Oil: 'The state of drilling is in shambles in Venezuela,' analyst says

Prosper Trading Academy CEO Scott Bauer sits down with Yahoo Finance Live to talk about Venezuela's oil sanctions, how the U.S. is expected to maneuver the announced OPEC+ production cuts, and gas prices.

Video Transcript

DAVE BRIGGS: All right, with OPEC+ following through with historic production cuts of 2 million barrels a day, where will the United States go to offset those cuts? According to a report by the Wall Street Journal, the answer just might be Venezuela. And that will involve the loosening of sanctions with the Maduro regime.

Scott Bauer is the CEO of Prosper Trading Academy. Let's talk about this with him. Good to see you, Scott. So first, the White House pushing back a little bit on this, this morning, saying it's premature to suggest sanctions relief. What's your reaction to the cuts and the potential for dealing with the Maduro regime to offset them?

SCOTT BAUER: Well, I think it's very dangerous. And it's dangerous because they've been in talks, or at least, they started talks at the beginning of the Russia-Ukraine War back in March. So we're talking it's been six or seven months of-- I don't even want to say negotiation, but since those talks have started, and we haven't really gotten anywhere. And it sure seems that this is an afterthought, almost, in a reaction to the cuts that we saw yesterday from OPEC+.

So maybe this is going to happen. But it certainly puts the United States, in my opinion, in a position they don't want to be in, something that they don't want to do in terms of giving up sanctions, or quite frankly, having to trust Maduro and the regime that they are going to come to the table and that they are going to meet the opposition and talk about legitimate elections in the future. So I think we're not in a great spot with this.

SEANA SMITH: So, Scott, they're looking at doing this in order to boost supply. I guess, how much of an effect do you see this potentially having on prices?

SCOTT BAUER: Right, so that effect is not going to come quickly either. The state of drilling is in shambles in Venezuela. There has been a very long time where there hasn't been anything going on. And even Chevron, who is the big driller, are going to have to get in there. It's going to take them months to get up and running. So in the near term, it has no effect whatsoever on adding any supply to the marketplace. We're talking probably three to six months down the road.

Now, maybe if it happens, maybe the market looks at that and says, OK, that's good enough. We know that there's going to be some pain right now, but maybe by the end of the year or first quarter next year, we know there's going to be this supply coming back on. But even when Venezuela was in their full production, that was 3 million barrels a day. So let's say we get 1/3 of that back, maybe half of that back. You're looking at a million to million and a half a day, once that is up and running.

DAVE BRIGGS: Of course, all this matters depends upon your interpretation of those OPEC+ cuts, which they say are around 2 million barrels a day. Again, Amos Hochstein told CNBC this morning he thinks it's closer to 900,000. But he said he'd actually be surprised if there's any net cut at the end eventually, anyway, and that it shouldn't have a massive impact on prices. What do you make of that?

SCOTT BAUER: I actually agree with that, and that's because they haven't hit their quotas. So that 2 million number that they're floating out there, because they haven't hit their quotas now, that's why we see that actual reduction, if you will, the 900,000 or a million. Quite frankly, I'm surprised that the market reacted the way it did, that it's not more of a buy the rumor, sell the news type of event.

I understand why crude went up after the announcement yesterday morning. I would have thought we would have actually seen it pull back a little, as the market really digested what you just mentioned. That 2 million number is really not 2 million.

SEANA SMITH: Scott, what do you think this all means for gas prices going-- oh, looking down the line here? The average-- national average today is $3.87, up about $0.04 from yesterday, up $0.09 from last week. Are we going to be back above $4 soon?

SCOTT BAUER: Yeah, I think we're going to see that probably within the next couple of weeks. And, you know, it's that chicken and egg thing. When we see crude prices go down, yeah, gas prices go down a little bit or it takes them a long time. Now, all of a sudden, over the last week, 10 days, we've seen crude prices rising. And man, we've seen, at least where I live, probably $0.40 to $0.50 a gallon higher in just the last week. So, yes, I think sooner rather than later-- I would bet even by the end of next week-- we're back above the average of 4 bucks a gallon.

SEANA SMITH: Bad news here for consumers. All right, Scott Bauer, great to speak with you. Thanks so much for joining us.