Pushback on conservation efforts, increased price of energy for Asian buyers, and Russia’s leverage over Turkey.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on August 8, 2022. I’m back in Bakersfield! This podcast is being written and recorded from an undisclosed trailer as I will be working in the field on some new RARE PETRO projects for the next few months. As I mentioned, content may be a little slow over the next 2 weeks as we transition and handle some other business, but it will pick right back up once our interns return to Golden from their summer projects. The last time I was in Bakersfield it was much closer to the fall and winter. While I did miss the snow of Colorado, there was something nice about 70-degree weather in December. This time however it is just a little bit warmer, so I do apologize if you are able to hear the AC in the background. Apparently, the saying here is that it doesn’t get cooler, it just gets dark. Regardless, my pale pale body could use a little bit of this Southern California sun, so I’ll be sure to make the most of it! But you didn’t come here to learn about the seasonal weather patterns of Bakersfield, you came to learn all about the most revealing statistics.
First of course we gotta take a look at commodity prices. They are still under $100 but they remain quite healthy. WTI climbed to about $95 last week but has taken a dip through the weekend. Right now it is about an even $90, but I don’t expect any crazy Monday volatility to push this any lower. We will probably bounce between $90 and $95 which is still a great price when you consider the past 2 years. Brent is still trading at a premium, though the spread has closed to around $6 which is much lower than the $10+ spread we have seen in the past 2 weeks. Brent is about $96, though we are at the peak of summer with fall right around the corner. As we have mentioned on this show before, winter is likely going to push both of these prices up as gas deliveries from Russia decrease and more countries are turning to coal and oil-fired power. Speaking of natural gas, the current price is about $7.16 though we saw some crazy volatility through last week which will be the trend for the upcoming future. Just last Thursday it was almost a dollar higher, though it ended up falling since then. This price will likely see some huge upswings once the Freeport LNG facility repairs the damages from its explosion and allows the US to be back at full gas processing capacity. European markets will definitely benefit from this as well because American natural gas prices will go up and their domestic markets should fall in response to keep that balance. Overall, commodity prices may not be where you want them at the moment, but they are still at relative highs compared to the past few years.
Next is the rig count which will be a bit harder to be positive about. The most recent report shows us that the rig count has fallen three to 764. This is still 273 more rigs than we saw this time last year, though this is one of the larger decreases for the year. The largest increase we saw at a basin level was one rig each for the Ardmore Woodford, DJ-Niobrara, Granite Wash, and Williston. The Cana Woodford lost 1, and the Permian lost a whopping 4. Ouch. That’s a pretty significant Permian decrease. In fact, it is the largest of this year as the only 4 negative changes were just one rig. Certainly strange, but not something to be alarmed about unless this happens again in the coming weeks. State-by-state data reveals that Texas and Colorado are up 2, and North Dakota and Wyoming are up one. Lousiana fell 3, and New Mexico fell 6, so we can see that it wasn’t Texas’ fault that the rig count decreased. We lost a lot of rigs drilling vertical hole that were targeting oil. The Gulf of Mexico even lost one rig lowering its total to 14. This week was very close to being much more positive, but activity in the New Mexico side of the Permian seems to be lacking for whatever reason. We will keep an eye on this for the next few episodes, but like I said: don’t worry too much yet.
The last statistic to look at involves domestic inventories. Normally, we publish this weekly for Thirsty Thursday, but with all the travel and prep for coming to Bakersfield it ended up slipping through the cracks. I may have been late a few times, but I believe this is the first week in over a year that I was not able to get it to you, so I do apologize. Still, that doesn’t mean that you don’t get to hear about it in this podcast, so let’s dig into that data. The EIA forecasted a 600,000 barrel build after a big drawdown from the previous report. They missed the mark and ended up reporting a nearly 4 and a half million barrel build which played a big part in the price decrease last week. The API made a similar prediction of a drawdown of about 400,000 barrels, though their reported number shows a slightly greater than 2 million barrel build. Even motor gasoline inventories increased last week by about 200,000 barrels which is really small compared to the rally it experienced last month. This leaves it below the 5-year historical range, though not by much. Despite the lower-than-expected gasoline levels in the states, the price at the pump continues to fall. The US average is just 5 cents away from hitting $4. We may even hit it before Friday of this week, so keep an eye on those signs as you drive down the highway. The lowest average cost is in Texas at about $3.56 per gallon with the highest being in (you guessed it) California at $5.446. Distillate inventories took another hit which forces them even further away from reaching the bottom of that historical range, though propane seems to have no problem with remaining within the expected boundary. Overall, a less than ideal movement in commodity prices, a decrease in the rig count, and a build in inventories. Not the best group of statistics we have seen in the past year, but every week can’t be a good week.
Now I think it is time we get into some current events. You may be asking, “What’s the latest strategy for conserving energy?” Well in Europe folks are being advised to stop showering. That’s right, the water utility companies in the UK have asked people to conserve water and energy by instead using damp towels and spray bottles to cool off and wash during their heat waves. Customers have responded by saying these tips are “laughable” as they have also been suggested to find a 4-minute song to time the shower or even collect the cold water that comes out as the water warms up. One person even went as far as to say “Are the firms competing to offer the daftest advice? Who has an oak barrel, even if there was any chance of rain to fill it? ‘Water firms’ hypocrisy is incredible.” People are upset that utility companies are paying millions to shareholders while simultaneously offering this advice. Now this story isn’t super significant in the global scope, but it highlights how people demand their energy. Once we get accustomed to a certain standard of living, it is harder to let those luxuries go. Energy security is important to everyone, and folks are already offering resistance to conservation policies before things get really bad. Eventually, people could be angry in the streets, and this is certainly a shared concern among European governments as long as Russia continues to withhold gas supplies.
Next, we’ve got some news regarding the trading space. Saudi Arabia typically adjusts the price it sells its crude a day after OPEC has its monthly meetings. This time, Saudi Arabia has increased its price of Saudi light for Asain buyers by 50 cents per barrel. This increase is indicative of how Saudi Arabia views oil demand for the future, and it seems that they are bullish. RARE PETRO agrees with Saudi Arabia as we anticipate demand will continue to increase through the year meaning that the underlying supply issues will just be strained that much more. Though the kingdom did increase its production quotas, it seems that they will not be doing that anymore in the near future and hope to decrease international demand for their oil through this price increase. A bullish little story indeed.
Lastly, we’ve gotta take a peek at Turkey which has now agreed to pay for oil in rubles… at least partially. This protects Turkey from Russian sanctions and allows them to receive consistent energy resources. This was a result of a four-hour meeting between Turkish Tayyip Erdogan and Putin as they ironed out a deal to increase cooperation in the transportation, agriculture, finance, and construction industries while also addressing details for dealing with terrorists organizations in Syria. Turkey is proving to be a useful ally to Russia as they even helped broker a deal for grain delivery between Ukraine and Russia, though Turkey really doesn’t have a choice. The country experienced 80% inflation in the last year which is only projected to get worse without Russia’s energy deliveries. It is imperative that Erdogan does something as elections are right around the corner. Everyone’s got interests to protect, but Russia’s leverage is causing more and more countries to become cooperative.
There you have it, folks. Lots of news and current events though it all points to one thing: Russia is the big dog calling the shots as it sits on its mountain of resources that everyone else needs. Sorry if this episode came out later than you anticipated as I’m now an hour behind. But I do have good news: RARE PETRO has posted hundreds of hours of content between podcasts and periodicals and you can find everything you are looking for on our website at rarepetro.com. Go ahead and enter a search term and I’m sure you will find something of interest. Thank you for joining us this week. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!