Oil expert: With so many barrels being taken offline, "these are the seeds of a mini boom"

Canary LLC CEO Dan Eberhart joins Yahoo Finance’s Zack Guzman to discuss how the coronavirus is impacting the energy sector, as WTI crude tumbles amid storage capacity concerns.

Video Transcript

ZACK GUZMAN: Right now, it looks like crude prices are pacing to break their five-day win streak-- right now off by about 5.5%, trading at $23.18 a barrel. Oil prices did take a bit of a leg lower after we got the update from EIA. Crude production here in the US up 4.5 billion barrels. When we look at that number, an estimated 8.8 million was the number there. Importantly, stocks at the National Storage up at Cushing, Oklahoma, rose by two million barrels-- the smallest increase in six weeks.

That is important to watch. When we look at these numbers, of course, oil prices have been bouncing around. We had the negative move last month. We're waiting to see what happens with this month's contract. Joining us now for more on all of that, as there are so many questions to dig into here, is the head of one of the nation's largest independent oilfield services companies and author of the book "The Switch-- America's Global Energy Renaissance," CEO of Canary LLC Dan Eberhardt joins us once again. And, Dan, obviously we've been talking about the supply, but not just here in the US, but across the globe. What's your take on what we've been seeing as all of this supply and demand continues to turn? What's your take?

DAN EBERHART: Well, so I think that we're looking at April being the low for demand. And we're going to see demand continue to rise. The number I would watch in the short term is the storage number. But in the medium term, I would watch the demand number.

ZACK GUZMAN: Yeah, I mean, that demand number is important as we continue to see states reopening here. And we'll get the updates in real time as that happens. But on the supply side, I mean, you were just talking to me about North Dakota and production there. I mean, these numbers seemingly showed that suppliers here are realizing how big this problem is. The shut-ins are quickly taking effect. What's your take on the shut-ins?

DAN EBERHART: They're pretty massive. I feel like this is a once in a career situation where we're seeing numbers like this. In North Dakota, the monthly production has been around 1.2, 1.3 million barrels. In the last 40 days, 450,000 barrels a day of production have been taken offline. So that's just, you know, an awful, awful lot of production taken offline in a very short amount of time. And I think that we're going to-- these are the seeds of a mini-boom or a boom in oil in Q3, Q4, and Q1 of 2021 in my opinion.

ZACK GUZMAN: Is it wholly dependent, though-- I mean, if that's what we're seeing play out on the supply front there and we've got Russian output down 60% in the first five days of May as well-- so globally, we look at what's going on there-- seemingly supply coming down as well, you got states opening up, is that really the key here when you look at states opening up-- what demand will be not just here in the US, but also in China and around the globe when you think about the glut everywhere?

DAN EBERHART: Yeah, I think we're looking-- we really need to focus on in the short-- if you're a short term trader, I would focus on the oil storage number the next few weeks-- into or through June. But if you're a medium or long term investor, I'd really look at demand. I think the demand is going to come back in the 60% to 80% range. And then we're going to have a longer, slower slope upwards as we try to get back.

It's also worth noting to me that the Saudis have really taken market share in China, India, and the rest of Asia from everyone else while this crisis and while this pandemic has been going on. So they've really been trying to grab market share at the expense of US exporters and at the expense of other OPEC countries while this pandemic has been raging.

ZACK GUZMAN: Last question on the oil front before we shift to the other commodities that I know you've been watching is just the way that last time you were on a couple of weeks ago, you talked about Conoco Phillips and maybe potential here for investors maybe looking at a longer term investment horizon to maybe dig in on some of the energy companies that might be more well-capitalized. You mentioned Conoco Phillips. Stock's up about 20% since you mentioned that. Goldman Sachs also came out-- also pretty optimistic about the stock. Is that still-- is that still holding here as we see crude prices rebound and Conoco jump maybe 20%? Or is it--

DAN EBERHART: Yeah, I think if you're a long term investor, you're going to see the strong get stronger here. So I would say in the integrated names with the fortress balance sheets-- to paraphrase Jamie Dimon-- that's a place I'd like to be right now. A place that I would avoid unless you're really looking to to take a high amount of risk is the service sector. I think a lot of the service sector companies in the oil full service sector are over-leveraged, and they're really going to have shaky balance sheets that might be problematic for them as Q2, Q3 rolls on. And then I think the real sweet spot, I think, to get some good returns if you're willing to absorb the risk is going to be the medium-sized independents-- companies like EOG and stuff like this are going to have an awful lot of upside if you really think that oil demand is going to come back.

ZACK GUZMAN: Well, it's shifting away from oil to some other commodities-- [INAUDIBLE] steel tariffs. Since I know you wrote a letter recently to President Trump about that-- of course, you're highlighting the way that the steel tariffs are weighing on companies like yours. Why are you so interested right now in having the president reassess his stance on steel tariffs in this environment?

DAN EBERHART: So I think Trump is in general right that China cheats on trade. And I think it was good for him to stand up to them. But I think the landscape-- and this is what I talk about in my letter-- the landscape has shifted dramatically, or even seismically. And right now, what we need to do is we need to stave off the depression. And you know, one of the things that's hurting companies like ours is these tariffs-- you know, we're paying something in the neighborhood of $80,000 a month on tariffs and stuff we import from China-- some stuff we manufacture domestically, some we import from China.

But it really is just-- with the fact that it's already raining in our industry, raining in the macro economy, it's really not helpful to continue to play tariffs. I think that Trump should end this trade war immediately to help, you know, medium-sized industrial businesses in oil and gas, but also in other industries, lower their costs a little bit so they can be more competitive and try to dig out of this economic hole that we're in trying to stave off this pandemic. And to me, it just makes good economic sense, and it's let's save the trade war for a different day or a different term or something like that.

ZACK GUZMAN: Yeah. It's a very, I guess, calculated move here as we see President Trump's re-election chances, according to some polls, dropping, and maybe the shift in why he wants to maybe shift the focus back over to China in talking about all the ramifications of the way that they handled this pandemic. But interesting to hear thoughts there from a supporter on the way he's handling the situations. Dan Eberhart, always appreciate having you on the show. Thanks again for taking the time.

DAN EBERHART: Thanks, Zack. Appreciate it.