KPMG Global Head of Energy Regina Mayor joins Yahoo Finance Live to discuss oil market swings, supply chain disruptions, and the EU's consideration of a Russian oil ban.
Video Transcript
BRIAN SOZZI: All right, staying on energy markets, they remain near record levels with oil back on the rise today, as we just talked about with Jared. Let's wade deeper into the space with KPMG's global head of energy, Regina Mayor. Regina, great to get some time with you here. Look, the market has been selling off really up until the past few sessions-- the oil market, I should say. How likely is it that oil prices reclaim those highs we saw earlier in March?
REGINA MAYOR: Well, the market's incredibly skittish and volatile, as Jared pointed out. We've seen 15 plus swings within a week, which is an indicator of how volatile it is. There's a lot of upside pressure on price because we are at an eight-year low relative to supply against the five-year average. So any potential supply chain disruption for oil causes those spikes.
I was actually thinking we might be seeing a little bit of calm in the waters because we were talking about Russian gas has been flowing through Ukraine. We're thinking the weather is going to get warmer. So I was actually expecting this week to be a little bit more stable. But then the Saudi facilities were attacked, and the EU is contemplating some more bans. And we see a massive spike again this morning, as we're talking about.
JULIE HYMAN: Regina, you know, the oil industry, oil producers, and those all along the chain here, they're used to dealing with a certain level of volatility. But this is pretty unprecedented, right? So in the folks that you were talking to, you know, we sort of, as outsiders looking in, see this as positive for the industry. But I wonder also what sorts of challenges this is presenting when there is so much volatility in the price.
REGINA MAYOR: Yeah, actually, the industry does not like this kind of thin market environment. It really is very difficult on them in terms of their ability to plan, how they allocate capital, you know, what kinds of challenges you're going to face in their supply chain on any given day. It's not the right environment for them. They would far prefer to see prices closer to 80. This kind of price frothiness is really uncomfortable for a lot of players involved.
That's why I think we might even see OPEC start to make some moves. The UAE came out and said they're going to actively try to produce more. I am hoping that Saudi Arabia will as well. You saw their announcements with their profits that they're going to plow a lot of that back into fossil fuel hydrocarbon production. And so I do think that ultimately, we'll get a handle on this. But remember, these are really long cycle investments, and it's going to take quite a while for these new projects to come online and for our ability to supply more oil production into the market.
BRIAN SOZZI: Regina, I paid over-- I paid $5.05 for premium unleaded fuel over the weekend. And of course, sure, I could have bought the regular unleaded, but I didn't. That's not what my car needs. When might I see some relief in gas prices?
REGINA MAYOR: Well, Brian, I think you're actually at the point where we're starting to see demand destruction. I've been talking to a lot of my colleagues, and the price of gas is influencing where are they going to go, how far are they going to drive, how much gas they're going to use. So I do anticipate that we'll see perhaps some stabilization.
But, you know, I don't think you're going to see that in the short-term because we're heading into summer driving season. We've got summer vacations. The travel industry is anticipating that airline activity will be higher because there's a lot of pent-up demand from the pandemic. And this is when gas prices typically are higher anyway. And we've got crude oil prices that are through the roof. So unfortunately, I think in the near-term, consumers are going to still be seeing very high prices at the pump.
JULIE HYMAN: From where you sit, Regina, obviously, we've seen a big increase in crude oil prices as a feed for gasoline. And there's been sort of some talk in the political sphere discouraging gouging, or what is characterized as gouging, at gas stations. Do you think that that is going on, how widespread do you think it is, how widespread has it been historically, when we see oil prices go up?
REGINA MAYOR: I think the industry's pricing is very transparent. I mean, it's a commodity-based business. And consumers have the ability to make choices. Let's recall that a lot of what's in a gas price is a gas tax. And you've seen a couple of states actually say, we're not going to charge those gas taxes to make it easier on the consumers. So I really don't believe that there's any gouging going on, although I know I'm an advocate for the industry, so you might expect me to say that.
I do think we have to remember that this industry faced negative oil prices. Just two years ago, April 20 of 2020, crude settled at negative $37 per barrel. So the industry is grappling with these wild swings and is trying to figure out how do we supply folks while we're actively moving toward the energy transition and driving the electrification of transport, which your prior guest was speaking about. So it's all of these headwinds that the industry is facing. And they're really working as hard as they can to get the products to the customers as best that they can and at the best prices that they can.
BRIAN SOZZI: Regina, does gas staying above $4 a gallon for regular unleaded, is that recessionary for the US economy if it stays at these levels for the next few months?
REGINA MAYOR: I don't know that it's necessarily recessionary because we have all these other factors with commodities and the price of food and all the inflationary pressures that we're seeing. But above $4 per gallon, you do see the American public change their driving habits. And we do actively see demand destruction. So I think that's one of the things that helps the overall tightness of supply, is when we see demand start to dip back down.
BRIAN SOZZI: All right, we'll leave it there for now. KPMG global head of energy Regina Mayor, good to see you.
