Shale oil will come back, but it’s ‘mortally’ injured right now: Strategist

Saudi oil exports to America plunged to a 35-year low, and Exxon looks to cut jobs worldwide. Bob Iaccino Path Trading Partners Co-Founder & Chief Market Strategist joins Yahoo Finance’s On The Move panel to break down oil’s outlook amid the pandemic.

Video Transcript

ADAM SHAPRIO: Crude oil. WTI futures now below $42 a barrel, at $41.88. A lot of news going on in oil. First, the big one-- especially for someone who, when they were a kid, sat in the back seat of their grandmother's '78 Buick LaSabre in a gas line, what 1980, or '81, to fill up. Bob Iaccino joins us now. He is Path Trading Partners Chief Strategist. He's going to fill us in on oil.

And the United States imported just 264,000 barrels of oil per day from Saudi Arabia. It's the lowest amount of oil since 1985 on a daily basis that we've imported. Good news or bad news, Bob?

BOB IACCINO: I think it's somewhat neutral news, to be honest. And by the way, we had a '72 Buick Electra, 225 Limited.

But it's kind of like neutral news based on the overall flow of oil in general. What had happened a few months back was China started importing a ton of oil from the US. US jumped up to fifth place in terms of the supplier for China.

And that was more about China trying to secure a bunch of loans that were at low prices-- not about the phase one trade deal, like some people might think it was. It wasn't about that at all. And that actually hurt Saudi Arabia directly, because Saudi Arabia has now fallen to the number-two exporter to China.

They're diverting some of this these supplies from the US at prices that are now $10 to $20 higher to China to try and make that up and secure market share that they used to have and they used to be pretty solid on. So it's neutral news in terms of what Saudi Arabia is doing with their oil flow.

In terms of pricing, it's actually slowed down the supply of crude oil that was supposed to be coming online. Saudi Aramco announced today that they were going to slow down the reduction, or I should say, the increase in production.

So they've pushed that back now. So it should be soft for prices. But still, Adam, demand is the biggest thing going on here. Demand is still falling.

AKIKO FUJITA: Bob, I know when we spoke a few weeks ago you said you still like commodities short-term. I'm curious what the case is for oil long-term. I mean, the demand picture is certainly not looking positive long-term when you think about where things are not just with the reopening, but overall.

BOB IACCINO: So that's a great question. And I should probably point to the picture of the Chicago Board of Trade behind me and define what I mean by short- and long-term when I say these things.

From the perspective of crude oil specifically, the front month is somewhat speculative. It's not used much for hedging by the producers and the distributors.

When you're looking at the from month of crude oil, just crude oil in general, the price action characteristics are always the same. Crude oil goes sideways for periods of time. It is a simple supply and demand asset.

And that means exogenous shocks can affect supply and demand. But we don't have one of those right now. So what we have right now is crude oil moving in a channel, but it's slightly upward facing.

So what I mentioned last week when I spoke to you-- or the week before, whenever it was-- that I'd like to purchase crude oil if it goes down. And I think that's what we're seeing right now.

I think crude oil is actually going to get down into the high 39s. And the low 40s. And that's probably going to be a decent spot to buy crude oil. But you're right, long-term I don't think we're going to see 90 again. I don't think we're going to see 80. We might see 70. 100, to me, is off the table.

Demand destruction is real both in the aspect of people not driving as much-- work from home, et cetera-- as well as the shift to more green vehicles and more green forms of transportation.

JULIA LA ROCHE: Bob, thank you so much for joining us. It's Julia La Roche here. I'd like to talk about your outlook for US shale. Of course, there were talks, you know, of furloughs and layoffs. And I would like to understand what the ultimate knock-on effects of that are.

BOB IACCINO: Well, one of the things people used to say, Julia, is that, oh, if prices go back up, shale will just turn the spigots back on. It's never been that simple.

I've been yelling that from the rooftops as long as shale has been a thing. You can't just turn it on. It's not a faucet.

And the longer that shale wells stay idled, the more likely it is that they're permanently idled, both from a technical perspective-- just that they don't work as well if they're not running-- and from a capital expenditure expenditure, where old wells, which tend to produce the most-- that's the difference with shale and traditional wells. Shale oil produces the most output in the very beginning and then tails off very hard.

What we've got is a 73% fall in rig counts just since March, 686 to about 180 last week. So I think shale oil is going to come back, but it is absolutely mortally injured. I don't think it gets anywhere near where it was even two years ago in terms of production.

Bob Iaccino, keeping that in mind. And also, our discussion about Buicks-- I remember Grammy Sweets driving her Buick like this. Her head was always below the steering wheel. Anyway, Path Trading Partners Chief Strategist, be well.