Join your host Tavis as he visits all the usual statistics and talks about a new Pemex fire along with the future of ethanol biofuel blends.
Alrighty ladies and gentlemen, welcome back! This is Tavis Kilian with RARE PETRO bringing you another informative episode of Monday Madness! Today is Monday, August 23rd, 2021. Things got a little cooler this weekend, and summer is winding down. Many of you may be returning to college this week (or high school depending on your age) so good luck to you in this new semester. I bet things are still a little strange with COVID, so hopefully, the transition isn’t too jarring and you still have a great semester. I’d like to extend a special shoutout to our student associate Niels who is back from an internship in California to continue the grind at Mines. But I know most of you didn’t come here to listen to me talk about back-to-school mumbo jumbo, you came to hear all about the biggest events in the world of energy, and we are here to deliver.
First things first, WTI pricing. The last week left a bit to be desired as the price fell from $67 all the way to $62. It seems we are essentially trading sideways around $65 as we continue to bounce around. The good news is that the price is already up more than 5% this morning as it is $65.65 at the time of writing this episode. We will get into the factors putting upward pressure on price a little later in the episode, but it all lies in the realm of geopolitics as we drill less and less American oil, complete more DUCs, and import more energy from other countries. Be happy with this large morning jump, and fingers crossed it lasts through the end of the day, or even better, continues to climb through the week.
Next of course is the rig count. Last week was phenomenal with the 9 rig increase bringing us to a total of 500 rigs. Seems like there isn’t a ton of resistance as we saw another 3 rigs go up this week leaving us with 503, or 249 more rigs than we had this time last year. Crazy to see a doubling of rigs in such a short time frame. If you look at the major basins, it sure doesn’t look like anything good happened as the Cana Woodford, Eagle Ford, Haynesville, and Marcellus each lost a rig. The good thing is that we can fall back on the Permian and Utica as they put up 2 and 1 rigs respectively. State by state, Louisiana saw the greatest increase of 2, despite that loss in the Haynesville while New Mexico, North Dakota, Ohio, and Utah saw a single rig increase. Texas and West Virginia as a whole witnessed a 1 rig loss. Strange to see all the emphasis in nonmajor basins. Perhaps people are exploring some exciting new plays? Regardless, 8 new rigs will be targeting oil, while 5 fewer are targeting gas. The most surprising statistic is the type of wells being drilled. The directional total increased by 3 for a total of 30, vertical up 2 for a total of 19, and horizontal down 2 for a total of 456. Big percentage changes for those little categories.
The last statistic to ponder is the nation’s inventories. Last week we had some fun with the aviation gin cocktail as we broke it all down on the Thirsty Thursday inventory report. If you want the recipe, you can find it on our website at www.rarepetro.com, but if you just want the data, I’ll run through it real quick. It seems that the EIA has been reporting a sort of seesaw pattern between draws and builds. This week they had a slice of humble pie before making the prediction of a 1 million barrel drawdown, but expectations were blown away with a 3 and a quarter million barrel drawdown! The API expected a similar drawdown of about 1 and a quarter million, but it turns out they were far too cocky and actually reported a little less than that at 1.15 million. Even though the API may have been a little too excited it is nice to see a reported drawdown by both agencies. It’s been a few weeks since our regularly scheduled program of big drawdowns but hopefully, things get back to that soon, especially if the Biden administration truly believes we should be importing more oil from the Middle East and Russia rather than produce at home. As a matter of fact, the United States has been importing record amounts of oil from Russia in 2021 leaving them as the second-largest foreign supplier of foreign fuel. Canada remains in first place (for now). Last week brought great news as we witnessed a big ole drawdown to put gasoline inventories at levels it hasn’t seen in the past 5 years. It seems that it made a small attempt to correct itself as we witnessed a 700,000 barrel build, but that is still an unusual low. As far as factors influencing price, we are somehow still dealing with a shortage of truck drivers that is leaving some gas stations undersupplied. While the US continues to sit here and suffer, countries like India have continued to expand the population of natural gas-powered vehicles and supporting CNG infrastructure. Think we will ever see that in the US? Share your opinion with us at email@example.com, and we just might feature your insight on the show. Distillates continue to do nothing cool while propane continues to be as close as possible to record lows without actually setting record lows. What else would you have expected at this point?
Overall, great stuff! Big increase in price, a climbing rig count, and modest (yet negative) draws on petrochemical and crude inventories (besides gasoline). Let’s close out August strong with even better numbers next week!
But that is all we’ve got as far as statistics, and it is time we get into our news stories.
First up, another fire in the Gulf of Mexico broke out yesterday afternoon. Go ahead and guess who was responsible. If you guessed Pemex, you would be absolutely correct! The last time they set the ocean on fire, we took a little time out of this podcast to look over their absolutely abysmal history of incidents. Lots of simple accidents that could have been prevented that unfortunately, claimed too many lives. This one is no different as 1 person was declared dead, 6 total workers were injured, and 5 people still missing. While they are the largest company in Mexico that produces 2.5 million barrels a day, these accidents are too frequent, and I would wager a result of inattentiveness. This is a state-operated oil company after all. While it is unfortunate that this happened, it doesn’t need to keep happening. Unfortunately, Mexico is doing its best to drive any other private operators out of the state, so it is likely that this is not the last incident we will see from this company.
In other news, we’ve got a battle of stakeholders. While most of the time this would allude to legal battles between Extraction and Boulder Colorado or Cabot and surrounding Pennsylvania citizens, this one is a little bit different. The EPA is expected to draft a biofuel quota for gasoline and diesel fuels in 2022, but everyone has something to say about this situation. While some lawmakers have been told to brace for little to no change, it is even possible there will be a reduction in the amount of “renewable” fuel that must be blended which is upsetting to many people lobbying for corn. Usually, the corn lobby and oil refiners are the ones to butt heads on these issues, but now a new association is stepping into the fray. With grain prices rising to levels similar to what they were in 2008, many are aware that rising commodity prices lead to inflation in most consumer goods. This is why the American Bakers Association lobbied the Biden Administration to stop the rising mandates of fuel blending last month. I know that sounds like a silly association, but they have been in talks with the EPA since the end of July. Regardless of how strange an organization like the American Bakers Association sounds, I side with them on this situation. Production of biofuels is an archaic and energy negative policy that creates an artificial demand for grains that could be exported to other countries that are willing to pay with them. I feel bad as a young man from Iowa who grew up on a farm, but it is not worth it. The farmers will be okay if we don’t blend corn ethanol biofuel into gas because, as the bakers mentioned, commodities prices are up BIG. This time last year corn was selling at just under $3.50. Today it is at $5.36 and peaked at almost $7.75 just a few months ago. Corn normally trades between $3.50 and $4. Last time we saw high prices was during the great recession in 2008 and similarly tough times between 2011-2013. Let’s reduce the amount of biofuel blending, or keep it at what it was to keep those grain prices from skyrocketing and to stabilize the price of gasoline in the process. Not only that, but it would help refiners generate some much-needed profit that they need to operate. After all, more expensive components mean more expensive gasoline, and inventories are already at a 5 year low. Hopefully, my family in Iowa isn’t listening to this podcast as they would crucify me for these statements.
But ladies and gentlemen, that is the end of this podcast. I know, I know, the time goes fast, but you can find dozens of hours of backlogged content on the website. If you don’t find what you are looking for, we ask that you send us an email at firstname.lastname@example.org to request the content. After all, we are making this for you, and we absolutely love receiving criticism or praise. Be sure to hydraulically fracture that follow button so you never miss an episode from us, and do the same on LinkedIn. We are always generating enriching content that will give you the educational edge you need to stay ahead. Thanks again for tuning in, and until we see you next time, take care, everybody!
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