Guy thinks it is short sighted to release energy from the SPR and says the SPR was not supposed to be used for these reasons.
Guy also comments on how we have no control and said it is problematic that we continue to be reliant on these groups of nations.
Guy thinks the bottom is in, and thinks supply and demand fundamentals are in.
Guy also comments on how we have no control and said it is problematic that we continue to be reliant on these groups of nations.
Guy thinks the bottom is in, and thinks supply and demand fundamentals are in.
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NewsTranscript
00:00 We're on the desk tonight, Bono and Eisen, Courtney Garcia, Guy Adami and Steve Grasso.
00:04 And we start off with oil outrage.
00:06 Crude prices popping as OPEC announces plans to cut production by two million barrels a
00:11 day, the biggest cut since the early days of the pandemic.
00:14 The move enraging the White House, which had been putting pressure on the group to increase
00:18 output and help lower fuel prices ahead of the midterm elections.
00:22 The administration calling the decision short-sighted and saying President Biden has directed the
00:26 release of another 10 million barrels from the SPR next month.
00:30 So if oil prices now up more than 15 percent from their lows of last week, how much higher
00:35 can they climb?
00:37 Guy Adami, I wonder if the Biden administration was surprised that they had no control over
00:41 global oil output.
00:45 I love that.
00:46 Listen, you know, I'm an equal opportunity hater.
00:49 But that comment about short-sightedness is just so I mean, it's so tone deaf.
00:54 I mean, what else is short-sighted?
00:57 Releasing energy from the SPR.
00:58 We're now at levels we haven't seen in decades.
01:01 Politically expedient, but not done for the reasons that the SPR was put in place in the
01:06 first place, number one.
01:07 Number two, yeah, we don't have any control at all.
01:10 I mean, you go back to April 2020, by the way, then President Trump was begging OPEC
01:16 to cut production, if you recall, because energy prices were too low.
01:19 So the fact that we continue to be reliant on these groups of nations is problematic.
01:24 To answer your original question, first of all, great call by Steve, who months ago said
01:29 it was going lower.
01:30 But I think the bottom's in, and I think it's higher.
01:32 And again, supply-demand fundamentals are in place, in my opinion, for crude to trade
01:38 higher and quickly, without you even realizing, and not you, but maybe people out there.
01:43 ConocoPhillips, Chevron, and Exxon are now approaching collectively almost $900 billion
01:50 in market cap, and all of them are within whispers of their all-time highs.
01:54 So the stocks are actually telling you something.
01:57 I mean, in the third quarter, even though gas prices, oil prices went down, net gas
02:00 prices were up on average month over month.
02:04 And that's why Exxon said third quarter is going to be strong.
02:06 Steve Grasso, this really sort of underscores the issue, though, in terms of the Fed.
02:11 This is a major component of inflation, something certainly that consumers feel that they have
02:17 absolutely no-- nobody has control over.
02:20 Yeah, and to Guy's point, so I echo a lot of what Guy said.
02:25 I'll say I echo 99% of what Guy said, but I do believe that the price of oil is going
02:33 to trade lower.
02:34 So you brought up net gas.
02:36 Net gas is Russia-Ukraine.
02:39 So I'm going to leave that out of the conversation.
02:42 Whenever OPEC+ cuts production, it's counterintuitive, I get it, but the price of oil usually drops
02:50 after the knee-jerk reaction.
02:53 Right now, the market has absorbed or is trying to price in a 2 million barrel per day cut.
03:00 It's not going to be 2 million.
03:02 We've covered it on the network all day long.
03:04 Most of the constituents of OPEC, participants of OPEC, are underproducing.
03:09 They're not even meeting their quotas to begin with.
03:12 So it's really going to be a $700,000 barrel per day cut.
03:18 That's not enough to actually move where the market is, supply-demand equilibrium.
03:23 This is an overreaction.
03:25 This tells you how desperate OPEC is.
03:29 Whenever they cut, that means they're nervous about something on the horizon.
03:33 Right now, I think it's become political on both sides, of course, where we have the midterm
03:39 elections ramping up and they're going to be about a month away.
03:44 But I still believe that you're going to see oil at $65 by year-end.
03:50 This is just a minor little blip to the upside and the market overcorrected.
03:55 Wow.
03:56 Courtney, would you agree with Steve that oil is headed lower?
04:00 I actually don't agree with that.
04:02 I think that's probably more aggressive on the other side, which you might be right,
04:06 so I guess we shall see there.
04:07 But I think energy has really looked attractive here previous to OPEC making this decision.
04:12 I think that only really likely makes it more attractive as we look forward here, because
04:16 there are structural supply and demand constraints when it comes to energy.
04:19 And that was the case even before we had this news today.
04:22 So I think when you're looking later this year, the only problem is it is going to make
04:25 the Fed's job a little bit more difficult, because this was one of the pieces of inflation
04:29 that had finally come down.
04:30 And you were seeing actually consumers were using this income to spread to other areas.
04:34 And so now they're focusing on those other areas to bring down inflation.
04:36 But now if energy prices are coming back up, it's going to make their job that much harder
04:40 on cutting interest rates, which means that we could still see a further slowdown ahead.
04:43 So I think that's probably the bigger theme we're going to see here.
04:46 But energy is a play.
04:47 I think it's a wonderful hedge to have in your portfolio.
04:48 Yeah, Courtney brings up a really good point in terms of like the Fed positioning and how
04:52 they're going to handle this.
04:54 I think this is actually very challenging, because not only is it a matter of oil increasing,
04:58 even if oil stabilizes, we've seen that portion of inflation decelerate while the rest of
05:05 that basket has continued to climb to the tune of 8 plus percent per annum.
05:09 So I think this is a very difficult situation.
05:11 You know, you saw the jobs numbers the last couple of days that are a bit at odds with
05:14 each other.
05:15 But I think this definitely puts a wrench in the pivot or peak inflation narrative.