Join your host Tavis Kilian as he talks about impoverished refiners, a tanker attack, and the future of pipelines.
Alrighty everyone, welcome back! This is another informative and thrilling episode of Monday Madness brought to you on Aug 2, 2021. This is Tavis Kilian on behalf of RARE PETRO, and while I am currently recording this podcast in the RARE PETRO studio, I actually wrote this episode from my new place. Feels good to shake things up and challenge routine. I challenge you to try and do it yourself. Finally get around to doing that thing you’ve been pushing off for weeks now. Start practicing that new hobby you’ve always wanted. But that’s enough motivation and life coaching which I know you didn’t come for. You came to hear all about the greatest news in oil and gas, so let’s get into it starting with our favorite statistic…
…WTI price. The price is currently $72.19 after some big morning dips. It seems that we have been experiencing a similar pattern over the past few weeks. The price falls over the weekend and through Monday morning. Then it spends the rest of the week climbing back up to a strong price, only to fall again through the weekend and Monday morning. For example, last Monday’s price started at $72.18. Almost identical to today. It fell to almost $71 on Tuesday morning, but then rebounded and continued to climb before settling at about $74 on Friday evening. Almost immediately after trading opened late Sunday evening the price plummeted to $73 bringing us to this Monday morning where it fell a little more. A month ago we were at $75. Today, we are dancing between $72 and $74. Very consistent yes, but that price action has slowed significantly on OPEC’s news. Still, that doesn’t mean it won’t go higher! If you’ve been listening to this podcast for a while you know a multitude of factors that are putting upward pressure on the price. If you have no clue what I’m talking about, go ahead and smack that – no – frac that follow button on whatever platform you are listening through to stay informed. If I had to guess, I think we will be at about $72.25 by the end of day Tuesday. Still, don’t want to be upset with falls like this because it is to be expected, and a year ago we were sitting on prices of $41 a barrel, so 2021 is looking up.
Let’s take a peek at that rig count, shall we? The rig count fell by 3 which is the largest decrease of the year. This statistic has been consistently one of the best performing as more and more rigs returned through this year. Still, this brings the total to 488 which is still 237 more than we had this time last year. So, who was responsible for the greatest loss? If we look through the major basins, most actually added rigs. The Permian, Marcellus, Williston, Utica, and Granite Wash basins each posted a 1 rig increase. The Haynesville was the only major basin to lose a rig. Still, that doesn’t explain the loss of 3 overall. Let’s look at it state by state. Texas gained 2 rigs, and North Dakota, Ohio, and Pennsylvania each gained one. Here’s where it gets interesting. Colorado and New Mexico lost 1, Utah lost 2, and Louisiana lost 4 rigs total. Ouch… I tried to find any events that could have prompted Louisiana to report this loss, but I think it is just the general trends thanks to their energy transition goals. They plan to increase carbon taxes and replace carbon-related fuel sources with renewable energy. Still, this loss is only about an 8% decrease, so it is entirely possible that this was just a strange week, and things will be back to normal soon enough. Yes, it hurts to see a negative rig count, but it is also important to remember we are still up 237 year over year and 128 rigs in 2021 alone.
The last statistic to cover, of course, is the inventory levels. If you missed the Thirsty Thursday report last week, check it out! We will start linking tasty cocktail recipes for each report to spice things up. Anywho, here’s what you may have missed. The EIA predicted a simple 3 million barrel drawdown but reported one of more than 4 million. The API showed up to the party with a similar prediction of a 3.4 million barrel drawdown, but they too were shy of the result of a 4.7 million barrel drawdown. This week we witnessed gasoline inventories fall about 2.3 million barrels which brings it just into the bottom quartile of its 5-year historical range. Distillates and propane have the potential to be incredibly interesting from a statistics perspective, but they try hard to do anything but impress. Distillates have been falling a little in recent weeks bringing the total closer to the lower boundary of the 5-year historical range, but propane puts it to shame. Propane looked dangerously close to breaking its inventory record but pulled up just before it could do anything drastic.
A decent past week for sure. Sustained $70 prices, a less than ideal rig count, but some drawdowns to top it off. If anything, next week is poised to do much better, so be sure to follow the podcast so you don’t miss that episode!
As far as news goes, I’d like to talk a bit about refiners. Even though the delta variant has introduced new lockdowns and other travel restrictions, Americans are still consuming gasoline and diesel as if there was no pandemic in the first place. Unfortunately, refiners aren’t profiting as much as you would expect. They just can’t source cheaper grades of oil that they would typically use to make fuel and instead must import more expensive alternatives. The US biofuel mandate also adds more pressure as they need to mix in certain amounts of biofuel (think ethanol) or purchase credits to offset. Normally refiners would be able to fall back on jet fuel revenues, but fuel demand in that sector has not rebounded back to pre-pandemic levels. Talk about insult to injury. While oil and gas producers are earning a whole lot more, refiners just can’t relate. One of the largest refiners, Valero Energy Corporation, just released their Q2 earnings and it was abysmal. Q2 of 2020 net income was $1.3 billion. Q2 of 2021 was only $162 million. That is about 12.5% of the revenue they earned last year. The worst part about this all is that the consumer could be hurt even more. Companies with weak profits may have to cut production or simply close their doors leading to decreased supply and higher prices at the pump. What will it take for refiners to win? RARE PETRO has been pointing to a future of more expensive energy, and it seems like we are definitely on track to make that prediction a reality.
I really do my best to report as much good news as possible, but the headlines this week were full of things that were too significant to gloss over. This story revolves around a recent oil tanker attack that killed a British and a Romanian crew member. The US and UK both agree that Iran is to blame. The UK-managed “Mercer Street” tanker experienced a drone attack off the coast of Oman last Friday. The managing Zodiac Maritime is owned by an Israeli billionaire which some agencies have claimed drove the motive for the attack. Secretary of State Antony Blinken released a public statement condemning the attack and claimed that these one-way explosive UAVs are becoming increasingly popular for the Iranians. Attacks on international waters are concerning as it threatens the safety and confidence of anyone passing through. Between an attack like this and the willful sale of sanctioned oil, it is likely that Iran is not popular with many international leaders at this point. Iran claims that the US is to blame as our sanctions have forced them to resort to illegal trade, but the US will only lift sanctions and negotiate a new nuclear deal if Iran behaves. If the issue has yet to be resolved this far into the new administration, I really doubt anything will be done. Truly unfortunate that we even have to report on this event this morning.
I can’t only report on the negatives, so this next story loops back to our Canadian friends at TC Energy. Some of you may remember that right before the Keystone XL permit was revoked, TC Energy claimed that it would supplement a significant amount of pipeline electricity with renewable energy. Still, Biden ignored the compromise and shut it down. Now, TC Energy is experimenting with its existing pipelines. President of power and Storage, Corey Hessen, said, “We started just with our liquids pipeline and it gives us really a lot of confidence that we’ll be able to pivot quickly to our natural gas pipeline business both in the U.S. and in Canada.” The goal of course is to reduce emissions as TC Energy alone generated 14 million tons of CO2 from pipeline operations in 2019. Since Canada will be increasing CO2 tax by about 4 times through 2030, it is likely that the billions spent on renewable energy pipelines just might be cost-effective over its 62,000-mile network. I love this story as it highlights the importance of a diverse portfolio of energy sources. Use renewables when we can for small-scale projects, rather than powering a city, to support other energy projects. Now if only we could introduce more nuclear energy into the mix…
But I’m getting ahead of myself. That is all the time we have for this episode of Monday Madness, and I sincerely hope you enjoyed it. If you did and have not frac’d that like button yet, I suggest you do as it can only help you become a more knowledgeable and well-rounded professional. If you have something to say, please, email us at firstname.lastname@example.org and we will feature your opinion or argument in the show and enter you into a little giveaway for some RARE PETRO swag. Thanks again for tuning in, and until we see you next time, take care everybody!