OPIS Insights

Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Watch this week’s episode for insights into the oil markets’ reaction to the current state of oil markets amid ongoing Middle East tensions.

 

 

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Denton Cinquegrana, Chief Oil Analyst at OPIS. Denton, thanks for joining me.

DENTON CINQUEGRANA: Hi, Laura. How are you today?

SANICOLA: Good. And I’m very wary of discussing where we are in any particular ceasefire because headlines are coming in hot and fast.

But I think what’s notable is that you’re not really seeing oil move too much on these headlines now about ceasefires between Israel and Lebanon, Iran and Israel.

Why is that in your view?

CINQUEGRANA: Yeah. And prices are starting to creep higher. I think the ceasefire that we currently have is fragile at best.

Fortunately, it’s been, you know, for the most part held. I think the way you could describe the battles, it’s gone from, you know, kind of air to sea. And by sea, I mean blockades. So that’s one of the reasons why, sure.

We’re in a ceasefire right now, but when you’re when you have naval blockades blocking ships, the strait is still apparently mined. So that’s an issue as well. So, it’s yes. It’s a ceasefire, but it’s, you know, it’s tenuous.

It’s not changing anything from a supply standpoint on the global stage.

SANICOLA: And and my understanding is the state of play is still you know, oil is not moving through the Strait of Hormuz. In fact, the violence of the past week has probably reduced the likelihood that folks will try and ship oil through the Strait.

And you also have a lot of confusion around what violates the ceasefire. For example, you know, Iran blockade is a violation of the ceasefire. But as of the time we’re filming, the blockade still exists. And, you know, it I don’t know. How how do you think that factors into prices which are, you know, Brent as of the time we’re filming is still above a hundred and five dollars?

CINQUEGRANA: Yeah. I mean, it’s one of those things where, yeah, the blockade is still in place. And whether Iran says it’s legal or illegal or not part of the ceasefire or part of the ceasefire, it’s still in place at the end of the day, and it’s still impacting flows. And, again, I think we’ve used this word a couple times, but the amount of oil and and just ships in general coming through the Strait, it’s a trickle.

Obviously, well below what we were at prewar levels. And, again, it’s one of those things where even if we all finish this tomorrow, it’s gonna take some time to get back to normal flows.

SANICOLA: Yeah. And one thing I thought was very striking was the Dallas Fed surveyed oil executives and oil workers in in the US.

And it really seems like the majority don’t expect production to increase by very much. They do expect production increases as a result of the war, but it was, you know, very small amounts of, you know, around maybe a quarter of a million barrels per day this year and and maybe under a half next year. You know, what do you make of that?

CINQUEGRANA: Yeah. And that was kind of what the plans were, you know, even before all of this started. So it sounds like oil executives in the oil patch in West Texas and places like that, they’re not deviating from their original plans. You have a pretty severely backward dated forward curve still, and, you know, you don’t just flip a switch and this oil comes on.

It takes some time. So you’re you’re obviously not gonna be at these hundred dollar prices that we’re seeing right now by the time you get those wells up and running. So, again, it’s a price thing. It’s a CAPEX thing.

It’s a, hey. Let’s return free cash flow to shareholders thing.

SANICOLA: And I guess I’ll close on what’s happening with fuel and jet fuel because that seems to be the fuel that, you know, is getting hit the hardest right now. And we’ve been talking about this, right?

This is a fuel that’s hard to harder to ship, harder to store, and affected by all the refining strikes that have happened in in the Middle East.

You know, what’s the trajectory there in your view?

CINQUEGRANA: Yeah. Jet fuel, again, has to be very segregated, has specific sulfur levels that it needs for lubricity in those engines. So it’s very different from, say, an ultra low sulfur diesel, which only has fifteen parts per million of sulfur in the United States. So that you have to like you said, it’s very segregated. It’s hard to store little not necessarily harder to produce, but storing storing and shipping, it needs to be separate from everything else. So that’s, you know, kind of strike one, if you will.

You’re gonna need a demand response, and we’re starting to see that with several airlines, particularly in Europe, canceling flights, particularly long haul flights. I would suspect that any airline going from Europe to Asia, those flights are gonna be either canceled or at a very minimum severely curtailed just because, hey. We’re going from one place that doesn’t have much jet fuel to another place that doesn’t have much jet fuel. The United States, again, from a refined product standpoint, in a good position.

I’m not yet worried about inventories.

Gasoline, where we were compared to the seasonal average, we’re five to eight hundred thousand barrels below.

Diesel’s a couple million barrels below normal. And jet fuel is actually right about normal, maybe even a little bit above. So we’re okay on jet fuel right now in the US. And again, like I said before, US doesn’t necessarily have a supply problem right now. It has a price problem.

SANICOLA: Right. Well, I’ll keep you updated. I’ve got two international flights open this summer, and if they get canceled, you all will be the first to know.

CINQUEGRANA: Yeah. Fingers crossed for you, Laura.

SANICOLA: Appreciate it. Thanks so much, Denton, and thanks everyone for joining. We’ll see you next week.