Gas prices: ‘There’s nothing that can be done’ in the near term, oil analyst says

Bob Iaccino, Path Trading Partners co-founder, joins Yahoo Finance Live to discuss French President Emmanuel Macron's remarks to President Biden, the outlook for oil and gas prices, demand destruction, and the energy markets.

Video transcript

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BRIAN SOZZI: Price of oil today is on the move higher after French President Emmanuel Macron was heard telling President Biden that Saudi Arabia and the United Arab Emirates, two top OPEC oil producers, can barely raise oil output. Joining us now to discuss is Path Trading Partners co-founder and chief market strategist, Bob Iaccino. Bob, always great to get some time with you. Your take on these comments?

BOB IACCINO: Well, I think there's two things that are interesting about these particular comments. Number one, the fact that they were said in earshot of reporters-- that's atypical. Emmanuel Macron is not a neophyte politician. He's very good at this. And it seemed, on my end, at least, to be quite deliberate that it was in earshot of reporters.

Maybe a little bit of intention to pressure President Biden through the media to change-- make some critical changes in the US. So it's short-term. There are some that can be made. But when you're talking about short-term with crude oil and gasoline refining, especially, you're talking about three to six months. That's short-term. So there's nothing that can be done in the next month or so that's going to ease prices at the pump any more than they've already been.

And then my second take on these is, it seems to me that, at least with the UAE, and likely with Saudi Arabia as well, they're more pointing toward the capacity based on the OPEC quotas versus their production cut of a couple of years back. When you looked at the compliance last month, it's about 103%. This is compliance to production cuts, which means they're underperforming by 3%. They've got compliance of 103%. They can already ramp up a little more within the schedule of increased production that they're doing. And they're not doing

It. And this is one of the things that the international community has dealt with before with OPEC is, I believe personally, it's my personal feeling OPEC knows that the president can't go against his base and ease up on some of the restrictions to US production that have been in place for the last two years or so. And he's not going to do it. And therefore, it's just a method of filling their coffers with a little bit more American dollars in their crude oil sales.

JULIE HYMAN: Well, at the same time, when you're talking about a three to six-month time horizon here in the US, if there were to be changes made to ramp up production, when you're talking about the Saudis and UAE, if, indeed, there was some expansion of OPEC production targets, would that be a more rapid fix for the situation? Like, could they turn on production more quickly?

BOB IACCINO: Well, the simple answer is yes, especially with the UAE. UAE's nameplate production maximums are somewhere around 3.4 to 3.5 million a day. And they're doing about 3.1 now. They can literally turn those spigots on. The difference between sort of legacy crude oil drilling is that you can actually turn those on and off without much prep time. Maybe about a month, and you can get those going.

Whereas in the US, with some of the shale and horizontal drilling, it's much, much more complicated. Not to mention the fact also that the wells just don't last as long. The vast majority of the fossil fuel oil that comes out of those shale and horizontal drilling wells comes out in the first six, 12 months, and then they kind of lose their efficacy in terms of the amount that's coming out.

In the case of Saudi Arabia, it's a little bit more complex. They actually have a more complex system of drilling. But they also have way more spare capacity, unless we've been wrong all these years. And I'm talking-- by we, I mean the EIA, the IEA, the American Petroleum Institute all estimate that Saudi Arabia is somewhere close to 12 and 1/2 million barrels a day of capacity. And they're producing about 11 million. So there's quite a bit of room for them.

But they even claim-- Mohammed bin Zayed said that they need about six months to get to that. But again, I suspect that means in a palatable way for OPEC and the OPEC members, rather than actually technical reasons why it would take that long.

BRAD SMITH: And so, Bob, it doesn't sound like you're going to expect or look for any material change to come from the OPEC meetings this week. With that in mind, when can consumers, when should consumers see or hope for any material change at the pump for themselves?

BOB IACCINO: You know, it's interesting. I suspect at the end of summer, they'll be getting a little bit of relief. But that's more about demand than it is about supply. The interesting part of what's going on now is the general consensus from the political wing of the US is that we need to give consumers relief. And Governor Gavin Newsom of California even said to the point he's going to give them $1,000 inflation checks. All that does is increase demand, unfortunately.

Families and workers definitely need the help, but they go out and they spend this money on the very same things that we're in short supply of. So just those equations, in and of themselves, doesn't help the pricing situation. You know, unfortunately, demand destruction is the only thing that can help it short to medium term. And we're not seeing that as of yet at all. Travel, for example, on the path to exceed pre-COVID levels, even with these higher prices of airline tickets and fuel.

JULIE HYMAN: Hey, Bob, just quickly, before we leave it, you want to give us your short and longer term targets for crude?

BOB IACCINO: It's interesting. I just exited all the crude longs that I put on in the $70 range, exited somewhere around $119 and the rest around $121. And I've said before that it is all about buying dips in crude oil for the foreseeable future. I haven't done it yet. I was hoping for $93 to $95. My target is still about $134 before the end of summer.