Rebecca Babin, CIBC Private Wealth US Senior Energy Trader, joins Yahoo Finance Live to discuss Russia-Ukraine tensions' impact on the energy market and potential diplomatic solutions to cap rising crude oil prices.

Video Transcript

BRAD SMITH: 25 minutes until the market closes. Everyone, take a look at the major averages-- all lower. And this is on news that there is US intelligence that suggests that Russia is closer to invading Ukraine. We're continuing to track that, as well as any updates coming out of the White House. We do know that Reuters has reported that there have been an additional 3,000 troops that are also going to be sent from the 82nd Airborne to Poland in the coming days. That administered by the Biden administration-- authorized, rather.

And so as we are continuing to track the major averages, you're seeing them lower across the board. The Dow down 1.4%, S&P, 1.9% in the red, and the NASDAQ composite down by 2.8%. And so with the major averages in decline, we're also tracking oil prices. And those are higher here. And we're going to get into the correlation here. But Brent crude oil, that, at one point, hit above $95. We've moved just a little bit off of that, but still up by 3.7%. WTI crude up 4% right now. That crossed above $94 a barrel.

And so for more on this, we have Rebecca Babin, who is the CIBC Private Wealth senior energy trader. Rebecca, good to have you here with us today. Russia's place as one of the top two producers of both oil and gas certainly in focus. How high could oil prices spike to, in your estimation, amid the international tensions?

REBECCA BABIN: Yeah, so I think that's a big conversation that the market is trying to sift through right now. Ultimately, it depends on whether crude oil production is impacted by this invasion. And the reason why that's a question is because it would require the US to use sanctions against Russia that would inhibit their crude oil exports. Now to be clear, they would still have buyers available to them like China, even if the US and Europe sanctions them.

So it all comes down to how much of their supply is actually impacted by an invasion, and that's not entirely clear. There are estimates that are saying crude could go to $120 a barrel if we get an invasion. I think that's overestimating it because, again, it comes down to how we respond to this invasion. And it'll likely come in the form of sanctions. The first place the US is going to sanction is Nord Stream 2, which is a gas pipeline, not necessarily a crude pipeline.

Bottom line is, it's still up for grabs right now. And what we're seeing is a reaction to this fear that this is coming. And there are estimates it could go to $120. I say we top out at probably just around $100 because I do think that there will not be as strict of sanctions as the market fears because ultimately, that hurts the US and our allies almost as much as it hurts Russia.

EMILY MCCORMICK: If production were to be impacted by an invasion, could supply increases elsewhere offset the disruption to energy markets and put a ceiling on prices? What other levers are there that could be pulled?

REBECCA BABIN: Yeah, that's another one the market's been grappling with, and it's a really good question. So unfortunately, markets are really tight right now, and there's not a lot of spare capacity around to fill in this gap. There are basically two major players that could fill in. We've got Saudi Arabia, and we've got the UAE. And then we have US shale. US shale is going to be on a lag. You can take it out of the equation for the next two to three months. It's probably not going to come up that fast. So you're really looking at Saudi Arabia and the UAE who have the ability to do this.

However, they have been unwilling to break out of the OPEC+ agreement that they established over a year ago and unilaterally increased supplies to fill this gap. Why? Because in 2014, we had a situation in Crimea that caused crude oil to go over $100 a barrel. They brought back supply, and crude cratered in a very quick fashion. So I think history is their lesson. They say, you know what? We're not going to do that. We've seen this movie before.

And frankly, if you're going to continue to negotiate with Iran, one of our arch enemies, who is attacking us in drone attacks through the Houthis, we don't really see the need for us to step up and cap prices. I do think there is a diplomatic way for that to come to fruition. And Biden is starting to go down that route. But those are the two places where you'd have to see supply come from in the near term.

BRAD SMITH: What type of timing would revolve around that and that decision that the administration would have to move through, as you laid out a moment ago?

REBECCA BABIN: Great question. I think it's probably weeks, not days. I'd say it's probably closer to a month, as opposed to getting it done very quickly. These things just are not-- they're a lot easier to talk about than they are to do. And you have to be able to deliver, and you have to be able to engage on the diplomatic level.

And as we've seen with Iran negotiations, as we've seen with Vladimir Putin, diplomatic conversations don't evolve quickly. They evolve very gradually. I do think in this case, we could press it and maybe do a month, but I don't see it as being in inside of that timeline.

EMILY MCCORMICK: The path of least resistance right now for oil does seem to be to the upside between these fresh geopolitical concerns and inflation and elevated demand. Are there any credible downside catalysts that you see for oil and energy markets in the near term?

REBECCA BABIN: Yeah, so I think in the near term, the path of least resistance is iron. And the bearish indicators are going to come from waning demand due to a tightening cycle in the US, and that hurts growth. It's going to come from the fact that shale is going to be increasing production. And it's obviously not going to happen overnight, but it'll continue to happen. And it'll come in the form of Iranian negotiations. So I think those are the three pillars of the bearish story.

But again, they're not near-term, and they're not super tangible at the moment when we're bombarded with headlines day over day about all the bullish signals. So I think the market is kind of just treading-- it's climbing that wall of worry as we get more of these headlines, and we see more supply disruptions. However, I do think that bear story becomes much more prevalent in the second half of the year.

BRAD SMITH: When you think about the industries that would be most readily impacted by these rising prices, what sectors particularly-- I mean, when we think about how they have to make sure that they have enough fuel for their operations or enough oil for their operations, what are those sectors that would see the deepest amount of impact as a result of the prices sitting where they are right now?

REBECCA BABIN: It's typically the chemicals, the chemical companies that experiences the first hits when crude oil is exceptionally high or power prices are exceptionally high, and they'll shut in and choose not to produce, as opposed to taking on these costs. And then it does filter through down every sector. But it'll go into food supply. It'll go into various other sectors, all the way down to consumer-based products that we don't even suspect have crude oil in them will start to get implicated. But it'll start with chemicals.

BRAD SMITH: Michelle-- or Rebecca Babin, excuse me. Rebecca Babin, CIBC Private Wealth senior energy trader. We appreciate the conversation, and thanks so much for adding the context and analysis around this as well.