Dan Dicker - Coming Around To Dan's View

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Dan Dicker from Real Money - Calling Generational Buying Opportunity in Oil ...

Note comments on EIA overestimation of production, matching Dan's comments ....

Dicker was a long-time oil trader on the NYMEX floor.


Accumulate Oil Stocks; It's a Generational Opportunity
By DANIEL DICKER FOLLOW | AUG 31, 2015 | 11:15 AM EDT | COMMENTS

In oil and oil stocks, the evidence continues to mount that the tide is turning and that the prices we are seeing in both oil and oil stocks will constitute a historic opportunity in both. It is time, particularly as oil experiences a down day today, to start your portfolio in very specific oil stocks for the long haul.

Late last week's monumental rally in crude oil was undoubtedly caused by a massive short covering of funds and machines, but the fact that the initial force of that rally needs to moderate and be digested by the market, as it is being today, suggests that the tide has begun to turn on oil and oil stocks.

Let's move away from the financial market forces that has caused all the major volatility in oil last week and look at some other fundamental data, numbers that I so far haven't mentioned in my previous two or three columns talking about what I believe is a generational opportunity in oil stocks.

Gasoline cracks have been pummeled in the last two weeks. We have seen the margin on refining get destroyed, as the average gas crack has tumbled to under $20 from near $40.



It's hard to put into words just how magnificent this move is, or how telling. There has been insane pressure upon the refiners to take advantage of the high cracks and push utilization to the limits, soak up as much supply of sweet crude barrels as possible, overload storage to the limits and sell crack spread futures to lock in margins as far ahead as possible. So, sure, all of these things would cause the cracks spread to collapse. But just as with the crude rally last week, the financial pressure doesn't tell the whole story.

Remember, that refiners work in opposite relation to the producers. When one does particularly well, the other usually suffers. Contango is helping to remove supply from the market as well as the storage appetite of the refiners and a $20 crack move seems like a small, but significant, bubble is bursting. The evidence is that the long run of refinery stocks is close to being done, with a new moment for E+Ps to begin to do better. If you are in refinery stocks and have enjoyed some good times, now is the time to take your money off the table.

The EIA has also begun to realize its overenthusiasm in its U.S. production reports. (Hat tip to my twitter pal @zmansenrgybrain.) This morning, they pre-released numbers showing their June production to be 100,000 barrels a day too strong, but even more importantly, they have begun to revise their predictions for 2016 production, showing a 400,000-a-day drop in what they see from U.S. E+Ps.

Even on these massive reductions they're wrong, again. U.S. production will fall far more than that on average before 2016 is done, reaching, I believe, a shortfall of a million barrels lower than the first months of 2015's peak of 9.4 million barrels a day.

Combine these two further indicators with the many I've discussed in recent weeks and the conclusion is hard to miss: to be ahead of what will be a collapsing supply scenario in 2016 and 2017, you need to be positioning yourself in oil stocks now. Today's small respite from the admittedly ridiculous rally that oil staged on Thursday and Friday is a great time to take a look at some -- and those that follow me know my favorites.

But whichever ones you choose, the time to start accumulating is now.

[dan_s]

I will say it one more time: EIA and IEA models that predict both production and demand are FLAWED. This was true in 2009 and it is true today. This is very important for all of you to understand >>>>> The "actual" production and storage volumes that EIA reports each week are not "actuals", they are estimates based on their models.

U.S. oil production began falling in April and EIA missed it. We are going to see a BIG drop in U.S. production in the 4th quarter. By BIG, I mean AT LEAST 500,000 barrels per day.

There is a good chance that the U.S. will be importing more oil than it produces within six months.

[mkarpoff]

Hats off to you. So far bang on.

[dan_s]

Send me an e-mail and I will send you a 20 minute audio that will explain why EIA and IEA keep making the same mistakes in their forecasts. I think this will report will explain why I remain so bullish on oil prices making a big rebound by year-end. - Dan

dmsteffens@comcast.net