In this episode your host Tavis gets you all caught up on the Biden administration and their inconsistent energy strategies.
Alrighty everyone, welcome back to the RARE PETRO Podcast. As always it is me, Tavis Kilian, bringing you another informative and entertaining episode of Monday Madness on August 16th, 2021. Normally I try to open each episode of Monday Madness with some light-hearted banter but today I’d like to address what is going on in Afghanistan. If you haven’t heard, the Taliban has assumed full control of governmental affairs. There are thousands of people fleeing the country, and everything is in disarray. I know in the US we have our problems to work through, as no country is perfect. Still, with current events like this, I feel incredibly fortunate to be living in the States today. Take today to be a little kinder, patient, and thankful for your situation and the people around you. We are all stuck on this planet together, and some days will be a little tougher for some than it is for others. Do good things and be generous. Now, on with the episode.
The first statistic to look at of course is the WTI price. The past month has been relatively inconsequential in the long run as we are at about the same price we were back then. Right now, the price sits at a humble $67.55. Sure, we peaked at about $74, but that was pretty short-lived. The last week spent most of its time bouncing around the $68-$69 range and fell on open this morning. I know I’ve been saying it for a couple of weeks now, but we have to focus on the long-term. The price has been falling for a couple of weeks, yes, but don’t forget that one year ago today we were looking at a $43 barrel which was a big win at the time. Hopefully a year from now we can reminisce the days when oil was stuck near $70 even though it sits at triple digits. Keep that focus on the long term, and have confidence in positive price pressure. I’ve got a story a little later in the podcast that will serve as confirmation bias for that argument, so be sure to stick around until the end!
Next up, the rig count. In the past 2 weeks, we saw the largest rig count decrease of 2021 as we lost 3 rigs. Sounds a lot more shocking than it was. Then last week we saw a rig count increase of 3 to offset that loss. This week, however, I bring good news. Rig count went up 9 rigs! That is tied for 3rd biggest increase of the year right behind a tie for first at 13 rigs. This leaves us up 127 rigs in 2021 and brings us to a grand total of 500 rigs! We haven’t been above 500 since April of 2020, and I’m almost afraid to acknowledge that because I feel like I’m going to jinx it. Still, this report begs the question… Who had the biggest gains? Ladies and gentlemen, the Permian has stepped out of the spotlight to allow the Eagle Ford and Williston basins their 15 minutes of fame. Those two basins saw a 4 rig increase followed by the Permian who saw 2, and finally, the Cana Woodford who posted up 1 more rig. The Haynesville however, lost a rig this week. Most other basins saw no change. State by state, New Mexico, Texas, and North Dakota saw the biggest gains with 4, 3, 2 and respectively. Oklahoma, Louisiana, and Alaska each lost a rig. Of course, most of these rigs will be drilling horizontal wells, but virtually all of them will be drilling for oil and not gas. We will keep an eye on this in the next few weeks as this could be a response of operators looking to address concerns over rising petrochemical costs related to inventories. Speaking of inventories…
We’ve got even more good news! You would have heard it by now if you were reading RARE PETRO’s Thirsty Thursday, which is the most fun combination of data and drinking on the internet. If you aren’t fond of playing with data and having fun, I’ll go ahead and fill you in on what you missed. When I said more good news, it’s as close as you can get to being good news without actually being meaningless. The EIA predicted a 1.27 million barrel drawdown but witnessed only a 450,000 barrel drawdown. Small, yet desirable. The API expected a smaller drawdown of 1 million barrels but reported a similarly small 800,000 barrel drawdown. While some may be quick to point out that it is likely COVID causing the decreased consumption, we are hesitant to attribute that as the leading factor. Yes, there are some fears and mandates coming back, but commercial activity hasn’t seemed to slow too much. There is still international and interstate trade, so hopefully this is just a strange slump. That is not to say we could see a plummet in consumption any time soon. While the draws on crude may have been minimal, the draws on gasoline were much more significant. Down another 1.4 million barrels which brings it to the lowest we’ve seen for this time period in over 5 years. Turns out it even worried the president as he requested OPEC to boost oil production as gas prices climb higher and higher, which is actually our first story of the podcast.
If you’ve paid any attention to the Biden administration, you would know that one of their primary goals is priming the United States for the energy transition. Phase out hydrocarbons, bring in “green” technology… you know the gist. The primary goal is to reduce emissions. Right after the release of a $1.2 trillion infrastructure bill that works to subsidize as much green tech and EVs as possible, Biden requests OPEC+ leaders to produce more oil. This is part of the statement released by National Security Advisor Anthony Jake Sullivan:
This may be confusing to you, because the Biden administration has taken little to no action to promote affordable and reliable energy starting his first day as he shut down the Keystone XL. If they really wanted to promote the production of clean and affordable energy, it likely would have been done domestically. Operators have shown incredible restraint lately. Prices are higher than they were in 2019, yet we seem to have learned from our mistakes of going drill crazy and setting production records every month. I’m sure these companies would be happy to work with the government to come up with a plan to produce more. Not only would that be better for American business, but it would be much cleaner than importing oil from the middle east. America does it cleanest, so it is confusing why the administration is attempting to produce as many associated emissions as possible. After all, emissions are a lot like peeing in the pool. No matter who does it, it spreads throughout the atmosphere. So again, why is the president trying to stimulate production abroad?
Even Texas Governor Greg Abbott expressed his distaste by tweeting “Dear White House: Texas can do this. Our producers can easily produce that oil if your Administration will just stay out of the way. Allow American workers—not OPEC—produce the oil that can reduce the price of gasoline. Don’t make us dependent on foreign sources of energy.”
While Texas can definitely produce a significant amount of oil, it would require more than just one state to ramp up production in order to offset the cuts of OPEC. Again, it is ultimately counter-intuitive and confusing. It almost makes you wonder if the administration truly wants to run industry out of the states in order to let the rest of the world produce their own mineral resources, which is the same as outsourcing carbon emissions and environmental costs to the rest of the world. Apparently its cool to pee in the pool, as long as you don’t pee in Biden’s corner of it…
I’m excited to see OPEC’s response, but I would not at all be surprised if those other countries replied with a cold shoulder. A pretty ambitious request from the West, after all.
I know that got a little long-winded, but it is the latest development in the realm of energy and policy and felt it was worth sharing. If you want to learn a little more about this, search for David Blackmon’s article on Forbes titled, “Suddenly Worried About Gas Prices, Biden Wants OPEC+ to Produce More Oil”. I sourced a lot of information from that article, and he covers it all extraordinarily well.
But that is the end of this episode. If you feel we spent too much time talking about this one story, well you are probably right, but you can go to www.rarepetro.com to find dozens of other podcasts, interviews, and periodicals revolving around the energy industry. There’s something interesting there for everybody so go mosey on over. Be sure to follow the podcast on whatever platform you listen through, and be sure to follow us on LinkedIn as well. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!
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