Oil prices: U.S. slowly realizing it won’t be ‘that swing supplier’ amid OPEC+ cuts, analyst says

Blue Line Futures President Bill Baruch and Truist Managing Director of Energy Research Neal Dingmann join Yahoo Finance Live to discuss oil prices amid production cuts from OPEC+.

Video transcript

DAVE BRIGGS: As we said, oil prices spiking on OPEC production cut. So what was the instigator here, and is $100 a barrel oil on the horizon? Let's discuss this with Blue Line Futures President Bill Baruch and Neal Dingmann, Truist managing director energy research. Good to see you both.

Bill, we'll start with you. How much did--

NEAL DINGMANN: Thank you.

DAVE BRIGGS: --geopolitics play in here, and how much is strictly the price action we've seen in recent weeks and months?

BILL BARUCH: You know, I think there's quite a bit going on behind the scenes here. You know, White House didn't fill the SPR where they had a little bit of an opportunity to. Same time, there's a lot in the news right now with China making deals with Saudi Arabia, making deals with Brazil, trying to go around the dollar potentially. You know, there's definitely some just interesting narratives to keep in mind here.

For me, what I'm seeing is, you know, we got somewhat negative at the end of last year on oil, its difficulties of trying to get above $82, $83 on a technical basis. Losing the speculators in the market. You saw open interest just continue to erode into the end of last year.

And we finally got the flush out. Really a cleansing last week was the bottoming process that really began into last week. A 5% move last week on Monday. Another more than 5% move today. We haven't had a 5% move in oil going back to November, and prior to that was May.

So these are big moves here, and I think that cleansing allows, you know, the speculators to start maybe coming back. A little bit reaffirmation now with this move. But we've got to get above $82 to $83. It's been a really big ceiling there. So until that happens, this is just a nice, you know, big, little bounce up, rebound.

SEANA SMITH: Well, here we are today just above $80, just below $81 a barrel here. Neal, how has this or has this at all changed your price forecast, either for year end or even out into 2024?

NEAL DINGMANN: I think it does put a floor on prices. And, you know, I come at it a little bit different angle. I think about, you know, my producers. I cover almost 40-odd names, and what's interesting, I think at one time the US producers were-- I would call them the swing factor when it came to supply out there. And what we've seen is prices were over $90-ish not terribly long ago. Then they recently were down to $60. What I noticed from almost all of my public companies, they're not changing their plans.

So I think what the US administration realizes now, as much as they might want it, the US is not going to be that supply-- swing supplier. Unfortunately, now that looks like it is in the hands of OPEC Plus, most specifically Russia and Saudi. And they stepped in and made a big call where, you know, five years ago plus, the US companies probably would have stepped in and made the call themselves. And that, to me, is just no longer going to happen.

DAVE BRIGGS: Bill, you referenced the Strategic Petroleum Reserve. What position does this put the White House in in terms of filling that at some point in the near future?

BILL BARUCH: You know, I think they're going to be stick the narrative they said about a week-- about a month ago-- I'm sorry-- that they're going to look, you know, in the future. I think they're probably looking out to later this year, potentially, if they get another opportunity.

But I do agree, you know, with the gentleman here that he's saying that there's a floor in the market now. And I think looking at it from a technical basis, $75 area was the close on Friday. That's going to be basically that gap. I mean, if it does start selling off, there's an air pocket there.

I also agree that you're not seeing production coming back online from the US. They're going to struggle to get above 13 million barrels here in the US. And then on top of that, it's expensive due to, you know, these oil-services companies have raised the cost. You know, just logistically, it's hard to justify bringing it online. And then, you know, these energy companies have become, you know, lauded by investors here with the dividends. So sort of affirming the dividends, and I think that they're looking at it from a different game here now.

And these companies, you know, we're very overweight energy. We added Pioneer early last week and bring us up to about 15% weighting in energy right now. And my fear really was some of these E&P companies tethered to that price of oil. If oil wasn't going to rebound, they could sort of languish a little bit lower.

But this does get me excited. I still want to see more from the market in the underlying crude oil, but I am excited for this to be a reinvigoration of a bull move.

SEANA SMITH: Neal, you mentioned several producer companies that you do cover. Of those, who's best positioned here to benefit from today's news?

NEAL DINGMANN: I think, you know, a name that comes to mind right away is Occidental Petroleum. You look at OXY, and the knock was they still had a bit too much leverage. But again, in a market like this where, as Bill said, you probably have a new floor, you know, people don't worry about that. You have Buffett coming in and Berkshire buying a lot of that stock. So OXY seems to be sitting very, very nice.

Another one you look today is doing very well is Marathon, MRO. Again, Bill was talking about it. You talk about shareholder return. Marathon bought back almost-- over 15% of their stock last year, and we think they'll buy back almost the same. So you look at it in a two-year period buying back almost a third of your shares, that's hard to beat.

And then maybe the last one that we would say is Diamondback Energy. We think they are-- you know, Bill hit a key point, and that was service costs aren't going down. But if you look at FANG, they are by far the lowest operator. We have them at a break even of less than-- right around $30, which is much less than anybody else.

So, you know, a time of big-- of higher prices, you don't worry as much about cost. But their margins just hit right to the bottom line, and they're just a fantastic producer.

DAVE BRIGGS: Bill, do you have any names? And we talked about a floor there. What about the ceiling by the end of summer? Is $100, $95 as Goldman Sachs suggested, possible?

BILL BARUCH: Yeah, I think $100 could be a little bit of a magnet, but I'm not going out on a limb just yet. I've got to see a weekly close above $82, $83. You know, like I said, we are-- You mentioned names. We're 15% weighted energy right now with Chevron, Marathon Petroleum. I mean, we really do like the refiners. You're not seeing Marathon Petroleum benefit so much here today, but, you know, seasonally, gasoline hits a very bullish time at the end of March really into Memorial weekend, and some of these, the refining margins can be a tailwind to some of those. We like Marathon Petroleum.

Schlumberger we own as well. We added-- we've had Pioneer for a while. We cut at the end of last year. Just kind of worried about a wash out in the market. We finally got that wash out, and that's why we added Pioneer back.

But, you know, from another standpoint, we saw in the futures contract there was a massive short position that was actually-- you know, last week's move was really a lot of short covering early on, confirmed through the Commitment of Traders. So I think, you know, this move here is welcoming fresh buying because the move up from, you know, below $70 to about $75 was majority of short covering. So I think this is inviting the speculation back, and the open interest, as I mentioned early on, was very low.

So I think we can get above $82, $83. It's not going to happen overnight. But if we get above there, I think this could really start-- it invites a buying, fresh buying into the market.

SEANA SMITH: Bill, what do you think it means for gas prices? Because we're getting into pretty soon, sooner than we know it, getting into the heavy summer driving season. Are we going to see gas prices back above $4 a gallon?

BILL BARUCH: You know, I'm not jumping on that limb quite yet, but I think-- I would imagine so. I mean, usually these things run up into June, and they stay sticky through the summer. So, I mean, from the makings of what we're looking at right now, I imagine we're going to see these bump up here for the next couple months.

SEANA SMITH: All right, Bill Baruch, Neal Dingmann, always great to have you. Thanks so much.