India has boosted the amount of Russian oil it has imported 33 times and American politicians pull their heads out of their… your know where.
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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 January 16th, 2023. While I know many of you may have the day off for MLK, RARE PETRO stays hard at work. In fact, much of the energy industry continues through all major holidays. I’m thankful for those men and women that continue to work to provide the energy that the world needs on days like this, Christmas, or any other holiday. But you didn’t come here to listen to a young fella do his best to cope with missing out on a day at the golf simulator with his friends while he is at work, you came here to get the hardest-hitting news and most revealing statistics that we could scrounge up. Let’s get to it!
You know we have to start with commodity prices which have been exhibiting some crazy volatility over the past month or so. WTI found its legs last week as it climbed from $74 up to $78 in just a day despite a rather massive inventory build. From there it rose to about $80 but has since fallen this morning to $78. Like I said last week: This $80 ceiling poses some interesting questions, especially when we get on the top side. I imagine there could be a lot of growth, but the last time we got this close to $80 the price quickly dropped to about $73, so we will have to exercise patience and see what else this day can offer us. Brent continues to maintain a $6 premium, but otherwise tracks WTI’s movement. Natural gas continues to be ridiculously cheap at around $3.600 and shows no signs of rising soon. This continues to be attributed to the warmer-than-usual weather and vast stocks of gas folks secured before imposing a ban. Don’t forget that the clock is ticking and Russia will no longer sell to them past February 1st if they stick to their guns, and I think that will be the most pivotal point in energy for 2023 (so far that is).
Next of course is the rig count. The United States is up 3 rigs to a total of 775 or 174 more rigs than we had this time last year. A few more weeks like this, and we could hit 800! A far cry from where things used to be before the pandemic, I know, but the count has steadily grown ever since then which is great news. We’ve got a lot of change from a basin level so try not to get lost in this data. The Permian is up big with 3 new rigs, 2 for Eagle Ford, and 1 for the Mississippian. For those who lost rigs we have the Cana Woodford down 2, along with the Barnett, DJ, and Haynesville each down 1. State by state this leaves New Mexico up 3, Texas up 1, Louisiana up one, Colorado down one, and Oklahoma down 2. Surprisingly we also saw 3 new rigs in the Gulf of Mexico. The net change of rigs seems to be directional rigs that are targeting oil. Overall, not a bad count because it is positive. Looks like the Gulf is trying to get active before hurricane season hits in the summer, so good on them.
Lastly of course we need to talk about inventories. I already kind of alluded to it, but we were hit with an absolutely massive inventory build. I’ll let Nick take it from here with what he wrote for rarepetro.com’s Thirsty Thursday periodical. Here is what you missed: Well, there’s already a lot to dive into right off the bat. The EIA forecasted a draw of about 2 and a quarter million barrels. Wow were they off, but can you blame them? Who would have predicted a nearly 19 million barrel build?! The API thought a similar draw would happen, but they reported a build of nearly 15 million barrels. What is going on? Experts on the subject are pointing out that refineries are padding their inventories ahead of the new year. Recent cold streaks across the country are also causing people to stay home and drive less, driving the current weak demand for crude. Those same cold streaks have caused some refineries to shut down due to damage caused by bursting pipes, aiding the build even further. The latest data on the SPR shows a draw of only 800 thousand barrels. Which at first sounds like quite a bit, but that’s the lowest that has been withdrawn in several months. Although this week’s build is quite large when compared to recent ones, it got me wondering when the last build of a similar size was. For that, we have to go back to March of 2021 when a 21.5 million barrel build was recorded by the EIA. We are also no longer struggling to remain in the 5-year average now but are firmly planted in that zone. National gasoline prices are steady and fairly low lately. Gasoline stock across the country remains unpredictable, this week it got in on the build with crude and jumped a bit, a week or two ago the opposite happened. Either way, gas prices seem to hold steady despite inventory changes, lucky for us as consumers! While diesel is still expensive, it is cheapening a little bit each week. Just as it seemed distillate stocks were recovering, they dip again slightly. Propane/propylene stocks have also been dropping for a few weeks now but remain in historically normal territory. Thanks, Nick! A pleasure to have you and your great periodical back.
Now it is time for the news. I alluded to the price cap earlier, and we actually have some news from a player you may have forgotten: India. Now India is a peculiar case. They are a super dense population that requires a lot of energy in a small area, but there is not a huge emphasis placed on petroleum exploration. Because of this, India has to buy lots of its energy. How much energy are they importing? Well, they imported 1.2 million barrels per day in December. To put that into perspective, that is more than 1% of daily consumption in a single day to day transaction between only 2 countries. A truly massive quantity of oil. I bring this up because I want to highlight just how ineffective these bans on Russian energy are. Sure, you have Europe consuming much less Russian oil, but now India is importing THIRTY THREE TIMES more oil this past December than the one before. The oil will find markets. The indirect discounts from Europe only make Russian energy more accessible to the rest of the world, and there isn’t much they can do. The price cap has even (again indirectly) forced more oil to China as they can now negotiate much lower prices for the energy. Europe’s policies have made this situation for Ukraine much worse, and has made their energy security much worse. This isn’t to say that India and China won’t immediately turn around and sell it to the world, but at that point the price cap will have done more harm than good. In fact I would say no good and only harm. Keep educating yourselves in this area folks as this could easily play out badly on the world stage.
Next we have a story that hopefully reinstates some faith in our friendly neighborhood feds. Last Thursday, the US house of reps passed a bill that aims to ban the sale of oil from the SPR to China. While this will most certainly leave a bad taste in China’s mouth if they ever feel the effects, I think this is a policy that I can get behind. This legislation passed 331 to 97. Some of you may be asking, “Is this really necessary?” Well, some of the oil sold from the SPR last year went to a company known as Unipec America. If you haven’t heard of them, they are 100% owned by Sinopec, China’s state-run oil company. After all, the main goal of the Biden administration was to reduce energy prices in the short term… but how does oil sold to China do anything to affect supply here? These are the types of questions that should be asked before a gigantic sale from the SPR was permitted, but at least we are patching up holes for the future. What’s even more surprising is the statement from Cathy Rodger, the House Energy and Commerce Chair. She said, “America’s SPR is meant for true energy supply disruptions, like those caused by hurricanes and natural disasters, not to help China.” Still, some people feel this bill remains an utter waste of time. One analyst even said, “It is a world market and it’s like water seeking its own level and when you sold oil on the incremental market whether it moved to domestic sources or whether it moved overseas it did temper the enthusiasm for high-priced oil.” He’s got a point that all effects should be considered, but I still think making oil harder for China to receive isn’t the worst political idea we have had. But hey, who knows? Some of you may even agree with Rep Frank Pallone of New Jersey who said the bill fell short of being effective and argued that it should outright ban all crude sales to China.
Folks, we have had some fun today. We got to look at some dramatic builds, relatively unaffected prices, India’s new best friend, and legislation that is beginning to sound sane. It is already a crazy new year, so be sure to subscribe to RARE PETRO to stay on top of all things energy related. As a matter of fact, a little birdy told me that the Wacky World of Energy segments might be returning to our YouTube channel soon, so keep an eye out for that! This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!