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 effect of new sanctions on Russian oil and what that has done to the price of crude oil.

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: Thanks, Laura. How are you today?

SANICOLA: Good. So let’s talk oil. We’ve got a new fresh round of sanctions on Russian oil, but Denton, enlighten us. How is this round different than what’s been enacted previously, and what’s it done to the price of crude?

CINQUEGRANA: Yeah. Well, it’s certainly driven up the price of crude and refined products, particularly diesel over the last couple of days since those tariffs on Rosneft and Lukoil had been announced. It’s really the first time you see individual Russian companies being sanctioned as well. Maybe it’s a ploy to get Russia to the negotiating table, so we’ll have to wait and see about that.

But to me, this rally seems to be mostly short covering. Unfortunately, we’re not getting commodity futures trading commission data, but we are getting data from the CME Group, which runs the NYMEX. And that data is showing that open interest is going down. Now, the rule of thumb that I like to use is when the market goes up, open interest goes down, it’s short covering. Not always, but, you know, it’s kind of a good rule of thumb and a good way to kind of explain what might be happening.

Now the question is, how much further can this rally extend? You got your short covering now. Now you need to find some evidence of tightening supply to get kind of more long accumulation in the market. And with all the talk of growing supply glut with OPEC bringing more barrels back, it may be difficult to get the a a real, like, kind of juiced up buying.

SANICOLA: Right. So it might be reasonable to expect, especially if these sanctions are lifted in the next few days, if there is more momentum with conversations with Russia that the rally will won’t extend.

CINQUEGRANA: That’s exactly it. I mean, maybe it looks like right now we’re getting a little bit of a leveling off process and cooling off, and probably the market’s waiting for when the next shoe is going to drop, if you will. Do we go back out? Do we continue to rise, or do we just kinda come back into the high fifties for WTI and the low sixties for Brent?

SANICOLA: Right. And, so it’s a little too early to think about how this might affect fourth quarter, earnings, but for the third quarter, we’ve got refiners starting, to report, some oil companies as well. Really, banner year for refiners are up, like, forty percent, from January. How’d the third quarter look for them, and what are they saying about what’s to come?

CINQUEGRANA: Yeah. Well, we’ve called it in these in these videos in the past where we said, hey, look. The third quarter is looking pretty good for refining margins, and that was indeed the case. We’re starting to hear that. But one thing that stood out to me is Valero has confirmed that they are indeed gonna close that refinery in Northern California. One of the things that’s been pretty evident in the Energy Information Administration data is that there’s more barrels coming into the West Coast into PADD 5. Now you can’t necessarily strip out California from that.

It’s a little bit more difficult, but you’re to see more barrels of gasoline come into the California and West Coast markets in general via foreign sources.

SANICOLA: Right. And I know that we got some commentary from Valero executives talking about how so far it looks like the heavy sour crudes that you asked for refiners process. They’re getting cheaper. Asia is not buying as much, and we’re starting to see widening discounts. So does this spell more good news for refiners?

CINQUEGRANA: Yeah. I think so, especially if you’re as you’re heading into the fourth quarter, which is typically a low marking period for for refining margins. So usually, the the the last quarter of the year and probably the first quarter gets carried by diesel a little bit. Obviously, if you’re looking at a more heavy sour, probably a little bit more distillate rich, so that’s obviously a cheaper crude. Good news for refiners.

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