The downward (pricing) spiral, secret support for leasing, and the developed world’s energy crisis.
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another phenomenal episode of Monday Madness on December the 6th, 2021. The final month of the year and winter is starting to materialize. What better way to enjoy the season than by attending a hockey game? I took a trip over to the Mechanics Bank Arena to watch Bakersfield’s finest AHL team, the Bakersfield Condors! It was a night full of athleticism, expensive beer, and comradery. Unfortunately, they ended up losing in a shootout, but that didn’t stop folks from heading to the local bars. A good time overall, and I suppose I can now consider myself a Bakersfield Condors fan. But I know you didn’t come here to listen to me talk hockey. Hell, there are dozens of podcasts out there who know the sport better than I do. I just like getting rowdy. You came here for the most revealing statistics and the biggest news in the world of oil and gas. Let’s do it!
We will start off with WTI prices, of course. Last week we saw price swings of about 50 cents almost every day as we battle the big drop due to fresh omicron fears. It wasn’t exactly the rebound we expected, as the price averaged about $67.50 despite falling as low as $69.65 on Friday. Chalk it up to a week of trading sideways. Things are looking good this morning as the price is already at about $66.50 so we will see what happens through the rest of the week. Again, we’ve gotta keep an eye on a longer time frame. You’ll stress yourself out staring at a price like this all day. Instead, look at how quickly the price went up last year thanks to an issue with supply. If that doesn’t make you feel any better look at the EIA’s data on US inventories over the past year and a half. That supply issue hasn’t gone anywhere. Natural gas on the other hand is getting absolutely hammered. The price has fallen by about $1.20 since this time last week. Right now it is sitting at roughly $3.70 and shows signs of falling even further. Again, supplies are still tight in this area, so I think the price is again low because of fundamental trading factors. Both of these commodities had a breakout year as they bounced back from the record lows. I think they just moved too high too quickly. I really do believe both of these commodities will see continued upward pressure on their pricing soon.
Now let’s have a look at the rig count. The US saw no net change in rigs. Even though 0 doesn’t sound so great, remember we are still at 569 and that is a 246 rig increase from last year. If we dive a little deeper we see that the Permian added 3 rigs, and the Barnett lost one. Otherwise not a ton of activity. State by state analysis shows that it was New Mexico doing the heavy lifting in the Permian as they added 5 rigs while Texas lost 2. Louisiana also lost 2, and California ended up losing one. Interestingly enough rigs drilling vertical wells increased by 3 and horizontal remained unchanged. Other than that I think it is important to note that the Gulf of Mexico decreased from 15 to 13. As we said, 0 ain’t too bad as this particular statistic has also been doing very well this year. I think you can count the number of weeks that reported a negative net change on one or two hands, so I would say the rig count is still doing exceptionally well.
Lastly, the inventory report, which was covered in last week’s Thirsty Thursday report on www.rarepetro.com. If you missed it, then you missed the segment’s half birthday celebration and a whole lot of quality information. Lucky for you, I can get you all caught up real quick: The EIA stuck to its guns and predicted another drawdown of 1.2 million barrels despite many previous weeks of optimism that led to failure. This week however is a different story as they may have overestimated the draw, but it was still a draw of more than 900,000 barrels. This breaks what would have been a 3-time pattern of 3 builds followed by a small draw that we have witnessed since late September. Could this be the end of trending builds? If you are still skeptical of good times ahead, I totally understand. If it makes you feel any better, the API also overestimated the drawdown it reported of 3/4 of a million barrels. The months of October and November have historically been months that see a stockpiling of crude. Already, we are significantly lower than the past 5 years inventory levels for this week. This is about a year and three-quarters of downward pressure on inventories, and based on all of the content we’ve been releasing, we don’t see this trend reversing any time soon. Yes, we may see the occasional build over a month or two, but that is far outweighed by the overwhelming majority of drawdowns. Now for some good news for anyone who owns a car. Gasoline inventories shot up 4 million barrels which is one of the largest builds we have seen since October. It came just as gasoline threatened to break out of its historical 5-year range. The confusing part is that despite the recent start of the SPR operation, gasoline production decreased last week as compared to the week before. Does this mean the US is importing all the fuel? Strange… Either way, don’t forget that the US’s transportation secretary claimed that families who buy electric cars “never have to worry about gas prices again.” Apparently, electricity comes out of thin air these days. All this news might lead you to believe that gas prices should have only gone down, correct? Well, the month of November shows a 10.7 cent increase overall, so the long term ain’t looking so hot. The short term is looking much better as the average national price for regular grade has dropped almost 2 cents which is half a cent more than it did last week. While it is headed in the right direction, it may not be happening as quickly as most drivers would want it to.
Distillates and propane continue to take it easy and chill in the lower boundaries of their historical range. No strange anomalies presenting themselves in these areas, although that could change very quickly with cold temps approaching.
But that wraps up all we have to talk about in the world of statistics. Let’s get into some current events, shall we? I think I mentioned it in passing last week, but the Public Citizen (a liberal advocacy group) has done a deeper dive into some public data. Turns out, the Biden administration has approved an average of 333 drilling permits a month so far. This is higher than Trump’s first-year average of 245 by 35%. It is still higher than the second and third years as well, but Trump’s final year in the office made an absolute buzzer-beater of a play by ramming through as much pro-hydrocarbon legislation and support as he could resulting in an average of 452 in a month. But still, the fact that Biden’s first year is already approving permits at a faster pace than Trump’s first 3 years has raised some eyebrows especially when you consider that April was the peak at 652 approvals for the month. Jamie Henn, an organizer with the Build Back Fossil Free coalition says, “The president has basically only tried to tackle one side of the climate problem. He’s talked a lot about building clean energy, but he hasn’t done anything to stop fossil fuels. And you need to tackle both sides if we’re going to address this crisis.” I’m going to say that one more time. “He’s talked a lot about building clean energy, but he hasn’t done anything to stop fossil fuels.” At what point in history has any energy transition been made where people stopped using their primary source of energy before establishing a baseload with the new energy source, especially if there is still plenty of the resource to access? That’s like saying “Guys, we found a small amount of coal so now it is time to stop burning trees although winter is coming and we don’t know how much coal there actually is. Could be totally unreliable but we have to stop using the tree as a natural resource because it hurts the environment even though many of us will freeze to death this winter.” The problem of energy blackouts or rolling blackouts persists in the developed world and we want to remove more hydrocarbons while simultaneously investing in more unreliable sources of energy? Sorry to go off on this tangent, but some people should really hear what comes out of their own mouths because sometimes it blows my mind. I’m not surprised the Biden administration has approved more permits. The price of oil was climbing fast and the more permits they approve means more money that they can get back in taxes. Look at it for what it is at what it isn’t because there’s no use in getting upset that a politician did something that went against the grain of their own party. Seems to happen pretty frequently at this point.
But I think it’s time we switch it up to something else before my political talk begins to get opinionated. RARE PETRO prides itself on its ability to deliver accurate and reliable information, so you are always free to challenge us if you feel what we say is factually incorrect or if you generally disagree with the narrative presented. You can email us at firstname.lastname@example.org and we would love to mention it on the show.
Our next story concerns our friends across the pond who are looking at expensive energy prices for 2022. Power and natural gas utility companies are dropping like flies as they exit the retail market and enter “special administration.” This is passing the costs down to the consumers, and the collapse of Bulb, a company supplying electricity to some 1.7 million customers, is adding even more pressure to the system. People at this point are worried, and rightfully so. A recent poll showed that about half of the folks in the area consider power bills to be more worrisome than COVID, and I agree. It’s scary to just account for more money to exit your bank account every month. This is the energy crisis I was mentioning just a few moments ago. The world is so focused on renewable energy that it may force families out onto the streets. Wages certainly have not kept up with long-term inflation, and increased short-term inflation from the fallout of COVID is certainly not making that any easier. These world events are what lead our organization to maintain a bullish stance on hydrocarbons. The world needs it. In fact, an increasing number of people want to consume more energy every year. The average dishwasher uses about 1,800 kilowatt-hours of energy a year. The average person in Egypt consumes about 1,500 kilowatt-hours per year. Energy improves the quality of life for so many folks, so it is upsetting to see ourselves shoot ourselves in the foot by limiting what is available to everyone else at the end of the day. I don’t bring up this statistic to make anyone feel guilty but rather mindful of your energy use. It is a beautiful privilege to exist in a country that has an abundance of it.
But that is all we’ve got for you today. As I said, you are always welcome to e-mail us at email@example.com about anything whether it’s a question, criticism, or statement. Other than that, you’ve got plenty of content to explore on the website and you can follow us on LinkedIn to make sure you are staying up to date on all things energy. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!