Financial markets are driving oil prices right now: Analyst

Oil markets (CL=F, BZ=F) are experiencing a rebound along the broader market and as tensions rise in the Middle East. Sankey Research president and lead analyst Paul Sankey joins Asking for a Trend to discuss the movement and the state of demand in China.

"This latest issue that we're facing between Israel and Iran is not in itself even a new twist to the plot. And in that regard, if you think back to, say, 2019, when Iranian proxies attacked Saudi Arabia and knocked out 7 million barrels a day of capacity, or when Russia invaded Ukraine in 2022, I'm sad to say that the current environment is not very scary for oil supply interruptions. I will say that the markets are quite scary. So the financial markets are really driving oil right now," Sankey explains.

Focusing on demand in China, Sankey says, "It's very hard to see China replicating the growth that they gave you over the last 10 or 20 years." He explains that this is not "the end of the world," but it's certainly lower than previous levels of demand. "There's also question marks over the extent to which China's building inventory behind all this. So maybe that's adding a bit of additional demand out of Asia," he adds. As Iran supplies a lot of oil to China, Sankey is cautiously watching to see if that trade will be allowed to continue: "If Iran is going to continue supplying and isn't interrupted, then we have too much oil. And that's a big reason why we're pretty bearish."

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend

This post was written by Melanie Riehl

Video Transcript

We're also keeping an eye on the oil market today as tensions rise in the Middle East.

Crude prices closing above 73 on the day.

Joining me now is Paul Sane Sane Research Lee Annis.

Paul, it is good to see you and and we'll start right there, Paul.

Certainly, uh, geopolitical tensions escalating in the Middle East.

I'm curious as someone who knows the oil markets backward and forward.

How are you thinking about that, Paul?

Well, you know, I think it's in the context of everything that we've seen really over the past five years, you know?

And so this latest, uh, issue that we we're facing between, uh, Israel and Iran is is not in itself even a a new twist to the plot And in that regard, you know, if you think back to, say, 2019 when Iranian proxies attacked Saudi Arabia and knocked out 7 million barrels a day of capacity, or when Russia invaded Ukraine in 2022 I'm sad to say that the current environment is not, um is not very scary.

For for oil supply interruptions, I will say that the markets are quite scary.

So you know the financial markets are really driving oil right now.

And oil here.

We're We're, you know, just below 73 here, Paul.

I'm just I'm just curious.

Near intermediate term.

Where do you see that headed?

Well, it's a bit to be to be down here, and it doesn't look that low.

Obviously, on a chart 73 as you say, is a decent price.

But the problem that we have with that is that 73 and Q three, which is the best quarter for oil.

You have the highest refining utilisation in the US, and refining margins are just not looking good.

Um, they're not looking terrible, like other markets, but they've come off an awful lot.

And as a result of this being in Q three, we're worried that, uh, there is downside pressure into the second half of the year.

Uh, we we thought you'd be a lot higher at this point of the year.

Um, given the strength of demand, we have, you know, in in September, in August, September, talking about China, too.

Paul, I'm just curious.

Um, not maybe the economic recovery a lot of people were obviously betting on.

What are we seeing there in terms of demand trends.

Well, China is a tough one.

I mean, it's such a big base.

The real issue is that the rate of growth has slowed so much.

So it's very hard to see China replicating the growth that they gave you over the last 10 or 20 years at the margin.

You know, things are sort of noodling around.

It's not as as you've referenced in your previous segments.

It's It's not the end of the world.

But things are off the the the the hottest that they were.

And there's also question marks over the extent to which China's, um building inventory behind all this.

So, uh, you know, maybe that's adding a bit of additional demand out of Asia.

But the big one there goes back to the geopolitics, which is Iran is supplying such a load of oil to China, And will that really allow be allowed to continue?

So we're watching that one very closely as well.

Uh, if if Iran is is going to continue supplying and isn't interrupted, then we have too much oil, and that's the big reason why we're pretty bearish.

And and let me ask you Paul.

We're gonna end here just for viewers at home.

For consumers, they wanna know prices at the pump.

Give your views on oil, Paul.

What does this mean for gas prices again?

Near intermediate term, do you think?

Well, if you still got if you haven't bought an electric vehicle yet, Uh, good news, because I just checked here.

We're about $2.

30 nationwide, which would be, you know, around $3 at the pump for the average American.

So, uh, I don't see it going a whole lot higher for the rest of this year, even with, uh, some some more geopolitical action in the Middle East.

Paul, Great to have you on the show.

Thank you for joining us.

Thank you.