Paul Sankey, Sankey Research Lead Analyst joins the Yahoo Finance Live panel to discuss the latest on the oil market.

Video Transcript

ZACK GUZMAN: I want to turn to, as she mentioned, gas prices. A lot of people focusing in on that right now. Today, we saw Brent crude moving past 85 bucks a barrel for the first time since 2018. You look at WTI prices. They're above 82 right now. And of course, that is the big question, where prices are going to go from here.

If you ask Bank of America, a little bit playing both sides of the trade, their energy expert there has been calling for a potential move to $100 a barrel for a while. But also on the equity side, the equity analysts saying that the price moves so far are likely unsustainable and that the spike in oil prices won't last long. So, a bit of both sides of the coin there coming from Bank of America.

And for more on that and how people should be thinking about it, I want to bring on Paul Sankey, Sankey Research lead analyst joins us right now. And Paul, I mean, I suppose, you know, we've been talking a lot about a supply crunch here, the potential, of course, for that to change rather quickly if OPEC Plus wants to turn the spigot back on and start pumping. But where do you see prices moving in the short-term?

PAUL SANKEY: Well, I think that the main concern is that we're lacking in spare capacity at a time when global demand is not only recovering from post-COVID, but also entering into winter. And then, as I'm sure you're aware, there's really a global energy crisis around natural gas. And so, we're concerned that there's a tremendous amount of additional incremental oil demand that's going to come, basically dependent on how the cold winter is.

But already, we've had the Saudis saying that they're seeing half a million barrels a day of extra winter demand because of the lack of natural gas globally. So essentially, the demand side is very strong. And as you worry about OPEC spare capacity, the market will begin to price towards demand destruction. It's either going to try and encourage more supply or less demand. And at the moment, given OPEC's in control of the supply side and US EMPs are showing capital discipline, that becomes a question of what point do we break demand. And that price is probably about $120, $120 a barrel, not-- but we don't think we're there yet in those terms. It does depend on winter, of course.

AKIKO FUJITA: Paul, it feels like we're playing a bit of whack-a-mole when it comes to the overall supply picture. We have the IEA coming out with their monthly oil report, saying that a shortage in coal and the natural gas is going to push manufacturers towards oil. That could lead to about half a million additional barrels or-- a day through next year. Does that suggest that the prices we're seeing right now, the higher prices are going to be more sustained going into 2022?

PAUL SANKEY: Well, I mean, the IEA is already behind the curve. As I said just last week, the Saudis were saying we've already got half a million barrels a day. And we're in October. Last time I checked, it's not winter, certainly not here in New York. It's warm. So you are getting colder, particularly in China. So they're way off. They're behind the curve on that half a million barrels a day number. That's guaranteed. That's a lot. I think we'll see up to 2 million barrels a day of extra demand through winter.

The key thing here is that the gas problem is structural. We've got a situation where China needs a lot more gas to offset its huge coal consumption. India's the same. Europe, with a lot of wind, needs a ton more gas. And I mean millions of tons. And all of that together is actually just a structural secular change that's partly related to the energy transition. The use of oil is suboptimal. You don't want to use the oil in power if you can help it. So that's really a function of winter cold and emergency use of energy.

And, you know, I've said that we think there'll be more deaths from energy poverty in the UK this winter than there will be from COVID. We're looking, unfortunately, for the tens of thousands of people to die from energy shortages over winter, believe it or not. It's horrific, but that's how bad the crisis is.

AKIKO FUJITA: Paul, going back to the coal shortages we're seeing over in China, Reuters reporting today that major Chinese energy firms are now in talks with US suppliers to import LNG to try and supplant the coal shortage. What does that suggest in terms of the demand picture for LNG? And how much of that new demand coming online is going to push prices there higher?

PAUL SANKEY: Well, it's as much as you can supply. So, essentially, LNG is completely sold out. The ships are all full. And really, President Trump derailed these big deals that we were just talking about. So there had been underway many negotiations. The Chinese want to buy US LNG, US natural gas. But unfortunately, with the trade dispute that we had with China under the Trump administration, that got derailed. And so now it's back on. And you can look at a stock like Tellurian or if you want an existing stock like Cheniere, those are great plays on this potential for China to sign major contracts.

ZACK GUZMAN: Just lastly, though, Paul, because I'm not sure if I heard, you know, a conviction in terms of where we go from here-- and obviously, it's very hard to predict. But even just hearing Bank of America kind of counteract itself, it seems like a lot of people are on the fence about bold price calls as we move past 85. But as you kind of fix the supply and demand issues here and you weigh it all out, I mean, is there more pressure to the upside from here in your mind? Or do you see things maybe falling back a bit down from here?

PAUL SANKEY: Well, I mean, one of the reasons I work as an independent analyst and not at a big bank is because of the kind of nonsense that you're hearing from a bank, saying, I'm bullish, and the other guy saying, I'm bearish. At least, I get to be bullish. No, we're bullish into winter because as I said, all of this is happening in October. And it's very interesting that it's happening early in the first winter in the post-energy transition, in the post-COVID era. So we've immediately got a major problem.

And we are actually very bullish. We like the US EMPs. We like all the major gas plays out there. And we've been saying that pretty much all year. So until we get proof positive that winter is not going to be globally cold, you stay bullish all the way here right into year round with oil already the best performing sector in the market in 2021 year to date. So I think we'll close out in the lead. Can I just also mention Kenny Lay's roll call tonight on Twitter? Anyone interested in oil, EFT, Energy Finance Twitter, join us at 8:00 PM on Twitter. Thanks.

AKIKO FUJITA: A good plug there, Paul. That's why we like to have you on. You're independent, right? Paul, thank you.

PAUL SANKEY: That's the one, right.

AKIKO FUJITA: Sankey Research lead analyst, good to have you on. I hope to have you back on the show again soon.