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Thu, Aug 21, 2014, 2:22AM EDT - US Markets open in 7 hrs and 8 mins
Oil ‘super spike’ is coming: Dan Dicker
Another bad day for traders bullish on energy as WTI crude oil slid 2%, hitting its lowest level since January. Across the pond Brent crude traded at its lowest level in almost 14th months.
From the heady days of mid-2008
when it traded at nearly $150 a barrel, crude oil has had quite a rocky
ride. After sliding down to the $30s and rallying back around $120,
crude has settled in around the $90 to $110 range for the past two
years.
Commodity traders and analysts
have wondered why oil hasn’t gone higher. Geopolitical tensions abound
across the world; the Middle East seemingly hasn’t been this unstable in
years.
In fact, some believe the commodity could actually go lower. Blake Morrow posits
that with North American production rising, vehicles becoming more
efficient, and crude oil’s inability to rally with global equities, all
signs point to a bearish future for oil.
Dan Dicker, president of MercBloc and author of Oil’s Endless Bid says much has changed in the past few years, other factors also explain why oil has stagnated recently:- Investment banks, particularly Morgan Stanley, Goldman Sachs, and JPMorgan have not only left oil trading but have also abandoned the oil marketing business, which used to bring a steady supply of new players to the energy market.
- Individual oil traders (including Dicker himself) have disappeared as well. Dicker speculates around 3,000 traders have left the industry.
- Remaining funds are trend and algorithmic firms with long-term positions already established.
- The big alpha players remaining in the oil trading business are physical commodity, private firms like Glencore, Vitol, and Trifugura among others.
Dicker believes these
changes have all but killed immediate speculative activity, which has
been good for consumers in the short term, but will be bad for the
prospects of cheaper oil in the long term. Without the liquidity
provided by these players in the energy market, a crude oil
‘super-spike’ could be in the cards.
The demise of offshore oil
drilling could also be a catalyst in Dicker’s mind, not to mention oil
supplies going offline in places like Libya, and decreasing in countries
like Iran and Iraq. This is leading to an upcoming oil supply crisis he
says, and ultimately with liquidity not what it once was, and with the
cost of oil now making it prohibitive to develop new sources, ultimately
the fundamentals will have to matter again.
“When you have an oil price
that’s hanging around $95, you won't see a $10 spike, you’ll see a $40
spike, because that’s what will be necessary to get these guys (oil
exploration and production companies) ginned up” in order to produce
more crude supply.
More from Investing:
end quote from:
- finance.yahoo.com/news/oil--super-spike-
-is-coming--dan... Cached Aug 20, 2014 · From Yahoo Finance: Dan Dicker of MercBloc on why cheap oil could trigger a 'super spike' in oil prices
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