Barron’s Senior Energy Writer Laura Sanicola and Andy Blumenfeld, data analytics director of McCloskey by OPIS, discuss what’s ahead for energy this week.
Watch this week’s episode for insights into how recent steel and aluminum tariffs, coal market dynamics, and potential policy shifts could impact the energy sector.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Andy Blumenfeld, data analytics director of McCloskey by OPIS. Andy, thanks so much for being on with me today.
ANDY BLUMENFELD: Oh, happy to be here.
SANICOLA: So, last week’s steel and aluminum tariffs formally went into effect. Are we starting to see a response from the coal markets that you follow at OPIS?
BLUMENFELD: Well, so far, there has been little to no response in terms of the coal companies themselves. Looking strictly at their equity values, they have actually not shown any improvement. At this point, we’re trying to understand exactly what this means in terms of US coal supply.
It actually turns out it could be a net negative for them because we do export about three to four million tons of coal to Canada, for example.
And the question that we’re having right now and we’re trying to grapple with is trying to understand whether or not the Canadian steel producers will be able to successfully pass along that tariff. Most of the Canadian steel gets used in the US market, especially in the auto sector. So what we’re trying to determine is will that affect Canadian steel production and therefore will it affect US coal demand, going up into Canada? So it could turn out to be a net negative for US, coal interests who are the primary supplier of metallurgical coal to those Canadian steel mills.
SANICOLA: So do you think that we’ll start seeing that play out in the market in the next few weeks as we digest the news of the tariffs?
BLUMENFELD: I think that that’s very much that’s going to show up. However, I also look at the situation with the Trump administration right now and things, as we have learned, can be quite volatile. If the US automakers start to raise enough of a concern, as we’ve seen previously, this could easily be reversed. So, that’s really the uncertainty has really been the biggest challenge for a lot of the US interests, especially on the coal production side.
SANICOLA: Oh, there’s a lot of coal coal uncertainty going on right now. I spent the last, week at CERAWeek in Houston. It’s big energy conference for those who, don’t know or aren’t familiar. And a big topic of conversation from representatives from the Trump administration was how they’re considering emergency powers to keep coal plants running and prevent more coal retirements, especially as, there’s a big need for more power generation to support domestic data centers and AI.
But, I noticed it didn’t really give coal stocks a lift. They were not, very dramatically impacted by that news at all. So, yeah, if you could tell us, what can the administration do, if anything, to support the domestic coal industry?
BLUMENFELD: So the concept of preventing further retirements, and there’s even a part of that proposal is is to bring some of the plants that were newly retired, back online. There’s quite a few obstacles to get there. And at this point, prices for coal have really not appreciated this year. There’s been some small movement for US thermal coal, but the situation with the seaboard market means that some of the coal that was targeted for overseas is now actually starting to hit the US domestic market. So benefit from any increase right now is also being offset by some of the export volume that’s coming back into the market. So the other part of this is that US coal inventories at power plants are still very high and right now we haven’t really seen the effect of the high natural gas prices, say on the coal prices. Now coal demand is up, but most of that increased demand is coming from the reduction of those inventories.
So until everything gets corrected, the coal suppliers should really have to sit tight and wait for the market to come around. Now we think it will, but right now it’s not showing up in the price and we’ll see exactly how the how natural gas prices perform over the next three to six months.
SANICOLA: When do you think we might see that correction?
BLUMENFELD: We think it could happen as early as this summer. Again, there’s a there are a lot of variables, including the weather, which which are at play here, but we think that that could start to move coal prices higher, you know, later in the second quarter.
SANICOLA: Alright. Well, something to keep an eye on. Thanks again, Andy, for joining us, and we’ll see everybody next week.
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 how oil markets are responding to new trade policies, unexpected OPEC+ supply increases, and what these shifts could mean for gasoline prices and energy costs in 2025.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here this week with Tom Kloza, global head of energy analysis at OPIS. Tom, thanks again for joining us this week.
TOM KLOZA: Always good to be here.
SANICOLA: So it’s gonna be hard to avoid talking about the impacts of trade policy coming from the White House throughout the week with tariffs being sort of unexpectedly instated on trading partners, such as Canada and Mexico, and then carve-outs being enforced. And then, now it looks as though the tariffs will be pushed until April. But, obviously, it’s still a bit uncertain from where we’re sitting.
How are oil markets responding to this, given that, you know, we don’t have a lot of information about whether tariffs will actually be implemented in April?
KLOZA: Yeah. It’s very confusing because, notwithstanding the tariff issue, we’ve seen crude oil prices drop by about six dollars a barrel in a month and about four dollars a barrel in the last few days. That was largely on OPEC+ deciding we are gonna put more oil out on market beginning in April. That was not the expectation.
As far as the tariffs go, it works out to about five dollars and twenty cents a barrel on Canadian crude and, you know, probably an unwarranted increase of much, much more for Mexican oil. We did see refiners in the center of the country and in the northern states raise prices for gasoline and diesel when world prices were in full retreat. Ostensibly, they should probably back off of those increases tonight, but the typical consumer, you know, wasn’t aware of more expensive energy because they were looking at the sagging price of Brent, you know, dropping it to into the sixties. And we haven’t dealt with that since the first part of 2021.
SANICOLA: So do you expect consumers will experience lower energy costs in the coming months or higher energy costs?
KLOZA: I think consumers are gonna be fine. I think 2025 is gonna be the cheapest year since 2021. It may not be as cheap as the trajectory indicates at the moment.
You know, there’s a strong case to be made for gasoline prices moving up into the second quarter because we switched to the more difficult to make summer grade of gasoline. I think THE difference will be normally, you know, might see forty or fifty cents of increases. This year, you might be lucky you get ten to twenty cents. And then the second half of the year really looms as a bearish test for liquid oil prices.
SANICOLA: So our oil price is going to be moving more due to supply constraints or pressures or the demand side?
KLOZA: They’re gonna move. I think the biggest thing that influenced the price moves this week was OPEC+ deciding we’re going to put another 140,000 barrels a day or so on the market April 1st. Expectation was not until summer was over or even till 2026. The other thing you had that sort of messes up the scenarios is that Kazakhstan was producing about 700,000 barrels a day over quota. So I think we’re looking at a cheap year for energy and a cheap year for gasoline prices. If there’s any real threat, it probably doesn’t arrive until the hurricane season at the Gulf Coast.
SANICOLA: And we’ve seen refining cracks, for the most part, hold up here. Do you anticipate that they’ll stay okay and refiners will have an okay going, given what’s going on in the macro environment?
KLOZA: Yeah. I think that when you see very, very weak macro pricing for crude oil, refiners tend to do quite well. I mean, we saw the highest US gasoline demand of the year in this week’s report and that gasoline demand is going to move higher. We’re tracking vehicle miles traveled, increases as well. So, you know, people are gonna hit the road. They may not wanna hit the road after they checked their 401Ks, but I think we’ll still see driving account for a lot of gasoline consumption.
SANICOLA: Alright. Thanks so much, Tom. And thanks everyone for joining us, and we’ll see you next week.
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 oil price volatility due to U.S. sanctions on Venezuela and Iran, OPEC’s likely extension of production cuts, and uncertainty surrounding tariffs on Canadian and Mexican oil.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider. And joining me again this week is Tom Kloza, global head of energy analysis at OPIS. Tom, thanks again for being here today.
TOM KLOZA: Hi. Nice to be here.
SANICOLA: So oil has had a few upward pressures this week after a dismal start to the year, what with the Trump administration sanctioning barrels of oil from both Venezuela and Iran. What do you think is the long-term impact of this on the oil market?
KLOZA: Well, those were the expectations. And particularly with Venezuela, we’re gonna lose the kind of crude that we need right now, which is the heavy sour crude. I think probably that these actions were baked into the price.
We’ve also baked into the price the notion that OPEC’s going to meet and probably push back the restoration of some of the cuts into the summer or so, but you never know. This was a wild week. It was a week that saw some of the lows for the year, but it was very, very, volatile.
SANICOLA: So you think that, in response to the weakness in the global environment, that OPEC is probably not going to bring back production on target. And, obviously, they’ve been delaying for the better part of a year now.
KLOZA: Yeah. I do. I think that they will extend the cuts, certainly through April and perhaps into the end of June. You know, the the fact of the matter is with five, five and a half million barrels a day of spare capacity, the market’s not willing to chase crude oil prices higher. You know, that’s been something that’s been consistent all year, and I think it’ll be something we see in the second quarter and certainly in March as well.
SANICOLA: it’s sort of hard to tell how the market is pricing in the potential for more tariffs on Canadian oil, ten percent, and twenty five percent tariffs on Mexican oil, which are supposed to begin this week after last month being canceled at the last moment. Do you think they’re being priced in? How long do you think can the cycle of tariffs or almost tariffs will last?
KLOZA: I think they’re starting to get priced in. I mean, you’re talking about a five or a six dollar barrel increase in Canadian crude. You’re also talking about fewer exports from Canada into the US Northeast. So the US Northeast might be some something to watch. But I think there’s a genuine sort of recognition that these can’t last long. That certainly would be it would be something that kind of screws up the president’s agenda to really, really usher in low energy prices for all of two 2025 and beyond.
SANICOLA: Alright. Well, thanks again, Tom, for joining us, and we’ll see everybody next week.
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 how potential shifts in U.S. sanctions on Russia, drone strikes on refineries, and upcoming tariffs on Canadian and Mexican oil could impact global oil prices in 2025.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here this week with Tom Kloza, Global Head of Energy Analysis at OPIS. Tom, thanks again for joining me.
TOM KLOZA: Great to be here.
SANICOLA: So the Trump administration has indicated that they might be open to lifting sanctions on Russia. We don’t have a ton more details, but, obviously, that would have an impact on oil and gas. What’s your read on the situation?
KLOZA: Well, my read is that would be the magic wand for oil prices this year. I mean, if there is any kind of progress for peace and for more Russian oil flows, Russian oil flows are really behind the increases we’ve seen since February 24th, 2022.
There’s diversity of opinion about it. You’ve got one big bank that says it wouldn’t mean anything because they’re still restricted by the OPEC+ quota. And there’s another one that says an immediate five to ten dollar discount. I would say this much. If we do see more Russian oil flowing, and a peace initiative there, it would be very, very bearish for oil prices.
SANICOLA: Of course. Right now, they’re staying a bit elevated because of drone strikes on Russian refining capacity. What’s going on there? That was a bit of a surprise.
KLOZA: Well, you know, that’s the most amazing thing about the market in 2025. By all accounts, global inventories are about as low as they’ve been in the last five years, and yet the market refuses to take off. These drone strikes, I think, are very, very interesting to watch. And ultimately it could be a wild card for 2025. But right now, the community of traders that invests money in oil or speculates in oil is not willing to chase higher prices for the moment.
SANICOLA: Of course, we’ve got, tariffs on Canadian and Mexican oil products scheduled to come back on March 4th. That’s a ten percent tariff on Canadian energy and twenty five percent on Mexican. Is the market pricing that in, or are they skeptical considering the way the conversations went last month?
KLOZA: It’s really not pricing it in right now. That would be a six dollar increase on four million barrels of Canadian oil, and it would probably lead to a greater discount for the oil in Alberta. But right now, we’re not seeing any real change in those discounts. So I think there is a general consensus view that these are negotiating tactics, and perhaps we might see them measured in days, but not in weeks or months.
SANICOLA: Alright. Well, thanks so much for joining us, Tom, and we’ll see everybody next week.
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.
Barron’s Senior Energy Writer Laura Sanicola and OPIS Data Analyst Andrew Blumenthal discuss what’s ahead for the US coal markets this week.
Watch this week’s episode for insights into how US refiners are reacting to China’s tariffs on US coal exports and the impacts already being felt by US producers.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider. And joining me this week is Andrew Blumenthal, Data Analytics Director of McCloskey by OPIS. Andrew, thanks for joining me today.
ANDREW BLUMENTHAL: Laura, glad to be here.
SANICOLA: So we started the week thinking we would be talking to OPIS about the impact of tariffs on crude oil and companies, but that story sort of resolved itself as negotiations got pushed out another month. And now we’re turning our attention to China’s tariffs on US coal exports. Can you remind us again how much coal the US exports and why China put these tariffs on?
BLUMENTHAL: So the US in twenty twenty four exported about a hundred and eight million tons of coal.
It’s a significant part of the US, coal market.
Of that volume, about, twelve million tons of that went to China.
So that’s, you know, roughly twelve percent of the coal that exported from the US.
The big part of that coal, though, is coal going for steel production. That would be metallurgical coal. So, roughly about nine million of that exports that went to China is going into the steel markets. So it is it is important, especially for US, metallurgical coal producers that serve that marketplace.
So it is a surprise. It was somewhat of a surprise, I should say.
But it does come after President Trump invoked, you know, a ten percent cross board tariff on on Chinese goods coming into the US. This is this is a countermeasure that’s been put in place by China, and it includes, both coal and LNG and other products, including rare earths. But at this point, it’s, coal looks like it’s gonna take a a fairly substantial hit from this from this tariff.
SANICOLA: And which US companies, are most affected by the tariffs?
BLUMENTHAL: So it really cuts across the board on many of the US metallurgical producers. This would include, Core Natural Resources, which is the new company that was Consol and Arch, Coronado Resources, as well as Warrior Met and Alpha, as well as some of the international traders who actually buy US coal and ship it into the into the international marketplace. Now they’re gonna have to, look for new homes for that coal.
SANICOLA: So what impacts are we seeing from the tariffs right now? And do you think these companies will recover financially as the market rebalances, or is this more of a permanent hit that they’re gonna have to be prepared to take as the trade wars, carry on?
BLUMENTHAL: So at the moment, we are we have heard that there is some vessels that are enroute to China that are being reconsigned. So they’re gonna, the traders or the owners of that, of those cargos are gonna be looking for a new home for that coal. That is taking place, so the impact of the tariff is already being felt by US producers.
Now we’ll see how successful they are in finding a new a new home for that coal.
One would think that over time, the international sea route markets will balance, and it really won’t have too much of a material impact on earnings.
But there is gonna be some displacement at first while the market adjusts to the to the new realities.
SANICOLA: Obviously, coal and LNG are both used for power production across the globe. What other factors are impacting these companies this winter, and what’s the outlook as we head later into the year?
Well, interestingly, in the United States, this very cold start to twenty twenty five, has been a big bonus for the US domestic producers.
We see, coal use in January at fairly high levels, and it’s bringing down some of the excess inventories.
Thus far, we haven’t really seen it translate into coal prices yet, but we think that, with higher natural gas prices and the two competing against each other, we think that coal will pick up, some market share in the first half of this year, and those inventories coming down should signal higher prices later in the year.
SANICOLA: Great. Well, thanks so much for joining us, and we’ll see everybody next week.
Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.
Watch this week’s episode for insights into how US refiners are reacting to fourth-quarter earnings, what 2025 could bring for gasoline and diesel demand, as well as changes that could be coming to renewable fuels tax credits for refiners.
Transcript:
LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider. And joining me again this week is Denton Cinquegrana, chief oil analyst at OPIS. Denton, thanks again for being with us.
DENTON CINQUEGRANA: Hi, Laura. Thanks for having me again.
SANICOLA: So, US refiners started reporting fourth-quarter earnings, which is giving us a bit of insight into what they think 2025 oil demand is going to look like. What has been the big takeaway so far?
CINQUEGRANA: Well, I think we’re gonna find out during the fourth quarter earnings calls that a lot of refiners are going to wish 2024 never even happened, especially the fourth and third quarters.
Margins are sharply lower than what they were at the end of 2023 in the third and fourth quarters as well. But there does appear to be a little bit of positivity rolling forward.
Gasoline demand and diesel demand are, you know, kind of flat to a little bit higher to start the year. So January is usually a tough month for gasoline demand. So if it’s even flat with other years and not falling off, that’s usually a pretty good sign.
We suspect that gasoline demand for the full year might be flat to even a little bit better than 2024. And the cold weather we got in parts of the country are we’re definitely supported for diesel. So diesel’s probably going to be a little bit better and flat again to last year. And part of that might be because you’re not seeing as much renewable diesel come into the market.
SANICOLA: That’s right. Biofuels took up a big part of the diesel pool this year. But I noticed on Valero’s earnings call that they mentioned that the changes to the tax subsidy that renewable diesel gets is expected to make it less profitable to produce next year. What does that mean for refiners?
CINQUEGRANA: That’s correct. So in the past, you would get a dollar per gallon tax credit for blending biodiesel, renewable diesel, sustainable aviation fuel. Now with the 45Z production credit, which, again, is still up in the air a little bit for the Trump administration, but those credits aren’t gonna be as lucrative, if you will. And they’re kind of on a carbon intensity sliding scale. Instead of just getting a dollar per gallon, you might only get 22 cents a gallon. So, could be a pretty big change. It could defer some renewable diesel to more petroleum based diesel, which, again, at the end of day for your traditional petroleum refiners, is probably a good sign.
SANICOLA: That’s right. Only a few US refiners have significant renewable fuel capability. I’m thinking Valero, Phillips 66, and Marathon to an extent in California.
So this spells better news for them this year as they’re, trying to make more profits off their petroleum diesel, coming off a rough 2024. Alright. Well, we’ll keep an eye out for more earnings, and talk again next week.
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. I’m Laura Sanicola, author of Barron’s Energy Insider. And joining me again this week is Denton Cinquegrana, chief oil analyst at OPIS. Denton, thanks so much for being with me today.
DENTON CINQUEGRANA: Thanks, Laura. Good to be here again.
SANICOLA: Well, Trump’s tweets and commentary have once again reentered the energy market dynamics. President Trump has called for OPEC to lower oil prices during his address at the World Economic Forum in Davos. Denton, how is the market responding? I know it fell a little less than a dollar today on that. You know, can OPEC do this, and how is the market expected to respond longer term?
CINQUEGRANA: Yeah. If you like volatility, you’ve come to the right place. That’s for sure. But we’ve seen this this movie before. He says something; the market reacts. Earlier today, right before his comments to the World Economic Forum, prices were a little bit higher for oil, 35, 40 cents. Now oil has been down for the past four days, so it was kinda looking to kinda stop that downward streak. The minute he started talking and mentioning OPEC, prices dropped by about a dollar. So his comments always get a lot of attention, especially when it comes to oil. But, you know, oil is not the only thing. You know? A lot of other asset classes respond to things he says. But long term, these things normally don’t you know, it doesn’t grip the market so much. It’s very short-term. It probably shakes out a little bit of people and spooks some people in the market. But for the most part, it doesn’t have a really long-term impact.
As far as the effect, I think with his comment of OPEC lowering prices, if I could kind of maybe try and put words in his mouth, I think what he’s trying to say here is, like, OPEC increased production and that will lower prices. I think that’s what he was trying to to get at. As we all know, OPEC+ has been, reduced capacity, over the past couple of years. They have a lot of spare capacity sitting on the sidelines. And if they did start to bring oil back to the market, prices would certainly decline or at least at the very least be capped.
SANICOLA: Right. And and as we know, they’ve been putting off reintroducing that oil into the market because of their demand projection. So, you know, what you might you might reasonably think here is, well, President Trump is saying, I know your own demand projections look weak, but I feel that prices are too high and should be lower. And, you know, I guess the question there is, does OPEC have incentive to increase production and regain some of that lost market share on Trump’s timeline or their own?
CINQUEGRANA: Well, I think that’s exactly it. There are probably a few of them are sick of losing market share to countries like the United States. The US has become a a more significant exporter of oil over the last several years. This has been happening for this since about 2018, 2019. But, you know, as OPEC does not produce, that means it’s an opportunity for countries like the United States, Canada, Brazil, other non OPEC nations that have been seeing increased production over the past year year or two.
SANICOLA: A few other comments president Trump has recently made about, oil and sanctions. He said he would add new tariffs and sanctions against Russia if the country does not make a deal to end the war in Ukraine And, also said that the US doesn’t really need Canadian oil, which is subject to about a 25 percent, tariff, next month unless a carve out is made and there isn’t broadly consensus that there will be one. How is market responding to that? How are you responding to that? Obviously, that creates a lot of volatility here.
CINQUEGRANA: Yeah. It creates a lot of volatility. I think, you know, again, the whole we don’t need Canadian oil, nothing can be further from the truth. The heavy Canadian crude oil that the US refiners process is is pretty key to their profitability, particularly in the Chicago area, the Gulf Coast, and really, all of PADD 2, which is basically the Midwest as a whole. A lot of those refineries run heavy Canadian crude, BP, Exxon, Citgo, all those three refineries in the Chicago area, Flint Hills in Minnesota. So that’s just a few of them. It’s it’s a pretty important piece, so I’m surprised there’s no, I’m not necessarily surprised that there’s no carve out for it, but it really is important. Those refineries can maybe substitute some domestic light sweet crude, but you’re still not gonna get the same kind of bang for your buck.
Their other option, which would not be good, is reduce run rates. In the middle of the winter, that that could be fine. You don’t have to produce as much gasoline. But once we get into the summer driving season and you’re reducing run rates to, you know, to make up for the fact that the Canadian oil has gotten more expensive and you can’t find easily find a substitution, you’re gonna run into some problems with gas prices.
SANICOLA: Remind me, Denton, which refiners again would be most impacted, if a twenty five percent tariff was implemented, and, how much pain would they experience compared to the pain of Canadian oil producers?
CINQUEGRANA: Yeah. I think the ones in the Chicago area. So that’s BP’s Whiting Refinery in Indiana, ExxonMobil’s Joliet Refinery in Illinois, and Citgo’s Lamont refinery, in Lamont, Illinois. Those are the ones that come to mind right away. The Canadian producer is certainly gonna feel some pain on this as well, but you’re looking at these refiners who will have a higher acquisition cost of that that crude oil. Now who pays that 25 percent remains to be seen, but, again, it’s gonna be it’s gonna be tough to get around.
SANICOLA: Alright. Thanks so much, Denton, and thanks, everybody. We’ll see you next week.
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 Santicola, author of Barron’s Energy Insider, and I’m here this week with Denton Cinquegrana, chief oil analyst at OPIS. Thanks for being with me, Denton.
DENTON CINQUEGRANA: Thanks, Laura.
SANICOLA: Alright, Denton. Let’s talk about president Biden stepping up enforcement of oil sanctions on Russia right before he leaves office. This has sent oil futures to multi-month highs. What’s the practical effect on the oil market in your opinion?
CINQUEGRANA: Yeah. It’s a nice, I guess, parting gift from President Biden as President Trump takes office. But these are sanctions that have a little bit more teeth. You’re sanctioning, trading companies, ships, etcetera. It’s gonna make it a lot more difficult to get around these types of sanctions, and the market has taken notice. Prices have moved up, WTI right around 80 dollars a barrel. Brent, over 82-ish right now. So these sanctions do appear to have some teeth.
But, you know, on top of that, you have what’s basically should Russian barrels be taken out of the market? You know, it’s a global market at the end of the day. If there’s barrels not coming from some place, some place else is going to have to make up for it. This kind of feeds into our thesis that it’s gonna be a front loaded year because come April, you’re supposed to have OPEC+ kinda releasing some of those barrels that they cut. And with prices in the low 80s, high 70s, I think this is a little bit more accommodative for them to release more barrels onto the market.
SANICOLA: Obviously, this week, we have a new administration coming into office in the White House. Is President-elect Trump expected to continue Biden’s sanctions or strengthen them, weaken them? What do you think?
CINQUEGRANA: Well, I think these sanctions were, like I said, a parting gift, but, also, they kinda and this is my own personal opinion, but they kinda put Trump in a box a little bit early in his administration. One, he’s promised to cut prices for energy, cut prices for gasoline. This is gonna make that a lot more difficult when price when oil prices are above 80 dollars a barrel. At the same time, if he does loosen up the sanctions, he does look a little bit like Putin’s putt a bit. And if there’s something we’ve learned about President Trump is that he likes the image. So he does not I don’t believe would want that kind of, you know, image kinda hanging over his head. So he’s kinda got painted into a bit of a corner early on. Again, this is my own personal opinion, but I don’t know if he’ll loosen up those sanctions. But at the same time, with prices being higher, we’ve heard about US energy dominance. This kinda makes that path a little bit easier as well.
SANICOLA: Here at Barron’s Energy Insider, we’re also watching whether, Trump ends up enacting 25 percent tariffs on Canadian oil. Is there anything else you’re watching for this week or next?
CINQUEGRANA: Yeah. That’s the interesting thing. And recently, president Trump, president-elect Trump, I should say, met with the premier from Alberta. And according to quotes from the premier, he’s like, yeah, this is gonna happen. So it’s gonna make a it’s gonna have see things move around quite a bit. It’ll be interesting to see how they’re implemented. Will it be 25 percent all at once? Will it be in pieces? So that’s what the market’s kinda waiting for. And quite simply, we just don’t know right now.
SANICOLA: Right. Well, we’ll certainly be watching that in the coming weeks. So thanks again, Denton, for joining me, and we’ll see everybody next week.
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.