Barron’s Senior Energy Writer Laura Sanicola and OPIS Global Head of Energy Analysis Tom Kloza discuss what’s ahead for energy this week.

Watch this week’s episode for insights into why parts of the U.S. are seeing gasoline price increases, what’s happening with Elliott Asset Management and Phillips 66, and how the natural gas market is viewing the prospect of a peace deal between Russia and Ukraine.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Tom Kloza, head of global energy analysis at OPIS. Tom, thanks for being here with me today.

TOM KLOZA: Nice to be here.

SANICOLA: Well, let’s dive right in and talk about what’s going on at the pump. After massive gasoline disinflation at the end of last year, prices are rising rapidly in some parts of the country. What going on?

KLOZA: Well, nationally, you don’t notice much. The price is probably down about 12 cents from last year. So there’s deflation there, but if you’re in the Western states, California, Oregon, Washington, Nevada, and Arizona, you’re seeing price increases this month of anywhere from 25 to 50 cents. And that has nothing to do with crude, nothing to do with tariffs. It’s all about refining and restrictions in California and some problems where they’re operating about half the refining capacity that we saw, oh, as recently as five years ago.

SANICOLA: Is that due to problems at the refineries in California?

KLOZA: Yeah. California has a refining problem. We saw two refineries close earlier this decade. We had a fire at a refinery in the Bay area about two weeks ago, and that has left the region with about half the capacity that they were accustomed to in the last 10 or 20 years. So gasoline prices have moved up by as much as 80 cents a gallon in the wholesale markets this month, which is quite a parabolic move.

SANICOLA: Speaking of refineries, Elliott Asset Management has increased its stake in Phillips 66. The activist investor started applying pressure to Phillips a few years ago, encouraging the company to be more efficient in its operations by way of Valero. And despite divesting about three billion dollars in assets, Elliot’s still not impressed. What’s your read on the situation for Phillips 66, and what does this mean for the company and the stock?

KLOZA: Well, my read is it’s a very profitable company, but it’s being underrecognized because it insists on operating as a conglomerate. If you take the sum of the parts, right now refining is being valued at virtually zero. There’s a midstream business. There’s a lot of pipeline business and there’s chemical business. And I think Elliot is pushing to see them operate like a Marathon or a Valero where they got a lot of worth on Wall Street. So this is a pretty scathing report. It’s 53 pages and it really indicts consultants who were used to the tune of about 300 million dollars for Phillips over the last few years.

SANICOLA: I wanna end with talking about the price fluctuations in natural gas. You know, the prospect of a peace deal between Russia and Ukraine has been sending natural gas futures plunging this week and people I speak to are in a couple of minds about it. You know, the likelihood that Europe starts accepting Russian gas even in the wake of a peace deal seems unlikely to some, but, clearly, the market is not reading it that way. How do you think we should be thinking about this?

KLOZA: Well, you have to look at it and say that European natural gas was valued at five or six times the price of US natural gas and it’s gotten a haircut of about 15 or 16 percent this week. It still makes all the sense in the world to send a lot of US LMG overseas, but it reminds one that if we do get a peace initiative, a real initiative that might see Russia back in the good graces of some of these countries, it would have dramatic, dramatic consequences in energy, not just in natural gas, but in crude oil. Russia has a lot of crude coming on in what they call the Bostock region, which is their equivalent of shale. And if they are back in the good graces of the rest of the world, they’ve got a lot of oil put out there and we could see a real response toward the downside for crude oil prices.

SANICOLA: Great. Well, thanks so much again, Tom, for joining us and we’ll see everyone next week.