The energy sector has been a ‘complete flip-flop from where we were last year’: Prosper Trading Academy CEO

Scott Bauer, Prosper Trading Academy CEO, joins Yahoo Finance to discuss the outlook on the energy space and the rise in natural-gas prices.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for a look at the energy markets, how oil kicked things off this week. Jared Blikre joining us. And Jared, I see that WTI crude hitting an intra-day high here, highest level in more than two years. Fill us in.

JARED BLIKRE: Yeah. Let's check it out on the Wi-Fi interactive, because earlier we hit $70 for a barrel on the nose and just sold off ever so slightly. We'll take a look at the overnight price action on the Wi-Fi interactive here. And you can see choppy sideways action overall, but not bad. We are continuing to keep an eye on the OPEC-plus situation. We're going to talk to Scott Bauer in just a few minutes about that.

And also, the reopening is going pretty well here. We were talking about AMC and the movie theaters and the box office hits over the weekend, so all signs are pointing toward higher demand. And of course, the return of business travel really going to be that elusive net marginal buyer's and really going to prop up the airline demand later when that happens, probably in the second half of the year, Alexis.

ALEXIS CHRISTOFOROUS: All right. Thanks so much, Jared. Why don't you stick around now for our next interview because we've got Scott Bauer here now from Prosper Trading Academy. And Scott, I want to start with what we're seeing in the options market right now. Lots of options traders betting that crude is going to go to $100 a barrel. How likely is it that that's going to happen and what kind of time frame, if any?

SCOTT BAUER: So there's big time upside options skew right now, as you were just talking about with lots of bets, if you will, lots of volume, up towards $100 strike going out to July, September. So we're seeing lots of IT. Is it realistic to say we're going to get to $100? What the market is pricing in and kind of with the demand destruction that we saw last year out of the picture now really being a supply constraint, I wouldn't say it's out of the question. I'd say it's highly unlikely. But remember, a lot of these people that are buying these upside call options, they don't necessarily need to see the price of oil get that high as long as the price keeps continuing higher and maybe volatility even picks up a little bit, the price of their options are going to increase in value as well.

JARED BLIKRE: Scott, I want to talk big picture here. I see some of the big drivers. We were just talking about OPEC-plus, if ever so briefly. But also in the US we got the President Biden administration largely blocking new drilling activity, and so you could say there is a regulatory aspect to this too. What kind of big macro factors are you watching right now?

SCOTT BAUER: Yeah, you've got oil production here in the US down from 13 million barrels a day down to 11 million barrels a day. That's a huge, huge decrease. And the big oil, big energy, what they're doing is they're being really cautious right now. They're practicing restraint from what they have suffered through over the last year with the pandemic. So you've got that here in the US.

You also have some really disappointing, if you will, news out of China. China import news is their imports on oil are down significantly. And what I'm seeing, what I'm hearing coming out of there is they just don't want to pay the current pricing here. They're more than willing to draw down their reserves rather than importing in at these prices right now. So you kind of have it coming at both ends of the world, if you will. But again, the whole energy sector has just been a complete flip-flop from where we were last year, from basically demand destruction to now supply constraints.

ALEXIS CHRISTOFOROUS: I want to talk for a minute about natural gas. Seems like prices there are starting to show some signs of life. They're back up to levels not seen since, I guess, February. Of course, this is happening just as the weather heats up for the summer. We've also got the Atlantic hurricane season upon us. What's your outlook for natural gas, Scott?

SCOTT BAUER: Yeah, I think we are seeing this come back here and after a lull for a while with, like you just said, the hurricanes picking up here. There's lots and lots of demand for it right now. And then what you're also seeing, another, I don't want to say byproduct, but something to watch out for is what China is doing with Australia also. And in a lot of the commodities coming out of Australia here, that they're having this tiff between China and Australia, that's kind of driving prices up as well. So it's coming into some, I wouldn't say peak season here, but certainly, certainly an outlook here that is pushing prices higher over the next couple of months.

JARED BLIKRE: Scott, I want to talk to you about the Exxon Mobil board situation. Within the last few weeks, big shakeup there. Three new board activists investors on the board, and this was pushed through by Engine No. 1 They had no history of getting involved in oil and gas companies. It was rubber stamped by BlackRock and also the California State Teachers Pension System. What do you make of this in the future for ESG, especially as it relates to some of these big oil companies?

SCOTT BAUER: It's really interesting because with all the green energy initiatives-- and obviously we know what the Biden administration wants to happen here-- it's going to be real interesting what happens not only with Exxon but with the rest of big oil here and how much these new players, these new board members are really going to be able to take hold and not just voice their opinion but maybe change, I don't want to say the culture, but change the outlook over the next coming years. When I say coming years, we're obviously talking 5, 10, 15 years down the road from energy exploration to drilling to absolute output. So this was a big shake-up. This was something that was not expected here. The stock itself probably hasn't moved as much as it may in the future on this, but this is something to definitely watch out for, especially as the Biden administration continues to push green energy.

ALEXIS CHRISTOFOROUS: Where else do you see opportunities? The infrastructure bill we know is still trying to make its way through Congress, but what are some other opportunities in the energy space based on what's in that infrastructure spending plan, Scott?

SCOTT BAUER: If you're looking at specifics-- specific company, specific sectors-- there's actually an ETF out there that is based off infrastructure. And it's combined probably the 20 to 30 largest infrastructure companies you can think of, from transportation to all sorts of different companies, and it's called PAVE. And that's something that I would look at. So if someone didn't really want to just isolate a specific company or a specific sector within infrastructure, that's definitely a way to look at it.

And I think there's a lot of upside there because we're just getting started on the infrastructure plan. We know that there's going to be negotiations going on for a while. This is not something that there's going to be any sort of agreement on, I don't think, in 2021. I think this is going to get dragged on probably to the latter half of this administration's term. So this is going to be out there for a while, and I just think there's major upside to that.

ALEXIS CHRISTOFOROUS: All right. Scott Bauer, CEO at Prosper Trading Academy. Always good to see you.