposedly outlines ‘break-even’ costs in the Permian and other shale plays:

(Click to enlarge)

The idea that U.S. shale producers make money at less than $40, and that more than 6 respondents are claiming break-evens in Midland BELOW $24 is beyond laughable. If that were true, Lord knows we would have seen far better 1st and 2nd quarter results from these Permian producers, and far higher stock prices.

For while the oil price in 2017 has been range-bound, the stock prices for U.S. shale have hardly been…

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