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Oil gains on vaccine hopes despite rise in inventory

Yahoo Finance’s Alexis Christoforous and Scott Bauer, Prosper Trading Academy CEO, discuss the latest energy moves ahead of the holiday weekend.

Video Transcript

ALEXIS CHRISTOFOROUS: Scott, good to see you. So this--

SCOTT BAUER: You as well.

ALEXIS CHRISTOFOROUS: The support we've been seeing for the-- for oil prices, is this coming from hopes for a vaccine that'll get this economy rolling again and increase demand for oil? Or is there something else at play?

SCOTT BAUER: No, that's really 100% of it. We have seen demand destruction for the better part of the last nine months or so, all because of shutdowns. With the hopes now of a vaccine and the light really being there now at the end of the tunnel here, that's why we're starting to see this acceleration. That's why, as Jared just said, we've not only broken out of that upper range of 42, 42 and 1/2 to trade where we are right now, which is the highest since March, but we're seeing that acceleration now because that demand destruction is kind of off the table right now.

Now, I would be very cautious with this. It's been a very rapid acceleration. And, yes, there is a light at the end of the tunnel, which certainly is optimistic. That is a great thing for all of us here. But it doesn't just mean that overnight, people are going to start driving again.

In fact, if you look at inventories of crude-- and this is coming off the Baker Hughes rig number, which you guys were just talking about as well-- inventories for crude were down last week almost 800,000 barrels, which is huge, huge number. But gasoline stockpiles were actually up over 2 million barrels, which is a ton, which still tells you that people just aren't driving yet.

JARED BLIKRE: Look, Scott, good to see you here. I wanted to focus on the supply side. Because when you have these rig counts that we're talking about increasing, well, that means more supply. And then you have OPEC Plus kind of hanging in the balance with that December 1st meeting. Are they going to extend the production cuts? Are they not? How are you handicapping the situation, and what do you see the future potential for oil prices because of it?

SCOTT BAUER: Yeah, I don't think OPEC Plus is really going to do anything here. I still think that they see that there is still, you know, a lack of demand, if you will. Even though it's obviously going to be pent-up a little bit, that there is a lack of demand. And especially, if you look at what Exxon just said, Exxon just came out and they lowered their expectations about oil prices not just for this year, next year, or the next year, but for seven years. And that's all because of COVID. That's all because of the pandemic, and still, people getting back to the levels of demand that they had been.

So I don't think we're going to see a change in supply. I know, you know, that rig count was up 10, which is a huge number. But I don't think we're going to see a real big change in supply here. And that's part of why I'd be really cautious about this run-up here, not just the supply, but really, I don't see the demand picking up just yet.

ALEXIS CHRISTOFOROUS: I'm curious what you think the outlook is for some of these big energy companies. You mentioned Exxon Mobil. I'm thinking Chevron as well. When Joe Biden takes office, we know that he's naming John Kerry as his climate czar. He's made some promises on the climate front that could indeed have ramifications for the oil industry. What's your outlook?

SCOTT BAUER: You know, this industry has been beaten down for so long. We're talking years, not just months since the pandemic. We're talking years. That there is a lot of upside here. However, again, I don't think we can get ourselves too far ahead of ourselves. In fact, all the majors, with the exception of Exxon, have made significant, significant write-downs this year in the value of their assets. And that's based on the assumption of lower prices moving forward and the uncertainty of when and how much this demand is going to pick up.

So, you know, in terms of the Biden administration, you know, presuming that that is it, you know, there's obviously a lot of question marks there. I think in the short run, that's not affecting the prices that we're seeing. In the longer run, that could be a hindrance a bit.

ALEXIS CHRISTOFOROUS: You know, earlier, we had Robert Sinclair of triple AAA on talking about gas prices. Apparently, they're the lowest they've been in years, averaging $2.12 a gallon. Do you think that that's going to be the trend for at least the winter? And could gas prices slip below $2 a gallon nationwide?

SCOTT BAUER: Yes, I really do. And I think a lot of that is on the heels of what I mentioned earlier about these gasoline stockpiles just rising and rising. Because even though the vaccine news is out, which is just fantastic news, we're not seeing people going back to their old habits yet. And they really can't yet safety wise. So that's not going to happen, in a perfect world, probably until the end of the first quarter of next year. So in terms of getting through the winter, I think prices are actually going lower, you know, at the pump, which is going to be good for drivers that are using it.