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Oil prices tumble to 5-month low on new lockdown measures

Robert Yawger, Mizuho Americas Director of Energy Futures, joined Yahoo Finance to discuss the drop in oil as nations prepare for new lockdowns

Video Transcript

SEANA SMITH: And taking a look at today's action, energy-- you don't see this that often, but energy is the leader. XLE up just around 3 and 1/2%. We saw the price of crude rebound after hitting a five-month low earlier, a lot of this driven by Russia saying that it's considering pausing planned production cuts. So that, of course, lifting the price of crude today.

Now for more on all this, we want to bring in Robert Yawger. He is Mizuho energy futures director. And Robert, it's great to have you joining us by phone. We're seeing a rebound today.

But going back to last week, the oil market had been under a tremendous amount of pressure. We know that we have concerns about weakening demand when it comes to the latest numbers that we're seeing from the coronavirus outbreak. Just, what's your read just on the recent pressure that we've seen in the energy sector and what we'll likely see going forward?

ROBERT YAWGER: Well, the Russians did save the day today. We did trade a six-month low at about 6:30 last night before we rallied incredible 9%, basically, through the course of the session. Just an incredible rebound here today, one of the biggest ones we've seen certainly in the last six months, since basically around the negative pricing time.

This was an incredible day for energy, but there's plenty of things that are problematic in the oil patch right now. First of all, the failed stimulus expectations, that was weighing on the market. The explosion in COVID cases and their corresponding lockdowns has put pressure on market. And then there's also the-- Libya has added about-- well, they're well on their way to adding a million barrels a day to a market that is already oversupplied.

On top of all that, here in the United States, our refinery situation-- actually, it's a global problem. Our refinery situation, refiners are losing money on all the crude oil that they're making-- sorry, on all of the gasoline and distillates that they're making. They slowed down the rate that they make gasoline and distillate. They don't use as much crude oil. That crude oil goes to storage, putting pressure on prices.

That's a really big problem. Refiners are making about $6 to $9 per barrel on product. They basically lose money when the price is below $10. Gasoline and distillates have not been above $10 at the same time since August 24. That's a very negative situation for the energy patch.

ADAM SHAPIRO: So when you talked about the Russians saving the day with their production cuts, I mean, that's going to be short-lived, isn't it? Because when you look at OPEC, for instance, they constantly cheat. So how much longer could you expect this bump in oil to really last on that Russian news?

ROBERT YAWGER: They haven't done anything yet on that. But just the talk kind of saved the day. That's just the jittery nature of energy. This is the way it works. I mean, you have to build-- handle turning on a dime here in this market at all times. That's-- the position was getting a little short here in the last three or four days. A lot of those guys probably bought their contracts back. That accentuated the upside. And here we are now again at $37.

I mean, we're at $37. We're still beating up level. But it's a lot better than $33, where we were just last night. But yes, you're absolutely right. It's the nature of OPEC. Plus, they cheat. They have excuses. They change the terms. But just having the Russians talk about it is enough to take for people to take it a bit serious.

Russia tends to want to actually get away from the deal. This is what makes it more important that it is Russia. They have tended to want to get away from the deal. I mean, it sounds a little weird, but they have private business. They have companies like we do as much as any other OPEC country. They have their own companies. There's several big Russian oil companies.

And they would prefer to go it alone and do the best they can and work in a market environment, rather than a dictate type environment, where they're told what to do by the cartel.

But you know what? They seem to be open to the idea to a certain degree that there needs to be some kind of solution. That also implies that the situation is maybe worse than we had thought. If the Russians are talking about it and associated oil companies in Russia are thinking about it, it's gotta be a pretty bad situation.

SEANA SMITH: All right, Robert Yawger, Mizuho energy futures director, always great to have you on. We'll talk to you soon. Have a good day.