In this episode we take a look at how OPEC is prepping for February 1st and how India plans to use more coal in the coming years.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another enthralling episode of Monday Madness on January 30th, 2023. What a fast month it has been as we continue to plow deeper into the year. As a matter of fact it seems we are getting deeper and deeper into winter as well. This morning temps were negative in Colorado and have only climbed as high as 4 degrees as of the writing of this script. Snow is one thing, but cold is another and I for one am glad to have a nice natural gas line into the house so I can continue to work and be productive! You may laugh at such a simple thing, but I spent time growing up in a farmhouse that only had a woodburning stove. Pretty hard to prepare a podcast script, record it, and edit it when you need to split more wood or stoke the furnace in order to not freeze! But you didn’t come here to listen to me glorify the beauty of natural gas, and even if you did, I imagine you came more so for the analysis of statistics and review of world events. Let’s get to it!
We start off with commodity prices! Ladies and gents I hope you have your tickets to ride because I believe we are at the precipice of big price action for WTI. We’ve been talking about the $80 ceiling that WTI keeps fighting, and boy did it put up a fight last week. It pushed above by close of business last Monday and held for many hours. It was pulled back down but still climbed to the $82 mark by Friday before a quick fall back below $80. This morning the price is much closer to $79, but that doesn’t mean we will spend the whole week here. Each time this price tests $80 it spends a longer time above, so I truly believe it is a matter of time before it breaks and stays. That’s right folks, $90 and triple digit WTI barrels are still on the menu for 2023 and may even arrive before the end of this quarter. I know it all sounds like hype but we have our reasons to believe this and have been talking about it in our media pieces for years now. If it doesn’t make sense to you, go ahead and subscribe to this podcast so that next time something like this comes up you have more understanding of the situation. The spread between WTI and Brent remains at around a $6-$7 difference which is not too different from what we have seen in recent weeks. As you can imagine the price action is mostly the same for these two with a little variation breaking out as the Middle East works to adjust prices in the near future, but more on that later. Natural gas continues on its downward spiral as it loses control and flattens out around $2.750. There’s many factors at play though conventional media will just continue to point at what they consider a warmer than normal winter and the previous rush of resource acquisition leading into winter. This could be the reason, but we just won’t know until it’s behind us. As of now it continues to put up a good fight as it climbs a bit, yet gets beaten down lower each time. Hang in there, buddy!
That’s about all I have for commodity prices. How about we move onto the rig count? If you recall, we have been sitting at about the same number of rigs for a couple of months now. That remains true today as we see no rig change week over week leaving us at a total of 771 rigs or 161 more rigs than we had this time last year. Still, net change doesn’t mean there was no change at the micro level. The Permian grew in count by 3 and the Cana Woodford by one. The Ardmore Woodford decreased one and otherwise all we have are crickets. Things were a little more exciting from a state perspective as New Mexico grew 3, North Dakota 2 (despite this bitter cold), and Pennsylvania 1. On the negative side we have West Virginia who lost one, and Louisiana who dropped 3. Even the Gulf of Mexico dropped 3 rigs. Similar to last week it would seem that the focus is shifting from oil to gas along with a focus on horizontal hole. Very peculiar especially considering the what we saw with natural gas prices. Maybe operators know something that you and I don’t. Regardless of the angle you take, this is the 7th week in a row that the rig count remains in the 770s which only further exacerbates the plateau effect from the 760s through last year. I’m afraid that we have reached the end of the growth rebound that sprouted from 2020. What I mean by that is more that we saw a massive drop once commodity prices went negative on April 4th of 2020. Since then we saw steady and healthy rig growth up until about now. At the moment it seems like the carrying capacity for the rig population in the US is no greater than 800, though any number of factors could push that north or south, so don’t hang your heads yet.
Our last statistic to consider is Thirsty Thursday, once again written by Nick Fernhout. He does a great job at writing excellent analysis to go with graphs, tables, and other tools to really enhance your understanding of domestic inventories. I recommend you swing by www.rarepetro.com to get the full scoop, but here is a quick rundown of what he wrote last week: After a few big swings in inventory in the past weeks, it is almost refreshing to see that the EIA reported a tiny build of half a million barrels. Their forecast was fairly accurate this week too, estimating a build of nearly a million barrels. Not sure what is going in with the API’s data this week as they reported a build of 3.4 ish million barrels, quite a bit off of the EIA’s reported value… The API had forecasted a build of 1.6 million barrels. If you’re looking for a change in the SPR inventory level don’t strain yourself, there isn’t one. No, I didn’t forget to update it, and no neither did the SPR. There just isn’t any change this week! There were 0 barrels of oil released from the SPR, so that’s a first in a long time. While gasoline prices have been fairly quiet lately, they have slowly been on the move upwards, most likely due to increased demand. This last week saw another slight increase. Gasoline stocks are also on the rise, but that is about normal this time of year. Gasolines’ national average price increased this week by 13 cents. Not much in the grand scheme of things but one of the larger increases as of late. I’m almost as tired of reporting it as you are of reading it but California is still selling gasoline at the highest price in the country while Texas is the lowest. Perhaps I’ll only mention state gas prices in the future if anything changes! Either way, the national gas price average is now at $3.502 per gallon. Both distillate stocks and propane stocks creep downward this week. The more concerning one is by far distillates, although both tend to slope downward this time of year. What is concerning about distillates is that this year’s stocks aren’t in the 5-year range, indicating that something is off. Perhaps a mild winter in most parts of the world is helping to keep economies buzzing.
Thanks once again Nick. That covers all of our statistics, so now we move onto current events. I alluded to it earlier, but some adjustments may come to commodity pricing in the Middle East. There is an OPEC+ meeting coming up this Wednesday, but Crown Prince Salman and President Putin have been getting their notes prepped. Sources say that they shared a phone call on Monday to discuss strategies they could use in maintaining stable oil prices. This OPEC+ meeting isn’t a standard meeting of the joint technical committee. That was scheduled for Tuesday and canceled. Instead, this is a Joint Ministerial Monitoring Committee meeting. Only high ranking ministers will be in attendance. While nothing nefarious has been planned outright, most people believe that this meeting will simply discuss changes to China’s demand with no discussion centered around production output adjustments. Funny to think that the west worked so hard to prevent Putin from being in this position, yet Russian exports remain high enough to warrant continued participation in OPEC meetings. Don’t forget that Wednesday also marks February 1st, so I would be incredibly surprised if the ministers don’t discuss how Russia will not send energy to Europe if they adhere to the price caps. In fact, I would guess that this is the true primary objective of the meeting. February is shaping up to be a rather momentous time period for energy, so keep those eyes peeled!
Next we move to India who seems to have decided that your climate goals are not their problem. They will import more coal in the coming year as their government has planned to maximize electricity production as neighbors (looking at you Pakistan) are struggling to secure energy resources. The government of India intends to use emergency law to have more coal-fired generation this summer as they expect a record demand for power. Coal already powers 70% of the electrical infrastructure, so I imagine this would not be too difficult to implement. As a matter of fact, they have been struggling to operate at maximum capacity as coal prices have been rising since about 2021 until about now. Regardless of how they obtain the coal, you can be sure capacity for coal generation will increase. The largest power-generating company in India is the state owned NTPC Ltd, and they said they will be prioritizing energy security after power outages from last Spring. They also added that the coal phase out will take 2 to 3 decades as they expect coal to be an abundant and affordable source of energy. Makes sense that they are preparing for the future like this, especially when you consider that power demand has yet to peak in India.
Folks, the world is thirsty for energy and we are going to see some particularly groundbreaking developments this week. February 1st is an important day for you to keep an ear to the ground. I know it can become overwhelming to follow all of this stuff. Why don’t you let us take care of it for you? RARE PETRO’s media team always finds time to bring you the most important news that pops up in the energy space. We can continue to do the heavy lifting and bring you all the important news. All you have to do is hit that follow button and subscribe on whatever platform you are listening through! Otherwise you can find plenty more at www.rarepetro.com. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!