Oil prices (BZ=F, CL=F) have begun to trend upward after 4 weeks of losses ahead of an OPEC+ meeting this weekend. Geopolitical conflicts, production cuts, and easing US sanctions on Venezuelan oils have contributed to downward price moments. Does this mean there is an opportunity for investors to buy in?
Marketgauge.com Chief Strategist Michele Schneider joins Yahoo Finance to discuss her recent note on crude oil and how it’s the new gold buy (GC=F).
Schneider puts commodities in perspective to understand oil her stance on oil: “Everybody got so negative on the oil because there was a 20% drop, and I think that’s what’s so dangerous when you talk about any commodity. Particularly over the last few years when commodities have become all the rage. It’s not understanding the volatility that commodities bring to the table, and 20% corrections are not unusual. Volatility is not unusual, so the reason I mentioned it as the new gold is because what we have seen with gold recently was also a huge drop, about 20, 25%…”
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
RACHELLE AKUFFO: Oil prices are edging higher after a four-week streak of losses. Now, this comes ahead of an OPEC+ meeting this weekend. The big question, will members, including Saudi Arabia and Russia commit to further supply cuts? According to a report from Reuters, the cartel’s members are considering it.
So what can we expect from the oil markets ahead of the meeting? For more on this, Michele Schneider, marketgauge.com chief strategist is here. Good to see you, Mish. So we’re in an interesting time here. I know in your last note, you had “oil, the new gold buy. Buy when there’s blood in the street.” Does that still hold ahead of this OPEC+ meeting?
MICHELE SCHNEIDER: Well, certainly, it was the case last week, Rachelle, when everybody got so negative on the oil because there was a 20% drop. And I think that’s what’s so dangerous when you talk about any commodity, particularly over the last few years when commodities have become all the rage, is not understanding the volatility that commodities bring to the table. And 20% corrections are not unusual. Volatility is not unusual.
So the reason why I mentioned it as the new gold is because what we’ve seen with gold recently was also a huge drop, about 20%, 25% everyone left it for dead. And then whammo, it’s when there’s blood in the streets, gold continues to then get a bid and the same exact thing happens. So there’s fundamental reasons for why the oil is up here. What we don’t know yet is those same fundamental reasons going to be a reason why we can get back up over 80 to even $90 a barrel. We could just be ranging right here.
RACHELLE AKUFFO: And what would that range like? I mean, as we look at WTI right now, it’s currently at $77.86 a barrel there. But we know at one point, we were looking at expectations of $100 to $150 a barrel by some calls by the beginning of next year. How do you see the oil market playing out from here?
MICHELE SCHNEIDER: Well, there’s so many factors, so let’s talk about it. You mentioned OPEC+ plus at the beginning, and that’s clearly going to be a factor. There’s BRICS. There’s still a lot of talk out there about pricing oil in something else other than US currency. That, of course, would have its own implication. There was obviously stress because people thought last week, we were heading into a recession.
Labor going down. Housing going down. Some of the manufacturing numbers not showing so robust. People were saying the demand is done. And of course, gas prices have come down a lot too. That’s also been a weather factor and huge supply there. But the supply in oil is still iffy besides the OPEC. We also have the floating storage rates. And that’s how much crude is actually on floating storages throughout the seas. It’s at a 2 and 3/4 year low.
But I think one of the most important things to keep your eye on here in terms of what’s going to happen with oil prices is the SPR. And right now, the US has not necessarily refilled what they were supposed to. They were looking at $70 a barrel. It got down to $72 which is why I thought my turn. But also, they’re looking at sour crude.
And people keep talking about WTI and sweet crude. But sour crude is really what is essential in heating oil and in diesel. And there isn’t a lot of that. So we have these outside of the geopolitical risk, obviously. We have these other factors that could keep oil at least trading, I’d say, above $70. And maybe we can get to $100 if something more catastrophic happens, but I’m not looking for big moves there. To me, the future of inflation is coming more from food.