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.

Watch this week’s episode for insights into the latest about the current oil market situation amid ongoing Middle East conflicts.

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. Anything going on out there?

SANICOLA: It’s a real quiet week, Denton. Thanks for asking. I mean, so much has happened since we last had you on, and I, you know, I struggle to even think where to begin, but I guess let’s just start with the question on everybody’s mind, which is, you know, how high can we go on oil? You know, as of the time we’re taping this, we’re still embroiled in this conflict that doesn’t really have a set time-frame.

Oil hasn’t moved up as much as many people would have anticipated, considering that, you know, we’re starting to see some energy infrastructure targeted. The Middle East is having to cut back production because it doesn’t have vessels to put it on. That’s an upstream production and refineries are being curtailed as well. Run rates at refineries because they don’t have oil to fill the refineries.

So, you know, I guess, how should we be framing this at a high level given what we know now.

CINQUEGRANA: Yeah. It’s a it’s a lot of moving pieces right now. Brent in the mid eighties. WTI got over eighty.

The you know, I don’t know if we wanna call it unprecedented, but the market has always kind of tried to price in what would a closure of the Strait of Hormuz look like.

And we’re finally getting that. And I think the reaction may be a little less than you might think getting the straight closed. Now Iran did nothing to close a straight. This is all a safety and insurance issue.

So let’s keep that in mind. And the biggest issue not necessarily is the ships that have oil on it that can’t get out of the strait. It’s the ships coming in who need to go to the terminals and fill up. So as you’re pointing out, if ships can’t come in to fill up storage tanks in Kuwait and UAE, Saudi Arabia, we’ve already seen it starting to happen in Iraq, those storage tanks fill up so much where they’re gonna have to reduce production.

That’s what’s happened in Iraq to an extent. Of those other countries, Saudi Arabia could handle this for for the longest. So, you know, let’s stick with a four week time frame, and that’s what the president first said at the beginning that this should last, you know, about four weeks. We’re at the point where we don’t know what the timeline is.

They said government officials have said there’s no timeline, but let’s stick with this four weeks. Over that timeframe, you probably have somewhere between let’s call it two I’m gonna give a wide berth here to use another kind of maritime phrase here, but somewhere between two hundred and fifty and four hundred and fifty million barrels of of of oil that’s kinda stranded, if you will.

If this does get settled in four weeks, then two hundred fifty to four hundred fifty million barrels that this is has kind of been lost, if you will. But demand never really stopped.

So now it’s gonna take a little while to to to fill out to to get back to normal. I think you’re gonna need to see oil prices kinda stay high, whether that’s in the eighties or even higher, to motivate a refill of of storage tanks.

SANICOLA: And so that and just to remind people, that two hundred fifty to four hundred, that’s kind of the delta between, you know, what a lot of, you know, governments thought was going to be the supply demand gap between oil this year. It’s a little lower than some estimates, a little higher than maybe OPEC’s, but that’s basically essentially, you know, the best case scenario is potentially closing that gap for the year with the possibility, right, Denton, that it could be more because there’s a lot of really important energy infrastructure that hasn’t been hit as of the time of this taping and, you know, hopefully won’t be.

CINQUEGRANA: Yeah. You’re you’re absolutely right. There’s other there’s a lot of refining in that Middle East region.

Anything like that, the where hit by a missile or a drone or whatever, obviously, could have massive implications, not just for on the crude oil side, but on the refined product side. Obviously, there’s domestic needs, but also they account for a lot of exports, particularly to Europe, Asia as well.

So, yeah, it it really throughout the value chain has ripple effects.

SANICOLA: And then downstream, you know, we’ve written about how who makes out kind of well from this. It’s a lot of the US players. I know that you and I like to talk a lot about the refiners who have enjoyed a nice extended rally as of now because the some of the prices of the products that they make are are rising faster than crude oil prices. How do you contextualize the situation for refiners here? Just for anybody, any players in the US right now who stand to be impacted.

CINQUEGRANA: Yeah. US, whether it’s upstream producers, whether it’s refiners, whether it’s NGL producers, liquefied natural gas, whatever it is, if you’re US based, you are in a privileged position.

The United States over the past ten, fifteen, twenty years, really since the shale boom, have weaned ourselves off of Middle Eastern oil. I mean, to the point where we’re maybe taking in, I don’t know, call it four hundred to five hundred thousand barrels a day. Of the roughly six million barrels a day in weekly imports, it’s really a small amount, less than ten percent, obviously. But at the same time, we’ve become less dependent on some of that crude oil, so that could easily be replaced.

And now the United States, particularly refiners on the Gulf Coast, they’re gonna be called upon to really supply other parts of the world. We’re already starting to see European cargos cargos of jet fuel and distillate going distillate being diesel, going from the Gulf Coast to Europe to help supply that market as well. So jet fuel prices have gone bananas to the upside this week. I would I would expect a big impact on the airlines.

SANICOLA: Well, there’s obviously going to be a lot more to talk about in the weeks ahead, but thank you so much for joining me today, and thanks everyone else for joining, and we’ll see you next week.