OPIS Insights

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

Watch this week’s episode for insights into the minor sell-off in crude oil, which is being driven by a broad risk-off environment, correcting refined product prices, and slightly increasing oil inventories, as well as an analysis of whether potential Russia-Ukraine peace talks are affecting the geopolitical risk premium.

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. We are seeing a minor sell-off in oil. We’re back into the fives for US crude futures. It look looks like probably ending the week down three percent. What’s going on? Is this part of the broader equity market sell-off? Is it somehow related to Bitcoin? Why do you think we’re trending lower this week?

CINQUEGRANA: I think we’re just in a bit of a kind of risk-off environment here, though, really over the last just couple of days. But you’ve seen refined products really kinda take off mid-month, and now those are correcting. So they’re probably bringing crude oil down with them a little bit. You have seen oil inventories start to grow a little bit here in the US and in some other OECD nations as well. So I think that’s putting a little bit of pressure on the oil markets over the last couple of days.

SANICOLA: Yeah. I mean, we’ve been banging on that oversupply drum for, you know, gosh knows how long at this point. Some folks are indicating that it could be a little bit of geopolitical risk premium leaving the market too, what with Russia, Ukraine, peace talks, you know, set to take hold and or at least being talked about. I guess, how would you interpret that piece of news with respect to what crude’s doing?

CINQUEGRANA: Yeah. And I still think the sanctions are certainly biting Russia right now. So they might be motivated to get a deal done. But as it currently stands, it might still be a little too early to say, okay. We’re done. Peace deal. Here we are. So I think it might be a little too early to say, hey, this potential peace deal is saying this is what’s driving the market down.

SANICOLA: We’ve had pretty strong refining margins after the bombardment of Russian oil refineries from Ukraine ahead of these peace talks. And as you noted last week and several weeks prior, that’s caused diesel prices to go up, gasoline prices to go up. I guess to what extent are they retrenching now? Is it that there’s less demand, or less concern about the supply? Is it related to the holiday travel season? So we can think about where oil will go from here.

CINQUEGRANA: Yes. A bunch of things as it pertains to refined products. Yes. We had a spike in products that crude didn’t necessarily participate in as much as you might think, and that sent the refining margins kind of into orbit here, particularly on the diesel side. Those are all correcting now, so you’re seeing some pretty steep declines in the diesel price. Perhaps the segment of the business that is doing the best right now is that wholesale to retail segment.

Those margins are pretty sizable right now. And the fourth quarter is usually a pretty good one for those guys to begin with, but you’re seeing oil market oil markets kinda correct some, but the refined products markets are correcting even more. That should lower gasoline prices as we get into the Thanksgiving holiday. As it currently stands, the current national average, little over three dollars and ten cents a gallon, is actually higher than it was at this time last year, but not so drastically so where it’s gonna cause much of a ripple in people’s traveling plans.

SANICOLA: Alright. So I guess the takeaway here is, you know, keep an eye on the geopolitics, but so far, nothing really fundamentally points to oil going that much lower than it is as it stands today.

CINQUEGRANA: Yeah. And we’re still above some of the lows from earlier in the year. So, again, a more significant peace deal then absolutely those lows from April and May after the tariff announcement, etcetera, are probably back in play.

SANICOLA: Great. Well, thanks so much, Denton, and thanks everyone for joining us. We’ll see you after the Thanksgiving holiday.