In this episode we talk about the spike in barrel pricing, the IEA’s pessimistic prediction, and Japan’s gas demands.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on July 17, 2023 fresh off of a week of cat sitting. That’s right. The girlfriend left so I was entrusted with the noble task of looking after two kitties. One aged 3 years and one aged 3 months. I gotta tell ya, it was an absolute delight. They could be entertained with a box or a piece of string and spent most of their time just fighting each other. The only time I really had to step in was helping the little guy get rid of a dingleberry that was scaring him. Big shout out to Mr. Darcy and Poe if they are listening to the podcast. But you didn’t come here to listen to the stories of an amateur cat wrangler, you came to hear all about the most revealing statistics and wildest news stories in the world of energy. Let’s get into it!
We start out with WTI prices which had quite the run last week. The week started out at about $73 last Monday which is not a bad price at all. On Tuesday it had jumped up to $75. On Wednesday it was just shy of $76 and Thursday topped out at just slightly more than $77. This is the highest price we’ve seen since we saw that spike back in April. The price has been trending downward for over a year now, so it is always exciting to see a spike like this. If we are lucky we will see a flattening of the trend. If we are supremely lucky we may even see the price start to climb over the next few months. At least for now the price has fallen slightly from that $77 peak from Friday to present. At the writing of this script the price was in the mid 74s which is still higher than a week ago, but we will have to see what this week has in store. At this point we’ve been mostly disappointed for over a year so I’ll try not to get my hopes up until something nice happens. Brent experienced the same volatility, but the $5 spread we’ve been watching shrunk by a few dozen cents. Nothing drastic, but movement nonetheless. It topped out at more than $81 a barrel. Natural gas continues to gently roll up and down in a 30-50 cent range with the ever so slightly upward facing trend. It is currently at 2 and a half dollars but likely headed back up just a bit in the coming week. Nothing too crazy here.
Next is the rig count. We got lucky last week and were able to bear witness to the first positive change in months, but it was likely all because of a spike of activity in the Haynesville. I predicted it was not likely to last, and I was correct. The most recent rig count shows a 5 rig decrease leaving us with a total of 675 which is 81 fewer rigs than we had this time last year. This pretty much wipes out all progress from the previous build and puts us back on track for more rig losses. The Permian continues to bleed away rigs as it loses 5 while the Eagle Ford, Cana Woodford, Haynesville, and Mississippian each lost one. The only major basin that gained a rig was the Williston. This means Texas as a whole was down 8 while Oklahoma was down one. Louisiana and North Dakota both gained a rig, and New Mexico gained 2. The Gulf of Mexico lost a rig as well. It’s cool to see some areas are finding little opportunities to throw up a few more rigs, but for the most part things aren’t looking too hot in the E&P sector.
One more final statistic we have to talk about is Thirsty Thursday from last week. The featured cocktail recipe is that of a frat boy, but the data is still excellent along with the visual aids that accompany it. I recommend you give it a peek on www.rarepetro.com. Here’s the quick and dirty of what you may have missed last week. After a few weeks of pretty significant declines we are now faced with a rather dreary build. Although the EIA predicted a half million barrel build, they were more than 10x off from the actual result of a nearly 6 million barrel build. The API faced similar difficulties in pinpointing the result as their predicted 200,000 barrel build fell shy of the actual build of more than 3 million barrels. Despite the 6 million barrel build, we have still ultimately trended downward in supply since the start March (whether or not it actually feels that way). Thanks to the SPR releases we saw a massive spike from December through February, but we are down 23,000 barrels since we peaked just a few months ago. There is still lots of work to be done to get back into normal territory as we are still 36,000 barrels higher than we were this time last July. Overall, things are trending in the right direction and we can be happy about that. Gasoline prices continue to hold steady despite gasoline reaching 5 year historical lows by nearly 10 million barrels. We’ve only just broken out recently, so I wouldn’t worry about price spikes similar to the ones we saw in the summer of last year. I would, however expect some kind of increase in price, but then again we’ve been trending downward and outside of historical range for most of this year and we’ve seen no reaction. But it is important to be careful what you wish for, so I won’t complain too much. I would however be complaining if I lived in lived in Washington state because has has fallen 2 cents but still averages $4.95 for a gallon of regular. The cheapest gasoline is found in Mississippi at an average $2.993 gallon of regular. Ultimately, prices have increased by 2.5 cents, but we will have to be patient to see if that trend continues. Diesel prices only increased by about a cent and have gone down a total of 5 cents on the month, so definitely more good than bad. I would expect this to eventually drop even more in price considering how we are beginning to stockpile distillates and work out way back towards the middle of the of the 5 year historical range. We are still near the bottom of that range so I wouldn’t place any bets on that one yet. Propane remains higher than anticipated given its 5-year historical range, but not by an insane amount. Yes, records are being set, but only marginally.
That wraps up our statistics. Now we need to look at some current events. The latest data from May shows that global demand was up and close to surpassing the record demand set in March of this year. According to a recent forecast from the IEA’s “Oil Market Report”, we are set to hit a record high demand of 102.1 million barrels per day in 2023. As many headlines often claim, they are putting the burden on China for 70% of new global gains due to increased petrochemical use, though many claim that China’s “reopening” has really only touched travel and services with plenty of economic lag in other sectors. Surprisingly, their report continues to predict that growth will slow considerably in 2024. As the report says, “World oil demand is coming under pressure from the challenging economic environment, not least because of the dramatic tightening of monetary policy in many advanced and developing countries over the past 12 months.” If by tightening of monetary policy they mean folks grappling with the effects of inflation in every sector, they may be right. Still, people will go broke to have energy. We are simply too entrenched in the luxuries of modern life that I think countries and their citizens will spend big on energy. Sure, it is easy to turn the lights off, but what about AC? Heating in the winter? Refrigeration? Internet? While that doesn’t bode well for the average consumer, it does bode well for the price of energy, and in turn those who work in the industry. This is probably what Saudi Arabia and Russia are trying to do with their production cuts. Oil revenues have not exactly been as pleasing as they might have wished, so they are further restricting an already diminishing global supply. I do agree with the IEA in the sense that demand will go up, but I don’t see why it would halt in 2024. The IEA’s word is not gold, and this is just one of the many speculative reports at the end of the day, so perhaps you should just take it with a grain of salt.
Remember back when the EU set new gas storage goals as a response to the Russian invasion of Ukraine? It makes a lot of sense and works to secure resources for those within the EU. The next challenge, according to Japan, is to establish a global petroleum reserve. It makes sense that Japan brings this up, because they are entirely import dependent on natural gas. They will likely push the issue at a gas conference being held in Tokyo on Tuesday of this week. Surprisingly, there is a global guidance for crude in emergency situations (assuming folks will listen and cooperate in hard times). Members of the IEA including both Japan and the US are required to hold oil stocks equivalent to at least 90 days of oil imports to be ready to distribute in a possible emergency response due to massive global supply disruptions. Now of course this would likely not go into effect if a war occurred, but a massive tsunami or continental earthquake may actually spur countries to participate. Japan plans to propose a similar framework for natural gas. 90 days of imports is quite a bit of storage, and I don’t think we could work on refilling them too aggressively. Or maybe I’m wrong! Prices are pretty low right now, so this could be the perfect time to start refilling inventories. Either way, it had to be brought up sooner or later. The EIA projects that natural gas could be responsible for as much as 75% of our energy generation by 2050, so it was only a matter of time before the framework of global emergency oil reserves was applied to natural gas. Regardless of what happens, be thankful to live in a country that is on top of subterranean oceans of natural gas. Could be worse!
But ladies and gentlemen that is all I have for today’s episode. Thanks again for stopping by, and it is possible that we may have an episode of the Wacky World of Energy available next week. It has been a few months since the last one we released, but we should be recording in the middle of this week. You may as well keep yourself entertained until the next piece of content is released, so head on over to www.rarepetro.com to find the rest of our content and some of our favorite news stories. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!