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Don't expect oil to rally anytime soon but Dan Dicker still sees "super spike" coming

Oil prices rose Wednesday as data showed U.S. crude inventories rose less than expected last week. Reports that a Saudi oil pipeline caught fire during repairs also gave prices a boost amid speculation (since refuted) there may have been a terrorist attack on the pipeline.

Wednesday's gains are a reprieve from the seemingly relentless selling that has brought crude prices down more than 25% since June. On Tuesday, West Texas Intermediate hit a three-year low below $77 per barrel while Brent crude hit a four-year low at under $83. A combination of rising output and a slowing global economy have sent prices tumbling, with selling aided this week by Saudi Arabia’s decision to alter prices on oil sold to U.S. and Asian buyers.

"It's really hard to pick bottoms in these markets," says Dan Dicker, president at MercBloc and author of Oil's Endless Bid. "When money disappears from the oil trade, it takes a really long time to find its courage to come back in."

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The fact that many U.S. E&P companies didn't hedge production when oil was trading closer to $100 just a few months ago and "now all of a sudden are in survival mode trying to live through 2015" will keep a lid on any near-term rallies, Dicker adds. "Any rally will be met by a barrage of E&P players who are going to need to sell in a panicked way. I don't see any big rally anytime soon."

That said, Dicker isn't backing away from the "super spike" forecast he made here in August.

"What will happen is the supply constraints I saw coming when oil was at $92 become triply more important" as U.S. shale and offshore drilling, as well as Canadian sands production, become uneconomical, he says. "It will take some time because you don't want to be the first E&P player to cut capEx or production...but, inevitably, and sooner rather than later, you will see leveling off of U.S. production and actually a drop."

Add that to existing production issues in Iraq, Iran, Libya, the North Sea, Venezuela, Nigeria "and a ton of other players" and he is (still) forecasting "a tremendous supply shortage in late 2015, early 2016"; that, in turn will lead to the 'super spike', albeit from much lower levels than previously predicted.

As for Saudi Arabia, Dicker is skeptical about their ability to increase production much beyond current levels and believes they are "less important than just about everybody thinks" in terms of their ability to influence prices.

"Saudi Arabia is surely more comfortable than most producers to see prices retreat, however," Dicker writes, describing the Kingdom's recent moves as a "strategy by the Saudis to let this bear market shake out the weaker participants over time."

Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.