Oil moves higher to end tumultuous week

Yahoo Finance’s Brian Sozzi and Alexis Christoforous speak with Vandana Hari of Vanda Insights to recap the week of oil market turmoil.

Video Transcript

ALEXIS CHRISTOFOROUS: It has been a pretty dramatic week for oil, to say the least, as we saw prices turn negative briefly for the first time in history. Joining us now to discuss the oil markets is Vandana Hari of Vanda Insights. So good to see you again.

Thanks for being with us. So I'm looking at oil right now, up about 2 and 1/2 percent, just at about $17 a barrel. With the week that was for oil, do you think, Vandana, that the worst is behind us?

VANDANA HARI: Well, that would be hard to say. It was quite a tumultuous week, and a bizarre beginning even. So many old timers who've been in the oil market, looking at oil market, just couldn't believe it. WTI trading at minus $40 a barrel.

It has indeed stabilized in the second half of the week. There's also a realization of the market now, while, you know, there's not much hope for demand to recover anytime soon, but there is a realization that the US production might be crumbling quite quickly, much faster than had been expected. So that probably has put a bit of a bottom, and then of course, we have the OPEC normal cuts, which are due to start next Friday, the 1st of May.

So that's kind of put [INAUDIBLE], but it's still a tentative floor. If you ask me, is it possible that prices could go down again, and perhaps even go into negative? I would say, that remains a possibility.

ALEXIS CHRISTOFOROUS: Vandana, you mentioned that the OPEC plus cuts expected to go into effect next Friday. I think they're cutting a little less than 10 million barrels a day. Is there danger here that they might not be able to comply with those cuts, and why not?

VANDANA HARI: Indeed, and that is part of the market's worries. Look, the OPEC, non-OPEC cuts have always been a bit of a touch and go in the sense, will they actually be able to maintain the discipline? Now, it's become especially-- the discipline was reasonably good over the past three years. But it's become very difficult now, because every time a producer makes a decision to cut as part of this coordinated agreement, they have to see prices rise, because you can't give up your revenues by reducing your production and your sales volume, unless it is being offset by you selling less oil, but at a higher price.

But if you look at what's happened to prices, Brent is like $10 below where it was just the day after OPEC made that decision. So you know, the trade off is just not there. So we have to wait and see how things pan out as May starts. For now, it seems, at least Saudi Arabia, Russia, some of Saudi Arabia's Arab neighbors, are fully intent to start with-- you know, with the cuts. But whether it sustains, that remains to be seen.

BRIAN SOZZI: Vandana, what is also bizarre, at least to me, is, while we've seen this unprecedented week for oil prices, oil stocks have not been completely slaughtered. Can you explain to us why that's the case?

VANDANA HARI: Yes. So if you look at what happened to WTI, it's a bit of an anomaly. It was a bit of a technical aberration as well. So what happened was the WTI May contract was going into exploration the following day, which was Tuesday. And obviously, as is very well known now, Cushing, which is where this [INAUDIBLE] contract is delivered, is absolutely [INAUDIBLE].

So either the space-- most of the space is already taken up by oil, and whatever is remaining is already spoken for. So that created a mad scramble in the last couple of days by those who were still holding longs, but could not-- just could not afford to take oil and Cushing to-- the capacity got forced to sell at negative. So that is not completely reflective of the market situation.

If you look at Brent, if you look at other benchmarks, Dubai, Oman, the [INAUDIBLE] benchmarks, they have been doing all right. They've even kind of found a bit of a bottom in the second half of the week. So it's not a surprise that you-- and the other thing is, oil stocks have already been battered quite a bit. So I suppose there's a bit of a breather, a phenomenon going on right now, but could they go down further, the stock prices? Yeah, that's a possibility as well.

ALEXIS CHRISTOFOROUS: All right. Thanks for breaking it down for us. Vanda Hari, CEO of Vanda Insights. Have a good weekend.

VANDANA HARI: Thank you.