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Oil prices hover near 13-month highs amid power outages

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Rebecca Babin, Senior Energy trader at CIBC joins the Yahoo Finance Live panel as oil prices touch fresh highs.

Video Transcript

- I want to kick off things today with a closer look at those energy moves in the wake of the winter blast we're seeing cripple the nation. Energy demand, as I said, we're seeing spikes in oil prices and natural gas. And let's get into that here to kick things off with our first guest. Rebecca Babin is a Senior Energy Trader at CIBC. And she joins us now.

Rebecca, when we look at, natural gas, to me, stands out because that's seeing its strongest day since earlier in February, the beginning of the month, when the Northeast had their own storm. But what is this doing right now in terms of supply and demand?

REBECCA BABIN: Yeah, so it's doing two things and both of which are pretty troubling in terms of pricing. Its increasing demand significantly in places like Texas, Oklahoma, where temperatures are extremely cold. And it's also limiting supply, because you have wellheads freezing over, and you have other various infrastructure related issues impacting the grid.

So that, in combination, is creating this massive spike, not just in Henry Hub Nat Gas that you're looking at, but on some of the other regional gas prices that are significantly constrained in this event. So it's pretty tough out there. I would say this. The curve, however, if we look at the longer term nat gas curve, is spiking in this front month and not necessarily far out the curve, implying that this is somewhat of a short term disruption.

And that doesn't provide any solace to anyone right now who doesn't have heat in the freezing cold. However, from a market's perspective, it's saying, this is a short term event that is impacting infrastructure and supply and demand at the moment, but over the long term, less of an impact.

However, it is bringing forward the question of is our infrastructure set up, too, for our country economy to become more electrified over the long term if we have these kind of disruptions that can really knock out a huge amount of supply.

- So Rebecca, let me pick up on that point because this comes, of course, at a time when there has been a lot of debate about natural gas versus electric. And I wonder how you think this is likely to shift the discussion on that front.

I mean, natural gas would certainly argue that they have been able to meet the demand as it is right now, without any real constraints to a grid potentially that electrification would do. How are you looking at it in the context of what we saw play out over the weekend?

REBECCA BABIN: Yeah, I think it's going to shine the light on the fact that we might not quite be where we need to be in terms of-- well, natural gas is considered a greener form of energy. However, it has gotten a bad name in the past year or so as not being quite as green as other renewable sources.

And as we see these types of disruption happen, it comes back to the point of where do we need to apply our resources for the most sustainable and clean and consistent energy? And we don't know exactly where that lies at the moment.

And these type of events really show us that natural gas needs to be part of the solution. It's not the enemy. And it's not the albeit answer to green energy either. It lies somewhere in between those things. And I think this has become-- this event is going to become more politicized as we look at some of the new administration's goals of clean energy.

- Yeah and obviously, as you said, there are short term things to deal with here in terms of production outages due to this storm as well, versus maybe some of those longer term implications of where we go on the renewable side. But even in Texas, it was interesting to see wind turbines impacted by this and the amount of energy that comes through that side, even in a state like Texas.

But when you look at maybe the supply of demand, equilibrium supply and demand further out, what are you seeing in terms of where we are at and maybe getting back to normal and how this storm might impact that in those longer term futures contracts now?

REBECCA BABIN: So from with the weather it looks like, it looks like there's going to be some improvement over the next several days. So let's call it three to four days. We should start to see things come back online. And I think that's part of the reason why you're seeing at least on the major broad indices, crude oil and that gas prices moderating from their highs that took place yesterday and this morning. So I think there will be improvement.

Over the long term, though, I think that's a valid point. Wind turbines provide 25% of Texas power. Obviously when they're frozen, they provide less. But they are not to be considered the culprit of this event, largely due to the fact that nat gas is also having an issue, and crude oil is also having an issue. Even some nuclear plants are having issue right now.

So this is going to be a long term issue that we battle as we try to make these transitions and we fight for resources to build the infrastructure for the future.

- And Rebecca, you mentioned this is just a short term disruption as it stands right now. I wonder what you're going to be watching in the next few days to see if this becomes much more than that. I mean, yes, we are in mid-February, but there's nothing that indicates we're not going to see additional storms.

REBECCA BABIN: Yeah, that's a good point. I think I'll mostly be watching how quickly refineries come back online. That's going to be an important indication. And companies right now, I think there's three million barrels of refining capacity currently offline. That's really important.

I'll be watching that, how quickly the weather starts to come to warm up, and the state's response, which, right now, is looking like they're struggling to keep up, how quickly Texas is able to actually respond and help both people get back to work on their roads, because if you can't travel, you can't get to work. And those are all things I think are going to be critical in terms of getting back up.

- Yeah, having driven through it, it's interesting to see how different territories of this country deal with different storms, not exactly used to seeing what we're seeing down there in Texas. But Senior Energy Trader at CIBC, Rebecca Babin, appreciate you coming on here to chat with us today.