Rob Thummel, Senior Portfolio Manager at Tortoise, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the impact the coronavirus has had on oil.

Video Transcript

ALEXIS CHRISTOFOROUS: Well, I want to talk oil now. We've been doing it throughout the morning. I'm taking a look right now. Oil at around $20 a barrel. We're looking at a 17 year low. We've got Rob Thummel, senior portfolio manager at Tortoise, with us. Good to see you, Rob. It's been a while. And I want to ask your thoughts on how much lower oil can go. There's a note out this morning from Goldman Sachs, very pessimistic on oil, predicting that we could see West Texas crude in negative territory. What are your thoughts?

ROB THUMMEL: Yeah, so it's a short term versus long term question, right. So in the short term, obviously, we have an oversupply to oil market due to the significant decline in demand that we've seen globally. That needs to balance out. And so to balance that out, we're going to need less supply, ultimately. And so longer term, though, wi-- oil prices where-- in their-- at the current levels don't work for anybody. They don't work for the three largest producers in the world Russia, Saudi Arabia, and-- and the US.

And so in the near term, how low could oil prices go? They could probably continue to decline for-- in the short term until we get to be-- the markets to be a little bit more in balance. But longer term, we're going to need higher oil prices in the $40 to $50 range. And-- and that will be good actually for the consumer to have these low oil prices.

BRAIN SOZZI: Rob, can you-- can you frame for us the coming earnings season for some of these oil names? Let's say, look at the majors, like an Exxon Mobil or a Chevron. What should investors expect?

ROB THUMMEL: Yeah. So-- so-- so obviously we're near the end-- the end of the first quarter. And frankly, you know the oil price has probably been on average a little below $50. So you probably won't get much out of the first quarter earnings season. But the thing that investors are going to be looking for from Chevron and Exxon is not necessarily the earnings, but obviously the outlook. In the outlook specifically to two things, capital expenditures and, number two, the dividend for these large integrateds like Exxon and Chevron.

Both of these companies have paid dividends for decades. And wi-- will they be able to sustain their dividends in this low oil price environment? We do fully expect Exxon and Chevron to cut capital. Oil producers across the board have been cutting capital expenditures by about, anywhere between 30% and 40%, in some cases 50%. That will lead to lower production. That will lead to us balancing this market globally sooner than later, which is-- which is really important right now.

ALEXIS CHRISTOFOROUS: Rob, what about investors who want to jump in here? Would you suggest they look at companies that have exposure to energy infrastructure as opposed to the actual price of the commodity? And what might those be?

ROB THUMMEL: Yeah. Yes. So-- so-- yeah. Tortoise, you know, we are-- we're big believers in an energy infrastructure. The US possesses the largest energy infrastructure network in the world. We're going to use energy for-- for years to come. As investors start to return to the stock market, we think energy infrastructure companies that are high quality, names like Enterprise Products Partners, Williams Companies, Magellan Midstream Partners, TransCanada, all of these companies own big massive energy infrastructure networks.

They're really critical assets. They operate thousands of miles of pipelines that are really, really important, especially in these environments when-- when we come out and start to use more and more energy. We drive our cars, we heat our homes, we use more electricity. So energy infrastructure, if you're looking to get into energy, is probably a better place to be because of the lower commodity price exposure.

ALEXIS CHRISTOFOROUS: Rob, you talked a moment ago about the oversupply that we have in this market. When you look at different energy sectors, who among them is best positioned to deal with that overflow of supply right now? Because we know nearly all of them, if they're not already, are going to be a capacity very soon.

ROB THUMMEL: Yes. So-- so you have to store the oil somewhere. So-- so if you have a companies that own storage assets, crude oil storage in particular, you know, they-- they benefit, as well, by-- by filling up their tanks. The other thing is, and I mentioned in some of the energy infrastructure company, some of these energy infrastructure companies don't have anything to do with oil. In other words, maybe they're more focused on natural gas. And that's what we haven't talked about.

But in this environment where oil production is coming down because drilling is being reduced, that actually is going to help natural gas. Because-- because places like the Marcellus Shale that just solely produce natural gas will be more attractive because we'll have less natural gas production, as well. But we're going to need more natural gas production actually from critical places like the Marcellus Shale.

So pipelines that-- that are in the Northeast in particular that are owned and operated by TransCanada, Williams, will-- will really be important to transport natural gas throughout this country over the next several, well, months and years, as well.

BRAIN SOZZI: Rob, what's your probability on sub $10 a barrel gas? Oil, I'm sorry. Oil.

ROB THUMMEL: Yeah. Yeah, well, you know anything can happen in the short term, I guess is what I would say. But-- but if you look at the futures curve and you look at where futures are, you know, six months from now, oil's probably $10 higher than it is today. And, you know, on the spot basis. So the spot can-- can obviously fluctuate significantly. But I think the futures curve is telling us that that will be a very short term issue and then it will bounce back quickly after we get this-- the oil market more in balance.

ALEXIS CHRISTOFOROUS: Rob, I hesitate to ask this question, but do you even have an estimate for crude prices for the end of 2020? Are you-- are you looking out that far? How far out do your estimates go?

ROB THUMMEL: Well, yeah, I mean, we're-- we're looking-- like I said, the oil price of this environment doesn't work for any other producers, nationally or globally. And so we're going to have to get back to a-- to a more reasonable number now. Obviously, we've got great health care professionals that are trying to help us get through this coronavirus. And-- and that's the first and foremost and then the most important thing.

After-- after we are able to-- to move past the coronavirus, return to a little more normalcy, we think you could get back to oil prices in the 40s to $50 range. Now is that by the end of 2020? We'll-- we'll see. But-- but sometime in the next, you know, probably 12 to 18 months, we're going to be back into a $40 to $50 price range. Once again, that'll be low prices for-- for-- that'll still mean low gasoline prices for the consumer. And that's a good thing. That-- that's-- that's the one good thing from an economic perspective coming out of all of this.

ALEXIS CHRISTOFOROUS: Yeah. We'll take that one good thing, I'll tell you. Rob Thummel, senior portfolio manager at Tortoise. Great to see you. Stay safe.