In this episode we look at how the US scrambles to maintain relations in the Middle East & Mr. Wonderful’s bright idea.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on April 17th, 2023. This past weekend I got to witness some folks from my dojo participate in a fight even at the stampede center. I’ve only been training there for a few months now, but I tell you what – it was fun to get wild and rowdy while supporting the folks I’ve been training with since then. It was only when I hopped into bed for the night did I realize how tired I was from the raw adrenaline that had been intoxicating my blood stream. You can’t help but imagine yourself in that situation, and who knows! Your favorite oil and gas podcaster may just find himself in the ring in the near future (though I’ll probably have to drop another 10 pounds before then). But you didn’t come here to listen to the fantasies of a potentially amateur fighter. I’d wager you intended to hear about the most revealing statistics and biggest stories in the world of oil and gas. Let’s dive in.
First of course we take a peek at those commodity prices. WTI has been attracting lots of attention lately as it teases higher prices, especially last week. It opened at $80 last Monday which was already a strong start. From there it climbed to $81 by Wednesday only to rise again to $83 by Thursday. An absolutely unpredictable and bonkers climb. This morning it opened around $82 but has since taken a quick dip down to $80.68. I’m not exactly sure what will happen this week, but I would put money on volatility. We’ve got lots of headlines ranging from new relationships in the Middle East and Asia, restructuring of the Saudi Sovereign Wealth Fund, and so many other things that make me feel like I had better buckle up for this roller coaster ride. The spread between WTI and Brent has held relatively steady through this month of rapid change and seems to be around $4 as Brent mirrors WTI action. Natural Gas futures show potential signs of resuscitation, though those were short lived as it touched $2.30 this morning and immediately U-turned to $2.26. Still, last Friday it was a s low as $2 but could not be pulled under. I predict things will be quiet around here in the near future.
Next of course is the rig count. According to the most recent report, we lost 3 rigs last week dropping the US total to 748 which is still 55 more rigs than we had this time last year. Things have certainly plateaued. A few months ago I predicted the count would live between 740 and 760 rigs and that has since remained true. I don’t know why this is the current healthy level of rigs as I see no reason for them to not be closer to 900, but as you know, commodity prices don’t make sense at this point either. As far as basin by basin statistics go we have 3 more rigs in the Permian, one more rig in the Ardmore Woodford, Barnett, and Marcellus. On the negative side, that leaves 1 fewer rigs in the Utica and 2 less in the Cana Woodford, Eagle Ford, Granite Wash, and Haynesville. To balance things out we saw 2 more rigs go up in the Gulf of Mexico bringing that total to 18. Overall, not the best report.
Our last statistic before the stories is Nick Fernhout’s Thirsty Thursday published weekly on www.rarepetro.com. If you missed it, I’ll go ahead and quote Mister T and say that “I pity the fool,” but I will do my best to relay all of his excellent figures and graphs over the soundwaves of internet radio. The EIA had forecasted a draw of a mere 583,000 barrels of crude this week while the reported number is close in absolute value, it goes in the other direction. This week the EIA saw a build of nearly 600,000 barrels of crude. It isn’t too often that the API forecasts a number more conservative than the actual reported value for that week, but here we are. The API forecasted a draw of 1.3 million barrels on the nose, however, reported an actual build value of 377,000 barrels of crude. It seems the swings in stockpiles have cooled off since the high highs of January and February. There hasn’t been a build or draw of more 7.5 million barrels since February 23. The summer fuel blend has been reintroduced to gas stations across the country now which is much cheaper than the winter blend. That said, the price of gas has increased for a consecutive week, more than likely due to the increase in the price of crude. Demand is also strong lately as beautiful weather plagues the country. Gasoline got about 7 cents more expensive compared to the previous week. California is dangerously close to breaking $5 gasoline, while Mississippi still claims cheapest gas in the nation. Diesel basically remained the same price but technically increased by 0.1 cents. Distillate stocks, an excellent proxy for diesel stocks, are down but still within their 5-year range. Propane and propylene stocks are trending downwards too, however, they are right on track with what is typical for this time of year.
This brings us to the news section of our podcast. Our first story is about the US and its attempts to be proactive in international relations, something we haven’t heard about in far too long. The White House Coordinator for the Middle East and North Africa was sent to Saudi Arabia along with the US Special Presidential Coordinator for Global Infrastructure and Energy Security. For reference, this is the senior-most US delegation to visit Saudi Arabia since the country announced production cuts last fall. The relationship between the US and Saudi Arabia has been understandably tense as our President has had little positive to say about the crown prince MbS. Most notably, President Biden was ultra critical of the murder of Saudi journalist Jamal Kashoggi and even withdrew support from the Saudi-led offensive in Yemen. He was even critical of MbS when he was campaigning as he would often allude to the human rights violations that plagued the crown prince. He even refused to speak with the prince on one occasion and demanded instead to speak to the King. Still, deploying some senior members overseas is likely a good move that will work to hopefully salvage whatever is left of US-Saudi relations, if there is anything left at all. It is reported that the US officials discussed ending the war in Yemen though China has likely already breached this topic weeks ago as Iran agreed to stop supplying the Houthis and the Saudis were already engaged in peace talks prior to any American diplomats setting foot on their soil. But it’s the thought that counts… right? Even though Biden has publicly acknowledged the 1.6 million barrel per day production cut with apathy, it seems that he is truly concerned. After all, our people were shaking hands with MbS just one week after Saudi Arabia made the announcement. Hopefully this continues to develop positively, but I have the sneaking suspicion that the US is likely offering too little too late.
Our last story is a bit more entertaining. Are you familiar with “Shark Tank?” If so, you are probably familiar with the quick witted, money loaded, red watch strap wearing man known as “Mr. Wonderful,” or more plainly: Kevin O’Leary. The businessman just announced intent to build a $14-billion dollar refinery in the United States. But why? He himself was quoted as saying,”Unfortunately, no matter how much you think we’re getting off hydrocarbons, it’s not going to happen for 50 years. I’m sorry, that’s just the way it is. You are not going to have a wind aircraft take you across the ocean, that’s not going to work.” O’Leary is correct, and even seems well informed in the regulatory space as he alluded to the lack of built refineries in the US in decades due to permitting issues. In fact, the last refinery built with significant downstream unit capacity was a Marathon facility constructed in Louisiana back in 1977. At this point he is in the very early stages seeding capital and the next largest challenge involves deciding where this project will be homed. He was quick to rule out several states on the East Coast and California, though it seems he now has his sights set on North Dakota. I can’t help but agree with Mr. O’Leary here. The US has been losing refining capacity since 2014, yet China and Saudi Arabia continue to expand theirs. Regardless of what degree of energy transition we experience, someone will have to profit from refining fuels and petrochemicals that the world will continue to demand for decades to come.
But folks, that is all we have time for today. We will be releasing an episode of the Wacky World of Energy this Tuesday the 18th that expands on a lot of these topics. Plus, we’ve got a new camera and studio setup, so you will want to check that one out on YouTube! Other than that, you can expect continued release of great content for absolutely no cost at all. All we ask is that you subscribe. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!