Oil prices (CL=F, BZ=F) have surged to their highest levels in over a year, with analysts suggesting the potential for oil to reach $100 per barrel is coming soon. This price action follows extensive production cuts from both Saudi Arabia and Russia, occurring in lockstep with the U.S. presidential election coming in 2024.
The Energy Word Founder Dan Dicker remains skeptical of oil's proposed heights, citing "technical headwinds" in the energy market. Dicker believes the market is overbought and due for a period of trading that will prevent oil from reaching that $100-per-barrel mark.
"Fundamentally, oil is as strong as it was when I spoke to you in the height of the summertime when oil was $68 a barrel," Dicker tells Yahoo Finance, adding: "But now that it's approaching $92, $93, $94, it seems to be way ahead of itself in terms of the cycle and where it's supposed to be. I do see $100 oil coming, but it's way ahead of itself."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
BRAD SMITH: Everyone has been keeping an eye on the energy sector lately with oil prices soaring to their highest levels in more than a year, with some analysts saying that oil prices could hit $100 a barrel soon. This comes with rife global and domestic tensions as both Saudi Arabia and Russia have cut outputs but also as the US heads into the beginning of its presidential campaign season. So how can investors stay on top of economic and political headwinds impacting the energy markets? Let's bring in Energy Word founder Dan Dicker to discuss more. Dan, for investors that are trying to keep their thumb on the pulse of this, where is the best place for them to continue to start and ultimately evaluate the data that is coming through?
DAN DICKER: Brad, we got a very interesting kind of place where the oil markets are at right now, and you know-- I've been on your show several times-- you know I've been the most bullish guy on oil. Some analysts calling for $100 oil now when I was calling for $100 oil many, many months ago. Now that being said, there are a lot of technical and headwinds that are in place for the oil market right now, a lot of technical headwinds, and some of this is deep inside the weeds.
Fundamentally, oil is as strong as it was when I spoke to you in the height of the summertime when oil was $68 a barrel. But now that it's approaching $92, $93, $94, it seems to me to be way ahead of itself in terms of the cycle and where it's supposed to be. I do see $100 oil coming but not now. It's way ahead of itself.
So we have a tremendous backwardation that's going on in markets, backwardation that we haven't seen since, like, the financial crisis. We got a six month backwardation of $8. I know it sounds deep in the weeds, but it's very wide right now. We have technical indicators that say that oil is well overbought up here at $92, $93, $94.
And finally, we have traders, and this has been, really, my bete noire for my entire career. Whenever the specs get very deeply on one side of the trade, they tend to be wrong, and they are as long right now in oil. The ratio of longs to short is as deep as it's almost ever been. And quite frankly, I do not see oil doing much constructively more to the upside until they get a good spanking for being this long oil, for believing that oil is cheap at $93 when they didn't think it was cheap at $68 not more than 2 and 1/2 months ago.
So for me, at least right now, I'm telling my clients to really kind of back off of their positions. We've made a lot of money in energy. It's been practically the only subsector of the S&P that's done well over the course of the last two months, and I'm telling a lot of my guys to take some money off the table here and not push more in.
SEANA SMITH: So Dan, what level-- if you're advising investors right now to take profits-- I guess what level does oil, does crude, need to fall to in order for you to be a buyer again?
DAN DICKER: Yeah, and this is interesting, Seana, because if you are a technical player and you do watch the momentums on trades like this, what happens is that the higher energy goes here, the more of a rubber band gets stretched. So, therefore, when it does turn around, when everybody does seek the exit on the trade, the lower it will go back on the downside before you're ready to reshape a portfolio. So my advice right now is to wait to see how far the momentum of traders that have been piling into this oil trade are going to push oil prices before setting a target on where to get back in. But, you know, you're welcome to have me on when oil snaps back down into the 80s.