Knee deep in statistics, uprising in Europe, and Greenland’s new beginnings.
Alrighty everyone welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness in the new year of 2022. First, apologies for the compressed sound quality. I’ve left my laptop charger at the office and I am recording this from the room I am renting. This is the first episode of the year to actually be released on a Monday, officially marking an end to the holiday season. It is now back into the swing of things and pedal to the metal for the rest of the year. If you had a slow start or the week just wasn’t as productive as you wanted, you have another opportunity this week. My friend, Kaylee, is starting a Hard 75 challenge and is hoping to sleep right, eat right, lift right, learn right, and think right for 75 days. She knows each day is a fresh start to do something big. While I don’t exactly recommend jumping straight off the deep end into a hard 75, you can pick something to prioritize daily. Get back into practicing that language you wanted to learn for 15 minutes. Take the time to do a quick mile run, and if you are feeling better, go further. Make those goals sustainable, and chip at them bit by bit. But I know you didn’t come here for daily motivation, (this isn’t a mindfulness podcast after all) you came here for the hottest news and most revealing statistics within the world of oil and gas. Let’s jump knee-deep into some data.
Last week’s commodity pricing was great for WTI and not so great for natural gas. This week, those two trade places. The current WTI price is about $78.50 which is down just a bit from the highs of last week. Prices climbed and stayed above $80 between Thursday evening and Friday morning. By the end of Friday, they were much closer to $79. Although we have become accustomed to a lot of Monday volatility, things are pretty stable this morning in the $78 region. I don’t see a ton of variation in the daily price if it has remained as stable as it has this far into the morning. This is a good sign because the price always carries the potential to crater downward. I imagine this week will be spent battling that $80 ceiling. If the price is able to make it above that point and stay there, I would not be surprised if we were looking at $80 or higher prices this time next week. As soon as it gets above that benchmark, it is off to the races. Natural gas started last week in the valley of $3.70 but made slow upward progress all week before exploding past the $4 resistance on Sunday morning. It got almost as high as $4.20 before dropping off to sub $4 pricing for only a matter of minutes. Already it is back up to a price of $4.10. I have no idea what events caused this significant push. I can only imagine it has to do with more of the US seeing snow on the ground and the cold temperatures that accompany the winter season. Yes, this morning’s pricing has been volatile, but the one dip below $4 was temporary and the pressure seems to be coming from the bottom. I don’t quite think $4 is the new floor, and I especially don’t think the day will end above a $4 price, but I think this week holds strong potential. If 2021 was the year of the barrel, 2022 might be the year of gas. I know that is a terrible way to say it, but I think you know what I mean.
Next, the rig count. Things started off slow last week with a rig report of zero net change. This week’s report fares just a bit better with a 2 rig increase bringing us to a total of 588 rigs or 228 more rigs than we had this time last year. The Cana Woodford has experienced a ton of growth, but it may have been in too short a frame of time. This week, it is down 2 rigs along with Texas who is down 1 rig. The only major basin with good news to report is the DJ Niobrara who was able to gain one rig. State by state we can see that Louisiana absolutely dominated the game with a 3 rig increase. Texas maintains the balance with a 3 rig decrease. Otherwise, Wyoming and New Mexico post modest one rig gains. The net change in rigs shows that fewer people are interested in vertical wells with an emphasis on horizontal and directional, although the emphasis seems to be on directional drilling surprisingly enough. The Gulf of Mexico sees a one rig increase as well. Sure, this is a very modest report, but at the end of the day it is a big ole plus 2 and that is something to be happy about.
An episode of Monday Madness would not be complete without covering our most recent inventory report posted as Thirsty Thursday on www.rarepetro.com. Last week brought some good news and a great cocktail recipe. If you didn’t get a chance to read it, here is what you missed. The EIA is on a roll and expected a drawdown of more than 3 million barrels. Fortunately, it was still a drawdown. Unfortunately, it was a bit smaller than anticipated. The API predicted a drawdown of a similar magnitude but absolute smashed expectations by reporting a result that was almost double the expectation. Talk about starting off the new year with a bang! This is the sixth week of drawdowns by the EIA’s numbers, and the past four weeks have been larger than 2.5 million barrels each. This is to be expected this time of year. The real test will be seeing if the drawdowns level out in the next month. Their results will set the tone for the rest of the first half of 2022 as we should expect to see inventory builds past then, but any continued drawdowns will have serious implications. Gasoline inventories shot up 10 million barrels for one of the largest builds we have seen… well this year and for several months. This is to be expected for this time of year, but it still leaves it outside of the historical 5-year range. The gasoline price has gone up about 1.6 cents since last week but should reflect the build in the coming weeks. Unfortunately, this marks the first week of increased gas prices since the decrease we have witnessed in past months. I’m sure the Biden administration is not too pleased with the results of their efforts, and I know everyone else is pretty displeased with these gas prices as well. At this point, it is getting to be difficult to find an average gas price of less than $3 a gallon in the US. Some midwestern and Southern states are still enjoying it, but that may not be for long. Our good friends (distillates and propane) are behaving exactly as we expect, so there is no exciting news to see here. Just more hugging that low end of the 5-year range.
But that wraps up a rather extensive statistics section. We now have plenty of news regarding the state of the world, and we will start with an oil protest. Now normally you would assume that this is an environmental protest in the states, but this one actually takes place in Kazahkstan and actually has to do with fuel prices. It has now started to calm down, but there was absolute chaos with some calling it the most active street protest since the country gained independence 3 decades ago. People are, to put it lightly, pissed with the current state of fuel prices. Protests started earlier last year but gained traction as 12 different cities saw citizens out declaring their displeasure with the way the government has not intervened to lower prices. This is drawing attention to problems that run even deeper such as the high issuance of non-performing loans that is gutting the countries economic system. The protest have led to more than 2 dozen deaths as the unfavored president, Tokayev, claimed these folks were armed. Whether or not they were, Tokayev is quickly losing favor. The political and financial unrest was causing big problems, so the Kazakhstani government reacted by appealing to a Russian-led military alliance, the Collective Security Treaty Organization, for help in crushing the uprising and the CSTO agreed to send an unspecified number of peacekeepers. While the methods are guaranteed to be nothing short of brutal, it seems to have convinced people to drop the protests. I doubt this is the last we have heard of this story, and oil output from the country could drop significantly should things get ugly, but Tokayev will likely prioritize its extraction as it is absolutely imperative to keep the country’s financial system functioning.
Our next story lands us way up north in Greenland. Last week the country announced that they would ban all oil and gas exploration from this point onward. While the country of 56,000 people may not seem to have a major influence on the global market, it is estimated that there are 18 billion barrels of untouched oil within their remaining west coast reserves alone. The company says profits are outweighed by all environmental concerns and that no price is worth the cost they believe oil and gas consumption will have on the planet. Still, I believe there is a price they would be willing to produce at, but it would have to be a rather expensive barrel. This makes Greenland the fifth European country to diminish plans for future oil exploration, after Denmark, France, Spain, and Ireland. The official statement said, “This step has been taken for the sake of our nature, for the sake of our fisheries, for the sake of our tourism industry, and to focus our business on sustainable potentials.” The environmental concerns are especially potent for Greenland as rising sea levels could severely impact the many coastal towns within the country. I am excited to see their transition to renewables, and this is an area that I think it would excel given appropriate battery and energy storage technology. Small populations with access to tons of land could make great use of solar and wind farms, but the great concern here is heat. If power is to become intermittent, it could be difficult to provide reliable electricity for those who demand it, especially when the longest nights in the winter can be up to 20 hours long. The sun don’t shine at night, and the wind don’t blow without the lack of appropriate changes in temperature from wind fronts, so it is going to be very interesting to see how they navigate these changes. Perhaps they will go back to cutting down loads of trees to power wood stoves. You know, green alternatives.
But I think we should end it there before I get too snarky. If you are looking for more energy-related content look no further than our website at www.rarepetro.com. We release something every day whether that is a podcast, an article, or an interview with an executive. Lots of great content to be experienced there, and it is a great way to get a competitive edge over the rest of the folks in the industry. Again, this has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!