Crude Oil Supply Woes Will Take "Quite a Bit of Time" to Fix

SPEAKER_1 (0:00)

And here for this discussion, Stewart Glickman, Deputy Research Director and Energy Equity Analyst at CFRA Research, and Ellen Wald, PhD Author of Saudi, Inc. and President of Transversal Consulting. I'm glad to see you both. And with the energy story here on the rise, I mean, I know we've pulled back off the highs here, Ellen, but some of your thoughts were still at 101, and there's no relief in sight. What does it mean to have oil over $100, and how long can we sustain that?

Ellen Wald (0:28)

Well, I do think that there's a great deal of significance that's attached to that number, which is really not as significant, perhaps, as people think it is, but we really are in a place where we're seeing a supply crunch. We've got, you know, we're no longer releasing oil from our SPR. China's buying more oil, and now we've got this outage in the East West pipeline of Saudi Arabia, and these are significant factors today, where still Persian Gulf oil is greatly constrained coming out of the Strait of Hormuz. And so every other outage has a big effect. And so I'm not surprised that we're seeing oil at 101, 105

I think it's actually a testament that it's not even higher. And we're going to be seeing impacts all across the economy for as long as this lasts. It's not a permanent condition, but how long it lasts really depends on largely the geopolitical situation.

SPEAKER_1 (1:31)

And we look, what a big run we've had. One month of 25 percent and one year, 62 percent for oil. I mean, I'll add in diesel there. Stewart, as you know, it's at six and a quarter and at new highs. So what does it mean when you talk about supply demand and the flow of oil?

Stewart Glickman (1:51)

Yeah, Nicole, so as bad as it's been for Crude and for Gap, who were buying at the pump, it's been even worse for truckers dealing with the high diesel prices. Diesel has the additional problem of Russia imposing a ban on exports of refined products from them, in part because Ukrainian drones are attacking Russian refineries. So this is going to percolate its way through the economy.

It's really not a good sign at all. And I think to Ellen's point, I am surprised that oil prices haven't risen, at least temporarily haven't risen higher than they already are.

SPEAKER_1 (2:30)

Well, President Trump has said, we're going to watch oil drop in a big way, really drop fast. At the same time, Ellen, you actually commented on Russia and Ukraine, right? Your thoughts?

Ellen Wald (2:42)

Yeah, I mean, the situation with Russia and Ukraine, what Trump says is great and it sounds good, and I'm sure certain trading apparatus has picked that up and react accordingly. But unless this agreement is actually true, and it does seem that both sides have come out and said, this is not confirmed. And so unless we see meaningful change, if we see Russian refineries coming back online, if we see more diesel coming into the market, nothing that Trump says is actually going to change the supply and demand picture here.

SPEAKER_1 (3:17)

Let's talk about investors when they're looking at this oil opportunity, Stewart. You've often brought to us names or types of oil plays. What are your thoughts now there at CFRA?

Stewart Glickman (3:30)

Yes, I think you have to be pretty careful when it comes to investing in energy these days. At least temporarily, high oil prices are good for producers. The risk is too much of a good thing, because we've seen this before back in 2008-2009. Oil prices went to 147, and nine months later or seven months later, oil prices were down below 35 bucks a barrel.

You have to have a cast iron in stomach to deal with this kind of volatility. But at the moment, we especially like refiners, Marathon Petroleum, HF Sinclair, and Valero Energy. We have buys or four-stars opinions on all of those.

And some select upstream names like EOG Resources. We have a strong buyer of five stars, and Diamondback Energy, Ticker Fang. We have a four-stars opinion.

SPEAKER_1 (4:21)

I got most of those. Marathon, Valero, EOG, Fang. I may have missed one. When we think about having the move that the administration made by first dealing with Venezuela and then going for a rant, and that also gives us some more access to oil in the big picture. Does it not, here, Ellen, is particularly with some new agreements that have now happened?

Ellen Wald (4:45)

Well, here's the issue is that Venezuelan oil is not going to replace what's happening in the Middle East. Yes, Venezuela is a particular case where they do have a vast amount of oil and oil reserves, but it's not so easy to bring that oil to the market, and it's not just as simple as replacing the leadership. They are having a really hard time convincing energy companies to go in and invest in the kind of infrastructure that you need to actually get Venezuela's oil. A lot of it is very difficult to produce, requires a lot of investment, and get them to bring it to market. I think that in the long run, yes, this is a good thing for the oil market and oil supply, and we will need Venezuela's oil and it will be available on the market at some point in very important ways.