Bob Yawger, Mizuho America executive director of energy futures, joins Yahoo Finance Live to discuss what to expect with the oil and natural gas market in 2022.
Video Transcript
KARINA MITCHELL: Bob Yawger is executive director of energy futures, Mizuho America. Bob, thank you so much for joining us today. So you heard it there, prices continue to skyrocket, up about 15% for the month. Where do you see crude headed by this summer? And what are the key upward pressures on pricing? Supply is tight, and some OPEC+ members are finding it hard to fulfill their targets.
BOB YAWGER: I think that will be in this kind of area here. We may trade close to $100. We may trade through $100 between now and summer. As long as the Russians are threatening to move into Ukraine, this market is going to stay bid. They are the second largest crude oil producer in the world after the United States. They produce a good 10 million barrels a day. If that's sanctioned or if there's trouble moving barrels on their pipelines, if their pipelines are attacked or sabotaged, that's going to be a major problem for oil market that is already rather tight.
So, yes, I think that we are in overbought territory right now. We're in RSI overbought territory. We may get a small pullback here. It's just so many specs are loaded up on the long side of the equation here. There's really nobody left to buy it, to a certain degree, against $88. But I don't think we'll pull back very far. And I think we may see some more upside here.
KARINA MITCHELL: Well, if sanctions are actually imposed on Russia over Ukraine, what does that do to the overall energy market? Obviously, Europe is very tied and needs Russia's energy. How much power does Russia actually have in this equation?
BOB YAWGER: They have a lot of power. And not only that, it limits the options of the Western powers to confront Russia. It's almost economic suicide, to a certain degree, to cut production in Russia or deliveries to Western Europe. So that's tough. I know the German government has been taking a lot of heat because they do not appear to be fully on board here with the sanctions regime as far as energy is concerned.
But they rely on the Russians more than anybody else. And for them to impose sanctions on the source of their energy, that's a tough call for them. We'll see what happens there. But yes, they can throw their weight around, or they can put pressure on other countries not to impose sanctions on them.
KARINA MITCHELL: And back here at home, Bob, natural gas is a popular way to heat homes in the US. We just came through a blizzard in the Northeast. What do you see as far as we go through the rest of the winter as far as natural gas prices? They have been so volatile.
BOB YAWGER: Yes, we've had a nice cold streak here for the last five days or so. Just a couple weeks-- just a couple of days ago, really, 10 days ago, it was looking like storage was going to get through the winter, that we'd have adequate stores, that we'd have excessive storage at the end of the day. The March contract traded below the April contract.
That's basically winter natural gas trading below summer natural gas. That's basically unheard of and should never happen, but it happened for two days in a row on January 20 and 21. And since then, though, we've kind of been on a ripper. We traded to the highest level, $7 and change, on expiration on Thursday, on a wild expiration, I may add, on Thursday. And it's looking like we're going to continue to tick higher.
The temperatures are going to ease up a little bit over the next six or seven days here, but then they're going to start to turn cold again at the end of the 10-day. Generally speaking, the most volatile contract on the natural gas curve is the March contract. That rolled to the front of the curve on Friday. We were up 8% on Friday. We were up 6% on Thursday. And now we're up 5% again today. So this thing is ripping higher for big numbers. And I don't see-- this is just the way it is for natural gas, especially this March contract. People tried to place storage at the end of the year.
They're gauging, are we going to have a lot of storage, and then the rest of the year is going to be healthy? There'll be no kind of urgency to fill storage. Or are we going to draw storage down so low because of the cold and the storm that we're going to have to go get really on our horse here to fill up storage again? So those are the problems confronting natural gas. Right now, it's behaving as if it wants to rip higher. And as far as our RSI is concerned, there's plenty of room for this thing to run to the upside until it runs out of momentum and enters overbought territory.
KARINA MITCHELL: And then what do you see happening to shale production? So many say that that's going to increase. Is it going to be drill, baby, drill once again?
BOB YAWGER: It certainly hasn't been yet. We were at 11.6 million barrels in the last EIA report. That's down 200,000 from three or four weeks ago. So we've peaked out of basically a COVID era high three weeks ago at 11.8 million barrels. We've gone backwards by 200,000 barrels since then. So even against $90 in Brent, upper 80s in WTI, these guys are not stepping on the accelerator. It just ticks higher very slowly. So they're not believers in these big prices here yet, or they're certainly not increasing production to take advantage of it.
So, you know, the MO these days is to return cash to shareholders. They learned their lesson. They don't want their stocks to get destroyed if it all comes undone here. So they've been very disciplined. We're at 11.6 million barrels right now. The all-time record was 13.1 million in March of 2020 right before COVID hit. And then we traded into negative territory after that. It got really ugly. The energy stocks got creamed. And they learned their lessons. They do not want to return to that kind of situation. I think we'll see production tick higher, probably get to 12 million at some point. But I think 13.1 million, the record, is a thing of the past.
KARINA MITCHELL: Hey, Bob, I want to get your reaction really quickly, only about 20 seconds left. Obviously, the midterms coming up. Inflation is a huge issue. President Biden wants to get those gasoline prices down. What more can he do? Because it's not like he can pick up the phone and call Chevron and say, produce more. It's not possible. What does he need to do? And is releasing strategic reserves a good idea?
BOB YAWGER: There's not a lot he can do. There's nothing available. He already tried his best with the SPR. It didn't work. You can't-- there is no sizable SPR for gasoline. It's not like he can do it. So he needs lower crude oil prices so that the refiners can offer lower gasoline prices.
KARINA MITCHELL: OK, thank you. We will leave it there. Bob Yawger, executive director of energy futures, Mitsuho America, thanks for stopping by.
ALEXIS CHRISTOFOROUS: All right, thanks a lot, Karina. Coming up next, the best way to save for--