In this episode we look at what happens when you choose to conserve rather than secure resources.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on January 23, 2023! Fresh snow is falling this morning and piling on the old snow from storms in recent weeks as we get closer and closer to the middle of winter. That’s right folks, February 3 marks the official half of winter according to the farmer’s almanac (though the groundhog may disagree) which means we aren’t too far from sunny days! Hell, at this point I would settle for not having the sun drop behind the mountains at 5:00 PM. Either way, it has been a good winter, and so far, a good year. It was difficult to get away from some bad habits with eating and fitness coming through the holidays but I think we are back on track with the year. But you didn’t come here to listen to some guy on the internet reflect on the three weeks of 2023, you came here to get information regarding statistics that peel back the curtain and stories that let you know what exactly is going on in the energy industry.
We start with commodity prices. WTI had a bit of a strange week as it fell as low as $78 and as high as $82. Still, we haven’t seen a clear break up against that $80 ceiling. Any time spent above is short lived as it gets yanked right back. Either way, it currently sits at $82.35 and (if I had to guess) will fall back under within a few hours. If it doesn’t, we may be watching the beginning of the largest energy run up of 2023 so far. This is an important one to keep an eye on folks. As you might expect, Brent is up too but the spread has widened from $4-5 to about six and a half. I can’t pinpoint this to a certain factor, but this could be good for WTI. If a spread like this continues to grow, it sometimes makes it cheaper to import energy from the United States. It all just depends on the relativity between the markets. The spread is still within normal territory so I wouldn’t get too excited yet. Natural gas is seeing a tiny bit of love as it climbs back up to $3.334. Perhaps “climbing” isn’t the right verb to use here. If anything, it has stood up after plummeting off of a cliff. I don’t think this is the beginning of a pattern of growth for natural gas, but I think we are at about rock bottom given current market conditions. Whichever way you choose to look at it, I recommend you focus on oil because this is the rocket that is primed for liftoff. Natural gas will have its time once again some day.
Next is the rig count. It seems that 770 rigs is about where we are destined to be. Last week we lost 4 rigs bringing our total from 775 down to 771 which is still 167 more rigs than we had this time last year. The aftermath of 2020 left us with so few rigs, so growth was really easy for two and a half years. Now the count seems to have found its point of stasis for the short term. This isn’t to say that we will have this many rigs for the rest of the year, more so that 2020 has faded from the rearview mirror. Basin by basin the permian bit the dust as it lost 2 rigs. Otherwise the Ardmore Woodford, Eagle Ford, and Marcellus each lost a rig. The Utica actually posted a one rig increase, so good on them. State by state this leaves Louisiana down 3, New Mexico down 1, and Alaska down 1. Somehow Texas is actually up 1 rig. If we gaze into the gulf we lost 3 rigs that we saw go up very recently. The change in rigs shows a clear shift away from oil to natural gas which is surprising given what we just discussed with commodity pricing. Again, it isn’t likely we will see rig counts like we did last year where we were gaining double digits in a matter of days, but things seem to be leveling out.
Our last statistic to visit is the inventory report. Nick Fernhout published this last one on Thursday. It is best enjoyed with a nice cold drink on www.rarepetro.com but I can get you caught up on the important details. Here is what you may have missed. There couldn’t possibly be another build as big as last week’s right? While not ~19 million barrels, there was another build this week as reported by the EIA, but only 8.4 million barrels. The EIA had forecasted a draw of 0.6 million this week. For those keeping track at home, the EIA has reported over 30 million barrels added to inventories over the past month. The API is roughly in line with what the EIA had reported and forecasted. The API sized expected drop of 1.75 million barrels and reported a slightly smaller build than the EIA. If the latest SPR data is indeed up to date, and if my calculations are correct, then the SPR released a whopping one thousand barrels of crude last week. Compared to the several million that were being released every week just a month ago, I think we can say that the SPR releases have finally come to a halt. Now we wait until it is filled back up again. Gasoline prices remain steady and low across the country and look to remain so barring any worldwide pandemics or Russian invasions. Gasoline stocks are entering that time of year when it has historically been very predictable as evidenced by the thin grey band over the winter months. Gasolines’ national average price increased this week, but don’t worry too much as it was an increase of less than one cent… On the bright side, diesel got cheaper! But don’t get too excited as it was also by less than a cent… Hawaii still steadily has the most expensive gas in the country while the title for cheapest gas goes to Texas, beating out Mississippi by 1/10th of a cent. We are no longer dealing with changes in dollars but now by less than a cent! A little bit more on diesel to round out this week’s report. Diesel stock is headed downward, but to most, this isn’t worrisome as we have already dealt with the “diesel crisis” of 2022. It’s also normal for this time of year for diesel stock to dip. There’s nothing new when it comes to propane/propylene, it’s behaving as usual when compared to the five-year range.
Thanks again to Nick Fernhout for putting that report together! Now it’s time to take a look at some current events. This first story was brought to my attention by our very own Anthony McDaniels. Did you know Pakistan experienced a power outage this morning lasting about 12 hours? I hadn’t heard either, but the country is trying to implement a conservation program. In the winter, Pakistan’s electricity use goes down as the demand for cooling is almost non-existent. Since they are going through a bit of an economic crisis, the government figured they would turn off power during the low usage hours of the night. The power was turned off on Sunday evening, but struggled to come back the following morning. If you know anything about power plants, you know that it is really difficult to just “flip a switch” as people envision. The large fluctuation in voltage appeared to cause some damage so hospitals, railways, homes, and businesses were left without power. The world doesn’t operate to the capacity we have built it to without electricity. Thank god there were backup generators for especially sensitive situations as it would not have taken much to push this from a disaster to a catastrophe. The government deployed police to markets in order to provide extra security as folks were scrambling for resources. Lots of water in Pakistan is moved with pumps, so without electricity there was no water. The winter temps were in the 40s and people didn’t have power to go about their days. Unfortunately, things aren’t going so hot in Pakistan considering their economy, but things like this certainly don’t help. I think this is an excellent case study to consider what happens when we ration supplies rather than develop unique solutions. Rationing doesn’t breed any new solutions, and in the case of Pakistan, did more harm than it helped. I feel badly for those in the country of 220 million that were affected. They didn’t choose the energy policies that were implemented and it ended up hurting many folks. Energy is power, and I am glad to live in the US where we have the resources. I just hope that the government doesn’t interfere with consumption too much.
Before we go we can take a look at another conservation program being implemented. Temps are getting colder in the UK. In response to potential increased energy demand, the Demand Flexibility Service program said it would be activating for the first time yesterday between 5:00 and 6:00 PM local time. This program incentivizes users to forgo using power by giving them a little money back on their energy bills if they avoid using power at peak demand hours. So far the few test programs have worked very well for them, and I imagine the results from yesterday’s test will go just aws well. Unfortunately, this doesn’t exactly solve anything. Like the last conservation plan, it patches things in the short term. Without the money consumer behavior wouldn’t change. I would argue the money would be better spent achieving energy independence. I would also argue that this establishes a pretty scary foundation. If this test goes as planned, it will likely be implemented again and again. The government can pay people to not use energy in the short term, but that isn’t exactly sustainable. What stops power companies and local governments from coordinating their efforts? It turns from a “you can flip the switch off to save,” into “you are required to flip the switch off to save.” If you continue to push it slowly, it is likely the whole population could be convinced to conserve energy for “the greater good” which is sad because countries around the world are sitting on vast oceans of hydrocarbon resources but are too stubborn or ignorant to produce them.
Folks, we have looked at 2 very different countries today, yet they are plagued with the same problem: too little resources to support the lifestyles we have become accustomed to. Rather than securing more resources, the governments have chosen to conserve rather than to reallocate or grow. It is always easier to conserve in the short term, but it seems to be the routine solution at this point. There could be no shortage of energy for the whole world, but a combination of misinformation, energy dependence, and geopolitics prevent that. Sometimes dependence and geopolitics are too vast a realm for one person to really make change in, but misinformation can be easily combated. RARE PETRO enjoys pulling factual information from around the world and presenting it to our audience. While sometimes we consider hypotheticals and sprinkle in some opinion, it is largely factual information that you can use to form your own conclusions. Go ahead and subscribe so that you can be as well informed as possible. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!