A quickly recovering barrel price, a county making a decision based on the wellness of its people, and Europe’s refusal to acknowledge the truth.
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Audio Transcript
Alrighty everyone welcome back! This is Tavis Kilian with RARE PETRO bringing you a very Merry episode of Monday Madness on Tuesday December 27th. I hope you all had a fun Christmas and got to spend it with folks you love. Did you folks get anything cool? I’m pretty stoked on the new lava lamp I got. Should dress up the home office quite nicely. This is one of the weridest professional weeks of the year as some people are just taking a long vacation linking up Christmas to the new year, some stay local for the holidays so they don’t have to dip into PTO, or you are like me and just take one weird random trip away for new year in the middle of the week. It’s a strange segment of time where the gears almost grind to a halt professionally. Don’t get me wrong, I enjoy the holidays, but I once heard someone describe the week between Christmas and the new year as (pardon my French here) the “taint” of the holidays, and it feels apt. But you didn’t come here to listen to me use mildly obscene language to describe the most wonderful time of the year, you came here to listen to the biggest news stories and most revealing statistics regarding the energy industry, so lets get to it.
Now for commodity prices. Everyone was ready for oil to fall lower and lower in price as they got comfortable with cheaper energy and gasoline. Unfortunately for the, the global situation regarding energy has not changed, and inventories are still low. All it took was a threat from Russia to send those prices right back up. If you haven’t heard, Russia was gearing up to respond to the G7 price cap by reducing output by at least a half million barrels per day. This added a bullish sentiment to energy and pulled the price of oil back up from the $75 it had settled at. As of right now, the price is an even $81 for a barrel of WTI, and I think it may just go higher. As I write this script, news was just broken that Russia just announced a formal decree to ban the sale of its energy resources to those adhering to the price cap. It is to officially go in place from February 1st of next year to January of next year which buys Europe just about a month to figure out what they want to do. What a crazy game of chess politics to watch. That doesn’t mean the benefits are exclusive to WTI. Even Brent is on the up and up as it sits at 85 and a half dollars. Surprisingly, natural gas seems to be hell-bent on decreasing in price. Most speculate that the warmer-than-anticipated weather that should greet us next year is one of the primary factors, though I would wager it probably has more to do with the ability (or lack thereof) of the US to deliver natural gas resources to the rest of the world that really needs it (lookin at you Europe). In short, oil is up and gas is down.
Next up is the rig count. The most recent report shows that we are up 3 rigs in the US bringing us to a total of 779 rigs which is 193 more rigs than we had this time last year. Basin by Basin the Permian finds some air under its wings as it is up 2 rigs. The same goes for the Granite Wash. Otherwise the Mississippian and Williston gained one each. On the negative side, we have the Cana Woodford and DJ-Niobrara with one fewer rig each. This puts Texas up BIG with 7 new rigs and North Dakota with 2 rigs. Wyoming lost 1 rig, and New Mexico lost 4. Last week the Gulf of Mexico lost a few rigs, and that situation remains as it holds steady at 15. The types of hole being made from these new rigs are primarily horizontal and targeting oil. Nothing too out of the ordinary this week, but I don’t recall seeing such a big week over week in a change in Texas, especially after the cold that swept through there last week so I would chalk this up to a good report.
Our last statistic to visit of course is the inventory report. The Nickterns are on vacation through the next week or so, so this last one was written by me. If you didn’t get a chance to read it, what are you waiting for? Visit www.rarepetro.com to find it along with a ton of other great content. Here is the barebones in case you missed it. After last week’s massive build it is refreshing to see a 5.9 million barrel draw from the EIA’s data. They predicted a meager 1.7 million barrel drawdown, so it looks like Christmas came early. The API had a much bleaker prediction with an essentially stagnant week, but even they were able to report a 3 million barrel drawdown. The Christmas season has often been a time of super volatile inventory changes, so keep your socks on through at least the first half of January. As you might imagine, the SPR continued to release some oil into the markets. Another 3.6 million barrels were released. This leaves it at levels we haven’t seen since around Christmas time of 1983. The Biden administration has now announced plans to begin refilling the SPR now that oil prices are back in the 70s, but if the price continues to rise, the whole program will have been executed at a loss. This new draw leaves the US still below the domestic crude inventory historical 5-year average, but we were already there to begin with. Should things continue like this, we may spend the early part of next year far below what we may have come to expect. Folks across the country continue to rejoice as the US enters historically normal (relative to the last 5 years) levels of gasoline supply. The marginal increases in supply are accompanied by dramatic falls in gas prices. The national average now sits at $3.101 which is a decrease of about 9 cents from last week. Hawaiians are close to paying less than $5 per gallon as the average falls to $5.096 per gallon, but are still far above the national average. It is no surprise that Texas has the cheapest gasoline at about $2.616 per gallon. Distillate inventories are still a little lackluster as of late, but propane inventories continue to exceed expectations. Neither of these commodities is too far away from average given the current timeframes, but anything could change at the drop of a hat.
So there you have it folks. Recovering oil prices, a positive rig count, and historically low inventory levels. Might make 2023 the year of high energy prices, though 2022 put up a good record. Let’s move onto some news.
Japan is making energy decisions that are rather refreshing to hear about. After receiving much of its gas energy from Russia, the country has decided to dust off the pen and sign some new long-term agreements to buy LNG from both the United States and Oman as it attempts to achieve energy security through sourcing diversity. Gas firm INPEX Corporation signed a 20-year agreement with US supplier Venture Global LNG for the purchase of one million tons per annum. Other energy infrastructure companies are working to sign deals with Oman to buy around 2 million tons annually. This is a good deal for Japan. They don’t have the same energy resources on their continent that the rest of the world does. Sure, they are starting to change the way they view nuclear power generation since that didn’t go down so well after the Fukushima disaster, but natural gas will also have to work to fill in the gaps in supply. I commend Japan for making this move. It seems like it is all too common to hear about countries making hair-brained energy policy decisions, so it is refreshing to see Japan pursue an option that not only achieves a bit of diversity in supply but stimulates competition down the road. Great job Japan for looking past the identity politics and making a decision that actually benefits them and their people.
Next, we have word from Russia. Alexander Novak, the Deputy Prime Minister, was recently quoted as saying “The European market remains relevant, as the gas shortage persists, and we have every opportunity to resume supplies. For example, the Yamal-Europe Pipeline, which was stopped for political reasons, remains unused.” This plays nicely into Russia’s move of not selling to anyone who engages with the price cap. They are simply saying that they want the free market to dictate the price. As long as that happens and people are willing to receive energy, they are willing to play ball. It’s not as if Europe isn’t consuming Russian energy. As a matter of fact, it seems like they are gambling on this conflict with Ukraine being over sometime next year. While all the hubbub went on around what price caps, trading restrictions, or sanctions would be implemented, Europe was absolutely hogging all of the gas it could. In fact, the bloc’s imports of LNG from Russia jumped 41% year over year. Of course, when you ask why this is the case anyone in the EU will tell you that this has helped keep European energy prices in check. Contradictions all across the board. 2023 is going to be an interesting year, especially when February hits and Russia decides it will not sell to people engaged with the price cap.
Folks that wraps up another year of Monday Madness. I know it got a little spotty in recent months, but you can always count on RARE PETRO to deliver content. We have a large team working here including myself with Monday Madness, Anthony with the Wacky World of Energy, Kevin with Basin Breakdown, and the Nickterns with written periodicals. There is always something to learn, and we thank you for another year full of learning and growth. This has been Tavis Kilian with RARE PETRO. Until we see you next year, take care everybody!