The Biden Administration realized the error of its ways, Pakistan is in darkness and Russia’s energy hostage.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you some hot news on Monday, April 18, 2022. Current events are providing us with loads of good news, and this is the podcast you want to hear it from. Lots of energy media is anti-oil, or just doesn’t do a good enough job at bringing the right conclusions to the table. RARE PETRO has an extensive catalog of media and predictions that I would argue, more often than not, come to fruition. I’m not telling you to bet the farm on energy commodities, I’m just suggesting that you frac that follow button so you can join us on our independent journey of critical thinking and analysis. RARE PETRO would love to have you. But enough self-promo! You didn’t come here to listen to me explain just how incredible we are. You came to hear the biggest statistics and news in the world of energy. Let’s get into it starting with commodity prices.
Last week things were looking bleak as we watched oil prices fall back below $100. Many folks figured that was the end of the Russian invasion’s influence on commodity prices. Boy were they wrong. The invasion is only highlighting the already existing supply issues that we have struggled with for the past 2 years. Now, WTI is back above $100 and sitting at $109. Natural gas made steady gains for over a month now, but the activity was overshadowed by the insane crude prices. Today, natural gas topped $8 making it the priciest natural gas we have seen since the comedown of ‘08. Energy prices at all-time highs, markets setting new records, inflation at unheard-of levels, and a housing crisis causing all homes to skyrocket in value all at the same time? I’m not saying we are doomed to repeat 2008, but many of our metrics would suggest that the economy is not at its peak. Natural gas prices have since cooled off, but they are sitting at about $7.85. Guess we’ll just have to wait and see how much higher it can go, or how quickly it can crash back down.
Next up, the rig count. According to the most recent numbers, we now have 4 more rigs than we did last week. This brings the US to a total of 693 or 254 more rigs than we had this time last year. Surprisingly, the Eagle Ford put up more rigs than its more popular counterpart. +3 for the Eagle Ford and +2 for the Permian. Otherwise the Barnett and Cana Woodford each gained one. State by state this leaves Texas up 4, West Virginia up 2, and Alaska and Oklahoma up 1. Pennsylvania lost 2, and New Mexico and Louisiana lost 1. The new rigs are all making horizontal hole and targeting an equal split of oil and gas. No change in the Gulf, but we did lose 1 inland water rig bringing our total to 1. Steady modest gains like this will likely continue for quite some time, but we are still a long ways out from the days of 4 digit rig counts.
Our last statistic to cover is the inventory report. As always, give it a peep on www.rarepetro.com. It contains a new cocktail recipe and plenty of tables or graphs that serve to only enhance your understanding of the supply and demand dynamics of the world’s favorite fuel. Go read it. You won’t regret it. If you missed the last issue, the EIA predicted a build of less than a million barrels but was absolutely blown away by a reported 9 million barrel build. The API ponied up with a bigger prediction of a more than 1 million barrel build, but they too were shy of actual reported results. While smaller than the EIA’s prediction, a 7 and 3 quarter million-barrel build is nothing to scoff at. Strangely enough, we are still seeing price gains this morning which only illustrates just how tight commodity apply is getting. As we mentioned before, Chinese demand for hydrocarbons has dropped thanks to their latest lockdowns. Not only that, but the IEA is rolling out a worldwide 240 million barrel release in an attempt to reign prices back in. It is possible that continued draws like these could move commodity prices significantly, but not for long. Consider that the world uses 100 million barrels of oil a day on a good day. A common statistic from the pre-COVID days. Even if demand is slightly diminished, is 3 days of bonus oil really going to stabilize market prices in the long term? Likely not. This segment was named Thirsty Thursday because the world is thirsty for oil, and the thirst can never be quenched. It’s a symptom of living in energy-dense luxury. Long-term aspects look good, but short-term could be bumpy because this is the largest build we have seen in over a year. March 10ths build was 13.8 million barrels. If we see one or two more builds this large, I would not be surprised if prices started to react. Another 2 builds like that and we will be back into the historical 5-year territory. Gasoline inventories ended up dropping another 3.6 million barrels which is the biggest drop of 2022. This brings it to the lower boundary of the historical 5-year range, but a downward is expected for this time of year. If it doesn’t stop decreasing by May, we may once again be below the historical 5-year range. Distillates are falling at about the same slope we would expect for the time period, but are still much lower than is reasonable. A few weeks of inventory builds could be enough to bring it back. Propane is like the eldest child at this point. We don’t really give it a lot of attention, but it makes sure that the house doesn’t burn down despite being a bit of an underachiever. Overall, things are either okay, or bad. Few commodities are at levels that I would classify as “healthy.”
But I believe that rounds out the last of our statistics. For news, we obviously have to touch on the Biden Administration’s decision to lease out some federal oil. As most of your know, the Biden administration was eager to implement a drilling moratorium as they claimed they were completing a study on its impacts to the well-being of the land. Well, that report never emerged, and that was the last we heard of it back in the summer of ‘21. Now, the Biden administration has cut the ceremonial ribbon… or at least part of it. A very small lease sale is being conducted that is roughly 20% of the size we would typically see. The leases in this package have a new royalty rate that is 50% higher than it was before, or 18.5% I believe. Now, this non-competitive deal is likely to have little to no effect on domestic production. Is that the goal? To make “Big Oil” (as they call it) look ineffective at increasing production even when given the green light? We don’t really know yet, but I encourage you to listen to Wednesday’s episode of the Wacky World of Energy as Anthony and I take a good 15 minutes to hash out some data and speculation. This show is better reserved for some factual retelling of information. Again, be sure to subscribe to the podcast because that episode will be out on Wednesday.
In other news, we’ve got Pakistan in darkness. The costs of energy between LNG and coal are proving to be far too high for the world’s fifth-most populous country. Combine this with an unfortunately timed political crisis and you’ve got a government in disarray with a budget in shambles. On April 13th it was reported that 7140 MW or almost ⅓ of total power demand was offline. Hopefully, they can resolve this soon, because it could get worse and there are only so many generators in the world that can be used to preserve food, power hospitals, and regulate the temperatures of homes. I think that this is exactly what Russia wanted. India and China are already buying Russian energy. What is to stop Pakistan from hopping in on the action if invited? After all, most of Europe is deadset on cutting off all consumption of Russian energy. Now consider this. If 20% of a nation is without electricity, how many leaders will crumble under the pressure and buy Russian energy? What if we push that number to 50%? You can see where I am going with this. Russia may be using the conflict in Ukraine as a tool to gain a greater share of the stage. Western economies from Europe to the US have had far too much time in the limelight telling others what they can’t do. Russia has grown in recent decades, and wants its deserved spot at the big boy’s table this Thanksgiving. 3 months ago Kosovo struggled with electricity supply. Now Pakistan finds itself in an energy emergency with lots of Europe barreling towards the same fate. I think the quality of living in Europe may quickly deteriorate in the coming months. The EU can talk about sanctions all it wants, but countries like Hungary are already expressing their concerns of the impact no Russian energy will have on their economies. Germany has made it clear that they have no other options.
Folks, I sound like a broken record, but the world is changing, and the dollar is being directly challenged as a result of us buying into campaigns shrouded by good hearts and environmentalism. We shipped all production away, and want all the benefits of green energy without any of the child labor and earth ravaging it entails. The “Not In My Back Yard” attitude has reinforced all of these beliefs, but it is not too late. America still has great private industry players who can deliver energy. I would watch these folks closely as they could be the ones that pull us out of this mess.
But enough soapbox grandstanding, we have run out of time. The world of energy and statistics is vast and strange, but RARE PETRO has your back. We have plenty of other content coming out later this week, so be sure to frac your follow buttons so you stay up to date. If you have any questions, or want to challenge our presentation of the facts, you are always welcome to message us by emailing podcast@rarepetro.com. Thanks again for tuning in. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!