Gas prices: 'You see changes in behavior at about $4 per gallon', strategist says

Bob Iaccino, Path Trading Partners Co-Founder and Chief Market Strategist, joins Yahoo Finance Live to break down the rising demand for oil amid cooling gas prices, as well as looking at supply in European oil markets.

Video transcript

DAVE BRIGGS: Oil also on the move today. After hitting their lowest point since January earlier this week, oil prices have bounced back a bit. WTI and Brent both up more than 2 and 1/2 percent on this day.

Bob Iaccino is the co-founder and chief market strategist, Path Trading Partners. Good to see you, sir. You made $100 million in college, right? Who didn't.

BOB IACCINO: I haven't made $100 million total yet.

DAVE BRIGGS: Yet.

BOB IACCINO: Working on it.

DAVE BRIGGS: Yet is the key. All right, so let's talk about those oil prices. What is bringing them back up? And where do you think we'll settle as we wind up the driving season here?

BOB IACCINO: Well, number one, I think this is a pretty normal reaction to the big selloff we've had since those-- you remember the $130-- and I believe it was-- $0.40 high that we got spike just after the invasion of Ukraine. But crude oil prices have been rising generally based on a lack of supply and a spike in post-pandemic demand.

We saw on June 24, the refinery utilization numbers, which is something I always look at that people, I don't think they look at enough, peak at a little bit around-- right around 95.9%. For people that don't know, that's the amount of the total capacity that a refinery is using to produce the distillates and the fuels that you need.

95.9% is a pretty high rate. That was the highest rate we'd seen since prior to the pandemic. That has dropped a little bit, which is showing a little bit drop in demand. But over the last couple of weeks, it's actually started to creep up. Demand has started to creep up just a touch as prices at the pump have fallen.

So I really just think it's a balancing act now. You still have that desire of people, after being cooped up for two years, to actually use fuel and get out, whether it be a flight, a cruise, a drive somewhere.

And then you have that in the process of industrial use as well. But those higher prices really put a damper on that demand in the short, short term. They've come down quite a bit. That's been a good thing.

SEANA SMITH: So Bob, where do you think the price of crude though, is going if we look out a little bit further, maybe into the fall, because here we are today right around $90 a barrel? We had a couple of guests on earlier in the week who were saying that it could actually return to that above $100 a barrel in the not too distant future. What do you think?

BOB IACCINO: Well, I think that's very easy to say when you've got two days of rallies. I still have a target of about $64. That hasn't changed. Now, that's in response to an increase in production by OPEC. Granted, they haven't been reaching their production targets. So the verbal increase isn't as much as the actual increase.

The fall in demand that we get as the summer driving season comes to an end as well as, regardless of how much prices have fallen, we're still around $4 a gallon. That's a pretty high level. Those are the levels where you see carpooling.

Let me just make it a shorter phrase. You see changes in behavior at around $4 a gallon. So I still think the overall pressure is to the downside. I think the market's been slightly surprised by the lack of inventories, especially here in the US. But that's about to change as we get out of the summer driving season. I think it's actually begun to change. I think we'll see refinery utilizations fall off. And I think that $64 target will be reached.

It's a long ways away. And it's not really a negative for the economy. So not only I think we'll reach it, I hope we'll reach it.

DAVE BRIGGS: And speaking of that, once the summer driving season ends-- we talked to Stephen Schork earlier this week about where the price of gas is heading. And he believes around $3.50, come the fall. Is that realistic?

BOB IACCINO: I do think $3.50 is realistic. And again, that's still almost $1 higher than we were in, say, 2018. So it's still not good news. But this is one of the places that, actually, supply and demand is the only factor.

What the Fed does is not going to affect fuel prices. It's not going to affect food prices. This is simply a supply and demand calculation. And again, as we have this service inflation that's going to be sticky, it's liable to change behaviors in places like gas demand, for example. That's somewhere where the behavior is going to change, and it's going to stay that way for the foreseeable future.

SEANA SMITH: Hey, Bob, looking out ahead to December, we also have the fact that the EU will impose the ban on Russian imports here in terms of crude. What does that mean for us here in the US? I guess how big of a factor do you see that being in the price of oil?

BOB IACCINO: What's interesting, so we saw China and India buying basically every bit of crude oil that Russia could sell them. And it still didn't fill their entire demand. We still had crude oil going from OPEC and going from the US to both of those particular markets. So if they ban the full effect of that crude oil, it's likely to be absorbed by India and China, not likely to affect prices, at least not to the upside. And that's been what we've seen.

There's also ways to sort of divert from those sanctions and avoid those sanctions. So I don't think Russian crude is coming off the market. And one of the problems that we had with crude oil priced as high as it was is that, even though Vladimir Putin needed to discount his crude oil to sell to China and India through direct channels-- China and India were not-- they weren't following the sanctions. They weren't part of the sanctions. So he discounted the crude, but he was still getting about $20 a barrel more than he was prior to the invasion, even with the discounts.

So I don't think it's going to affect the overall global supply at all. I think what it's going to do is add to inflation because it's going to affect the cost of fuel in the EU. So global inflation is going to suffer. But I don't think the overall crude supply-demand dynamics are going to change that much.

DAVE BRIGGS: And finally, natural gas, we saw earlier this week, hit a 14-year high before coming down a little bit. Where is that market headed?

BOB IACCINO: Yeah, that market's a little bit of a problem. I have a client in the EU who actually works in energy. And he said that they have enough to get through the winter. Let me rephrase this. He told us two weeks ago that they had enough to get through the winter if Nord Stream was turned back on. And then the flow through Nord Stream was restricted.

So you're seeing people already starting to sort of hoard natural gas. The EU is trying to store natural gas. We had a record high in European gas today while we went through two days of lower natural gas prices here in the US, not substantially but still negative numbers next to the US natural gas price. So I suspect that's going to be a real issue.

And we had a refinery shutdown here, an LNG refinery shut down in the US, which restricts the amount of help we can send to the EU. So I worry about that. It's not something I think people should be speculating in because I think the volatility is going to be massive, at levels that we haven't seen, and that volatility is more likely to the upside, unfortunately.

SEANA SMITH: Bob Iaccino, always great to get your perspective. Thanks so much for joining us, co-founder of Path Trading Partners.