HardAssetsInvestor

Mike Norman (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. My guest today is Dan Dicker, author of “Oil’s Endless Bid,” returning to the program. Dan, thanks a lot for coming back on.

Dan Dicker, author, “Oil’s Endless Bid” (Dicker): Well thanks for having me Mike.

Norman: I really wanted to have you on because of the gyrations we’ve seen recently in the oil markets. I think the last time you were back here we were up near recent multiyear highs, at, I think, around $114 a barrel.

Dicker: In WTI.

Norman: Right, in WTI.

Dicker: And Brent, it was $15 higher, $131 or $132.

Norman: Right. And then, we’ve seen a pretty decent pullback, back down to almost, I guess, in the low $90s on WTI. The market seems to be stabilizing. Now recently, we heard some talk out of Saudi Arabia. The Saudis threatened that they were going to raise their daily production up to 10 million barrels per day in July. Now that level—if they were to actually achieve that—we haven't seen. You have to go back to the early 1980s. And I still think it was probably just a little bit under that. That would be a very high level of output for Saudi Arabia. Do you take that as a credible threat?

Dicker: Well first, let’s go back to the early 1980s. Remember that global demand was about 20 million barrels a day less then than it is now. So, in fact, getting to those levels, that 10-million-barrel-a-day threshold is not really as significant, for example, as what was being pumped by the Saudis in the ’80s. So that’s No. 1.

The second part of the question …

Norman: But it would represent probably an additional million and a half barrels a day to current production.

Dicker: Easily from the Saudis. The second part of your question refers to whether this is to be believed, or what the Saudis are actually planning. And to me, it’s all a load of hooey. I mean, the Kabuki theater that we saw in Vienna two weeks ago …

Norman: … at the OPEC meeting …

Dicker: … at the OPEC meetings, exactly, where there was a big story running around that was actually leaked before the meetings began, that all of the members were ready to agree to production quota increases. And then, in fact, you’ve got this wonderful little theater, a game, a parlor game that went on when Naimi kind of runs around Vienna, and the CNBC anchors kind of follow him around, and ask him questions. And he’s all cute and happy.

And then, as the meeting breaks up, the Iranian and the Venezuelan ministers come flying out of the room in anger. And they run into their cars, and they speed away. And Naimi comes out and describes the meeting as the worst they have ever had. Now, this is, to me …

Norman: …all predictable …

Dicker: … all entirely predictable. In fact, the markets predicted that they were rallying throughout the meeting, despite the fact they were talking about production quota increases.

Norman: But it was a good short to sell into that at the time.

Dicker: It was an excellent short, for the reason that, I think, this is the last time that OPEC may be able to get away with these kinds of theater productions on meetings where quotas, in fact, are never adhered to anyway.