Oil prices: Impact of Biden’s Saudi Arabia visit ‘will be marginal, not meaningful,’ analyst says

Rebecca Babin, senior energy trader at CIBC Private Wealth, joins Yahoo Finance to discuss the G7 nations' oil price cap proposal, President Biden's visit to Saudi Arabia, and the outlook for gas prices.

Video Transcript

JULIE HYMAN: So let's talk more about what's going on in the oil patch and in gas as well. Let's focus in on the G7 Summit specifically. A cap has been proposed on the price of Russian oil and pipeline gas, as well as raising tariffs on Russian goods, imposing new sanctions on officials supporting Russia's war on Ukraine. For more on how all of this is affecting oil markets, let's bring in Rebecca Babin, CIBC private wealth senior energy trader.

Rebecca, it's good to see you. So this price cap that has been proposed, we don't know the details of it that haven't seemed to have been worked out yet. But it doesn't seem like that idea is going to bring any kind of relief to oil prices globally, although that is something that perhaps the likes of Treasury Secretary Yellen had hoped for. It doesn't seem like that's going to be the outcome here.

REBECCA BABIN: So I think you had it right when you said we don't have a lot of details yet. So conceptually, it would bring crude supply back to the market, right? You would lower the price. And you would kind of help Russian supplies move back into the market by reducing the friction costs that were sort of now in place due to sanctions. The reality is, and which is what your second point is, it doesn't necessarily play out like that.

Ultimately, we need Russia to agree to do this price cap. And that might not be in the cards, especially since we've seen Vladimir Putin kind of weaponize energy with gas. You could expect him to respond with, no, thanks. I'll use my own insurance companies and keep pumping crude into India and China, assuming they don't sign on to this agreement or price cap, which they have not done yet.

So, right now, it's more of a wait and see on how it plays out with crude. But I think the more important thing we need to focus on here is pumping more crude or getting more crude into the system isn't necessarily going to provide that relief to consumers at the pump because this is a much broader issue than just where how much crude is available, also about how much refining capacity we have, and can that crude that comes out of the ground be turned into something that's consumable for people and actually lower the costs?

BRAD SMITH: Looking for other entities to increase their oil production as well, President Biden has a very contentious, or at least, scrutinized meeting upcoming with the Saudi Arabian kind of sovereignty, if you will, over there. And so what do you expect to come from that conversation with regard to what we're seeing on the energy front right now?

REBECCA BABIN: So that's a great question. And I think initially, there were hopes that there would be this additional production from Saudi Arabia after maybe a Biden meeting, the olive branch being extended, because obviously, Biden has been very reticent to want to make that relationship more substantial due to the kind of social issues in Saudi Arabia. The reality, again, these things all sound great conceptually.

The reality is, Saudi Arabia and the UAE are bumping up against their, you know, spare capacity constraints. And they're not necessarily able to bring back enough crude overall long enough of a time period to really solve this problem. And secondly, they've been very vocal, leading into these meetings, that this is not a problem they created. They don't believe they should have to solve it. And, secondly, they think it's a refining issue, not necessarily a crude issue.

So I think we'll get some glossy headlines about working together and being there to support the market. But ultimately, again, I think this is kind of a tough one to really put into the markets and actually get relief for consumers.

JULIE HYMAN: So, Rebecca, I know you're an oil trader, not a political strategist. But it sounds like you're saying that the Saudi Arabia meeting is kind of pointless.

REBECCA BABIN: I wouldn't say it's pointless. I would say that the impact will be marginal, not meaningful. And it is good to have these relationships dialogue open up for the crude markets because we want to have that relationship in place. And we want to be able to tap into spare capacity if we need to, if another supply situation occurs.

But it's marginal. It's not going to move the needle enough to change what consumers are feeling at the pump. These are all efforts that have these tiny, little, incremental impacts. But at the end of the day, we need more production coming from the US, more investment, and additional refining capacity. And none of those are easy fixes. We just don't have it.

BRIAN SOZZI: Rebecca, on your mention of prices at the pump, they have come down from their highs a couple of weeks ago. The broader stock market seems to like this. Now, can that decline continue?

REBECCA BABIN: So, the way that decline potentially continues is if we see a drop-off in demand. And I would note that the prices at the pump have come off by maybe 2%, 3%, whereas the prices of commodities have come off 10% to 15%. So it hasn't been an equal relationship there. And unfortunately, I don't think we're going to see this gap lower in prices at the pump because demand has remained pretty resilient. And we have China starting to reopen. And I just don't see that downdraft continuing.

And I just don't-- I don't think that we have the refining capacity to put enough product on the market and really cause a massive sell-off. Can we dip a little bit? Sure. Is it going to be enough to kind of get us back to $4.50? I don't think so.

BRAD SMITH: Rebecca, always a pleasure to get some of your insights and expertise around this oil and energy broader equation and calculus that we're tracking. We know you are as well. Rebecca Babin, senior energy trader at CIBC Private Wealth, thanks so much.