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 Barron’s Energy Insider episode explains the recent surge in oil prices, driven in part by geopolitical tensions involving Iran, and the implications for gasoline prices in the U.S. market.

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. So let’s talk oil.

This past week, it’s hit a new recent relative high kind of on tensions going on in Iran. The market tends not to respond to geopolitical events too much unless it thinks there might be real risk embedded in there. So get us up to speed on what’s going on.

CINQUEGRANA: Yeah. Sure. So Brent has spent some time above seventy dollars a barrel this week. So that’s obviously pushed prices higher. WTI up and over sixty-five dollars a barrel. So prices are certainly rallying, and a lot of it has to do with Iran, like you mentioned, with President Trump, again, making threats that they need to negotiate, make a deal on nuclear. And if not, there’s gonna be severe consequences.

Iran is much more of a significant producer than, say, Venezuela is. So this could have longer-term impacts, especially if there is some oil infrastructure taken out that would impact production, which Iran is producing, you know, way more than Venezuela is currently. So Iran’s upwards of, you know, kinda two million barrels a day versus Venezuela, which is not even at a million barrels a day.

SANICOLA: And I guess it might be fair to contextualize this and that, you know, it was only, you know, less than a month ago that the US conducted this, like, quick and really important operation in Venezuela that took out, you know, a major political leader. And so would you say the market’s sort of pricing in the possibility that Trump will make good on these promises to put maximum pressure on Iran?

CINQUEGRANA: Yeah. I think this is a just in case buying rally because, you know, at the end of the day, higher oil prices leads to higher gasoline prices. That’s the last thing Trump wants to see is higher gasoline prices when we’re not even into the summer driving season yet. Yes. We do see a quarter four to quarter two rise in oil and gasoline prices, but gasoline prices are starting to rise.

So the natural average is still under three dollars, but it’s inching closer to three dollars a gallon. The president is not gonna like seeing that, but, you know, I think that may cause some restraint here. I think you need some sort of justification to go in and, you know, make something happen in Iran. And, obviously, the costs versus the benefits, the cost would be higher gasoline prices. So I think maybe he does show some strength for a little bit longer until something more significant happens and needs to step in.

SANICOLA: So let’s end the conversation with refiners as we like to do. You know, we’re just starting to get earnings from some of the major US independent refiners like Valero, which beat last week. We’re trying to figure out what this year is going to look like for them because on the whole, an oversupply of crude is good for refiners because it weakens the price of their main input. But what about demands and other factors that could affect refiners this year?

CINQUEGRANA: Yeah. So one of the interesting things is Valero had earnings recently and did say that refining margins have been strong, were strong in the fourth quarter, and that led to obviously an earnings beat, which again, feather in our caps. We’ve been talking a lot in the fourth quarter about how refining margins were looking solid, so good job, Laura. But that being said, I think one of the things that puts Valero in a in particular, in a really good position is that they’ve invested a lot in heavy crude oil refining. So as a result, if more Venezuelan crude makes its way to the United States, Valero should be beneficiary of that because you’re gonna see a widening of the light and heavy spread. So that should continue to support margins as more Venezuelan crude oil makes its way to the United States.

Overall, refining margins still look pretty strong here in the first quarter, particularly on diesel because we’ve had a heck of a run on diesel here over the last couple of weeks with the weather.

Obviously, natural gas has skyrocketed, but you see customers in the northeast getting for for natural gas, getting their supply interrupted. And when that happens, you have to replace it with diesel. So diesel demand has been solid. We’ve seen evidence of cargoes coming into the New York Harbor of diesel to kind of fill those needs. So again, refining margins look pretty solid as January’s just about right January’s wrapping up and February’s getting started.

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