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 hover close to $110 a barrel and the critical Strait of Hormuz remains closed, Barron’s Energy Insider and OPIS’s chief oil analyst break down the continuing impacts to energy markets.

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 today?

SANICOLA: Good. So lots has happened.

Every week brings fresh new news and horrors, however you wanna see it. But as it stands right now, oil’s closer to one ten than it is to one hundred, and it had this wild week where energy infrastructure was targeted in the Middle East. Israel said, “Okay, we won’t target that anymore. We acted without the US.” That seemed to have caused prices to fall a little bit, but, you know, what’s really driving the market from here on out in your view?

CINQUEGRANA: Yeah. So like you mentioned, Brent, close to a hundred and ten dollars a barrel right now. WTI is around ninety-five. The April contract does expire expired on Friday, March twentieth.

So most of the attention and most of the activity is in the May contract. Now May is probably about forty, fifty cents cheaper, so it’s not a significant reduction in backwardation. So you’re still looking at a pretty wide spread between a lot of the benchmarks. And even though Brent said about a hundred and ten dollars a barrel or just shy of it, the crude in the Middle East is pushing hundred sixty, hundred seventy type levels.

So we’re seeing really three distinct buckets of pricing here.

SANICOLA: And at this point, we’ve unlocked some more tools from the toolbox to bring down prices.

The Jones Act was waived, and also the IEA International Energy Agency is suggesting that certain countries reduce their demand for oil in various ways that’s going on in Asia already, places with shortages.

How do those tools stack up against, you know, what’s driving the broader market?

CINQUEGRANA: Yeah. Sure. So we’ll start with the Jones Act, which, as you may know, is a hundred plus year old piece of maritime law that says any ship going from one US port to another US port has to be the ship has to be made in the USA, manned by a US crew, and be US flagged. So waiving that allows international ships go between port to port.

Now because shipping rates have been just so high, there’s been very little advantage to that. So for example, there’s the Gulf Coast to to Jacksonville, Florida booked the other day for a two million dollar lump sum. That’s pretty close to Jones Act levels. So you’re not seeing too much of an advantage by the waiver of Jones Act.

Okay. Now onto the demand destruction piece. So you are starting to see some of that happen in Asia, particularly South Asia, where Pakistan, Sri Lanka, this past week have all encouraged four-day work weeks and conservation where possible.

As we know, China has restricted exports of products. Korea is keeping South Korea keeping exports at twenty twenty five levels. So they’re starting to see a little bit of the trying to install some demand destruction there to help restrain prices a little bit.

SANICOLA: But this is all kind of in the backdrop of the main event, which is figuring out how to restart trade within the Strait of Hormuz. You know, what’s been the updates this week on that effort?

And, you know, what are the options on the table here? Obviously, we’re not military experts. We’re oil experts.

You know? But I guess to the best of our ability, you know, it’s best of your ability, what are where do we stand right now?

CINQUEGRANA: Yeah. Obviously, still blocked. Still maybe a a strip or two trickles through here and there, probably based on Iranian permissions. But there is a report certainly landing out there, and I can’t confirm this, that Iran’s looking basically for I guess you could call it a toll to pass of two million in, I guess, whatever currency they’re looking for. So that could unlock some, especially with Asian buyers being pretty desperate.

They might be willing to pay that two million dollars Chinese yuan. However, they they the Iranian see the payment fit. So that could help alleviate some of the issues. But for the most part, as long as the strait remains closed, and we’ve said this a hundred times, it’s gonna be difficult to break through and arrest prices lower.

SANICOLA: All right. Well, thanks so much for joining us and we’ll have more updates next week.