In this episode of Monday Madness your host Tavis touches on the biggest statistics, breaks down California’s ban, explores conflict, and reviews the many fallen lease sales.
Alrighty ladies and gentlemen, welcome back to another RARE PETRO Podcast. I’m Tavis Kilian bringing you an episode of Monday Madness on April 26th. This of course is the last episode of Monday Madness for the month, and I wanted to extend some words of encouragement to the students listening to this podcast. Some of you have only a week or two of school left before you are finished with your last final, so push through the end. I thankfully only had to deal with 3 months of zoom university when finishing up my degree, and I can’t even imagine what a year of that would be like. Good luck to you, keep it up, you’re almost there! As for the rest of you listening to the podcast, just get outside and soak up some of that sunshine! I feel like we are going to have a good few months ahead of us. But I know you didn’t come here to listen to me spew contagious positivity, you’re here for the statistics and news and by golly I’ll give ‘em to ya!
First things first, WTI prices are sitting smack dab between $61-62, and I don’t think we will see any drastic change in the near future. Don’t get me wrong, things are great right now, especially considering a year ago today prices were roughly $16 a barrel as we weren’t even a week out from negative pricing. All I’m saying is that COVID continues to do its thing and places like India are getting demolished. This means further lockdowns, restricted travel, and restricted industrial or commercial activity. What does that spell? Decreased demand. Considering all the factors, this has been the king of price influence for the past year, and it looks like it might continue for quite some time. But this could easily be spun as good news. The price remaining stable above $60 while parts of the world battle COVID implies that the price could potentially rise more once we get through this hullabaloo. I really do believe that $65 is not out of the question, and I would not be too far surprised if we could hit $70 by the end of the year. The whole world needs energy after all, especially if other countries continue on their track of development. I was talking to one of my friends who works for a utility company in the area, and she revealed an interesting fact that I had neve considered: “It is difficult for the average home to use less than 50 scf of gas per day.” I didn’t quite believe this, but further research showed the average home in the US uses just shy of 200 scf per day. I imagine the rest of the world would love to have the luxuries of refrigerators, in home heating, and gas stoves, so this is why I will remain bullish on long term oil and gas prices.
Enough about pricing, it is time for the rig count. Last Friday Kevin, host of the periodical podcast, came into my office and bet that the rig count decreased by 1. I said, “No way Jose, we’ve only seen one week of a negative count, a week of no change, and the rest have been nothing but gains baby!” I predicted that we tacked on 4. I’m gonna give you a moment to make your own prediction. *pause* Well, hopefully you sided with Kevin because we saw our second rig count decrease for the year of 2021 *crowd groans*I know I know, I had the same reaction, but sometimes the trend breaks when you least expect it. This week’s culprit turns out to be the Permian who posted a 1 rig loss. Every other major basin says no change occurred, so this week, we don’t even have anyone in second place. It’s just the Permian as the biggest loser. Breaking it down by type reveals that vertical rigs increased their total by one bringing it to 22. Directional rigs fell 1 to 19, and horizontal also fell one to 397. Although a big red minus 1 looks bad right off the bat, I would argue that this is not a terrible week for the rig count. Remember, this is only the second week of 2021 to post a loss, and both of those weeks only lost a single rig. That’s as close as you can get to no change without it actually being no change, so overall, an okay week for rig count.
Last statistic to touch on is our domestic inventories. Both the EIA and API were feeling bullish this week as they predicted drawdowns of just less than 3 million barrels, and I was right with them if you remember last week’s episode. Unfortunately, there was another build. Fortunately, it was only to the tune of about a half million barrels. The API reported a little more than 400,000 barrels, and the EIA reported about 600,000 barrels. Under normal circumstances, I wouldn’t be too bummed. You have to expect that there will be an occasional build every once in a while. The thing is, these aren’t normal circumstances as we are fresh off of that 40 million barrel build, and the only drawdowns we have seen have been absolutely tiny. Our refined products also remained pretty tame this week. No big changes in gasoline, distillate, or propane inventories as they all remain in mid to low portion of their 5 year inventories, but again, I expect that warm weather will drastically increase the demand for gasoline. At this point, only time will tell.
To sum up the statistics, things are okay. It was really a week of no change which is a whole helluva lot better than a week of huge negatives. Next up, our stories for the week.
I’m sure some of you heard about this one already, but Gavin Newsom is sick of fracking and has finally put his foot down. Or perhaps he has grown sick of people accusing him of not caring about the environment because political and environmental activists have been criticizing his lack of action related to oil and gas activity ever since he was elected. On Friday he told CalGEM, the regulator for oil and gas in the state, to halt the issuance of permits for fracking by 2024. His goal is to phase out all oil and gas extraction by 2045. Fracking is only used in a small number of wells in California considering the vast quantity of wells total, but this could limit reserves that they may need to access in the future. The industry, of course, has two options. They could just accept that a few wells are not going to be drilled using fracking technology, and move on, but this could be the beginning of many more actions to ban oil and gas. After all, if Newsom really does want to ban all extraction by 2045, and subsequent governors or political leaders want to uphold that goal, I would bet that they won’t wait for New Years day 2045 to quit cold turkey. This would be the beginning of many more policies to restrict industry activity. So again, the first option is to fight back. The second option is to fight back, and hope that people eventually come to their senses in the next 25 years to realize what the current Senate majority leader Robert Hertzberg knows. After voting down senate bill 467, you’ll remember he said that this does not decrease carbon emissions, but rather increases the state’s reliability on its neighbors for energy and products. Let’s face it, while California can be a regulatory headache, they have some policies that govern the extraction of some the cleanest and most environmentally responsible oil. If that ends, I think the state would encounter lots of road bumps. This would be sort of an Atlas Shrugged strategy if you will. If the mania continues, just say, “have it your way” once 2045 arrives and see how they fare. Overall, this is pretty consistent with what we have seen with California, but I am excited to see how the industry evolves over the next 2 decades.
A Monday Madness podcast would not be complete without any talk of geopolitical factors, so our next story takes us to the coast of Syria. Just about a day ago, a tanker was hit with a drone strike. Initially, buzz in the media claimed that the tanker was Iranian, but Iran said it was not theirs. While it is suspicious that Iran was quick to say it was not theirs and you may suspect they are again smuggling oil, tankertrackers.com were actually able to confirm that the vessel was Lebanese. Still, this Beirut-registered vessel named WISDOM has been assisting Iranian supertankers by offloading way more barrels than they are allowed, so suspicions over Iran’s involvement were correct, but they keep transporting millions of barrels despite sanctions, so I’m sure most ships are involved with Iran at this point. Either way, that only explains the victim, so who was the perpetrator? Syria immediately accused Israel, which is not too far fetched. The wall street journal released an article that reported the Israeli army had specifically been targeting Iranian tankers headed for Syria as Tel Aviv claimed oil profits were funding regional extremism. Still, we can’t be sure. Some reporting agencies have reported up to 3 casualties, but Israeli media claims that there were no casualties. Why do I bring up this story specifically? Well, it involves plenty of players. There’s Israel, Iran, Lebanon, and Syria involved in this story. Recent episodes of Monday Madness have highlighted the dozens of missiles and drones that Houthi rebels have claimed to send to Saudi Arabia. There’s proxy wars in the region. Essentially, tensions in the middle east are high, and the stress of 2020 has put some countries dependent on oil in a bad position. I’m not predicting a massive war, but I am saying that there are plenty of conflicts, and all it takes is one well executed plan to disrupt the processing of 7% of the world’s oil demand and raise oil prices 20% overnight like we saw with the Saudi Arabian facility attacks at the end of 2019. Keep an eye on the news because energy markets can change with the flip of a switch.
For the last story, we bring things back home to talk about recent news from the Bureau of Land Management. Turns out that all lease sales in the second quarter of 2021 have been canceled. Of course, this is a result of the Department of the Interior’s investigation of the federal oil and gas program that is attempting to judge whether or not tax payers are receiving a fair return from the money generated by companies operating on public lands. It is also trying to judge if these lease sales are in compliance with NEPA and the United States’ trust responsibilities with respect to climate change and environmental justice. Of course, this is frustrating as it stems from the original 60 day drilling moratorium that popped off in January. This review is taking quite a long time, and already shut down several lease sales including a massive one in Wyoming. Hopefully this gets sorted through soon because these lease sales generate a lot of money for local governments which is money that they could likely use more now than ever before.
But that is the end of this week’s episode. I know the statistics haven’t changed much, but I do believe things are looking up, and RARE PETRO would love it if you joined us for the ride. Please subscribe to this podcast if you liked it as we are always generating content, and send it to a friend so you two have something to talk about next time you meet up. Leave a review, or reach out to me directly at firstname.lastname@example.org if you have anything you’d like to say. Visit rarepetro.com to find more news, research, and links to all of our favorite sources of data and information. Again, this is Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody.
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