Investors need to ‘play defense’ against possible banking contagion on oil markets: Analyst
The Energy Word Founder Daniel Dicker discusses the rebound of oil futures amid the ongoing banking crisis and details the technical aspects that are effecting ongoing price shifts.
- Oil futures extending their rebound today after initially falling over the past two weeks amid this ongoing banking crisis Brent crude and WTI both well in the green today. For more on how the banking uncertainty could impact oil moving forward, we welcome in Dan Dicker, The Energy Word founder. Good to see you, sir. So WTI up well over 5%. Brent bouncing back, up more than 4%. Is that because we're seeing some stability, or at least apparent stability, in the banking sector?
DANIEL DICKER: Yeah. That's right, Dave. I mean, it's kind of always the case that when you have difficulties wherever they'll show up in credit, they'll show up in derivatives. And when you start wondering-- previous guests will talk about mortgages or auto loans. But, of course, there is a factor of oil derivatives. And everybody is always wondering who's holding the end of all of these extra notes that are floating around in the regional banks and elsewhere. So oil is the one that gets hit probably the hardest when these bank issues or these credit issues, wherever they come up, start to arise. And yeah. The buyout of SVB, you gave oil some relief.
Now, I don't think it's going to be a long-term relief. I don't see oil taking off towards $90 at this point. But I also don't see oil being worth less than $70 either. So in the case right now, I'm not sure where to put my money. I've been telling most of my subscribers that they got to play some defense here and that the contagion from the derivative markets, banking, wherever it leads, is not quite done yet. And there's going to be several weeks, if not a couple of months, before we see the rest of this kind of play out.
- Yeah, Dan. and I know you've been closely tracking maybe some of the technical reasons in terms of where oil is going to trade. You mentioned the fact you don't think it's going below 70. You also don't think it's shooting right back up to 90. So those technical reasons are what you were watching. What are they so investors really know here what they should also be looking out for.
DANIEL DICKER: Yeah. And it's kind of hard, Seana, because this is the kind of place where we are where oil investors have run for the hills. They're not going to get constructive on oil for a long time. But I also cannot make a case fundamentally for oil being much lower than $70 a barrel. I don't see it going back to $45 or $50. So when you ask me what am I doing, where am I going, what I'm trying to do with subscribers is put them in very solid blue chip dividend paying oil companies that you can write options on top of and kind of maximize a gain because now that you have money market funds that are paying upwards of 4 and 1/2%, you really have to try and maximize what you're getting from stock investments.
And so, again, long term, I find oil to be very, very strong fundamentally. And so we've got a period of time where we've got to sit and wait. And the key to waiting is finding those key energy stocks that will continue to deliver alpha in whatever forms, whether it's premiums or in dividends, that will allow you to stay in the game here.
- And globally, the big news between Saudi Aramco and China. A combined 690,000 barrels of crude a day. What's the impact there, Dan?
DANIEL DICKER: It's a big deal. I think it's a very big deal. I mean, what's clear is that there hasn't been-- this is in response to global increases in refining capacity, which haven't happened basically for decades. So we see a big increase going on over the course of the next 18 months in refining capacity. And the Chinese are starting to book oil to put into those refineries for the future. And, again, where is that oil going to come from?
We see a picture where for right now stockpiles are a little bit bloated because we had a very mild winter. But those bloats disappear in a hurry if China gets going again. And the indications, at least from the Chinese with this kind of deal, is that they believe that they're going to get going again rather soon.
- Dan, do you see it having any real impact on the global price of oil, more specifically here in the US, what we could then potentially see?
DANIEL DICKER: I'm sorry. I didn't really understand the question, Seana. Can you repeat?
- Yeah. In terms of the deal that Saudi Arabia-- Saudi Aramco, excuse me-- just reached with China in terms of the supply there, do you see that having any impact on more broadly speaking on the global price of oil or having any real impact here in the US or no?
DANIEL DICKER: Again, it's another long-term function of a marketplace that, to put it as simply as possible, has an endlessly systemic supply problem and a temporarily quashed demand issue. So we're waiting for some of these demand issues to move out of the way. Unfortunately, the supply issue can't be fixed so easily. And that's the kind of thing that the Chinese kind of see. They see a moment when oil is cheap. They can book long-term barrels at a very, very good price with the Saudis. And they figure they're getting ahead of what's going to be a difficult supply problem. It'll be more than three months down the road. It'll be six months down the road. But they feel it's inevitable, as do I.
- All right, Dan. Good to see you, sir. Dan Dicker, everybody.