Oil: Another production cut next week is ‘in the cards,’ analyst says

Lipow Oil Associates President Andrew Lipow sits down with Yahoo Finance Live to talk about speculated OPEC+ output cuts ahead of its December meeting, as well as discussing Chevron's decision to resume oil output in Venezuela and U.S. gas prices.

Video transcript

[AUDIO LOGO]

JARED BLIKRE: Welcome back. The COVID protests in China are not only weighing on stocks, they're also impacting commodities as well. Oil sliding to $74 a barrel earlier, hitting its lowest point in nearly a year. But prices climbing off this low after the afternoon of report that OPEC Plus will seriously consider new production cuts after its meeting on December 4. Joining us now is Andrew Lipow, Lipow Oil Associates president. And, Andrew, great to see you here. Let me ask you, just your-- what do you expect out of OPEC Plus next week? Any chance-- any chance of a change in their policy? We got some rumors a couple of weeks ago to one end, and now they might be flipping. Where do we stand?

ANDREW LIPOW: Well, I originally thought at the upcoming meeting, they'll actually keep the status quo, as we saw oil prices had been stabilizing around $80 a barrel. But now with these additional lockdowns in China and the spread of the COVID virus throughout their country, people are concerned about demand. In fact, people are forecasting to revise downward China's demand for oil by over 500,000 barrels a day this year.

And as a result, we've seen OPEC Plus, especially Saudi Arabia, take a proactive stance in trying to support the oil prices given its recent production cut of 2 million barrels a day last month. So I think it's in the cards that we could see another production cut coming up next week. But in addition, we do have the Russian sanctions that are supposed to be going into effect by the European Union on December 5. So they may actually take a wait-and-see attitude until their January meeting.

DAVE BRIGGS: And of course, you have the G7 price cap on Russian oil. What do you expect the impact to be of that change? And that's, I think, a week from today.

ANDREW LIPOW: Well, that's exactly right. It's on the same day as the European Union ban goes into effect. And what we're hearing is talk of a price cap of around $65 to $70 a barrel. But that price cap is higher than the current sales price of Urals crude into Europe or into Asia of around 60 to $64 a barrel. So the market is actually not anticipating that much of an impact. In addition, we've seen the sale of numerous older tankers that we describe as going into the shadow fleet that would be willing to lift Russian oil and deliver it to China and India and elsewhere to circumvent the European Union sanctions.

JARED BLIKRE: Want to ask you about Venezuela. As I hinted before in the open, Biden administration giving the green light to Chevron to pump some more crude out of there. But Venezuela has some of the largest reserves in the world. There's a lot that could be done there. What incremental change is this going to have, if any?

ANDREW LIPOW: Well, given the decrepit nature of the Venezuelan infrastructure, we shouldn't expect any significant change for a number of years. But I do think that Chevron, through its own production, could add 80,000 to 100,000 barrels a day of production over the next couple of months. And that production is going to go to refineries on the Gulf Coast.

DAVE BRIGGS: So we just talked about numerous geopolitical events. How will all that impact prices at the pump here in the US and as well as diesel prices?

ANDREW LIPOW: Well, there is some good news for the consumer, especially when we saw crude oil prices hit nearly a one-year low this morning. I expect that the current national average of $3.55 a gallon for gasoline will decline another $0.10 a gallon over the next week. And by Christmas, we actually could see gasoline prices be lower than last year's Christmas price of $3.29 a gallon.

JARED BLIKRE: All right, we're going to have to leave it there. But thank you for that, Andrew Lipow.