Monday Madness: April 12 ’21

In this episode your host Tavis discusses the implications of a carbon tax, rebel skirmishes, and California’s kill shot for the energy industry.

Audio Transcript

Alrighty ladies and gentlemen, happy Monday! This of course, is an episode of Monday Madness with Tavis Kilian, brought to you by the talented team here at RARE PETRO on April 12th, 2020. I think last week I was talking about how Spring is here and it feels great, but I definitely got ahead of myself. Even though I was confident we made it through the fake spring, it sure looks like this week is bringing lots of snow and showers, so I’ll just have to be a little more patient. At least more vaccines will be rolled out by this summer, which means many places might open back up to full capacity. Makes me wonder how strange it’s gonna feel to be packed in a crowd at a concert. Good things are coming, and that includes the content of today’s episode, so let’s get after it!

As tradition goes, we start with the golden metric, the one we are all worried about, WTI pricing. As of the writing of this script, the price sits at an even $60. While that is definitely lower than the $66 pricing we saw a  month ago, it is still a very strong number. $60 is a better price than we saw through the majority of 2019, and many parts of the world have not opened to full capacity or started producing goods at pre-pandemic levels. What do I mean by that? Demand can only go up. Think about it… if the price continues to hold at $60 like it has for just a few days shy of a month, then it can only go up when people start to consume more. I truly believe there is enough upward pressure to push this price to $65 by August, although I would love to be wrong and see it hit $70+. There are a few more factors contributing to upward pressure, but we will get into that more later.

Next up, the rig count. Another week of gains leaves us up 2 rigs in the United States, but Canada is down 11. This leaves the US at 432 total rigs, which is still down 170 on the year. Breaking it down further, we can observe something incredibly interesting. The Permian experienced 0 change, which it hasn’t done since October 16th. It has experienced two weeks of 1 rig decreases in that time, but factoring in that change still shows a 94 rig increase overall. So who is first this week? It is a tie between the Utica which has been steadily increasing in recent weeks and the Haynesville who each added an additional rig to their roster. Of course, the largest percentage change goes to the Utica who only has 10 rigs total as of this week as opposed to the Haynesville who is now up to 45. Congrats to the Uticah for being first, and we don’t have a “Second Place Stud of the Week” this week as no other major basins observed any growth. I would like to mention that on a stater=-by-state basis, Utah crushed it bringing their total rigs from 6 to 8, or a 33% increase. As for the types of well being drilled, all sources point to horizontal. 3 more horizontal rigs bringing the total to 394, no change to vertical as it remains at 20, and 1 rig loss in the directional category bringing that total to 18. Overall, a good week for the rig count, but I was curious to see if the Permian was slowing down. I went ahead and plotted the change in rig count by week since October (I picked that date because a lot of the extreme COVID trends were excluded), and the trendline from then to now suggests that the Permian will average a long term change of zero rigs 2.33 years from now. That is just a nerdy and complicated way of saying, sure the growth of the Permian may be slowing, but only ever so slightly. Besides, 2.33 years might as well be millenia in this industry. Things can change (snap) just like that.

Lastly for the statistics section, we gotta take a peek at those inventories and refined products which have looked to be stabilizing for the past few weeks. Stabilizing in the lower end of the 5 year range, yes, but stabilizing nonetheless. Fortunately, I’ve got some good news on the crude side of things. By the EIA’s numbers, we’ve spent the past several weeks adding some 40 million barrels to our oil inventories. This past week, the API released a report that claimed a 2.6 million barrel drawdown, and the EIA released their report claiming a 3.5 million barrel drawdown. Sure, this is a less than 10% dent in what was built up, but I’ve got my fingers crossed that this is the first week of many more drawdowns. The last time we saw builds like we did in the past month was because of COVID demand destruction. Again, I really am confident these coming warmer months and vaccines will jumpstart a lot more industrial activity and fuel demand. As for our refined products, gasoline saw a slight build which is very nearly bringing it into the territory of the low side of the 5 year rage. These next couple of weeks really have varying fuel demand historically, because it is so closely based on the weather. The range, say, two weeks ago was only about 2-4 million barrels. In the next two weeks, that range widens to more than 30 million barrels. Again, fingers crossed for good weather, and long road trips. Distillates are now smack dab in the middle of a 5 year range after continued builds, so there is nothing to worry about there. Propane, on the other hand, is still going sideways, or seeing small draws. It is now in the lower end of the 5 year range, but so is demand, so we’ll just have to wait and see how that one plays out. To sum it up, a good week for crude inventories, and hopefully the beginning of many more drawdowns.

Now it is high time we hop into those news stories. First up, I’d like to talk about the CEO of Occidental, Vicki Hollub. Very recently, she voiced her opposition to a carbon tax. As she put it, “A carbon tax would be bad for a lot of the industry, a carbon tax would be bad for the consumers and especially for those consumers who are more disadvantaged from an economic standpoint.” What exactly does she mean by this? Well, it is probably most helpful if I break down how carbon taxes work. The proposed carbon tax system would charge any industry for CO2 emissions. Say, for every ton of CO2 produced, you owe 100 bucks to the government, and this negative financial incentive should hypothetically encourage you to shift towards renewable technologies and practices. There are 2 primary issues with this: a lot of people see this as the government taking even more money from businesses for no good reason as they are expected to develop their own solutions or pay up, and the effects really hurt those in the lower class, like Vicki Hollub mentioned. For example, I grew up in an area of Iowa where many people had propane tanks they would use for heating. With a carbon tax, the prices of consuming energy are often raised so that it doesn’t hurt the producer’s bottom line. This means the consumers are now paying more every month for the same amount of energy thanks to the carbon tax. Sure, it might provide a company the incentive to lower its emissions, but now a small rural family has even less to spend on other things as heating, gasoline, and electricity have become even more expensive. Some economists claim that the best solution involves redistributing that carbon tax, rather than having it disappear into the government’s budget. This would mean that even though the small rural family is now paying an additional $50 a month on energy due to the carbon tax, they receive a monthly check that more than compensates the cost, say $150. Still, people have problems with this because it is just a way for consumers to make money off of producers with potentially slim margins. Sure, Exxon and the API may be on board with it, but what of the small to mid cap producers who are already losing money? If anything, a carbon tax only further complicates the issue of cheap abundant energy, while likely passing on costs to the lower class. I’m glad Vicki Hollub is able to see the potential costs, but that being said, I’m not sure what other solutions exist to both appease the producers of energy and the goals of a carbon neutral future, if that is a metric that will continue to exist.

Next up, I’d like to update you on some more Houthi rebel attacks on Saudi Arabian facilities. 17 drones and 2 missiles targeted facilities in Jeddah and Jubail. This comes only a day after it was reported Suadi forces had intercepted 3 other drones and one ballistic missile. This is one of the several attacks that have occurred in recent months as the fighting escalates between the Saudi-led coalition that seeks to reinstate Yemen’s elected government, which the Houthis (backed by Iran) overthrew some six years ago. There has been some talk of a ceasefire, but if 17 drones and 2 missiles have anything to say about it, I’m skeptical.

Lastly, California is looking to not only ban fracking, but extend setbacks. Senate Bill 467 was introduced by Senators Wiener and Limón back in February but it looks like it is quickly gaining traction. The bill hopes to make it much more difficult to obtain a permit for fracking, acid well stim, steam flooding, water flooding, and cyclic steaming at the start of 2022. By 2027 however, the bill is aiming for a killshot, completely banning all of the aforementioned practices. I don’t know about you, but I can’t think of too many wells in California that don’t already make use of this tech, so this would effectively be a death sentence for the oil and gas industry in California. Sure, there are wells that will continue to produce for some time, but you can only produce and stimulate those so much, so I imagine there would be no local energy production by 2030. In order to help those who will certainly lose their jobs, the bill requires CalGEM to provide incentives to well remediation companies to hire these displaced employees. Not sure where the money will be coming from, and as it stands, there are nearly 2 energy employees for each existing well in California. The industry is huge, and the implications of a bill like this are serious. The hearing is tomorrow Tuesday the 13th, so you should definitely keep your eyes on this story.

But that is the end of the episode for today! If you are hungry for more energy based information that is not only easy to digest, but fun to listen to, go to to find many hours and pages of content. We just launched a new series called, “Hydrocarbon History,” that explores the past of energy development, and we’ve also incorporated a “helpful links” page on our website that will direct you to the best places for energy data. Again, this can all be found on This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!



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