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: Hey, Laura. How are you?

SANICOLA: Good. And so the million dollar question on everybody’s mind is: what’s the market thinking? What’s the oil market thinking? Because we are incredibly range bound in like the hundred dollar range considering, you know, every day we’ve got this massive, at least thirteen million barrel a day loss of Middle Eastern production. You know, we’ve all read the prevailing theories. What’s resonating with you?

CINQUEGRANA: Yeah. I think this market may be a little bit tired, a little fatigued just from being headline driven: peace one day, no peace the next day, you know, or the strait’s open, the strait’s closed. It’s like Bugs Bunny and Daffy Duck with rabbit season, duck season. But that being said, I think the market wants to turn more to things like fundamental analysis and technical analysis. And right now, it just seems like the market’s a bit fatigued.

Volumes, a little bit weaker than they were a couple weeks ago, so that’s a signal there. And this may, you know, from a technical perspective, ultimately be just a bull market rest stop, and that’s what some of the technical analysts are thinking. End of the day is we’re still in a supply situation where, you know, crude oil inventories are drawing around the world. The US did see a relatively minor drop, but it was a lot bigger when you include the SPR.

Gasoline and diesel stocks continue to drop in the US. Gasoline’s been down 12 weeks in a row. Part of that, I think, is because it started in mid February, is terminals kicking out the high RVP winter grade gasoline that’s ultimately perishable for low RVP gasoline in the summer driving season. So, yes, there’s a fundamental aspect to pay close attention to out there as well.

SANICOLA: So it looks like we all had more inventories, I guess, than we bargained for during the war when the war started. I think one area that’s still kind of a black box for those of us who follow oil markets is China. You know, they’re a notoriously opaque country. Their inventory levels are also opaque and as is their economic activity. To what extent do you think that’s driving the market versus the demand destruction that we’ve seen as fuel prices push higher and higher in the US and around the world?

CINQUEGRANA: Yeah. It’s hard to say with what China, you know, has or what they’re doing, but like you said, let’s focus more on the demand destruction, demand mitigation, whatever you wanna call it. Obviously, several Southeast Asian countries have done everything they can to to mitigate some demand. We’re already seeing some demand losses for gasoline here in the United States.

So based on our data that we get from retail stations and and kinda same store sales, March was down about five and a half percent versus last March. April, kind of the same thing. So that’s a sign that people are driving less based on that higher price that higher price point, which is over $4.50 a gallon right now. But before the war started, your gasoline was demand in the United States was certainly in a secular decline, but it was more like, you know, year on year two percent, three percent, four percent, somewhere in that neighborhood. So the extra kinda call it two and a half percent really stands out as demand destruction in this high price environment.

SANICOLA: I just wanna end on refiners, you know, their stocks were trading down this week, kinda following the crude price, but, you know, their setup has been very good up to this year. If it is a rest stop, do you see more profits ahead for the refining industry?

CINQUEGRANA: Yeah. So like you said, this was a little bit of a down week for crude oil and refined products as a result. But, again, remember, we’re still in that kinda peaking window for gasoline futures. So there could still be some more upside that obviously in turn improves the gasoline margins, and, obviously, refineries in the United States are geared toward making more gasoline than they are the middle of the barrel, meaning diesel and jet fuel. So higher gasoline price in the in the wholesale and spot markets and the futures markets as well compared to crude oil will obviously bode well for refiners here in the near term.

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