In this episode we talk about 3 month price highs and the future of oil subsidies in Canada.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you a brand new episode of Monday Madness. I’m a big proponent for continuing to lead a lifestyle that allows you to always learn. If I’m lucky I get to learn something new everyday. On Friday, I was lucky enough to learn what it is like to miss a flight. Normally I’ve never had any problems at DIA, but once we walked in at 4:00 AM on a Friday and saw the security line wrapped all the way back around to baggage claim, I knew we were screwed. We missed the flight by 10 minutes, but figured, “Hey, we’ve already got our bags packed… Let’s go hit some hot springs for the weekend!” It felt good to be flexible enough to shift to other plans, and not get hung up on the sunk cost fallacy because I feel like 3 years ago I would have just let it ruin my weekend. Instead we spent time in the sun and shooting pool. But you didn’t come here to listen to me brag about my laughable abilities in trip planning, you came here for the biggest statistics and news stories in oil and gas worldwide! Let’s get into it.
Folks, I am excited to talk about commodities today. We just hit a 3-month high in pricing. Does that mean we are destined for the 3 digit barrel in a week? Absolutely not, but it is still great news. Last week we opened up at $74. Nothing too incredible and I was certain we would start seeing a fast decline, but it actually held steady through the day and started to hover around $75-76 through the rest of the week. We started trading in the mid 76s this morning but rocketed off a couple of hours later briefly topping $79. At present we’ve cooled off a bit and the price is in the high 78s and I am going to be on the edge of my seat through the rest of this week. We’ve got plenty of diminishing supply even before we consider international production cuts, so it is possible that this is the beginning of a long term increase. I’d say we are long overdue, but I also don’t want to jinx us so I’m not going to spend too much longer speculating. Brent followed the trend as well and the spread ended up decreasing slightly to $4 as the price sits at almost $83. Decent amount of volatility this morning so we might want to wait for that to settle out because I would not be surprised to see it go right back to $5. I think the momentum of the swing in crude prices somehow dragged natural gas up too but it is already losing steam. It jumped about 15 cents but has only decreased since then. I do not have high hopes here and think it only benefited from association. Ultimately, commodity prices are trending upwards, and you need to keep your eyes peeled throughout this week because this could be the time the table has turned.
So prices had a resurgence. How about that rig count? Unfortunately, another 6 rig decrease in the latest report dropping us to 669 total rigs which is 89 fewer rigs than we had this time last year. Basin by basin the Permian continues to take a beating as it drops 4. The Eagle Ford isn’t faring much better as it loses 2 rigs. Then the Granite Wash and Haynesville also lost one each. State by state there is just a bit of good news. 2 more rigs in Utah & 1 more in Oklahoma. Louisiana is down 2, and Texas is down a whopping 7. No change in the gulf. As you can imagine, this is taking a toll on the population rigs drilling for liquids in horizontal wells. I don’t have too much to say here as this is a trend we have witnessed for almost 3 weeks. If we do see prices continue to climb, you can be damn sure that the rig count will head back up, but I think it is going to take a lot more time than it did before because I imagine companies are pretty skittish. On the other side, we are almost out of DUCs and production hasn’t really grown much, so perhaps there isn’t much of a choice. Speaking of which, that serves as a good segway to our last statistic, the inventory report. The most recent inventory report from the EIA said that we could look forward to a 1.5 million barrel drawdown but unfortunately we only saw a 1 million barrel drawdown. Still, I shouldn’t complain as a drawdown is typically good news for us folks in the business. The API was feeling a bit more optimistic and called for a 2 and a quarter drawdown but reported an even smaller one at about 800,000 barrels. Still, this is the 3rd drawdown in a row by the EIA’s numbers after a straight month of builds so I’ll take whatever I can get. The downward trend of crude oil supply seems to be leveling out to nearly flat which is evident from these builds. Gasoline continues to trend downward as it decreases by about 1 million barrels and is now even further outside of the historical 5 year range. You might think that this means gas prices are about to spike, you may not be right. Despite this record low, a regular gallon of gasoline is only 2 cents more expensive than it was a month ago. Washington state is still home of the most expensive gallon at $4.926 per gallon with the cheapest being in Mississippi for nearly $3 flat. Distillates are beginning to build again but still remain fairly close to the bottom of its 5 year range. This has helped to drop diesel prices by about 2 cents per gallon. Our good buddy propane continues to fight the good fight and stay on top of the historical range but holds a slope that we are familiar with. Business as usual here.
But that wraps up all of our statistics. Next we gotta get into some news. The Canadian government is setting up the framework for revoking subsidies for oil and gas. A lot of pressure has been coming from environmentalists, though no one is exactly sure what subsidies will be cut, but anything relating to CCUS or emissions reductions in general should be safe because, according to Environment Minister Steven Guilbeault, “This ensures that the only federal support for oil and gas goes to projects that decarbonize the sector and result in significant greenhouse gas reductions.” This should all be accomplished by 2024. Already, the mega environmentalists at the International Institute for Sustainable Development has congratulated the Canadian feds, but added one other little comment warning that the framework, “definition of inefficiency still allows for continued support for ‘abated’ fossil fuel production, for projects that include emissions reductions measures such as carbon capture and storage in the oil and gas sector and fossil-derived hydrogen.” This just goes to show that you can never fully please everyone. Here’s a little thing about subsidies I would like to mention: they aren’t created equally. The subsidies being referenced in this article are usually the form of the government taking away less. Perhaps something like a tax break. The subsidies afforded to the projects touted as renewable energy are not taking less away, but giving more towards. Something like a payment to consumers to induce an artificial demand spike, or bonus funds and grants to help these companies operate. I want to point that out because people here “subsidize” and immediately picture the president himself passing money under the table to whoever controls “Big Oil.” It’s not like that at all. It’s more like taking some pressure off rather than giving a boost. Governments are always able to do this, but know that when this happens too much, costs get passed on. There’s nothing wrong with reevaluating subsidy allocations, but if you reintroduce too much of the OPEX cost, it ends up raising the cost of the goods or services provided. Many people celebrate policies like these because they believe it further pushes renewables closer to the realm of “affordable.” Unfortunately, oil serves more purposes than just energy so it is hard to directly compare the two, but people have been claiming renewable energy was just as expensive (if not cheaper) for years. If that was true, it would be generating a far greater portion of our electrical consumption, so stay skeptical my friends.
Folks, that is about all the time we have for this podcast. If you feel like the episode ended too soon, go ahead and follow this podcast! Hell, you can even follow us on YouTube if you want to catch the next episode of the Wacky World of Energy. It is our video series where Anthony and I take some of the wilder stories across the world and talk as freely as we want about it. Lots of great discussion, some censor beeps, and a whole lot of fun. You can find it by searching RARE PETRO on YouTube or by going to our website at www.rarepetro.com. Other than that, keep an eye out on LinkedIn and we will be sure to keep bringing you the best energy content on the internet. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!