Andrew Lipow, President, Lipow Oil Associates, joins Cheddar News to forecast how energy prices will be affected by OPEC+ and Russia's natural gas shutoff to Europe, and how it may impact inflation.

Opening Bell

Looking Ahead at Energy Prices

joining us now is Andrew and paolo paolo Oil Associates. And you got to have you on this morning. Let's go to the basics for a second one of the main variables that determine if oil prices are gonna go up or down Well, we always think about this on a supply and demand basis and when we think about natural gas, which prices have doubled over the last year. The reason is if we look at the record high temperatures we've seen across the country this summer, that's translated into increased Electricity demand for air conditioning and that electricity, 38% of it is coming from natural gas. And as a result, the industry has not been able to build its inventory of natural gas as much as it would like for this upcoming winter season. We know that President biden has coordinated with other nations to unleash oil from strategic reserves. Also a forthcoming deal with Iran could bring Iranian crude oil back to the market that should be able to bring prices down. I would imagine. Do you think those factors in totality then, actually point to that sign that maybe we do get prices coming down well, um I think there's some good news on the gasoline front, Of course, the ending of the strategic petroleum reserves is about a million barrels a day. And if sanctions were eased on Iran, we would expect to get just over a million barrels a day. So both of those would balance each other out, but around the world. We actually do have this energy crisis where energy demand is going up, not only here in the US but in Europe and especially as Russia has cut off 25% of its natural gas supplies to Europe and Europe is phasing in their ban on the purchase of Russian refined products in a similar vein. Kind of adding to the mix of this picture. We know Opec Plus decided that it's gonna side with Saudi Arabia to potentially reduce oil output. Saudi Arabia then says it might need to to stabilize, needs to stabilize the actual markets. Do you agree with this or do you think this is partially a response to the potential us deal with Iran? Well I think it's partially in response to a potential deal with Iran. But in addition I think that Opec Plus is nervous about these high energy prices causing a recession around the world. Again, if we look at europe natural gas prices are 10 times that of the United States and electricity prices in Germany or triple that here compared to the U. S. So the consumer certainly is going to be stretched in the european union, we're seeing industry starting to cut back and of course that can have a ripple effect around the world, sticking with that then in terms of, you know, natural gas in europe Russia obviously cutting that off and more of that, we understand expected this winter if here in America, we're worried about it if you're european right now, you're bracing for what could be, you know, extremely higher rates when it comes to your heating bills Also. You know, of course, you know, oil in europe more broadly for for heating homes in the winter. What do you think though? The impact again back here in the U. S. Is going to be? Well, certainly we get impacted on the diesel fuel side, which translates into higher home heating oil prices as diesel prices are up 50% compared to this time last year. But I can tell you from my personal experience, when I look at my natural gas bills for this upcoming winter, they're going to be 40% higher than last Winter. And in addition here in Texas, electricity rates have continued to rise and compared to January, they're up about 25%. So unfortunately for the consumer, they're going to have to be prepared to pay more and utilities costs. And that is going to offset the savings that they've recently seen from lower gasoline prices as it offsets that saving. It kind of makes me think about, listen, when we look at any sector, we know typically there's a ripple effect of what happens in one sector to other sectors of the economy with that, what other parts of the economy are poised to see the most impact from energy prices for better or for worse here? Well, if I think about the food industry and the growing of wheat and corn and soybeans, they're all affected because the cost of fertilizer is going up substantially since fertilizer is made from natural gas and then you add to it. We've got to move all those crops to market, whether it's a factory to a distribution center to the grocery store, all consuming diesel. In addition, all of those consumer goods and services that are delivered to your house, whether it's ups amazon or Federal Express, they're all using diesel fuel to deliver them. And as a result, these higher prices mean fuel surcharges for trucking activities. It's such an interesting kind of, you know, sector to, to focus on right now in terms of your broad outlook here on demand when it comes to energy. What is that looking like this year? Well, I think that while gasoline prices have come off from their peaks, I think that the consumers change their driving habits. I expect that gasoline demand for the rest of the year will be off 3-5% compared to this time last year. But as these prices go higher and higher around the world, we see more demand destruction, especially in countries like Pakistan or Bangladesh where they simply don't have the money to afford the energy. And you hear about rolling blackouts. We don't have that here in the United States. But it gives you an idea of what's happening in the rest of the world. And perhaps a heads up on what could if in worst case scenario potentially happen here at some point. Andrew really appreciate your time and your insight. Andrew. M la pau with low power oil associates.