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Energy disruptions possible as we're only in 'the second inning of hurricane season': Analyst

OPIS Global Head of Energy Analysis Tom Kloza joins Yahoo Finance Live to explain gas prices and what investors should brace for in energy markets amid the Russia-Ukraine war and potential weather disruptions.

Video transcript

BRIAN CHEUNG: We're getting a little bit more relief at the pump, but will it stay? National average gas prices in the United States have fallen below $4 a gallon for the first time since early March. The average today standing at $3.99, just short of $4 a gallon-- still, though, around $0.80 higher than this time last year.

Let's bring in Tom Kloza, Global Head of Energy Analysis at OPIS, who joins us now. Tom, great to have you on the program. The first natural question I'm sure Americans are having is, can we get even lower than this? What do you see?

TOM KLOZA: We'll get a little bit lower. We've had 58 days of lower prices, consecutively. That's by no means a record. We were once on a 124-day streak of lower prices. But I think that probably the worm is going to turn here a little bit. Demand destruction has stopped, and it's probably stopped us with about 8% to 10% less consumption than we saw last year. It probably doesn't get necessarily revived, because we're too late in the summer for that.

And a more telling number, I think, is that if you look at the most common price, in the first half of June, it was commonly $4.999. Now, it's about, oh, $3.599. So it's dropped $1.40. That's a half a billion dollars a day. So it's good news on inflation. But don't get used to the numbers below $4 right now. There's a lot of challenges in the supply sector.

RACHELLE AKUFFO: So, Tom, break down some of those challenges-- some of the things that might cause prices to ricochet back up.

TOM KLOZA: Sure. Well, crude oil has bounced off of some highs. And they really bounced off some key support, technically. And we've been selling crude from the Strategic Petroleum Reserve. And it's had an impact. It is mitigated some of the high prices.

But it runs out, let's say, in October. So we have to worry about fall and winter for crude. On the gasoline side, refineries were making so much money in the second quarter that they basically pushed off the maintenance that they have to do almost every year till the fall. So we're going to see lower refinery production in the fall.

But the big threats really come with power outages or with hurricanes. I mean, we're only in the first or second inning of hurricane season. And a hurricane in the Gulf of Mexico could bring prices up in increments of $0.25 and $0.50 a gallon. So cross your fingers, but don't necessarily expect that the next 58 days are going to bring $1.40 in lower prices.

BRIAN CHEUNG: Tom, let's talk about the overall picture in terms of production. OPEC, the oil production rising-- in fact, we've actually seen some projections from OPEC that the global oil market could tip into a surplus in this quarter. How do you think that aspect of things factor into prices?

TOM KLOZA: Well, for everybody that's predicting a surplus, there's plenty of folks, including Goldman Sachs, that are predicting a large deficit. So it's really an extrapolation. And it's more of an abstraction right now. We think demand is probably going to stay about where it is. And we're worried more about the middle of the barrel-- diesel, jet fuel, marine oil.

That's where I think we could get a fat and sloppy midsection by the winter, particularly if natural gas keeps doing crazy things in Europe. This morning, it was the equivalent of $375 a barrel oil. So anywhere around the world other than North America, where you can switch to oil instead of natural gas, that's happening.

RACHELLE AKUFFO: And, Tom, I want to ask you, because, obviously, a lot of people are happy to see gas at the pump there under $4 a gallon. But regionally, we are seeing quite a bit of divergence there. Why is that?

TOM KLOZA: Well, I think it's record, divergence or diversity. If you look at California, prices are still well above $5. And last week, we saw some prices below $3 in Texas and Oklahoma. Those numbers are done right now.

But there's a big difference between what you pay if you're in a clean air city that requires reformulated gasoline. That's the Northeast. That's California. That's Houston and Washington, DC-- and Chicago, for example. Conventional gasoline, which is much more difficult to make in the summer, is much more expensive. And one of the problems is that European refineries, who usually give us substantial amounts of gasoline all year, they're struggling with those high natural gas prices and the rerouting or the different flows that are not happening with Russian crude and Russian molecules of all kinds.

BRIAN CHEUNG: So how much of a factor do you-- I mean, we have to remember that there's still a war going on over in Ukraine-- has that story already kind of fully bled in in terms of the offloading of Russian supply? Or do you think that the headlines coming out of Eastern Europe still very much remain relevant to where we could see prices going over the next--

TOM KLOZA: Very relevant. We're at intermission in an opera that I hope is not a tragedy. And perhaps, we could wake up one morning, and the war is over, and it turns into a comedy with lower prices for energy. But right now, I'd say we're in intermission.

The next real chapter is as we go into winter and Europe faces those really steep natural gas costs and steep prices for heating oil, jet fuel, and diesel.

RACHELLE AKUFFO: All right, Tom Kloza, always good to have you on the show. Thank you for joining us this afternoon.