CIBC oil specialist Rebecca Babin sees crude headrd back above US$80

Rebecca Babin, senior energy trader at CIBC Private Wealth, says the cost of diverting tankers from the Red Sea is a major factor supporting oil. She argues that OPEC+ is determined to support prices by keeping down production and she sees crude topping US$80 later this year.

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WILL TEND TO WEAKEN THE U.S. DOLLAR. >>> LET’S FOCUS IN NOW ON OIL. IT’S BEEN SWINGING SHARPLY THIS AFTERNOON. WE ARE JUST SEEING THAT IT’S DOWN TRADING BELOW $75 REVERSING EARLIER GAINS. THERE ARE MIXED REPORTS ABOUT A POTENTIAL HALT IN THE ISRAEL-HAMAS WAR. MEANWHILE, OPEC IS SIGNALLING THAT PRODUCTION CUTS WILL

CONTINUE THROUGH FIRST YEAR. HERE TO HELP US FIGURE IT ALL OUT REBECCA BABIN SENIOR ENERGY TRADER AT CIBC PRIVATE WEALTH. REBECCA, THANKS VERY MUCH FOR COMING ON THE SHOW. >> THANK YOU FOR HAVING ME. >> Andrew: I KNOW THE MIDEAST SITUATION, THE POSSIBILITY OF A HALT IN THE FIGHTING IS MURKY

BUT IS THAT A BIG DRIVER FOR OIL RIGHT NOW, THREATS OF SUPPLY FROM THE REGION? >> SO IT IS A BIG DRIVER OF OIL AND I WOULD SAY THIS. THERE ISN’T A HUGE RISK PREMIUM IN THE COMMODITY FOR LOSS OF BARRELS DUE TO WHAT IS HAPPENING IN THE MIDDLE EAST RIGHT NOW.

WHAT’S LARGELY BEEN PRICED IN IS THIS EXTRA SHIPPING COST AND TIME TO DIVERT AROUND THE RED SEA AND GET THE BARRELS WHERE THEY NEED TO GO. SO THAT’S ACCOUNTED FOR ABOUT 2 TO $3 OF FLAT PRICE INCREASES IN CRUDE. SO I AM NOT SURPRISED TO SEE THIS REACTION RIGHT NOW IF WE DO

INDEED WHICH IS ALL OBVIOUSLY UNCONFIRMED GET A CEASEFIRE THEN YOU MIGHT SEE THOSE SHIPPING COSTS START TO COME OFF AND THUS THAT GETS SUCKED OUT OF FLAT PRICE. OBVIOUSLY THERE IS ANOTHER ELEMENT OF GEOPOLITICAL RISK THAT IS BAKED INTO THE COMMODITY JUST BASED ON THE HEADLINES AND A CALCULATION ERROR BUT IT’S NOT

EXTREME. IT’S MAYBE A DOLLAR OR TWO. ALL IN ALL, THIS SHOULD BE ABOUT A 3 TO $5 HIT IF WE GOT A TRUE CEASEFIRE AND A PURE DEESCALATION IN THE REGION. OF COURSE CRUDE IS KNOWN TO OVERSHOOT BOTH ON THE UP SIDE AND DOWN SIDE SO THAT KNEE-JERK

REACTION COULD VERY WELL PUSH IT BEYOND THAT BUT I THINK FROM WHERE WE HAVE SEEN THINGS SETTLE OUT THAT’S KIND OF THE NUMBER THAT I THINK THE STREET IS FOCUSED ON 3 TO $5 OF PREMIUM IN THE COMMODITY BASED ON LONGER SHIPPING ROUTES AND MAYBE A CALCULATION ERROR. >> Andrew: TURNING TO

OPEC-PLUS AND ITS PRODUCTION, YOU RECKON THAT OPEC-PLUS IS DETERMINED TO SUPPORT PRICES AND WOULD EVEN CONSIDER EXTRA OUTPUT CUTS? I KNOW THAT MIGHT BE A STRETCH BUT THEY COULD PUSH FORWARD WITH FURTHER MEASURES IF OIL IS WEAK ENOUGH? >> YEAH, I THINK TO A CERTAIN EXTENT OPEC-PLUS HAS BACKED

ITSELF INTO A CORNER HERE BECAUSE THEY REALLY ARE DETERMINED TO KEEP THE MARKET STABLE BUT WHAT THEY ARE REALIZING THROUGH THE FEEDBACK LOOP HERE IS EACH CUT THEY DO IN ADDITION IS HAVING A LESS AND LESS IMPACT AND THE THAT THEY REALLY NEED TO SEE INVENTORY DRAWS FOR THE COMMODITY TO START

TO RALLY AND THE ONLY WAY THEY ARE GETTING THERE EVERY TIME THEY CUT ANOTHER NON-OPEC PROVIDER OF CRUDE WHETHER IT’S THE U.S., IRAN, BRAZIL, CANADA SEEMS TO STEP UP AND FILL IN THE GAP THAT THEY HAVE LEFT. SOER IN A SITUATION NOW WHERE THEY KIND OF HAVE TO STAY THE

COURSE AND BE VERY AGGRESSIVE TO REALLY GET THE COMMODITY GOING. I DON’T THINK THEY ARE WILLING TO REVERSE COURSE WHICH IS THEIR OTHER OPTION AND GO INTO A MARKET SHARE WAR AND REALLY START OVERPRODUCING AND DRIVE PRICES WAY LOWER. IT’S JUST NOT GOING TO PROVIDE THE STABILITY THEY NEED FOR

THEIR BIGGER OBJECTIVES WHICH IS VISION 2030 AND A DIVERSIFIED ECONOMY. SO IN ORDER FOR THIS TO WORK THEY NEED TO STAY WITH IT AND THEY NEED TO BE AGGRESSIVE AND I THINK THEY HAVE DEMONSTRATED THEY WILL DO SO. NOW GETTING THE SMALLER MEMBERS I.E., NOT SAUDI ARABIA, RUSSIA

TO GO ALONG WITH GETTING MORE AND MORE CHALLENGING SO THEY WILL HAVE TO FIGURE OUT WAYS TO INCENTIVIZE THEIR SMALLER MEMBERS TO STAY THE COURSE AND I BELIEVE THAT’S THE HARDEST PART OF WHAT THEY HAVE GOING ON IN THE NEXT YEAR OR TWO IS KEEPING EVERYONE IN LINE AND CONVINCING

THEM THAT THIS IS THE STRATEGY THAT WILL WORK FOR THEM. I BELIEVE THEY ARE COMMITTED AND I THINK IF THEY NEED TO THEY WILL CUT MORE. >> Andrew: ACCORDING TO BLOOMBERG THIS AFTERNOON NATIONS SUCH AS THE UNITED ARAB EMIRATES AND IRAQ ARE OVERPRODUCING THEIR QUOTA. IS THAT A PROBLEM FOR OPEC-PLUS’S BROAD STRATEGY?

>> IT’S NOT GREAT. THAT’S FOR SURE. SO I THINK IRAQ HAS BEEN KIND OF NOTORIOUS OVERPRODUCING. >> Andrew: YES. >> I THINK SAUDI ARABIA DOES HAVE ENOUGH INFLUENCE OVER THEM TO GET THEM IN LINE WHEN THEY NEED THEM TO. IT’S THE FIRST MONTH OF THESE NEW VOLUNTARY CUTS THAT WERE ANNOUNCED IN DEAL.

SO THERE MAY BE A LITTLE BIT OF A GRACE PERIOD HERE IN MONTH NUMBER ONE. GET YOURSELVES TOGETHER. WE WANT TO SEE THESE CUTS STARTING TO COME THROUGH. BUT I BELIEVE THEY HAVE THE SWAY OVER IRAQ TO DO SO. THEY ABSOLUTELY MAY HAVE A BATTLE ON THEIR HANDS WITH THE UAE.

THE UAE FOUGHT HARD TO GET AN INCREASE TO THEIR QUOTA THIS YEAR, SO THAT CONVERSATION IS PROBABLY A LITTLE BIT MORE DIFFICULT BUT THE END OF THE DAY EVERYBODY IN THAT GROUP KNOWS SELLING X NUMBER OF BARRELS AT 80 BUCKS IS A HECK OF OF A LOT BETTER THAN HALF OF THOSE

BARRELS AT 50 BUCKS. SO YOU KNOW THEY WILL HAVE TO FIGURE OUT HOW TO CONVINCE EVERYONE TO STAY THE COURSE. I THINK THEY HAVE ENOUGH INFLUENCE TO DO