Join your host Tavis Kilian as he talks about California’s pointless legislation, the accident in the GOM, and China’s massive import spree along with some incredibly important statistics!
Alrighty everyone welcome back! The RARE PETRO network strikes again with another podcast drop. This is Tavis Kilian with an episode of Monday Madness. Today is April 19th, 2021. That makes tomorrow 4/20 and you know what that means *reggae plays* Woah woah woah not that, I meant that it will officially be one year since oil prices dropped negative for the first time in history. I remember it vividly. I recorded an episode of Monday Madness, and was able to release it early enough that everything seemed normal. Just a regular Monday of trading volatility, no? Wrong. It wasn’t that much later that the prices began to fly towards zero like a heat seeking missile only to punch through and continue downward. I remember sitting in the office with Sy, another RARE PETRO associate, with our eyes glued to the monitor. We kept asking each other, “Think it will go lower?” to which the other would always reply, “No way.” What a strange year it has been since then, but hey, you are listening to this podcast, which means you at least have some inkling of an interest to work in oil or energy, so congrats to you for pushing through. We did it! One full year down, so let’s shoot for another. But I’m sorry I know you didn’t come here to reminisce, you came here to learn about what is going down at this very moment so let’s jump right into the statistics portion of the podcast.
Thankfully WTI prices seem to be in a much better place this time around, knock on wood. The price at the time of writing the script for this episode sits at $63.09. We spent almost a full month sitting around in the $59-$62 range, so we may not be in the clear just yet. Remember that Monday volatility I hinted at? Could definitely be at play here as the spike to around $63.61 around 8 AM before falling to where we are now. Even so, it could level out around the low $63 range because that is where we spent most of our time in the 2nd half of last week. Outside of that, there aren’t any immediate factors coming to mind that play a significant role in pushing this price upwards. It all falls back on the many tiny geopolitical, financial, fundamental, and technical factors at play. If anything, I’d say right now fuel demand is increasing, but I am getting way ahead of myself. Before that, we should talk about the rig count.
The rig count is looking mighty strong this week as the US gains 7 more rigs to bring our total up to 439. This brings us to a year over year difference of only -90, that is, we have 90 rigs fewer than we did a year ago. But remember, we are a year out from when things went from bad to worse, so I would not be surprised if we were up a few dozen rigs just a month or two from now. Let’s put it this way. The last time the year over year difference was around -90 was back in July of 2019 when it was -92. At that point, the total was 954 which is way more than today’s 439. At its worst, the year over year difference peaked at -701 a year later in July of 2020. -90 doesn’t sound too terrible when you look at it that way, huh? The last time we saw a positive year over year difference was in April of 2019, or almost exactly 2 years ago today. This industry is cyclical, but it certainly looks like things are headed up. Sure, we might not see more than 1000 rigs in the state for quite some time, or even ever again, but we have increased the rig count every week since Biden implemented the federal drilling moratorium excluding a week of no change and a week of a single rig loss. Clearly some people are finding it economic to produce, so activity picks back up. As for our biggest winner, we see the Permian adding 3 more rigs for the greatest total change, but who was next? This week’s “Second Place Stud of the Week” title goes to the Granite Wash basin. For those of you unfamiliar, that’s okay. They only had one rig before, but added 2 for a 200% increase in rigs. It sits between Texas and Oklahoma, but is much shallower and thinner than the Permian. This is a bit of an older field that was heavily focused on starting in the 40s, so I am curious to see who is out there drilling. Perhaps it is the same person. Congrats to the Granite Wash for being this week’s “Second Place Stud of the Week” winner. Breaking things down to the type of rigs being used, shows that directional, horizontal, and vertical all saw gains. Vertical gained 1 bringing the total to 21 horizontal rigs, directional gained 2 bringing the total to 20, and horizontal gained 4 bringing the total to 398. Overall a good week for everyone excluding the Marcellus who lost a rig and fell to 29 total. Let’s hope prices and rig count keep rising, and pray inventories do the opposite.
Speaking of those inventories, we’ve got one last major statistic to discuss. If you remember, we had a pretty terrible run for several weeks as we built our inventories by about 40 million barrels. Finally, we started drawing on inventories and have worked away 4 million as of the last podcast. The most recent report from the API shows a 3.6 million barrel draw, and of course the EIA had to chime in as well to mention that they reported a 5.9 million barrel draw. Again, slow steady progress, but oftentimes these trends build momentum. I would not at all be surprised if the reports coming out later this week claim a 7-10 million barrel drawdown. Then again, that is not a definite pattern as we saw that random 15 million barrel spike in December of last year. Either way, I am very stoked to be reporting further draws on crude, but how are the refined products faring? Well, distillates are sitting smack dab in the middle of their historic 5 year range, so nothing strange there. Propane on the other hand is still hovering close to the bottom of its 5 year range, but again remains within that territory. But what of the endangered gasoline I’ve been harping on for weeks? Well, it has finally broken back into its 5 year territory, but it may not be safe yet. Sure, we predicted fuel demand would increase, but the weather has been… well… crappy for lack of a better term. Temps in the South are inching closer to 90 day by day, but even temperatures in Bakersfield are just higher than 50 degrees lately. All I’m trying to say is that some people have been stuck inside for quite some time playing it safe, and these vaccinations are definitely going to encourage people to get outside, and do something fun, see something differently. This is why I think fuel demand could fall right back outside of its 5 year range as we get closer to summer. Again, that is just a prediction, but I encourage you to make your own as well. Just how high do you think gasoline prices will go this summer?
But that is all for our statistics. Our first news story this week will be a follow up to something I mentioned last week: California’s senate Bill 467 which aimed to phase out fracking, acid stimulation, and other common practices while simultaneously introducing a 2500 ft setback. If you missed out on the other key points, like why the bill exists and who was pushing it, I encourage you to put the last episode of Monday Madness on, and jump to the news story section. That should get you up to speed. So, the bill went to its first hearing, fell flat on its face. The problem was that such large sweeping changes drew the attention of opposing lawmakers, unions, and lobby groups worried about potential employment and production impacts. It did not rally enough support to make it past this hearing which means it will not advance to the state legislature. 4 members of the senate voted in favor, 3 voted against, and 2 abstained. The Senate Majority leader, Bob Hertzberg, issued this statement:
“The bill before us does nothing to foster [the energy] transition by reducing demand for oil in our state or in the global marketplace. It simply makes no sense to replace oil produced in California – which has the strictest environmental standards in the world – for oil extracted from places where regulation is lax or non-existent, while putting thousands of our hard-working neighbors out of work in the process.”
I gotta say, I thought this bill had slim to no chance of making it through, but I did not expect such an eloquent response Mr. Hertzberg. He hit the nail on the head. This bill would not change the demand of petroleum products, which is their primary goal. Unfortunately, it seemed that this bill was introduced primarily to benefit the health of those living in close quarters with oil and gas operations, but either public health takes a backseat to the environment, or it is not affecting some people as much as certain reports might claim. Either way, I’m happy to see this bill didn’t make it that far.
That’s the good news for today. Unfortunately, I do have bad news, but I’ll keep it short. A lift vessel was flipped in the gulf of Mexico and the Coast Guard has been working hard to recover the last few remaining people. A lift vessel is a sort of platform that can float out into the ocean and jack up a couple of booms in order to remain stationary on the ocean floor while conducting any number of oil and gas functions. Unfortunately, weather got worse than they had initially anticipated with up to 90 mile per hour winds and 7-9 foot seas. The vessel capsized, but the specific cause is still under investigation. Thanks to the coast guard for working to keep everyone safe. *brief moment of silence*
Lastly for stories this week, I’d like to make note of China’s incredible industrial run. The throughput of Chinese refineries averaged 14.08 million bpd in March which was up just shy of 20% on the year. Even though this yearly increase is significant, this is on par with the previous months of 2021. Oil refining is so strong in China thanks to a new government policy that allows private companies to refine crude oil. Not only that, but the fact that oil became so cheap last year was a big reason the country began to import so much crude oil, and even attempted to lock into a long term contract with Iran for one of its defense companies. The only industrial downside is that China has now contributed to an excess refining capacity. Why is this a downside? Well, let’s say we fully recover from COVID and the world is consuming the same if not more oil than it did in 2019. We don’t need every refinery in the world operating at full capacity. That would absolutely crater the price for petrochemicals, and likely alter the prices of the products that are made from that refined crude. Additionally, China now has such a massive share of refining capacity, that it could likely pressure pricing in any way it would like. They want to see prices go up? Rear back on refining to decrease the supply, and sell once the price has risen. Want to economically cripple a country that relies heavily on income associated with fossil fuels? Crank up production and dilute the market with millions of barrels of whatever chemical is of interest. China seems pretty confident that the rest of the world will be consuming petroleum for quite some time, and I’ve gotta say, I agree with them.
But that is the end of today’s episode of Monday Madness. What did you think? Be sure to let us know by tapping 5 stars, and if you are feeling extra generous, write a review! If there is something you’d like to hear us talk about, you can email me at email@example.com. Thanks for tuning in! We love to deliver this information to you as it keeps us all in the know and helps us grow, so be sure to share this podcast with your friends. Again, this is Tavis Kilian with RARE PETRO and until we see you next time, take care everybody!
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