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Oil snaps six-week losing streak amid 'pretty radically increasing demand'

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KPMG Global Head of Energy Regina Mayor joins Yahoo Finance Live to discuss that variety factors underlying oil's recent price surge.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for a look at the oil markets. So we've got Brent and WTI crude on course for their strongest gains since August. And we've got Ines Farre here now for a look at the day in the energy markets. What have you got, Ines?

INES FARRE: And, Alexis, taking a look at West Texas Intermediate crude January futures, they settled at $71.67 a barrel, up more than 1%. You can see the price action during the session today. Brent crude also up more than 1%, above $75 a barrel.

And as you mentioned, oil ending higher for the week, snapping actually six consecutive weeks of losses. WTI up around almost 8%, or around 8% for the week. That's its largest weekly increase since the end of August. That's when it gained 10% in one week. Brent crude up about 7% for the week.

And throughout the week we saw oil rebounding on Monday, Tuesday, Wednesday, then we saw a dip, about 2% dip, yesterday. But nevertheless, this week oil really regaining back a large chunk of what it had lost over the last few couple of weeks. Alexis.

ALEXIS CHRISTOFOROUS: All right, I want to continue our oil conversation now and bring in Regina Mayor. She is global head of energy at KPMG. So, Regina, we got that hot inflation report today. And within that report, we know that core inflation, food and energy, were a big reason why it rose 6.8%. Energy prices have risen 33% in just the past 13 months. You've also got gasoline up 58%. Do you believe that those energy prices have peaked? And will we start getting relief in the weeks ahead?

REGINA MAYOR: Sadly, Alexis, I don't believe that they have peaked because we're talking about a long-term market cycle where we don't have sufficient supply and we see pretty radically increasing demand. The EIA reported that in November of 2021, total global demand was at 99.7 million barrels per day. And that is only 1.1 million barrels per day off of November of 2019.

So we're seeing a return to 2019 levels, and we don't have the supply because OPEC Plus is still withholding a fair number of barrels off of the market and the capital markets haven't necessarily incentivized oil exploration and production on the private sector side. So we've got this long cycle where we don't have probably enough supply to meet the demand as it's growing pretty rapidly.

- And, you know, we've seen a slight downtick, I should call it, in oil prices and gas prices lately. President Biden trying to take some of the credit for that through his collaboration releasing oil reserves, partnering with countries like the UK, South Korea, and Japan. But isn't that really a drop in the bucket?

REGINA MAYOR: Absolutely. A complete drop in the bucket. And, you know, what we need to start focusing on is energy security and energy affordability, not just saying we're going to make this energy transition from fossil fuels as rapidly as possible to a low carbon environment.

While we definitely want to achieve those carbon reductions to improve the climate, we also have to do it with an eye toward security and affordability. And we have abundant reserves here in the US that we can continue to exploit so that we don't have to be as beholden to some of these other markets. I was here in Houston attending the World Petroleum Congress this week, and all of the energy company CEOs showed up in force to say that in the short term, the chaos will intensify because the supply doesn't exist to meet demand.

ALEXIS CHRISTOFOROUS: You know, yesterday we had Stephen Schork on talking about oil. And he actually thought it was irresponsible for President Biden to tap the strategic petroleum reserves at a time like this. He said they should only be tapped in an emergency, and in the long run, that move is actually going to be bad for oil prices. Would you agree with that?

REGINA MAYOR: I think it's more cosmetic. I don't know if I want to say it's good or bad. But I think, as was pointed out, it is a proverbial drop in the bucket. We need to be looking at longer-term opportunities. Now, I don't mean to imply that there is not enough oil in the world, because for sure there absolutely is.

And we can manage the carbon intensity of that oil footprint while we meet the world's growing energy demands. But for the short term, we're probably going to see higher prices because of the availability challenges while demand is growing so much quicker. Oil prices fell unnaturally so, I believe, over fears of Omicron. It was an irrational, emotional reaction, and now you're seeing the return to $70s. And potentially, we could see high $70s and into the $80s again because of the supply and demand picture and because of the moves that OPEC Plus is making in the near term.

- And then some people say we can even see it peaking at $100. So it remains to be seen. I want to turn your attention-- President Biden today announced ending support for fossil fuel projects overseas. And I want to address this mixed messaging that I feel that's going on. It seems like COP26 was a million years ago, but it was quite recently where, of course, there was this huge push towards green, but as soon as President Biden came back he asked for more oil to be pumped.

So the one thing is clear that the technology we have right now is not there to support this huge push towards green. It's going to take time. So A, my question is how long before we get there? And until we get there, how important is it to have this diversification, having access to fuel and cleaner energy like natural gas?

REGINA MAYOR: You're absolutely right. It needs to be diversification. And I'm a strong proponent of an all of the above strategy. We should focus on the outcome of reducing carbon. Absolutely.

But let's not pick winners or losers as we go into that strategy. Let's put in place incentives to sequester and capture carbon, to invest in new technologies like biofuels, biomass, hydrogen, electrification, and the things that other governments are trying to do. But it is a mosaic. I think it's at least a decade to answer the first part of your question before we start to really see that transition. And in the meantime, most experts and analysts predict demand continues to increase through that decade.

We don't anticipate that demand starts to decline until after 2030, and then it's probably a slower decline, not a sharp decline. So we're going to need these fuels to support that demand in that decade plus period, and we're going to need them for the long term. So how do we focus on reducing carbon while ensuring that these products are affordable because they're are so incredibly important to our daily life, our ability to interact like this, our ability to move around the country, around the world as we get into the holiday season. Energy is important, it's abundant, and we need to make it secure and affordable as well.

ALEXIS CHRISTOFOROUS: All right, Regina Mayor, KMPG's global head of energy. Always good to have you here. Thanks so much.