OPIS Insights

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

As oil prices skyrocket toward $120 a barrel and the critical Strait of Hormuz remains closed, Barron’s Energy Insider and OPIS’s chief oil analyst break down why global stockpiles aren’t stopping the surge and whether $5 diesel is now inevitable.

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:
Thanks, Laura. Good to see you again.

SANICOLA:
You too. So I don’t even know how to recap what’s happened in the past week, really. I mean, you’d started out oil opening high, kinda coming down after traders covered their positions. We didn’t have for the first part of the week, you know, a ton of activity in the Strait of Hormuz, and then bam, you know, tons of ships getting attacked. You know, we have the leadership in Iran saying we’re going to keep pressure on oil for the time being.

Oil prices now fully near the one hundred dollar territory as of the time of this filming. You know, what’s what’s been the major events this week, and what does it tell us about where oil is going from here?

CINQUEGRANA:
Well, I think you nailed a lot of it, Laura. Obviously, on Sunday evening when the markets opened, they opened obviously higher, but it took a little while, but in you know, just about overnight, both WTI and Brent got upwards of a hundred and twenty dollars a barrel. We’ve seen prices kinda scale back, but Brent is still in that hundred dollar area today. And like you said, as of this recording, at one point this week, prices started to look like they were gonna come down and come down sharply after the energy secretary posted a video on Twitter of a ship being escorted through the Strait of Hormuz. That video had been removed shortly thereafter, but then the market, you know, removed back back higher. So, again, just a lot of volatility out there in the marketplace.

Fact of the matter is the Strait of Hormuz remains closed, and that’s the biggest takeaway.

Who knows when it’s gonna reopen and when it’s gonna reopen safely? That’s the billion dollar question right there.

SANICOLA:
So what about the tools in the toolbox? I mean, the market didn’t really react to the global coordination of countries releasing hundreds of millions of barrels of oil from their stockpiles.

Oil’s not really reacted to, you know, news that the Jones Act could be waived, would impact shipping costs, and maybe increase vessel availability. You know, what are the tools that could be used here? And given that the market’s not reacted positively to any of them, I guess, what does that tell us about what you’re at?

CINQUEGRANA:
Sure. And the large, you know, SPR release globally coordinated four hundred million barrels, Big number, much bigger than in twenty twenty two. The US is contributing a hundred and seventeen million barrels to that over a hundred and twenty days. So that works out to be about one point four million barrels a day if you average it out.

However, US inventories are really just fine. We’re probably a little bit below the five year average, but certainly ahead of last year. So I would suspect that any of those US barrels are likely to be exported to help out allies, presumably in Asia, Japan, South Korea, which are still highly dependent on Middle Eastern crude oil. Meanwhile, the Jones Act, you know, the Jones Act is an old piece of maritime legislature that probably should have been waived a long time ago, probably should be abolished.

I really see don’t see much of a need for it. However, that being said, I think if there is any help for this, this will help, actually, honestly enough, blue states. So here in the Northeast and on the West Coast, those would be the states that would be helped by the Jones Act waiver. Really, what you have been seeing, and this has been a play that’s happened for a long time, but Gulf Coast refiners would send gasoline components to the Bahamas on an internationally flagged ship, blend it, and turn it into gasoline, and then distribute from there, whether that was going to the East Coast or the West Coast.

So you would get around the Jones Act. Now you kinda skip that Bahamas step out there. So it should help, but again, shipping rates, whether it’s a Jones Act vessel, whether it’s an internationally flagged vessel, shipping rates remain exorbitantly high. So that’s going to have an effect on prices as well.

And, you know, honestly, prices have continued to move up. The retail national gasoline average is just about three dollars and sixty cents. Late last week and early this week, I thought four dollars by the end of this week. I don’t know if that’s necessarily gonna happen, but diesel at five dollars certainly seems a lot more possible.

And obviously, with higher diesel prices, that raises the price for everything.

SANICOLA:
And quickly before we wrap up, how long do you think prices would need to stay at this level before we start seeing US oil producers increase production? How much of a difference would or could that make, if any?

CINQUEGRANA:
Yeah. I think I think what you need to look at is the backward dated nature nature of the forward curve in WTI and Brent futures. You know, right now, late year futures are still in the seventy dollar range, seventy, seventy five dollars. So is that enough to inspire much more new drilling? Not quite sure.

So we’ll have to wait and see what happens there. But as if the back end of that curve comes up more towards the front, then, yeah, you would probably see more investment into production in West Texas, New Mexico, and even North Dakota.

SANICOLA:
All right. Well, thanks so much Denton for joining us, and thanks everybody else. We’ll see you next week.