OPIS Insights

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

This week’s video discusses recent volatility in oil markets driven by tensions and potential regime change in Iran. Laura Sanicola and Denton Cinquegrana discuss how oil prices initially spiked on fears of regional instability but then returned to previous levels. The conversation explores why tensions with Iran drive oil prices higher despite potential sanctions relief, contrasting Iran’s strategic position controlling key shipping straits with Venezuela’s limited influence.

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: Thank you, Laura.

SANICOLA: So wild ride for oil markets this week. I think they’ve given up all of their gains as of the time we’re talking.

What went on? Because I know it was very headline-driven, related to tensions in Iran.

CINQUEGRANA: Yeah. Well, that’s absolutely right. It’s headline-driven based on the talk of a possible attack or even an imminent attack on Iran. Obviously, cooler heads prevailed.

The market really just kind of reversed course. We’re back to kind of where we were before it all. You know? Low high fifties, low sixties for WTI, sixty-four-ish for Brent.

So, again, it was almost like a no harm, no foul. But one thing I would stress is that this all happened on really, really strong volumes. Oil markets were really active this past week, and it was probably one of the more active weeks of the past year. So a lot of people are putting on new positions, taking off old ones, covering shorts, etcetera.

So it’ll be interesting to see how this manifests itself over the next coming weeks.

SANICOLA: At first, it seemed a little counterintuitive, and just to lay the groundwork here, you know, there’s instability in Iran. Sanctions are taking a toll on the economy, on the value of their currency. There’s been protesting and violence against protesters, so it seemed kind of potentially imminent that there would be, possible regime fall and regime change. You know, my first things instinct was to say, well, you know, Iran, presumably that would lead to a lifting of sanctions on Iran, and that would flood the oil market with more barrels. So maybe walk us through why, you know, the oil prices rose on these tensions instead.

CINQUEGRANA: Yeah. And that that’s a kind of a great line of thinking, lifting sanctions, etcetera, and that’ll, you know, kind of spill out more oil. But again, I would point to the instability of regime change.

That’s probably what had the markets moving higher as a result. You know, you remove whoever’s in power, and then you sort of potentially have a power vacuum, and it destabilizes not just that country, but the entire region. And I think that’s why several countries managed to to talk Trump out of, you know, some kind of attack on Iran. So it would destabilize the region, and who knows what can happen with oil supplies at that point. I I I point to Libya, for example, you know, ten, twelve, thirteen years ago when Muammar Gaddafi was removed from power.

That’s country still has, you know, some some fact warning factions. And a couple times a year, it pops up where there’s been a force majeure or there’s been some sort of issue with oil production in that country.

SANICOLA: And it’s worth noting, I think, for everyone that Iran is a very different operator than Venezuela, which is not a major actor in crude markets. And also geographically, Venezuela doesn’t really control the flow of oil anywhere other than to and from Venezuela, and they don’t even do that anymore. The US does. Whereas Iran, you know, controls straits of of water bodies that are really important for the global oil trade. So seems like that would also be, you know, the bigger risk why oil markets moved up on regime change potential in Iran, but not Venezuela.

CINQUEGRANA: Yeah. And that’s, oh, you know, always a threat to block the Strait of Hormuz. You know, over the years, the Iranian government has threatened, but have they’ve never been successful in in doing that.

SANICOLA: So refiners do benefit from lower crude prices. You know, this week was a bit inconsequential, right, because prices came back down almost as quickly as they went up. Tell me how they’re how they’re doing right now.

CINQUEGRANA: Yeah. Refinery margins based on futures prices, they’re holding up. Gasoline is coming in a little bit, not to be not unexpected for January when demand is lower and gasoline inventories continue to pile up. However, you know, even though they’re coming in, they’re they’re still pretty decent for this time of year for for January. It’s one of the better Januarys so far, just a little more than halfway through, but better than previous Januarys, only twenty three and twenty four were were better.

Meanwhile, diesel is really holding up very well, you know, at a crack spread of almost, you know, thirty two, thirty three dollars a barrel. So I think that’s why even though gasoline inventories are piling up into storage, you’re going to see refineries continue to run run pretty hard. And additionally, obviously, crude oil’s relatively cheap, relatively speaking. And also the the refinery maintenance schedule, the planned schedule is lighter in the first half of twenty five twenty six than it was in twenty twenty five.

SANICOLA: Alright. Well, thanks so much, Denton, for breaking that down, and thanks everyone for joining us. We’ll see you next week.