OPIS Insights

Barron’s Managing Editor Daren Fonda and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

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

Transcript:

DAREN FONDA: Hi. This is Daren Fonda, Managing Editor at Barron’s. I’m here with Denton Cinquegrana, Chief Oil Analyst at OPIS. How are you doing, Denton?

DENTON CINQUEGRANA: Hey, Daren. Good to see you.

FONDA: So the big story this week is the potential for the US to strike Iran if they can’t come to an agreement over Iran’s nuclear program. Oil prices have been moving up a fair bit. They’re up like sixteen percent this year. They’re doing a nice job of lifting energy equities, are also moving higher.

But, you know, the market’s still quite oversupplied by around at least a million barrels a day.

What do you think is really leading to the strength that we’re seeing in oil prices right now?

CINQUEGRANA: Well, yeah, you mentioned the geopolitical tensions and I do think that is contributing to some of the upside. But we got to remember, these markets are very seasonal. And right now we’re kind of in that seasonal move higher for crude oil and gasoline as well. Usually prices bottom out sometime in the fourth quarter, and then they rise through much of the second quarter, usually peaking sometime in late April. So we’re on schedule for that, but you have some geopolitical tensions that may be stealing some of those some of that thunder a little bit.

Oil prices, as you mentioned, have been moving higher. Current prices are about the highest since late July, early August. So we’re in that seasonal move higher. That’s for sure.

FONDA: And what is the read through for gasoline in the US?

CINQUEGRANA: Yeah, so gasoline, kind of the same thing. You see that kind of low in December, maybe early January, and then you rise up through the second quarter as well.

A lot of it has to do with the switchover from winter-grade to summer-grade gasoline.

Keep in mind, there’s still quite a bit of winter-grade gasoline left in storage tanks that will eventually have to be purged out of the system. So there might be some discounted barrels still coming out there. But by the time we get to, say, you know, mid April around tax day, we’ll probably be comfortably above three dollars a gallon. Currently, we’re not that far off, about two ninety-three per gallon. But again, everything seems to be right on schedule when it comes to the seasonal move from the late fourth quarter into the into the second quarter.

FONDA: Well, obviously, we can’t predict what’s gonna happen geopolitically, but where is your sense of where oil prices are gonna head from here, say three to six months from now?

CINQUEGRANA: Yeah. So if there is a significant disruption to Iranian oil, obviously, this is way different from the Venezuelan thing from the beginning of January.

Iran’s producing, you know, three and a half million barrels a day or so in that neighborhood. So any loss of their production is obviously going to weigh on global global supplies.

The oil is sanctioned, so they have a limited amount of customers, namely China, because India is backing off of buying Russian crude, Iranian crude, any crude that would kind of upset the United States as part of a trade deal. If a peace deal comes around, yeah, you’re going to see prices drop several dollars, probably back towards the low sixties for WTI in the mid sixties for Brent.

Right now, WTI is pushing about sixty nine dollars a barrel and Brent towards towards the seventy two dollars area. So prices are certainly moving higher. But again, a peace deal would certainly pull three to four to maybe even five dollars a barrel out of the market.

FONDA: All right. Thank you so much, Denton. Appreciate it.

CINQUEGRANA: My pleasure.