Pimco Portfolio Manager and Head of Commodities Greg Sharenow joins Yahoo Finance Live to discuss the oil market, the upcoming OPEC+ meeting in Vienna, and energy prices.

RACHELLE AKUFFO: Oil prices and gas-related stocks soaring today. We're seeing crude, they're up almost 5%. Exxon also enjoying gains there, more than 5%. And look at Chevron as well, almost 6% as we see them really making gains here ahead of the OPEC Plus meeting in Vienna on Wednesday.

So here to break down what the meeting could mean for oil prices is Greg Scheer now, PIMCO Portfolio Manager and Head of Commodities. So these gains that we're seeing right now-- we have some analysts saying, look, we could be looking at potentially $100 a barrel soon. Do you think the same?

GREG SCHEER: Yeah. I think there is an upside to oil right now. What is remarkable is that we're talking about OPEC curtailing production at a time where the inventories, globally, are at the lower end of the historical range. And you're looking at it in the market, which is highly backward-dated, which is a state where the [INAUDIBLE] prices are above deferred prices, which is typical when a market is tight. And consumers are willing to pay a premium for immediate delivery.

If you look at the carry in the oil markets, exceeding 15%, which is on the upper end of historical range. To think that OPEC is taking this as a time to cut is really without historical precedent. And if they do so, they're going to continue to keep the inventories low, which will keep upward prices. They're likely doing this to one, preempt any potential demand slowdown, but also in my mind, they're doing it to reflect the fact that their spare capacity is towards the bottom end of historical range.

It's sort of like driving a car with your foot pressed down all the way to the metal, and you're starting to get feedback and vibrations in the system. And I think as a result, they want to move off of their production that they're at right now, in order to create some spare capacity in the system and create some flexibility, should there be additional outages down the road. But I think this is a constructive action that they're taking that should help solidify the prices and lead to upside prices down the line.

SEANA SMITH: Greg, how high do you see prices going, at least in the short term here? And when you talk about what has been priced in, not only to crude, but other commodities as well-- has the recession fully been priced in?

GREG SCHEER: Well, if we do-- it has to do-- the answer to that question is a function of how deep the recession is. And they'll have different-- for different commodities. Metals will have a very different response function to a slowdown in the global economy than, let's say, energy right now, which has significant upside from geopolitical issues such as Russia and the invasion of Ukraine and the upcoming sanctions that are coming down in December and into the first quarter in Europe that are likely to keep markets, such as oil, incredibly tight.

So I think when we're talking oil specifically, I think it has overly discounted demand weakness. For metals, the situation could be very different. It depends on the severity of the recession, which is now becoming increasingly likely over the next 12 to 18 months.

RACHELLE AKUFFO: And Greg, you talked about some of the geopolitical issues. Obviously, not just Russia, you also have Iran, you have China, also in the mix as well when it comes to this. And so, then, in terms of solutions, we've seen these price caps coming into play-- what is actually going to make the biggest difference in what we see with oil prices?

GREG SCHEER: So certainly, the global market right now has not seen the tailwind in terms of Chinese demand that you have seen in previous commodity price rises in the last 20 years. And that's actually remarkable that many of the energy markets are this tight without the benefits of China. So China moves to the front foot and starts stimulating and moving away from their zero-COVID and solidifies their own growth, that could be an upside catalyst.

Now, certainly, when you look at other geopolitical concerns, Russia and the sanctions are front and foremost in what could end up driving the energy markets, in part because of their impact on global gas and coal markets. And the substitution of gas into oil has been one of the main reasons why oil demand has remained resilient, despite the fact that we've already started to see a slowdown in overall transportation and economic activity.

So when I look out over the next six or 12 months, European consumers really hold a very key role in what happens in the global energy prices and potential upside that you see there, because if they do turn their thermostats down, and we have enough conservation, a reduction in global and European gas prices, which will lead to lower coal and natural gas prices globally, which will bring down power prices, which will be very helpful in offsetting some of the inflationary effects that we've seen, and helping pocketbooks and government balance sheets.

That could be one of the better things to actually reinvigorate the economy, but also could lead to potentially lower oil prices in the process, because it'll take some of the pressure out of the system that we have seen.

SEANA SMITH: Greg, what do you think of this debate over price caps or not? How effective are they, typically? Or do you think they would potentially be?

GREG SCHEER: So it's being sold right now-- when you're talking about oil specifically-- as an attempt to get around European sanctions. You agree to a price cap, we'll waive some of these sanctions on shipping and insurance, and hopefully that will grease the wheels. But that is not ultimately how the market should function, and I think the price cap could likely backfire, in part because Russia holds a say in how much they're willing to sell and to who and at what price.

And we have seen small reductions in export volumes could have outsized impact on prices, particularly when the market is tight. Now in Europe, the problem is it sends the wrong incentives to the consumers, particularly if there are some sections that aren't capped that will have a higher burden to bear if the market is tight.

So for example, if you're going to cap residential, commercial, the industrial end users will have ultimately higher prices to manage through the demand rationing that needs to happen. So price caps are really not the ultimate solution that's going to rebalance the market. And unfortunately, it could lead to more volatility than they're hoping for.

SEANA SMITH: Greg Scheer, now. Great to get your prospective. Head of Commodities at PIMCO. Thanks so much for joining us.

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