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OPEC and allies resume talks amid pandemic

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Yahoo Finance’s Alexis Christoforous, Jared Blikre and Robert Grisaffe, Embark Senior Energy Practice Analyst, discuss oil outlook.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, I want to stay with oil now and bring in Robert Grisaffe. He is Energy Practice Leader at Embark. Robert, you just heard what Jared had to say there about OPEC Plus. What do you believe that policy decision-- what do you think the impact of that policy decision will be on oil overall ?

ROBERT GRISAFFE: I think it's hard to say what the impact will be overall. Clearly, there was a compromise that took place. There were reports coming out that certain players wanted to remain with no increase in output, while others wanted to increase output much more substantially. You've got to compromise. I think one of the key things though, that you saw there, was the group agreed to review production every month, and decide whether or not to increase production. I think this seems a clear sign of the uncertainty in the shape of the demand recovery.

ALEXIS CHRISTOFOROUS: What are your predictions for the range that we might see oil trade in? We saw it last through $45 a barrel this past week. I mean, what do you see sort of as the top for prices in the short term?

ROBERT GRISAFFE: I think as you look at the futures market, you can tell that it's very flat. So I think short of significant demand recovery, it's going to be very difficult for us to have significant price appreciation. There is certainly some optimism around the vaccines, and the good news that's coming as a result of the vaccines, which ultimately should be able to drive some demand increase as well.

JARED BLIKRE: Wanted to get your take back to the OPEC Plus alliance in general. Given the fact that we didn't see the market really sell off that much in response to the delays, and also given the fact there could be some leadership changes at the joint ministerial monitoring committee, is OPEC Plus still relevant to the market? How important is it?

ROBERT GRISAFFE: Well, I think OPEC Plus is obviously still very relevant. I think, as we all saw in March, very much a player in the global commodity prices, particularly at a time where demand has been damaged significantly by the effects of the pandemic. In a higher growth and demand scenario, the impact may be muted a little bit. But in the current environment, I think OPEC Plus is definitely the dominant player.

ALEXIS CHRISTOFOROUS: What are your thoughts on the Biden administration, and what some of his policies on energy might do to the overall sector enterprises in 2021?

ROBERT GRISAFFE: Yeah, absolutely. So you know, based on the campaign cycle and the discussions with our clients, it's clear the expectation that the Biden administration will not be as friendly to the oil and gas industry as the current administration. That being said, we've seen high prices and low prices during years when the sitting administration was very friendly to the industry, and at times when the administration was not as friendly. So you know, certainly domestic policy impacts production. However, it truly is a global market. And global demand and geopolitics seem much more likely to impact global oil prices than US domestic policy.

What we were talking about earlier, what will OPEC do with regard to the supply? Will we see a geopolitical price war, such as what we saw with Saudi and Russia earlier this year? What will the global demand look like when we see a real recovery in travel? I think those are really the things that are going to drive commodity prices. You know, one of the things that's been top of mind and created a lot of headlines is, the fracking versus permitting on federal lands. So there are a lot of reports of Biden pursuing a fracking ban, and some of the confusing remarks Biden made about hydraulic fracturing. So in spite of the headlines, there does not appear to be a written policy and plan-- excuse me, a written plan to ban fracking. There is a proposal for banning new oil and gas permitting on public lands and waters, which would limit the ability of current holders of federal leases to drill new wells.

Speaking to our clients, and others in the industry, there will be a lot of opposition to any such plan. The industry and others will fight this using likely every tool at their disposal. This would likely include litigation from leaseholders, and states that will be impacted by lost revenue, as well as industry organizations, such as API and others. Obviously, a highly politicized information campaign would include citing concerns such as job losses, take tax revenue declines, energy independence, energy security, among others. What I would say is, I think there's a big gap between a proposal that was likely circulated to appeal to a base of voters, and the ability to enact that plan and an attempt to enact it.

ALEXIS CHRISTOFOROUS: All right, Robert Grisaffe, Energy Practice Leader at Embark. Thanks for sharing your insights with us today.