What to expect from oil prices heading into 2022

Path Trading Partners Co-Founder and Chief Market Strategist Bob Iaccino joins Yahoo Finance Live to discuss the outlook for oil going into 2022 and the various factors affecting prices.

Video Transcript

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ZACK GUZMAN: Well, in the pandemic, we have seen oil prices fluctuate pretty wildly. And the latest move has been higher, rebounding off of the fears of omicron, once again, leading to more shutdowns. Indeed, it has led to some canceled flights in the holiday. But oil today shaking off the remnants of those with WTI up by about a half a percent right now in the session north of $75 a barrel. And for more on the moves, we are expecting to continue to play. I want to welcome back Bob Iaccino, Path Trading Partners, Co-founder and Chief Market Strategist in the Stock Think Tank portfolio manager here with us.

And Bob, thanks again for joining us. I mean, when we look at it, it's been a wild ride. But demand seems to be the piece that has been shifting in the last few weeks, a lot of fears that we could see when we return to maybe-- I don't want use lockdown, but a return to restrictions. How do you see that shaping up in 2022 as we kind of weather some of these start-stops?

BOB IACCINO: Well, good morning, good afternoon. It seems to be more self-imposed here in the US than anything else. You are seeing smaller holiday celebrations. And anecdotally, of course, I suspect that'll carry over into the New Years.

And there is a seasonal tailwind that generates higher crude prices in December, generally, starts around the second week of December and ends just before the New Year's holiday before we get a little bit of sideways movement. I rarely talk about seasonality in the case of crude oil, more so in the case of natural gas. But when you're talking about commodities, there are seasonal tailwinds and headwinds. And we just got into one of those seasonal tailwinds for crude oil specifically.

Having said that, that tailwind evaporates in January. And we get the mother of all tailwinds in terms of seasonality in about mid-Febraury for crude oil, where it essentially starts to help drive crude oil prices higher all the way through into June before it levels off again. Though, obviously, that's all else equal. And that's not what we're seeing.

So I suspect a little bit of a downturn in demand. And as you mentioned, demand has been the driving factor. But it's been on the fringes. We really haven't seen big shifts in demand like we did in the forced lockdowns at the beginning of the pandemic. Seems like the variants are causing the US to take that track. And as long as they don't, I suspect a lot of people are going to take it less and less seriously unfortunately.

ZACK GUZMAN: Yeah, we haven't necessarily seen huge supply moves either. If you think about the last few months here on the oil front and what the tit-for-tat kind of back and forth look like between suppliers here in the US, releasing some of their strategic oil reserves and pushing allies to do the same. I mean, what do you expect that to look like in 2022 as, of course, President Biden's still going to be putting a lot of attention into making sure oil prices don't get out of hand?

BOB IACCINO: Yeah, that initial release from the SPR was only about 3 and 1/2, 4 days worth of supply. The reason I give you 3 and 1/2, 4 is because it ends up being 4 days of supply with a slightly lower demand we've seen from the omicron scare. But given that, there has to be much bigger and more sustained releases. This was an additional release to the already scheduled releases. I think people don't realize that a lot of that gets shifted in and out because of the longevity of crude oil itself. It does need to be refined. It can't be stored forever.

So you get these periodic releases, and then stockpiling, and releases. And we have a very good supply, about three months of supply, in the SPR now. Some of the other allies have done it as well. Italy did it. I know the UK was planning on doing it. But it's not the kind of thing that's going to affect oil prices. I was a little surprised to see OPEC continue with the increases in production without increasing it in the face of $80 Brent. It was about $70 at their last meeting, $72 somewhere in that range. And they decided to continue to increase production.

And not only that, Saudi Arabia raised prices. They bumped their prices up to the US and to Asia, their two biggest clients, which was surprising, showing that they're expecting demand to continue to grow. And I would probably fall in that same camp, given that once the weather turns-- which I would argue it hasn't even turned cold yet, it was 52 degrees in Chicago on Christmas Day-- you're going to likely see more demand come up and absorb that supply. And I think this is going to continue to go higher.

ZACK GUZMAN: Yeah. You mentioned kind of the forecasts there and shifting. Obviously, we were talking earlier about how it had been warm. And that had been the story to watch. Now, that it does shift, though, I mean, we already saw kind of a Europe dealing with their own issues around natural gas. And now, if it does get Colder here, obviously, we saw yesterday the largest move higher for natural gas since I think the end of November. I mean, what do you see playing out there in terms of maybe some of the bets being placed on natural gas price moves if things do continue to kind of, I guess, pressure more Americans to start using it to heat homes?

BOB IACCINO: Well, I suspect that it's going to continue to be weak, one of the weaker seasons we've seen. The seasonality didn't work at all for natural gas. And that's one of the ones where I look at at the most. There's actually a theory that I'm working on that I haven't quite fleshed out yet is people are used to working from home, are they going to go work in warmer places, and therefore, not use as much natural gas in the winter season?

I know New Year's day-- I'm down in Florida now permanently, but New Year's day is going to be the coldest day of the year in Chicago. And I know, again, anecdotally, people are deciding to come down here and work for the month of January, in which case, they'll leave their natural gas demand down at around 68 degrees versus the 72, 73 they otherwise would. So with natural gas, specifically, I suspect it's going to get a little weaker. But that's going to drive crude oil demand. So crude can actually diverge and actually drive a little bit higher than it normally would at this time of year.

ZACK GUZMAN: Yeah. Interesting to see it all play out. Of course, weather, important swing factor to watch when it comes to energy. Bob Iaccino, Path Trading Partners Co-founder, appreciate you taking the time here to chat with us today.