Watch: Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider. Joining me today is the chief oil analyst at OPIS, Denton Cinquegrana. Denton, it’s sort of hard to avoid talking about the devastating wildfires in LA, the tragedies happening in the second largest consumer of gasoline in the US behind Texas. What do you think is the long-term impact to the supplier demand for oil in California?

DENTON CINQUEGRANA: Well, first of all, hello. Good to see you again, Laura. And let’s not minimize the human tragedy that’s taking place out there. It’s very sad to see all the videos, etcetera. But, from our world, fortunately, there’s no refineries that are in the direct line.

The closest one might be Chevron’s El Segundo refinery near LAX airport, but that’s still quite a ways away from from where the fires are taking place. There’s a couple of pipelines, natural gas and crude oil pipelines that run in the area. But, again, long-term threats to those don’t appear to be there right now. The Kinder Morgan pipeline system that does remove refined products from those refineries in the Los Angeles and Long Beach area to places like Las Vegas to Phoenix, that pipeline is shut down right now. So I do think you might see some supply situations in those parts of the country. However, they’re probably gonna be pretty short lived. The only reason why the pipeline is down is because they lost power. But once power is restored, they’ll start moving moving barrels back out to those outlying cities.

SANICOLA: And outside of California, things are really chilly here in Washington, DC. It’s hovering around freezing. I’ve noticed that’s caused an uptick in natural gas prices in the US and Europe as well. What’s going on there? Is this a structural change to the market finally giving a boost to natural gas and heating oil, or do you think it’ll be short lived?

CINQUEGRANA: Probably gonna be short lived. But if you look at some of the longer term forecasts, January, you’re gonna see much of this throughout the remainder of the month. I’m pretty cold myself here in New Jersey working from my home office here, but it’s pretty chilly out there right now. There’s no changes really set to come for at least the next two weeks. So heating oil sales have been brisk in the northeast.

You even have snow falling in Dallas right now. You have a winter storm alert for Atlanta. So these are parts of the country that don’t necessarily see this type of weather. Obviously, over the last couple years, you’d see a day or two in a row of of really cold weather, but this is one of the longer strings of intense cold weather in quite some time. It’s gonna be a short term boost for heating oil demand, obviously, natural gas demand as well.

But for the time being, it’s really been a help for refiners who have seen their diesel crack spread based on the futures market jump up to about 26 dollars a barrel. That hasn’t been seen since early July and it’s really helping what has been a gasoline market that has really been limping along for probably the past, you know, 60 to 75 days as far as refining margins are concerned.

SANICOLA: Right. And, of course, cold weather, negative impact on gasoline as people are holed up in their houses, but the impact for refiners on higher diesel sales, probably something that they were really needing in the first quarter as demands remain weak for other products, as we’ve talked about.

CINQUEGRANA: Absolutely. Yeah. Gasoline demand in January is typically the lowest of the year. And switching back to California, you’re probably gonna see an impact on gasoline demand there. Again, short term, but for the time being, you would expect to see gasoline demand take a little bit of a a drop there.

SANICOLA: Alright. Well, let’s hope those fires are contained soon, and thanks again for joining me, Denton. We’ll see everybody next week.