Rebecca Babin, US Senior Energy Trader at CIBC Private Wealth, joins Yahoo Finance Live anchor Akiko Fujita to weigh in on oil market dynamics, calling it a “tricky, tricky market” regarding supply and demand. Babin notes investors are watching China demand and surging US production.
Though supply is expected to grow at a slower pace in 2024, Babin says US suppliers were able to “pull the rabbit out of the hat” last year and surpass forecasts. While supply growth should moderate, she notes investors feel “confident” on the supply side currently.
However, Babin doesn’t think oil prices have “peaked” yet. She argues people “overly” fixate on “downside risks” around China and US supply, ignoring potential demand upside. As Babin points out, oil demand was “consistently revised higher” in 2023, a trend that could persist in 2024.
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Well oil prices moving slightly higher as investors continue to keep a close watch on the conflict in the Middle East this comes as Secretary of State Anthony blinkin efforts to quell ongoing tensions for more on oil we’re joined by Rebecca Babin CIBC private wealth us senior energy Trader uh Rebecca it’s
Good to talk to you today you saw a Nez or you heard a Nez kind of lay out the path ahead for some of these big oil players how are you looking specifically at oil right now and where the supply demand Dynamics are likely to move yeah so she brought up a couple
Great points and and and the first is US Supply growth I think when analysts are looking at 2024 there’s two numbers they’re least confident in the first is China demand which they’re very concerned is going to undershoot and the second is US Supply growth in 2023 we saw the US really outperform most
Analysts expectations on Supply growth based on better efficiency better use of capital longer laterals so when we look at 2024 we are and we’re hearing this from the companies they’re expecting Supply to continue to grow but it’s at a slower rate if the US grew a million barrels of
Supply last year they’re looking at something like 4 to 600,000 barrels of Supply growth coming out of the us this year so that is really a key number we got burned a little bit last year looking thinking Supply growth would be capped in the US and they were able to
Kind of pull the rabbit out of the hat and and really outperform so I think there is an expectation growth will slow down but if you think about where analysts are looking at crude and looking in that very finely balanced Market of 1.3 million barrels a day to
1.6 million barrels a day of demand growth and a very similar amount of non OPEC Supply growth they’re looking at the us as a potential to continue to outperform there um it’s it’s really a trick trick tricky market in terms of nailing down those numbers but I think
Most analysts are pretty confident that the market is well supported and crude fundamentally kind of around that $70 a barrel in WTI but they’re very closely watching what’s happening in China and what’s happening with the US Supply growth so then Rebecca you mentioned staying in this sort of 7070 range do
You think then oil prices have peaked barring sort of any big movements or as you mentioned the the China Factor here I actually don’t think they’ve peaked and I here’s the thing everyone seems to be very focused on these downside risks us Supply growth China demand and really kind of taking their
Eye off the ball of there are a couple things that could go right for crude this year we could actually see demand outperform and if you look at the demand numbers in 2023 they consistently were revised higher from the weekly data that comes out from the eia so we could
Continue to see this kind of worrying yourself into a lower Market but then seeing demand come in stronger the second thing I’d say is we do have the spr being refilled they’ve been more active this year there seems to be a commitment to continue to be active and
We have a very disciplined OPEC which I think will absolutely extend their cuts through the first half of 24 um and maybe even throughout the whole year if they need to so I actually think the market should be trading closer to 7580 I think we probably see 80 as we get
Closer to summer when the balance is starting to tighten up and the market is overly kind of worrying themselves on these downside risks on a day in and day out basis Rebecca I do want to ask you about what we’re seeing specifically on LNG since the Biden Administration announced
They would be pausing um new licenses on um LG terminals a lot of push back as expected from the energy space we’ve got a hearing on Capitol Hill as well how much of this is warranted in terms of the concern what does this ultimately mean for Supply it doesn’t necessarily
Mean that current uh you know sort of terminals will be canceled immediately this is more of a forward-looking issue yeah so I think you’re bring up a great point in the short term this isn’t a huge Market impact and I think that’s reflected in LG prices and the way
You’ve seen companies react it it does start to have an impact when you look at 27 28 29 and I think it the the key the Crux of this is how we view LNG is LNG a transition from fossils to clean um which most people think it is and a key
Component of that transition and a very necessary buildout or is it kind of that dirtier energy Supply um that we want to kind of get rid of sooner rather than later I think if you look at our allies and who’s importing the most LG we’re looking at Europe and Asia they would
Argue they need that LNG to be built um those those projects to be built in the latter years um and I think the push back there is warranted from both we need it as part of the transition and you know we haven’t exactly you know made energy security a priority and
That’s something that that will likely come up as we head closer into the elections as energy Security will be a topic so in my view this is something you need to watch 100% as we look further out 728 but in the near term I don’t expect it to move LG stocks um
That that currently have projects on tap so you know absolutely a Hot Topic not necessarily Market moving at this time and Rebecca also I want to talk about some of the re-rooting that we’ve seen around the Cape of Good Hope and of course the Red Sea as well what’s that
Doing in terms of product Supply and and who’s really benefiting from this as as you look at the sector so the beneficiaries of this are really the tanker Market markets um they are they are seeing an increased amount of demand as as everyone reroutes or 50% of crude and product shipments are
Rerouted um that’s really spiked um clean product tanker rates that mostly impacts diesel prices going into Europe that’s where we’ve seen the most sustained um impact on pricing for crude oil it has it has had an impact it’s a 12 to 20day additional Route Around the
Cape of Good Hope but really yeah you’re seeing the beneficiary in European diesel tankers and to a very much lesser extent somewhat in crude oil I think in crude oil it’s maybe two to3 in terms of what we’re seeing in price associated with that rerouting um so when we when
We think about what a ceasefire looks like um that’s why there is a big debate about how crude will react many will say well there’s hardly anything baked into it um I don’t think that’s totally true but it’s certainly less than we’ve seen in the product Market markets and much
Less than we’ve seen in previous geopolitical events um so the benef the the the um tankers are where I’d really be focused on if we do see an actual SE ceasefire well I do appreciate you joining us with your insights Rebecca Babin CIBC private wealth us senior energy Trader thank you so much
1 Comment
Thanks for the consistent quality! Respect 👍