Gas: ‘I would expect prices to continue to increase,’ oil analyst says

Blue Line Futures Chief Market Strategist Phillip Streible joins Yahoo Finance Live to assess the trends in gas prices during the summer travel season, demands for increased oil outputs, and G7 nations putting a price cap on Russian oil, as gas station Sheetz combat rising gas prices with July 4th deals.

Video transcript

DAVE BRIGGS: Good news on gas prices, in very short supply in recent days. But convenience store chain Sheetz releasing just that with news that they'll drop prices through the 4th of July to $3.99 a gallon for unleaded 88 and $3.49 for E85. Let's discuss the other latest in oil and gas with Phillip Streible, Blue Line Futures chief market strategist. Phil, good to see you. National average actually down $0.09 a gallon since last week. Still rough, but it's $4.88. 42 million Americans expected to hit the road, though, this weekend. What do you expect to see with prices over the next couple of weeks?

PHILLIP STREIBLE: Well, I would expect prices to continue to increase, I mean, unless we can get more supply online or they do more SPR releases. There's no telling when they delayed that inventory report from last week they're pushing out tomorrow, what kind of drawdown we experience, how tight the current inventory supply is. So we're going to have to continue to monitor it. But I would say, if you got a drop in prices near you and that gas station is close, you go fill up right now, and fill up the spare car as well.

SEANA SMITH: Well, Phillip, you mentioned the fact that you think prices are going to increase. I guess, how big of an increase do you think we'll likely see?

PHILLIP STREIBLE: We're probably going to continue to trend higher. I mean, I don't see much stopping it at the moment. You know, it appears that oil has broken back out to the upside. There is a lot talk about some Russian cap. You know, what that'll do to prices, we don't really know. But oil prices, it's not really oil is the problem. It's the products behind it. It's the distillates. It's the jet fuel. It's the heating oil, things like that.

So if you look at-- you try and book a flight somewhere over the 4th of July, you're going to see those prices are a lot higher. And a lot of it is because of those input costs going up so much.

SEANA SMITH: I did book a flight over July 4th, and I did see the prices significantly climb. But Phillip, are we talking when it comes to gas prices per gallon, are we talking $5.50's the likely national average, $6, above $6? What do you think we could see there?

PHILLIP STREIBLE: Yeah, I don't-- we could see those higher levels here. I think that the next play is by the gas stations as they change the pricing to a half a gallon. Go to-- they'll look at it and say, hey, $3 for a half gallon doesn't look that bad. So, you know, who knows where it's going to go on this thing?

But it does look like we've broken out from the upside, back to the upside on crude oil prices. You need the US equities to continue to decline substantially. You need the Fed to tighten a lot more in order to break that demand from the consumer. And that's how they can get prices down with using the policy tools that they have in place.

RACHELLE AKUFFO: And you have a lot of central bankers essentially scratching their heads, figuring out what to do with inflation. You have G7 leaders meeting, trying to talk about what's happening with production capacity there. Are they at their limit, though? I mean, where is this extra production going to come from if OPEC and OPEC+ countries are saying, we don't have it to give?

PHILLIP STREIBLE: Yeah, Biden's request really fell on deaf ears with him trying to ask the UAE to increase production. They're already at 3.618 million barrels per day. That is what's under the current agreement, what they can produce. And a lot of countries are at-- OPEC countries that are at those, they've got their own supply chain issues. They've got their own problems that stemmed from COVID that has not recovered. So each individual country is going to have its own measures.

I think that you've got to look deeper into OPEC and try and find ones that are willing to work more with the United States, where they can get maybe some funding. But all this stuff takes years in order to get refinery utilization, capacity utilization all up, and refining rates. So, you know, it's tough. I think that they really needed to go deeper into the US and boost our production, get it back to 12, 13 million barrels per day, and try and become energy independent. But it sets off a new-- a whole other problems with the green energy and everything.

DAVE BRIGGS: How possible is that to get US energy production up? And where does that extra capacity come from?

PHILLIP STREIBLE: It's-- the problem is that the people that are behind producing in the United States don't want to put more money in there if they're just going to be hit and criticized by the current administration. And they're going to have higher taxes. They're going to be scrutinized and things like that. It's just-- it's really tough. They need to level the playing field and just come out and be a little bit more accommodative and to the current gasoline companies, refineries out there.

SEANA SMITH: Well, Phillip, President Biden has been very vocal, blaming this on Putin multiple times. He just said G7 agreeing to implement price caps on Russian oil. What's the ripple effects from that? Do you see any here in the US?

PHILLIP STREIBLE: So I scoured the universe on information on this. And all of them say that the devil is going to be in the details. I don't understand how capping Russian oil price prices on the upside, especially when it's trading at a $20, $30 discount to Brent crude oil, how that's going to prevent a country like India and Russia from-- or India and China buying more oil. What are you going to cap it at? $50, because you think that somehow that will impact the funding they have for this war?

You know, India has already increased from 100,000 barrels a day, importing it from Russia, to a million barrels per day. And if they cut those prices, they somehow cap those prices, they're just going to buy more. I think you take the opposite approach. If I had two gas stations and one of them was $0.50 a gallon or the other one was $5 a gallon, I'd go to the $0.50 a gallon one.

Why not make it so there's a floor on Russian oil prices? And if you want to buy their oil, it's $500 a barrel. OK, that might kill that demand. I don't know. It's just, I haven't been able to find the real reasoning behind this on how it would work by capping these prices. I think it was just an idea thrown out, and they're mulling it over.

RACHELLE AKUFFO: So then, given what you're seeing, then, in terms of perhaps demand destruction or your outlook for the fall, where do you see things going from here, given oil is now just slightly ticking up once again?

PHILLIP STREIBLE: The only way they get this down is they really have to kill the consumer. They have to prevent people from-- they're going to take the US equity market lower, the Fed is. They're going to raise rates aggressively. It will kill the consumer, some 401(k)s, and things like that. They'll become concerned, and they'll start to HODL in place. Demand will naturally come down. So that's the way I see it playing out.

You are getting areas of inflation that are coming down. All the agricultural markets have completely rolled over, and live cattle and the soft markets and everything else. Energy is the one that's going to stick forever. And I think you've got to attack that one directly at the source and try and get US production higher.