Oil price surge: 'There is something different going on here than 2007,' expert says

The Energy Word Founder Daniel Dicker, joins Yahoo Finance Live to discuss oil prices and the various factors driving the recent surge.

Video Transcript

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JULIE HYMAN: As we continue to watch the situation on the Ukraine Russia border, and it's a situation that remains unclear, we are continuing to see oil prices react to the various headlines on concerns over a crimping or disruption to supply. We're seeing WTI this morning above $93 a barrel. And it's up again today, but it's been volatile in recent days. Daniel Dicker is with us now, the Energy Word Founder, longtime oil watcher. Dan, it's great to see you. So what do we do in this situation where it's not just every day there's a new headline, it's sometimes every hour there's a new headline? If we take a step back, how should we be thinking about this situation as it pertains to the oil market?

DANIEL DICKER: Well, I think somehow, Julie, you have to separate the geopolitical problems from the fundamental issues that are surrounding the oil markets. And although the Ukraine dustup has added fuel to the fire on energy prices, it's not really fundamentally what's been driving energy prices higher. And, ultimately, when that resolves itself, Ukraine resolves itself one way or the other, oil is going to resume its trajectory that it's been on basically since the start of, actually, the end of last year. And that is where I've been saying that oil prices have been headed for more than three years. And that is above 100 and, perhaps, two fresh highs from the 2007 highs of $150 a barrel.

BRIAN SOZZI: Dan, so you're looking for-- what's your probability on $150 oil here?

DAN DICKER: Well, let's look at this a little bit, Brian. There's the theory that oil is really doing the same kind of pattern that it did in 2007. And that it reaches a spot where it disintegrates, a lot of oil production rushes into the scene, you get some other maybe break out. And 2007 obviously was a credit crisis, we hope we won't see one of those again.

But, ultimately, what you're thinking is that there's demand destruction, there's going to be a big inflow in fresh oil that's going to come in as prices creep higher. Now, what's happened over the course of the last four or five years and even longer is that a lot of the supply destruction has gone on where a lot of these producers can't really respond to the increasing demands for oil that's coming onto the market.

That's entirely different from what went on in 2007. There was always spare supply ready to come onto the market if the prices got high enough. Right now, we're not sure if anybody can supply any fresh supply into this market, no matter where prices go. So there's something different going on here than 2007.

What also is different than what's going on in 2007 is a lot of what was driving oil prices higher was speculative activity. And for most part, that was a cottage industry that the investment banks kind of controlled back in the day. I can tell you about that because I was a guy who was there back in the day. And a lot of those desks are now gone. And a lot of that speculative interest that came from hedge funds and other commercial and even private investors has moved on to Bitcoin and NFTs and meme stocks and whatever.

And so, you don't have that kind of speculative urge going into this market this time either. So what you have is a very, very fundamentally driven market, which, in many ways, should be a lot more durable than the kind of rally that you saw in 2007. And for those consumers who are looking at $5 or $6 gas prices, I really only have bad news for them. This kind of fundamental growth in the oil market, it's hard to stop this train.

JULIE HYMAN: No thank you, Dan. I don't think anybody wants to hear that.

DAN DICKER: Sorry. That's what I see.

JULIE HYMAN: We've really been seeing, I think, the hit to consumer confidence in particular from these higher gas prices. So $150, give me a little bit more detail on your thinking here. Probability that we hit that number. And what would be the timeline for it?

DAN DICKER: Yeah. And it's very hard to time this stuff, but I think that the oil market has a several year durability cycle in it at this point. So what you're going to see, and I think that it's gotten a little ahead of itself, a little beyond its skis at this point, Ukraine was part of that, I did not expect to see $90 some odd dollar oil this early in 2022. I did expect to see $100 oil sometime during 2022.

I was really looking for the numbers to start getting more parabolic, the $110s, the $120s, and beyond in 2023. So my guess is that the oil markets a little bit of ahead of itself at this point in the cycle. But for a long term investor who's looking for a sector that's really only begun to break out, I would say that the energy stocks are a place to be over the course of the next two and three years because this is not something that I think is sort of a big parabolic move followed by another big crash. I don't think we're going to see that this time around, that's really what I'm saying.

JULIE HYMAN: At what point do we see demand destruction? You mentioned that as part of the calculus that people were trying to figure out back in 2007. What's that threshold now?

DAN DICKER: It's a very interesting question because, in many ways, the demand destruction, which is a natural economics kind of rule that you'd figure there'd be this kind of demand destruction to higher prices, we didn't really see that in 2007. And we didn't really see much of that even in 2011. And we should have seen more. So it's hard for me to judge because we have a new player in the game, right? We have the opportunity of electric and other renewables to go to if the prices get high enough in oil.

Now, the changeover, I think, will be a lot quicker when oil prices reach these triple digits than they have been in the past because economics being what they are, renewables become a lot more competitive when oil is $110, $120 a barrel. Tough for me to predict long term about something like that, how that's going to play into demand destruction and oil because there are alternatives that are at the ready at this point, or close to being at the ready at this point. It's something I'm watching very closely for my subscribers because that's really a key to what's going to go on in terms of oil prices over the course of the next two or three years.

DAN SOZZI: Dan, I have 15 seconds left, but I want to make sure I have this right. $125 a barrel oil, is that $5 gas? And if it hits $150, is that $7 gas?

DAN DICKER: I think it could be a bit more because in terms of the refining margins that are required to take oil and turn it into gas, that's changed also as the prices get higher. So my guess is that you're going to see $5 gas at any triple digit as soon as you get to $100. And you might get to six and a half or seven, even at $120 or $130. Forget about $150, I don't know where we'll be then.

JULIE HYMAN: Well, Brian Sozzi is going to have to give up his Trans Am, and indeed.

DAN DICKER: Get the electric scooter. That's what the electric scooter says, right?

JULIE HYMAN: Exactly. He's going for it. Dan, it's great to see you. Dan Dicker, founder of the Energy Word on potential increases in oil prices.