Oil prices have room to rise, trader says

Rebecca Babin, US Senior Energy Trader at CIBC Private Wealth, joins Yahoo Finance Live to weigh in on oil market dynamics, calling it a "tricky, tricky market" regarding supply and demand. Babin notes investors are watching China demand and surging US production.

Though supply is expected to grow at a slower pace in 2024, Babin says US suppliers were able to "pull the rabbit out of the hat" last year and surpass forecasts. While supply growth should moderate, she notes investors feel "confident" on the supply side currently.

However, Babin doesn't think oil prices have "peaked" yet. She argues people "overly" fixate on "downside risks" around China and US supply, ignoring potential demand upside. As Babin points out, oil demand was "consistently revised higher" in 2023, a trend that could persist in 2024.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

- How are you looking specifically at oil right now and where the supply demand dynamics are likely to move.

REBECCA BABIN: Yeah. So she brought up a couple great points. And the first is US supply growth. I think when analysts are looking at 2024, there's two numbers they're least confident in. The first is China demand, which they're very concerned is going to undershoot. And the second is US supply growth. In 2023, we saw the US really outperform most analysts' expectations on supply growth based on better efficiency, better use of capital, longer laterals.

So when we look at 2024, we are, and we're hearing this from the companies, they're expecting supply to continue to grow, but it's at a slower rate. And if the US grew a million barrels of supply last year, they're looking at something like 400,000 to 600,000 barrels of supply growth coming out of the US this year.

So that is really a key number. We got burned a little bit last year thinking supply growth would be capped in the US and they were able to kind of pull the rabbit out of the hat and really outperform. And so I think there is an expectation growth will slow down. But if you think about where analysts are looking at crude and looking at that very finely balanced market of 1.3 million barrels a day to 1.6 million barrels a day of demand growth and a very similar amount of non-OPEC supply growth, they're looking at the US as a potential to continue to outperform there.

It's really a tricky, tricky market in terms of nailing down those numbers. But I think most analysts are pretty confident that the market is well-supported and crude fundamentally kind of around that $70 a barrel in WTI. But they're very closely watching what's happening in China and what's happening with the US supply growth.

- So then Rebecca, you mentioned staying in this sort of $70 range. Do you think then oil prices have peaked barring sort of any big movements or as you mentioned, the China factor here?

REBECCA BABIN: I actually don't think they've peaked. And here's the thing. Everyone seems to be very focused on these downside risks. US supply growth, China demand, and really kind of taking their eye off the ball of there are a couple of things that could go right for crude this year. We could actually see demand outperform. And if you look at the demand numbers in 2023, they consistently were revised higher from the weekly data that comes out from the EIA.

So we could continue to see this kind of worrying yourself into a lower market, but then seeing demand come in stronger. The second thing I'd say is we do have the SPR being refilled, they have been more active this year. There seems to be a commitment to continue to be active. And we have a very disciplined OPEC, which I think will absolutely extend their cuts through the first half of '24 and maybe even throughout the whole year, if they need to.

So I actually think the market should be trading closer to 75%, 80%. I think we'll probably see 80% as we get closer to summer when the balance is starting to tighten up and the market is overly kind of worrying themselves on these downside risks on a day in and day out basis.