Oil prices could become ‘a little disjointed’: Analyst

Rich Pontillo, Nasdaq Senior Energy Analyst, joins Yahoo Finance Live to discuss outlook on the energy market.

Video transcript

KRISTIN MYERS: Let's continue this conversation on oil with Rich Pontillo, NASDAQ Senior Energy Analyst. So Rich, I want to start with those gas shortages, those prices at the pump that are surging higher. I think the main and number one question for most folks out there is, how long is this going to continue, and how bad could it get for consumers at the pumps?

RICH PONTILLO: Thanks for having me. Good afternoon. So I think there are a couple of factors at play to consider right now.

There's definitely room to-- or more pressure to the upside on oil prices in the near-term. We're heading into a very strong seasonal period into the driving season, the summer driving season post-Memorial Day. So the expectations are that while oil prices right now are kind of holding steady around $66-- as Jared just mentioned, around two-year highs-- their expectations over the next month or two heading into the summer season that there is a little bit more risk to the upside right now.

We just got out of this past first-quarter earnings season. And the majority of the US-based producers continue to exhibit and state that they will not be rushing to increase production into a higher oil price. So that too will contribute to potential upward pressure on the price of oil. Add to that the fact that, of course, vaccine rates are rising in the US. New cases of COVID-19 are continuing to decline in the US. Again, all of those factors portend to, again, a little bit more risk to the upside for oil prices.

KRISTIN MYERS: Absolutely. I know what you're saying here about the risks to the upside. I'm curious to know how badly or how much longer some of those factors really could prolong the pain at the pump, as you're mentioning oil producers cutting production, not increasing it. More and more people are hitting the roads, trying to take to the skies. I know jet fuel prices have been a little bit depressed lately. But more and more people are starting to travel again and starting to fly again.

Now of course with these gas shortages, folks are now taking to hoarding gasoline when they go and fill up at the pump. So I mean, just realistically, pragmatically, how bad could things really get now that we have a combination of all of these factors really hitting at once?

RICH PONTILLO: Yeah, I think-- you know, usually again, if you look at historically the price of oil, it tends to top out right around kind of July, August. And then you kind of have the Labor Day holiday tends to be kind of the climax of oil prices. Then following Labor Day, that's usually when you see the price of oil start to plateau and then work its way downward into kind of the shoulder late fall and winter period. So you know, I think for the next probably three months or so, that's going to be the range where we'll see prices continue to rise.

Of course now, what can possibly offset that? We're kind of in this tale of two cities in terms of the pandemic, where you see here domestically in the US you're seeing, as I mentioned before, vaccine rates are increasing. New case rates are declining.

However, you look overseas, of course, it's been widely publicized about the case rates that are going up in India. You're seeing other parts of the world are starting to experience higher rates of new COVID-19 infections. So the prices could become a little bit disjointed. But certainly here within the US, as I mentioned before, some of those factors still will contribute to probably, if not a little bit of a higher, gas price. Again, it will probably have to be there for probably a couple more months until about August into September.

KRISTIN MYERS: I want to ask you, Rich, about another factor, which is actually Iran potentially re-entering into the oil market. Now, it is a return that folks are saying is going to be gradual, not a lightswitch return. But there's already a glut in the market. As you were mentioning, those oil producers really trying to keep a lid on the production. So how much could that reentry, the potential reentry really weigh on the sector going forward once they really start putting out those barrels?

RICH PONTILLO: Yeah, no, it can. You know, this has been kind of an ongoing factor that the market's been watching now for many years. So I think the market has become a little bit more prone to being able to absorb at least kind of the saber-rattling. And then of course, if new barrels are proven to come onto the market, they tend to be more short-term impactful in terms of maybe for the first month or two. And then little by little, the market seems to be able to absorb those.

So while I don't want to downplay the possible adverse effect that that can have, I think some of the other factors might have a greater medium- to longer-term bearing on the direction of oil prices. But still, nevertheless, Middle East conflict-- not that this is necessarily conflict, but any types of shifts in policy or actions that occur, of course, in that region of the world are always closely watched by market participants.

KRISTIN MYERS: All right. NASDAQ Senior Energy Analyst Rich Pontillo. Thanks so much for joining us today.