Energy: ‘No trigger was pulled’ on U.S. crude oil pricing opportunities, analyst explains

Yahoo Finance Video

Tue, Feb 14, 2023, 12:37 PM

SEANA SMITH: Oil prices under pressure today, closing off just over 1%, below $80 a barrel. Now, the move lower coming after the Biden administration said that it is selling more crude from the Strategic Petroleum Reserve. This time, 26 million barrels of oil will be delivered to the market starting in April, fulfilling the budget directives mandated by Congress.

Here with more on this, we want to bring in Bob Iaccino, Path Training Partners Co-Founder and Chief Market Strategist. Bob, it's great to see you here. So let's talk about what this means for the energy market, for the crude market in the longer term. Yes, we're seeing the pressure on prices today. How much more pressure, maybe, could we expect because of this?

BOB IACCINO: Well, hey, Seana, it's good to see you again. It's likely a temporary bit of pressure. Most of the pressure has come to the upside lately. It's interesting, because we actually had crude oil down about 1.3% on the open. It was a gap lower. There was weakness, definitely, depending on that story about more SPR releases coming up.

But then as it kind of fed through the market that this was a pre-scheduled sale, of which there's more to come-- there were only some temporarily suspended by Congress-- the concern now becomes the level of the SPR. We've got about 372 million barrels in the SPR now. You take this 26 away, and you're only about 93.6 million barrels away from where the law halts sales for the SPR.

And there's a lot of dominoes to fall when that happens, not the least of which being that Congress has mandated many different levels and the timing of sales to fill other budget holes, which kind of always happens when Congress starts mixing their messages here and mixing their assets and their liabilities. This is another case like that.

President Biden asked for these to be suspended. In this particular political climate after the midterms, not likely to happen. So it's going to put the President and the SPR specifically in the country in a pretty bad spot going forward.

DAVE BRIGGS: Aren't there actual physical concerns when we start to get this low at the Strategic Petroleum Reserve? And what's the plan to refill it?

BOB IACCINO: So the plan was to buy oil at $70 a barrel. We got there. We got below $69 a barrel-- I'm sorry, $70 a barrel, in that $69 range, last October. But no trigger was pulled. Part of that might be because filling the SPR has very little to do with West Texas Intermediate crude. It's more of a heavy base crude oil.

Remember, all crude is not made the same. So they need a heavier base crude, which is the type that our refineries are processing. Brent crude never got down there, as well as some of the necessary types of oil that we could have refilled with.

There's physical issues as well. You fill those tanks with brine and then you pump that brine out to refill it with oil. And there's only so much time they can be empty. There's only so much time crude oil can stay in those storage tanks, which has a lot to do with the circular motion of the sales, and the filling, and the sales, and the filling. The issue becomes as you look forward, both Saudi Arabia and the UAE have talked about potential shortages of supply in 2024.

We do have a record coming from the Permian Basin in March-- another 75,000 barrels a day is going to put us at a record for shale drilling. But again, that's not the type of oil that goes into the SPR. And that's why looking ahead, it causes more of a lift to prices than it does pressure on prices that we're seeing a little bit yesterday and also this morning.

SEANA SMITH: So, Bob, then, what does that mean in terms of when we could expect to see those higher prices? And then when it comes to gas prices, certainly there's a lot of fear that we're heading back above $4 a gallon-- do you think we will break above that level?

BOB IACCINO: Well, I do think that's why the stake is going to be bought by the economist as opposed to the other way around. I think energy prices are going to be one of the areas that is not going to back off as easily as had previously been hoped. When you look at what's going on with the SPR now, they need to start filling it regardless of price.

And I suspect they're going to start doing that quickly and soon-- maybe before, even, the summer driving season begins again. And we're only in February. But that's the time when speculators and people start planning for that seasonal bump-up of gasoline prices.

It's coming in the next six weeks or so. So I suspect there'll be announcements of the filling of the SPR sometime in the next two to three weeks.

DAVE BRIGGS: All right, gas prices, up, what $0.17 from a month ago. Bob Iaccino, good to see you, sir. Thank you.

BOB IACCINO: Good to see you as well.

Terms

and

WA Consumer Health Privacy Policy

Your privacy controls