Oil prices (CLK15.NYM) and the SPDR Energy Select Sector ETF (XLE) surged Wednesday from multi-year lows. Does this mean the worst is behind us? Nope says Dan Dicker, president of MercBloc. “Sell every rally, I don’t know if it can go much lower but for right now it can’t go much higher.” 

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Dicker, who also authored "Oil’s Endless Bid," describes the recent pops as “speculative buying.” Oil volatility remains quite high, confirming Dicker’s view. The CBOE Crude Oil Volatility Index (^OVX) has spiked 231% in the past six months to a level of 56, signaling more downside. Another headwind, the U.S. dollar which is sitting at a five year high.  

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Further price declines in oil could spell trouble for certain energy companies. “You have a lot of E&P [exploration & production] companies standing in a corner saying jeez at $60, $57 $56, if it goes $40 I won’t last three months, let alone a year and a half,” Dicker notes.  The SPDR Oil and Gas Exploration and Production ETF (XOP) has lost 30% of its value this year.  

Related: Opportunities in oil as crude careens: Jon Najarian

Oil prices will rebound at some point, perhaps in mid-2015 says Dicker. And the turn likely won’t be driven by geopolitical or macro events. “Once we see a couple of hard numbers, real production coming off line, that’s when there is a thesis to finally go in and buy some oil.” The first glimpse of any production shortfall could be disclosed by the shale producers in the Q1 of 2015, according to Dicker.

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