OPIS Global Head of Energy Analysis Tom Kloza joins Yahoo Finance Live to discuss gas prices, the upcoming summer travel season, and the impact of debt ceiling negotiations on the energy market.
- Well, the countdown to Memorial Day Weekend is underway with Americans already taking to the skies to get to their holiday destinations. The FAA says Thursday, today, is the busiest day for air travel ahead of the long weekend with over 51,000 expected flights. So if you're still thinking about heading out somewhere, you may want to drive.
Let's take a look at gas prices today. The national average coming in at $3.57 a gallon. That's up a cent from yesterday but down around $1 since last year. For more on this, we turn to Tom Kloza, OPIS Global Head of Energy Analysis. Tom, a lot of people thinking back to where we were a year ago. Certainly, what a difference it makes. We're $1 lower. But you know, this is sort of typically the time of year where we start to see prices peak higher. What are you seeing?
TOM KLOZA: I think we've probably seen the highest prices that we're likely to see in the first half of the year. And we saw those in April when we got up to about 3.67. Most of the information is suggesting we'll wobble a little bit lower. And it's a great disinflation story. You're mentioning airlines. Jet fuel is probably less than half of the price that it fetched last April and May. Gasoline's down by about $1 and it may be $1.50 cheaper by the middle of the month. And diesel is about $1.50 less. So there's a lot of things that could screw up the economy. Right now, energy prices are not among that.
- Tom, what about the second half of the year? I know you said that you think we hit a high for the first half. In the second half though, are we going to head back towards $4 a gallon?
TOM KLOZA: You know, I don't think. So although, I think the tropical storms and the named hurricanes are going to have a lot to say about that. We've added about 1 and 1/2 million barrels a day of capacity, and most of the additions have been at the US Gulf Coast. You know, Alabama, Mississippi, Texas, and Louisiana. So if you see probability cones there, you could see some numbers that are pretty spectacular, but hopefully not coming to a theater near you.
- Yeah. What does the inventory picture look like? We got the numbers from EIA yesterday pointing to a surprise drawdown.
TOM KLOZA: Yeah. We're OK with gasoline stocks. We're not using as much as we use from, let's say, 2016 to 2019. So we don't necessarily need as much. And you know, the driving season is more mythical than real. This is a little bit of a dress rehearsal for the crunch weeks that come, let's say, when all schools have let out around the solstice through the early part of August, when some of the South goes back to school.
So I think we're OK, but we really do have to cross our fingers for hurricanes. We have to make sure that the power grid is stable because you can't operate refineries without electricity. And then the other thing that might make prices wobble a little bit higher in the next couple of months is I think you can make a strong case for crude oil going up maybe $10 a barrel. And that adds about 25 or $0.28 to the cost of gas.
- Tom, what about the looming showdown down in DC, the debt ceiling negotiations? How do you see that? Do you see that impacting the price of crude in the short term?
TOM KLOZA: Well, that is the big macro tailwind, or the big macro headwind, I should say. And that is something that's probably tempering some of the enthusiasm for crude and for any oil as an asset trade. Let's hope that they don't play Thelma and Louise with our futures here, and they come to some sort of conciliatory measure on that. But I mean, it may have an impact. If we get downgraded, it would certainly have an impact. But let's hope it doesn't come to that.
- But what would be the impact if you're looking at it from the energy markets perspective?
TOM KLOZA: Well, if you look back in 2011, we saw oil really move sharply lower when we had that downgrade. So it would definitely devalue the price of crude oil. I mean, the United States is still the largest buyer of crude in the marketplace, and that could really hinder our production, and it would probably hinder the economy so much that it wouldn't be an open question anymore as to whether we're in a recession, and we don't know it.
- Tom, what about the OPEC Plus meeting on June 4th, so just over a week from now. Are you expecting anything substantial to be announced from that in terms of policy that could impact the price of crude?
TOM KLOZA: I think low expectations. It'll be interesting to see if Russia does anything or says anything. I know today, the Russian oil minister downplayed the chance of a cut at that meeting, and that sent prices down about $2.50 today. You've got eight countries that have already agreed to cut production.
The bigger question is as you get out into late 2023 and 2024, there's a number of those countries want to add millions of barrels a day of production, so they can increase revenues. And that's going to be a problem for the cartel to wrestle with a year from now.
- Tom Kloza, OPIS Global Head of Energy Analysis. I appreciate you stopping by.