Crude oil: Odds of a rate cut ‘swiftly hitting’ demand-driven commodities, strategist says

view original post

Blue Line Futures Chief Market Strategist Phillip Streible joins Yahoo Finance Live to discuss the odds of a rate cut, volatility, investor sentiment, and the outlook for crude oil.

Video Transcript


JULIE HYMAN: Oil prices are holding somewhat steady this morning after Credit Suisse’s woes sent prices plummeting yesterday. Joining us now is Phil Streible. He is Chief Market Strategist at Blue Line Futures. I mean, Credit Suisse and like everything else, I suppose, contributing to what’s been going on in oil prices, right? I mean, there’s so many dynamics at work right now, Phil.

You got what’s happening with Russia. You have the Strategic Petroleum Reserve here in the US and supply– that affecting supply. What do you think is sort of paramount in your mind as you’re trading oil these days?

PHILLIP STREIBLE: Yeah, I mean, this past week has just been fast-moving for the global markets and policymakers. We went from expectations, moving for like a 50 basis point rate hike in the US to going to stress-testing banks. And now, the odds of a rate cut are really quickly hitting– and swiftly hitting demand-driven commodities such as crude oil. You’ve got volatility systematic risk and contagion fears.

That’s kind of the three themes that’s on every single trader’s radar right now. And crude oil is a very, you know, demand-driven product. You’ve seen deterioration in China with their demand growth. We were expecting a snapback recovery after they lifted those COVID restrictions.

And you got deterioration of US and European, the economic outlook. And I can’t believe that the ECB went through with that 50 basis point rate hike today. It’s just gonna further add, you know, fuel to the fire.

BRAD SMITH: OK, and so for anyone who is looking to invest within this sector, what is the first thing that they need to remember?

PHILLIP STREIBLE: Well, they’ve got to remember that this is a demand-driven product. And you’ve got supplies up at 18-month highs. You’ve got demand continuing to come back down. Oil prices are down about 14% on the year. You’ve got– you know, it’s looking a lot better than natural gas, which is down 42%.

So you’ve got to have a long-term approach. You’ve got to be looking for an economic recovery in order to get involved with it. We do like crude oil futures. We do see value in these mid-60s. But I think you’ve got to have a long time on it, so you got to look at like the December futures contracts.

JULIE HYMAN: Can we also talk a little bit about the Russia dynamic, Phil? Because there it just feels like the Russia supply coming to market is a lot higher than it looked when all the sanctions and everything started. Is that gonna stay? Is that now the norm that you just have to consider priced into the market?

PHILLIP STREIBLE: Yeah, they went out, they found out– they found other buyers out there. They continue to pump their output. You know, OPEC continues to create surpluses. Unless they can coordinate some kind of cut, you’re gonna see those oil supplies remain at those elevated levels. And you know, Russia, they diverted. They started looking at guys like India and China to sell to. And they found those buyers there. So, you know, the supply is continuing to grow out there.

You’ve got to really see kind of a couple of different things happen. You need that OPEC to do a cut. And then you need– the US needs to take advantage of it, of where we’re at right here, and the administration needs to refill the SPR. And I think that could push oil prices back into the $70s. We recapture $75, and I think we got bull momentum from there.

BRAD SMITH: What if that OPEC cut doesn’t come?

PHILLIP STREIBLE: Well, then you’re going to see a new price band on oil, which is about that $65 to $75 instead of $70 to $80, which we’ve seen over the past few months.

JULIE HYMAN: What about what’s gonna happen with oil stocks as a result of all of this? I don’t know how much you’re in the stocks versus the commodity itself. But how are you thinking about positioning there, and whether you should be buying, selling, just staying pat?

PHILLIP STREIBLE: Well, we see long-term value in it. But they are gonna face some headwinds. I mean, they do face that systematic risk of all the other stocks. They’re not completely isolated, whatsoever. You know, US production right now and inventory levels is, you know, masisively higher than what the five-year estimates are.

Normally, around five years out– the last five years, we’ve averaged 450 million barrels. Right now, we’ve got 480 million barrels. So we’re flush with inventory right now. You know, these companies really are looking at more cost-cutting measures in order to boost profitability at the moment.

BRAD SMITH: OK, so what’s your outlook for gas prices from here. Everyone’s trying to figure out what their summer plans may be over the next few months. So what should they expect as we get into those summer months?

PHILLIP STREIBLE: Yeah, well, you look at gasoline prices, they’ve come down significantly. Gas prices tend to peak right around Memorial Day weekend. And then they’re pretty stagnant because those supplies have been built up. I think inventories are already remaining at an elevated level so I think it’s gonna be real good for the consumer at the start of the year.

If you get the economic deterioration in the volatility in the market, you get that demand really coming off, you’re gonna see gas prices continue to drift lower. So I think it’s gonna be a good year for those that are driving out there. And we’ll probably start to see tightness again back in the fall.

JULIE HYMAN: Wow, good news. Some good news today. I will take it. Phil Streible, thanks so much, Blue Line Futures Chief Market Strategist. Thanks for your time this morning.