Gas prices remaining 'higher for longer' and so could energy stocks
Gas prices historically begin to dip after a demand drop-off tied to summer-time prices — this doesn't seem to be this year's case, unfortunately. Oil refining is "constrained" across the globe and isn't forecasted to pick back up until next year. CIBC Private Wealth Senior Equity Trader Rebecca Babin joins Yahoo Finance to discuss what this means for consumers and how energy stocks, like Exxon Mobil (XOM) have remained robust.
"Higher for longer, unfortunately — the way we talk about interest rates — is around in gasoline," Babin explains the long-term effects of low refining outputs. "I don't think we go skyrocketing to $5, but I also don't think we see a huge pullback — maybe we get a modest moderation."
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Video Transcript
JOSH LIPTON: And Rebecca, what does this all mean, do you think, for prices at the pump in the near to intermediate term? As people go to the gas station, they're topping off their tanks, what do you think they can expect?
REBECCA BABIN: So, seasonally, we're at very high levels for gasoline prices at the pump. We usually see a dip after summer driving season. And we really haven't seen that. That's a function of both crude prices being high, but more importantly, refining capacity being constrained.
We don't have enough refining in this country globally. It's starting to pick up in 2024 with some projects coming online. But really even if crude production increases right now, you might not see those drop in prices at the pump because you don't have refiners there to process it necessarily into gasoline.
So I think higher for longer, unfortunately, we talk about interest rates. It's probably around and gasoline I don't think we go skyrocketing to five. But I also don't think we see a huge pullback. Maybe we get a modest moderation, $0.10, $0.15 over the next couple of months. But I think they remain higher for longer.
JULIE HYMAN: And then finally, what are the implications for energy stocks? We've got ExxonMobil that's trading around record highs here. And even though the percentage gains haven't necessarily kept pace with the underlying price of oil, like, these energy stocks have been doing pretty well this quarter.
REBECCA BABIN: They definitely have. And I think that is a part of the story, which is they've been extremely capital disciplined. They continue to buy back shares, reduce debt. And that has helped them kind of navigate the volatility in crude.
Here's the thing, though. They have lagged the commodity. And that's because the back end of the commodity curve out next year hasn't rallied nearly as much as the front end. Why? Because Saudi Arabia has a million barrels sitting on the sidelines they can bring back in a second, right? So everyone, including the energy producers, as we spoke to earlier, know that crude is likely coming back over the course of '24.
So it's kind of kept a cap on energy equities, which priced their valuations off the longer end of the curve. I think they're gonna crush it over the next three to five years as they continue to be disciplined and take advantage of higher prices and grow moderately. But they might not always keep up with crude.
