Monday Madness: Jan 24 ’22

Posted: January 24, 2022

Numbers in the black, Mexico’s tunnel vision for independence, and Exxon’s 180.

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Audio Transcript

Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another enthralling episode of Monday Madness on the 24th of January, 2022. Just one more Monday after this one and we will have already closed out the month of January. Time sure does fly. Did you try to stick t any new year’s resolutions? How’s that working out for you? My old man and I attempted a dry January, but mutually agreed to call it off on the 21st as we both acknowledged we put in a good effort, made it pretty far, and both had some parties we wanted to attend. Better luck next year, huh? But I know you didn’t come here to listen to my lack of discipline and how I was hankering for a Modelo only 3 weeks into the year, you came to hear the biggest news and statistics within the world of gas. Let’s dive in.

So far, it is a harsh morning for commodity prices. WTI started out Monday at $86 before falling to $83 where it currently remains. I expect that this volatility will be worked out in a matter of hours which will hopefully allow the price to come back up. This isn’t too unreasonable of a prediction as the price almost hit $88 on two separate occasions between Wednesday and Thursday last week. As long as it doesn’t fall too far, it appears that $80 is the new floor. Remember, a month ago the price was only $75 so keep an eye on those longer time frames. In recent months the oil price decreasing would typically mean natural gas did not perform well either. As a matter of fact, the natural gas price is up just a bit this morning and holding above $4 so far. I don’t anticipate it will remain above $4 for the rest of the day, but this isn’t too big a price dip from last week’s highs of nearly $4.40. Natural gas hasn’t made the same monthly progress that WTI has despite being incredibly volatile. Still, a trendline for the past month does establish a slight upwards trajectory, so I am optimistic for the near future.

Next up, the rig count. Last week was huge, especially for the Eagle Ford. Things seem to have calmed down this week as we are up 3 rigs for a total of 604 which is 266 more rigs than we had this time last year. The Marcellus basin led the pack with a 2 rig increase while the Haynesville and Mississippian tied for second with 1 rig each. This one rig increase brings the Mississippian to a total of one rig. The last time the Mississippian had a rig up was back in October of last year. Before that, they hadn’t had a rig since the first week of April 2020. Not sure what is going on there, but it is nice to see it isn’t fully dead, at least not yet. The only basin to report a loss was the Permian which is now down one rig on the week bringing their total to 292. A weak year for the Permian so far as it has spent time either losing rigs or living in the shadow of the Eagle Ford. State by state Pennsylvania is up 2, Louisiana, Oklahoma, and Utah are up 1, and both Wyoming and Texas are down one. Sure, a few negative numbers, but overall not too bad. These new rigs will be drilling a mix of directional and horizontal wells that will be targeting gas. The Gulf of Mexico saw no change in rigs. Overall, an okay rig report.

Our last statistic, as I’m sure you know, is the inventory report. You could have gotten all caught up on with the weekly Thirsty Thursday report where will also cover a new cocktail recipe weekly. If you didn’t get the chance to read it, here is what you missed. The EIA believed that its long-running streak of large drawdowns was coming to a close as the organization predicted less than a million barrels would be sucked away. Even that turned out to be too optimistic of a prediction as they reported a half-million barrel build. They released their report a day earlier but believed that they would be looking at a drawdown of more than a million barrels. Their magnitude was almost spot on, but their sign was not. The EIA had a beautiful 7-week streak, but alas, all good things come to an end. This is about the time of year we expect to see some builds, but half a million barrels isn’t too bad. Next week will likely be a similar magnitude before it takes off once again. Gasoline inventories continue their expected climb with another 5.9 million barrel build. As we have mentioned already, this is not strange for this time of the winter season. If we were to see a 20 million barrel build in a week, there may be cause for alarm, but that hasn’t quite happened yet. Keep an eye on this metric. Even though gasoline continues to become less and less scarce, the price is still up 1.6 cents on the week. This is strange considering the EPA considerations and extra oil pulled from the SPR to manufacture more fuel. It is possible that we are seeing delayed reactions of fuel prices to inventory reports, but perhaps there is more at play here than initially expected. There is still a shortage of drivers for all commodities and products, but that should not be enough to keep the price this high. Distillates and propane both witnessed significant drawdowns. This pushes distillates below the 5 year average for the first time since about September of last year. The trendline for distillates (and crude oil) leads RARE PETRO to believe that supplies will get even higher through February, with the potential to fall lower over time. RARE PETRO has predicted this outcome for a while, and it looks like it will finally be coming to fruition. Trends like these will only send crude and its respective products even higher in price.

But I believe that is the end of our statistics for this episode. It is high time we break into some of the news. Back in August of 2020, we aired an episode of Monday Madness that talked about the construction of Mexico’s Dos Bocas oil refiner. The refinery was championed by president Obrador as it would allow Mexico to wean itself off of fuel imports and become energy independent. The idea was to build an $8 billion dollar facility in the state of Tobasco. Even back then, the Mexican Institute for Competitiveness was doubtful of the project and gave it a 2% chance of completion given the financial analysis it ran. Even other experts agreed and said it could generate a serious crisis for the public finances of the whole country as the state organization Pemex was in charge of the project and would stop at nothing to ensure it was finished. That was back between 2019 and 2020. Today, the project is already $3.6 billion over budget (almost 50%) and is far enough behind that it will not start operations this year. This is a problem for Obrador because he wanted the refinery finished by now so that they could be free of oil exports by 2023. New predictions are claiming that the refinery won’t even be able to make gasoline by 2023, or as late as 2025. While the refinery may be inaugurated in July, it is still a long shot away from doing anything useful. Obrador’s office ends at the end of 2024, so it is certain that he will be working overtime to make sure this project is completed. At the end of the day, energy independence is not a terrible goal. That being said, it shouldn’t come at the cost of crippling the economy and diverting funds away from other federal projects. Pemex is clearly Obrador’s golden child, so the outcome of this project could be disastrous for both the state-owned organization and the people of Mexico.

Next up, Exxon has finally made commitments to releasing plans around reforming its climate policy. While CEO Darren Woods previously made comments like “we will do it if the market allows it to be feasible” and claimed that it was not in their expertise to pursue these options, the company has 180’d and will now be releasing a series of road maps before the end of the year that highlights just how they plan to achieve climate reform. Color me surprised, because this is not like anything Darren Woods would have championed, which would make me think that this is a result of Engine No 1. If you don’t remember, Engine No. 1 was an activist shareholder group that brought a proxy fight to Exxon’s table. They claimed that Exxon’s focus on fossil fuels put the company at an existential risk as the energy transition gathered momentum. They plan to take the typically expected action to fight climate change. Change out equipment that leaks, stop flaring, and anything else you have seen already. What folks seemed to be most concerned about is how Exxon is going to be able to achieve their goals since one of their biggest cash cows is selling fuel. Think about how many gas stations are across the country with Exxon’s name in bright red letters (or even just subtle subtext). Even though they are making a totally legitimate transaction and servicing the needs of people who want to drive their cars, they will still be expected to improve the way they produce, refine, transport, and sell fuel. You know, the whole idea around low carbon systems which is incredibly ironic when talking about hydrocarbons in the first place. At this point, I can’t be sure if Exxon’s actions are legitimate, or if it is putting in the bare minimum effort so that it draws as little heat to itself as possible. Either way, it seems the energy transition is continuing to force businesses to change how they deliver their goods to the people who claim to hate them but buy it all anyway. First, it was BP, then Shell, and now Exxon. I think this decade is going to be incredibly interesting in terms of how businesses are being ordered to change their operations.
Ladies and gentlemen, that is all we have got for you for this episode. If you are hungry for more news, be sure to give us a follow! We have an episode of Basin Breakdown coming out later this week covering all the biggest news for the month of December. That will surely satiate the appetite for knowledge. If it doesn’t, we have hours of backlogged content on the rare petro website. Search any keyphrase and you will be sure to find a little something something to read that makes you that much more knowledgeable as an energy professional. Also, you are always welcome to send us your questions at and we will be sure to address them in a future episode. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!


Related Tags: china | EIA | Europe | russia

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