In this episode Tavis talks about a surging commodity price, the demise of Nigerian thieves, and political support for OPEC.
CLICK YOUR PREFERRED STREAMING PLATFORM TO LISTEN TO THE PODCAST
Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on August 8, 2023. I know this episode is a day late much like last week’s but I have no good excuse for this one. We can probably just chalk it to professional development. Hopefully there are one or two of you checking into this podcast that know exactly what I’m talking about. At the end of the day, our careers will consume a great deal of our lives, and if we are lucky, we have the opportunity to enjoy it and push those professional boundaries. It really seems like many people involved in this industry are purely passionate about the work and excited to be a part of a team that shares that passion. I’m sure most of you in the audience are likely in this industry and know what I’m talking about. If any of you listening are not directly involved… Maybe now is the time to switch career paths! I’ve enjoyed it thus far, even graduating in a downturn, but then again I’m sure it is not for everybody. It is fun to dream, no? But you didn’t come here to listen to me spew propaganda to bring more bright talent into the world of energy, you likely came to hear those regular statistics we touch on and those enticing stories revolving around geopolitics. Let’s get to it.
Commodity prices have been rather interesting in the past week. By pure numbers it is rather unassuming, but there have been a few mornings where we have seen rather significant drops of up to $2 that are immediately erased as the price bounces back up in a matter of 4 hours. Last week we started the week with a $82 barrel of WTI. By Wednesday we were sub $80, but shot right back up to high $81s by early Thursday where it essentially remained until an early morning drop this Tuesday that has already been negated by the time of writing this script. Right now the price is back up to $82.50. But we could definitely see further increases if we get another massive drawdown. The short term standard moving average has been spending greater lengths of time above the long term despite this aggressive downward pulls, so we may have something real nice to look at in the coming months for a barrel. Brent has the same price action, but the spread is especially narrow at this point as it sits a little below $3.50 which, again, only works in WTI’s favor. I want to believe so badly that better pricing is around the corner, but I urge you to join me in exercising patience. Natural gas has had a near 30 cent run up since last wednesday as it approaches $2.80 for the first time since June. Natural gas will likely pinch out closer to a price of $2.50 through the remainder of this year before fundamentals dictate any other major change. Of course, there is always the possibility of massive geopolitical change. At the end of the day, you can be happy about the price of a barrel.
Next up is the rig count. Another negative week as we lose 5 more rigs bringing the US total to 659 or 105 fewer rigs than we had last year. It has been a minute since we have been up in this triple digit range, but the recovery through 2022 and the start of 2023 was fun while it lasted. Basin by basin there was no positive changes. The Eagle Ford, Granite Wash, Marcellus each lost 1. The Cana Woodford is down 2, and the Permian took the biggest hit and is down 5. There is some better news at a state perspective. New Mexico and Wyoming added 2 to their total, and Alaska added 1. On the negative side we have Louisiana down 1, Pennsylvania down 1, and Texas down 8. Texas has been struggling lately and is now down 59 rigs since this time last year. The gulf is down 1 rig as well. As you might imagine, rigs making horizontal hole are the ones dropping like flies. It seems like a good deal of those were targeting oil reservoirs. Another not so good rig count, and I imagine many more weeks ahead will look like this. It’s gonna take some consistently steady high prices to convince E&P companies to make more hole.
Our last statistic to visit is the US domestic inventories. “Thirsty Thursday” is covered as a periodical on our website, and I highly encourage you to read it there not only because I’ve incorporated tons of great visual aids and data, but because there is also a great cocktail recipe included every week. You can find it at www.rarepetro.com. Here is what you missed from the last issue: The EIA expected a relatively typical drawdown at a little more than 1.3 million barrels but was blown away with an absolutely biblical outcome. 17 million barrels disappeared from reserves for the largest weekly drawdown since we have been recording this data back in 1982 by 2.5 million barrels. The runner up was back from September of 2019 at 15.5 million. According to Reuters, the draw was a result of increased refinery runs and strong crude exports. Let’s hope some of that refining capacity goes back into gasoline so that we aren’t caught in a bad spot. The API predicted a 900,000 barrel drawdown, but also recorded a strong result at 15.4 million barrels. That is quite nice as an indicator because often the API doesn’t have results that agree with the EIA, so being so close in magnitude likely confirms the assessment. Its either that, or the fact that the EIA releases their data first and the API didn’t want to look silly. As you might expect, our weekly inventory change shows a massive drawdown bar that extends the negative scale and dwarfs all builds back to April combined. This of course also means the cumulative total took a sharp nosedive down bringing us under the center of the historical 5 year range. A few more weeks of 7-10 million barrel drawdowns will pull us to record lows by early October. Gasoline inventories saw a healthy boost as we find about 6 million barrels more of supply. This checks out with that massive draw if refineries are back to manufacturing massive quantities of petrochemicals. Gasoline inventories remain below the historical 5 year range despite this build. After a 15 cent increase week over week, you’d imagine this healthy injection to supply might bring down the prices. If anything, it has slowed down the increase of price as we are now only 11 cents more expensive than we were last week. The most expensive gasoline remains in California, and the cheapest in Mississippi ranging from $5.037 and 3.329 respectively. Diesel prices are up almost 20 cents from a week ago. Distillates are slightly trending downward at this point as they remain awfully close to the bottom of the historical range. Propane is the exact opposite as it sits higher than the historic 5 year average.
But ladies and gents that does it for our statistics. Let’s get into the news. Our first story comes from Africa’s leading oil producer. Well, these days I suppose it flip flops between Nigeria and Angola, but we are talking specifically about Nigeria. If you weren’t aware, Nigeria has regularly struggled with illegal oil activity. Some estimates claim Nigeria is losing 200,000 to 400,000 bpd of production to illicit activities, which is insane considering they are likely producing 1 million to 1.5 million depending on the month. Apparently this past week was the the week the government grew tired of it because the Nigerian military has been conducting airstrikes to get back at the thieves. 3 vessels were detected stealing crude from a pipeline. Airstrikes were launched to completely destroy the vessels. 36 illegal refining sites were detected. After arresting 22 suspects, the military was able to recover nearly 2,000 barrels of crude, 4,000 gallons of gas, 300 barrels of kerosene and (the cherry on top), assorted weapons. The government is hoping the arrests and airstrikes will serve as an active deterrent to thieves and allow the country to regain those 100s of thousands of barrels of lost daily production. Still, even if they get that production back, they will definitely have to convince OPEC to give them a higher production quota, which I think is unlikely in the near future. That brings us to the next story…
Usually when it comes to oil in the Middle East, we hear from OPEC. This time around the Saudi Arabian cabinet is voicing its support for the OPEC+ production cut extension. According to Saudi Arabia media, the cabinet will continue to boost the precautionary efforts to support the stability of oil markets. If you hadn’t heard, Saudi Arabia expects to extend production cuts through September after it was originally set to end at the end of this month. They also suggested that production cuts could be deepend should the markets warrant such a move. Now this could be one of two things if I had to personally interpret it. The government truly wants to see commodity prices come up because that is what a ton of the country’s revenue comes from. That is a pretty simple argument and one that falls in line with Occam’s Razor. The other thing would be that this could be the continued antithesis and fight against the US’s SPR. If you plot out the events, you can see when prices drop to the range where the US says it would start refilling the SPR, Saudi Arabia makes a production cut announcement that pushes the price right back up. This is likely in response to original frustrations from when the US announced that it had lowered the price conditional to refilling the SPR which likely angered a few countries that would be refilling those many millions of lost barrels. Either way, I think we can be certain that many countries are not necessarily pleased with the United States for a myriad of reasons, and playing games with out domestic supply is a good way to stick it where it hurts.
But folks, that is all I’ve got for this episode. I understand it is just a bit late, but better late than never. Thanks again for tuning in because we love talking about all things energy. If you enjoyed this podcast, go ahead and subscribe