Monday Madness: Dec 27 ’21

Posted: December 27, 2021

Backwards flowing pipelines, the first to fall, and a breath of fresh air for Colorado operators.

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Audio Transcript

Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you the last episode of Monday Madness for 2021. Whether you took the time to relax, travel, or meet up with folks that you like, I hope you had an enjoyable Christmas holiday. Now we look forward to one more week of whatever, and then the new year. I wrote this script while traveling back from Palm Springs to Bakersfield, so it has been a quick and busy weekend for me but I loved every second of it. Enough about me and my holidays, I know you didn’t come here for me to treat the podcast as a personal diary. You came here for the biggest statistics in the world of oil and gas, and it is time to begin.

Now for commodity pricing which just might be a belated Christmas present. This time last week WTI was valued in the low $68 range. It spent the rest of the week fighting to increase in price but was able to climb to $73 by early Thursday where it remained. This morning, however, it seems that WTI is making a mad dash for $75 as the price is currently $75.56. Still, I am not confident it will stay at this high for long. Already it looks like it has peaked and may spend the rest of the falling. Just another case of Monday volatility. Natural gas is also doing very well despite struggling through the past few weeks. It had a big 30 cent range last week between $3.70 and a nice flat four, but it didn’t make much progress in either direction. This Monday it has climbed back up to $4, but again pretty volatile. I think that the price action for natural gas is going to look like a rollercoaster for the next couple of weeks with some pretty gentle rolls both up and down. Either way, these commodities are increasing in value and that is a beautiful thing to see on a Monday morning.

Next up is the rig count. The EIA delivered a little present on the eve of Christmas eve in the form of a nice inventory report. According to the report, the US is up 7 rigs on the week bringing the total to 586 which is 238 rigs more than we had a year ago. If we look at it basin by basin, the Haynesville gained one, the Cana-Woodford gained 2, and the Permian gained six. I think that is one of the biggest single-week changes in the Permian that we have seen in weeks, and maybe even months. If we look at it from a state perspective things get a little more simplified. Louisiana is down one with New Mexico and Texas up 4 each. 5 of those 7 new rigs are seeking oil and all will be drilling horizontal holes. Other than that, there is no change in the offshore environment. This is one of my favorite results for the inventory report. Simple, short, and positive. 

To wrap up our statistics we will have to take a peek at the inventory report. I’m sure you know by this point, but it is much more fun to read it on our website and easier to understand with plenty of graphs and other visuals. If you missed it, I’ve got your back. The EIA is on a roll. They predicted a 2 and 3 quarter million barrel drawdown (similar in magnitude to last week) and undershot the actual result by a full 2 million barrels (also similar to last week). The API also had a wonderful report. They alluded to a 2.6 million barrel drawdown, but it was even larger at 3.6. 2 significant drawdowns the week of Christmas? That just might be the best gift of them all. The EIA is now on its 4th straight week of drawdowns, and significant ones at that. The last 2 weeks have accounted for more than 9 billion barrels. This brings the historical inventory levels even further below the 5-year range, but that is to be expected for this time of year. Inventories should start to trend upwards by mid-January, but there are plenty of factors that could be used to make a case against that. Gasoline found a way to add another 5.5 million barrels to the mix would is simply a nice Christmas gift for your wallet. At this point, we are still below the 5-year average by about 4%. Not too shabby, but again, to be expected for this time of year. This has accelerated the decrease in the price of gasoline by just a little bit as it is now down 2.3 cents from last week. This means the past 3 weeks have now seen a 6 cent decrease over time. While that may seem nice in theory, it is a result of a lot of federal string-pulling behind the scenes. Everything from the SPR and ethanol mandates has done little to nothing to bring this price down. The SPR might have put more resources on the market to refine with, but the nearly 1 million barrels in gasoline builds has minimally impacted the price. I know it comes as no surprise, but distillates traded sideways and propane dropped as low as it could without falling outside of its historical range. Very standard stuff for these two, but maybe 2022 will be their breakout year.

Aaaaaand that is all we’ve got for our statistics portion of the podcast. It’s been a few weeks since we checked on our friends in Eastern Europe so let’s catch up with the activities of Putin. As we progress further into winter, Russia has determined that less gas is needed in the West, despite the European energy crisis. Gas on the Yamal-Europe pipeline was flowing in the reverse direction from Germany to Poland for a sixth consecutive day on Monday as Gazprom has not booked transit export capacity via the Yamal-Europe pipeline via Belarus to Poland and Germany for December 27 (according to auction data at least). Another day of reversed pipelines makes a full week, and I believe that would start to raise some eyebrows. The longer gas flows from Germany to Poland instead of vice versa, the more pressure on European gas prices. Thankfully, several US LNG tankers and some others have declared Europe as their destination and this paired with mild weather has lowered some of the costs. President Vladimir Putin on Friday denied that the flow direction was a political move and said that Poland had “sidelined” Russia in managing the pipeline. A Gazprom spokesman said, “All accusations against Russia and Gazprom that we are not supplying enough gas to the European market are absolutely groundless and unacceptable and untrue.” He also referred to the accusations as “lies.” They basically accused some buyers of Russian gas, in particular, Germany and France, of not making additional orders, slamming the reverse flow of gas that came as “winter is just beginning” as “not the most rational decision.”  Regardless of what the intentions are, it seems no one is happy so I hope this is not fuel added to an already tense fire.

Our next story will look at the first victim of the European energy crisis I was just alluding to. Keep in mind that much of this story is the result of a perfect storm of several factors, but it is a situation that is not entirely unlikely anyone else could experience. Sure the odds could be lower for many better-developed countries, but the odds are greater than zero. Last Thursday, Kosovo Energy Distribution Services announced rolling 2-hour blackouts for 2 million due to electrical overload. Kosovo is a smaller partially recognized state in Southeast Europe that established independence from Serbia back in 2008. They often fly under the radar, but their energy issues are now drawing attention from around the world. Europes poorest nation struggled through some technical difficulties with a coal plant last month that led them to import electricity. At the same time, Serbia was forced to cut electricity to customers, Britain’s network operator issued a power supply warning, and France experienced a nuclear plant outage. Kosovo was scrambling to find cheap energy, but all of these issues led to energy prices climbing to highs even worse than before and that is why rolling blackouts were imposed. I just looked up the weather and Kosovo and things are staying just above freezing in the 40s so nobody is going to die of exposure within those 2 hours, but it will surely get very chilly within their homes. Another thing to consider with these rolling blackouts is that there may not be enough generators to support truly essential services. Hospitals will have less energy to work with so they will have to pick and choose what machines they will continue to power through the blackout. Hopefully no one experiences a serious injury or requires medical attention, say, a ventilator to keep themselves alive while fighting COVID. Our modern life is not just enhanced by hydrocarbons, we require the stuff at this point. I want Kosovo to find a way to secure itself a bunch of energy, but at this point even their neighbors are in no position to lend it out. It could become a truly nasty winter.

To wrap up our news we’ve got a story from Colorado and the Air Quality Control Commission or AQCC. New legislation has been drafted covering many aspects of cutting emissions within the state, and surprisingly enough, these rules offer oil and gas companies a certain level of autonomy. The tiered approach requires a company to reduce emissions based on the number of hydrocarbons they produce and is mostly self-regulated or unchanged from previous requirements. Environmentalists are not too pleased with the decisions as they expected more inspections and increased emissions reduction strategies. While their hearts are in the best place, there is a point I would like to toss out there. The oil industry in Colorado has not really given the public a reason not to trust it in terms of emissions and operations. They are home to some first-in-the-nation rules that at first seemed incredibly aggressive, but the companies still found a way to comply. I believe in the argument of a free market regulating itself, and that sort of translates to this situation. Give the companies the ability to regulate themselves and see how it goes. Should someone try to cheat the system or stretch the rules, slap a fine on them, and it should serve as a lesson to everyone else. If it really does become too difficult to comply with the rules, companies can look at operating outside of Colorado which would remove some much-needed revenue for the state. This constant push and pull can get annoying, but I am very thankful that state regulators are not absolutely smothering these companies with unrealistic regulations. I think the state understands that these companies want to produce and deliver energy resources, and these companies understand the state is prioritizing air quality and emissions in the name of climate change. New rules will always come, and the system will work its way through. It just gets to be a little maddening if you look at it in too small of a timeframe.
But that is all the news and statistics that I have brought with me today. If you liked what you heard, there is plenty more content on in the form of written periodicals, other podcasts, and even plenty of video content. We love learning a little more every day and challenging ourselves with growth. We believe you can do it too. Follow us on LinkedIn so you can read content as soon as it is released. This has been Tavis Kilian with RARE PETRO. Until we see you next time, take care, everybody!


Related Tags: biden | Methane | United States

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