Oil trades near 10-month highs: Where could prices go from here? - Yahoo Finance

Oil trades near 10-month highs: Where could prices go from here?

Crude oil is trading near 10-month highs. OPIS Global Head of Energy Analysis Tom Kloza tells Yahoo Finance Live that he doesn't think that oil prices are going to go that much higher, however, he cautions that prices could rise again given the high prices of heating oil, diesel, and jet fuel. On a positive note for consumer though, Kloza states that most of the rise in gasoline prices have "already occurred."

Video Transcript

SEANA SMITH: How much higher do you think we're headed from these levels with crude right just above 87 bucks a barrel?

TOM KLOZA: I don't think we're headed that much higher on crude oil. I think crude oil prices have done the easy work of going up about $16 or $17 a barrel. They may get tugged higher, because we have very, very high prices for heating oil, diesel, and jet fuel. And that will be the next chapter. I think most of the increases in gasoline have already occurred. And we're likely to see lower prices in the last 100-plus days of the year.

But boy, if you by the middle of the barrel right now, that middle of the barrel has really been choked. We're running a lot of light sweet shale crude. And you make a lot of gasoline with it, but you don't make a lot of diesel and jet fuel. And that's what the world is short of.

AKIKO FUJITA: When you look at oil prices broadly, it certainly feels like the supply side story has really been driving the market, when you think about Saudi cuts. But I'm wondering what you see from the demand perspective. So much being made about China and the slower growth that we're seeing there. To what extent do we see a further pullback as we see that largest market being pulled back even further economically?

TOM KLOZA: Well, China's been a disappointment. And now that prices are considerably higher, China probably will be importing less crude and exporting more refined products. I mean, their housing business is in a shambles. So it may take a long time. The first time we'll get an inkling of how things are getting repaired might be in November.

But we are seeing other emerging markets using more gasoline. India has been gangbusters. And Latin America has been gangbusters for US refiners. US refiners are able to supplement minimal demand or subpar demand in the United States for gasoline and diesel by shipping products to Latin America. And that could actually get accentuated in the next month or so, because Russia is apparently undergoing a lot of maintenance on its stateside refining. And that they've been a big supplier to South America and particularly Brazil.

SEANA SMITH: Tom, how worried are you just about the hurricane season here what that could potentially look like and the impact it might have here going forward on crude prices? Because the storm so far, at least, we've been able to avoid most of the disruption in supply that we had been bracing for.

TOM KLOZA: Well, I live in Fort Myers five months of the year. So I'm really worried about the hurricane season. I can tell you that. I would say that so far, we've dodged a bullet. But you know, it used to be that the Strait of Hormuz was the choke point for the world, where 20 million barrels a day of crude would go through. Nowadays, the US Gulf of Mexico is a close second. There were some summer weeks where we exported upwards of 12 million barrels a day of crude oil and refined products. Again, a lot to Latin America.

So far, so good. I would say, though, that Hurricane Lee, if you watch those spaghetti strands right now, now there's a fettuccine strand that looks like it's going to go up to the Canadian Maritimes. And there's probably the most critical refinery for gasoline. And diesel futures is located in New Brunswick, Canada.

AKIKO FUJITA: So you know, Tom, moving forward, we were just showing what the average gas price is right now. I mean, are we approaching that $4 mark you think?

TOM KLOZA: No, I don't think we're going to get to $4. You know, this Friday, the specs change for gasoline in probably 49 or 48 of 50 states. And what happens is the recipe for gasoline changes. And you can basically blend in other hydrocarbons, like butane and NAFTA natural gasoline. They're much cheaper than motor gasoline. So you can actually accentuate the volumes and cheapen the prices.

So that happens Friday. I think we can look forward to lower prices and the rest of the year. California is a little bit different, because they have to use a summer grade gasoline through Halloween. Last year, we saw prices go above $6 there in early October. And the administration, through the Environmental Protection Agency, acted to alleviate some of those specs.

So I think the worst is over for gasoline. And again, we're going to be running so much light sweet crude. It tends to have a high yield of gasoline, just doesn't tend to make enough diesel, heating oil, and jet fuel.

SEANA SMITH: Tom Kloza, always great to get your perspective, Opus Global Head of Energy Analysis. Thanks.