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.
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