Oil prices are lower as weak manufacturing data from China and Japan weigh on the demand outlook. This comes as investors brace for this week's OPEC+ meeting on supply adjustments. Meanwhile, interruptions to gas supplies over the past weeks represented an ominous foreshadowing of what Russia may do to Europe this winter. Jay Hatfield, CEO and Portfolio Manager at Infrastructure Capital Advisors, breaks down the state of the global oil demand and what supply constraints mean for prices. 

Opening Bell

Poor Economic Data Adds Concern Over Global Slowdown in Oil Demand

here to discuss is jay Hatfield Ceo and portfolio manager at Infrastructure Capital advisors, j what's your take on the global oil supply constraints and demand right now. Good morning Alicia, it's great to be on the critical element that almost no one fully appreciates in the United States. Is it natural gas? Is trading at the oil equivalent of $360 a barrel from a BTU basis or energy equivalent basis. And what that is driving is a effort to substitute other energy sources in for that huge shortage. And so that's driving up refined products. That's what you see gasoline at high levels with high margins for refining. So that's really the key driver and the other factors that you mentioned are are shorter term and and not as critical opec plus meets on Wednesday to decide september output. I'm curious what do you think we should expect to come out of this meeting? We expect a modest increase. The biden administration's and biden's president biden's visit there clearly um, have made some progress. However, their ability to increase production is quite limited and it's important to note that Russia has some input into those decisions and they're obviously not going to do anything that would favor the United States. Clearly, to your point, the ability to increase production, especially in the short term is limited. Do do you see a scenario where they commit to output increases more more long term? Maybe over the course of the next six months, especially as we get into winter. I think there will be a modest increase, not just in the first month, but over the next six months. But we are projecting the oil stays in the 90 to 110 range while the Ukraine war is going on, there's a lot of cross currents. That's why it's a pretty wide range. But it is interesting because some analysts are calling for $80 oil and some for 100 and $50 oil. So we think it'll be relatively range bound with that natural gas situation being the key bull factor. We are going into the fall. So we'll probably get a little bit of weakness when we go into september october And I think in context, even if we get kind of the modest increase that you're talking about right now. The reality is you look at Europe and the European Union's partial embargo that takes effect by the end of the year. That potentially removes another 2.2 million barrels from the market. I won't even ask, ask if there's a concern because there has to be a concern. But to what degree is the concern that european countries will have supply issues in this winter Due to of course, the war in Ukraine a war that I'll say, we were hoping at the beginning, this would be a month maybe, and now we're going on six months. Well, it's clearly a factor. That's why we had originally raised our range from up by $20, some oil is not getting to market, but the key distinction why I spent so much time talking about natural gas is it's quite easy to ship oil, you don't need to cool it or compress. It so most of that oil that doesn't go to Europe is going to go to Asia India china. So the global supply situation probably won't be impacted that much. And I would contrast that with natural gas when Russia doesn't ship natural gas to europe, then it just stays in the ground or in their storage facilities. They can't they don't can't easily export that to china or India. So that's why the natural gas is really more critical in the short run than european restrictions on oil You were mentioning a moment ago, you know, the potential for $150 a barrel. On the higher side I would imagine um that in context is there any scenario where the US can or even other oil producers adequately handle the global energy supply slowdown without these significant price spikes in the near term? Well, we do think that that cases is not impossible but not the most likely case because what people do forget and we recently lowered our estimated range from 100 to 1 20 to 9200 and 10 and that is a strong dollar is very anti inflationary. The Fed has reduced the monetary base by 15% this year fastest since the Great Depression and that's caused a dollar to be strong which has caused global commodities to drop. So um, price does matter. The higher the price, the lower the consumption, more the supply. So we think that that scenario of 150 is not really in the cards because you will get a very strong supply and demand response. I guess that's a bit of good news, so to speak. Um, you look to the end of the year, what's your outlook on the oil and gas industry overall, as we hit December of 2022, well, we're gonna for now stick to our 90 to $110 forecast. Obviously if the Ukraine were was resolved, Which I don't see any signs of whatsoever. That would reduce our range probably by about $20. But and also during the fall, we might be test that $90 range because there's very little energy used in the fall. But otherwise that natural gas situation is really critical. It's really a failed energy transition by europe. They did not secure enough natural gas. It's important to notice note that natural gas is really the only efficient way to transport hydrogen for hydrogen atoms and just one carbon atom. And so it can be, it has to be compressed and cooled but half as much as hydrogen. So with that shortage going on in Europe, unless that's resolved through the end of the Crane War, then we see energy prices remaining relatively high in this 90-110 range really quickly. You mentioned if there's a scenario which a lot of us are hoping for that the war in Ukraine ends by the end of the year before the end of the year, your forecast would kind of be pulled back by about $20 a barrel. At what point is there any insight in terms of how long before we get back to pre Ukraine levels? Well, I think we're probably um somewhat permanently higher because that a lot of people don't appreciate that europe had a huge shortage of natural gas before the Ukraine war started. They had already peaked at $60 an M. C. F. So there is still a fundamental shortage. So we think that, you know, again $20 down in correcting for a strong dollar maybe without the war you'd be 70 to 90 that's still relatively high. It's not, you know, crazy high. We were well over 100 in 2008. So we think kind of a normal, you know, relatively scarce energy market is going to persist for the next two or three years at least. Alright, interesting. Really appreciate your time and your insight jay, Hatfield ceo and portfolio manager at Infrastructure Capital advisors