In this episode we talk about MbS’s distaste for the current administration thanks to leaked documents.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness from the road! That’s right. I wrote this script sitting shotgun to Anthony McDaniels as some of us make a road trip out to California. Even though you may recognize us as creators in the media space, we also work to modernize the oilfield whenever an opportunity presents itself. We love learning new things and implementing brand new technology. Until we reach our destination, I’m actually recording this one from a casino, but I’m not gonna disclose which one because we don’t do ad reads for free. Even so, I’m sure you didn’t come here to let me tease you with vague details about R&D. You came here to learn more about statistics guiding commodity prices and the news stories changing the energy landscape. Let’s get to it.
WTI prices are less than ideal at this point in time, and by less than ideal I mean far lower than where they should be given current events. Last week it was anywhere between $70-$73, which still seems low but is far better than the current low $67 we see this morning. It started out at a much healthier $70, but fell to high $66 in a matter of hours but couldn’t spend too much time that low. I’d wager that by the end of the day we are at $68 & $69. After all, we’ve been stuck in this super tight pricing band for months and I don’t see that changing until international factors come into play in the form of a frustrated Saudi Arabia. Brent maintains the same pattern, but the spread could be growing still. Last week it was closer to $4.50, but it is very quickly closing in on $5. Again, extreme volatility is going to cause that spread to fluctuate but trends seem to say that the spread is starting to widen. Natural gas observed the perfect peak of a sine wave last week, so we may be in for lower prices soon, but nothing too far outside of $2.15 to $2.35. Piss poor prices, yes, but at least we know what we are in for. I wish I had more to say about commodity prices this month, but you folks know the drill. At this point it doesn’t make sense, Saudi Arabia thinks things are being manipulated, and companies are pulling their foot off the gas.
Speaking of pulling the foot off the gas, the rig count continued to fall. It stopped hemorrhaging like it had been doing for the last 4 weeks as we had lost 59 rigs. This past week it looks like the wound has started to clot as the rig count only fell 1. This brings the national total to 695, which is 38 fewer rigs than we had this time last year. As you can imagine, we saw little change at a basin level. 2 new rigs in the Cana Woodford, 2 fewer in the Permina, and 1 less in the Haynesville. State by state this means Texas is somehow down 6 & Colorado down 1. Louisiana, New Mexico, Oklahoma, and Utah are each up 1. Wyoming is the big dog as they are up 2. The Gulf of Mexico saw no change. The rigs lost were horizontal and searching for gas. A very quiet report this week but I would not say this is the tail end of the drop off. Sure, smaller than what we saw, but operators are not willing to continue producing these assets for the current price. Who can blame them? Services and materials cost more, so breakeven prices aren’t always what analysts claim them to be. The prices were the same prices we saw when I was in school years ago, and almost everything was far more expensive. Don’t believe me? Check out CPI trends. Ultimately, rigs aren’t likely to go up in population any time soon, and they sure have loads more potential to go right back down.
Our last statistic to cover is Thirsty Thursday. Typically we post these weekly with a fun cocktail recipe and fantastic visuals to enhance your understanding, but we ran into some complications last week. I do apologize to those of you out there that read it weekly. I’ll do my best to make it up to you by recapping the most important details here. As far as inventories go, the EIA forecasted a decent 1 million barrel build. Unfortunately, they were wrong. Fortunately, it was because we saw a drawdown of almost half a million. Nothing crazy when compared to recent weeks, but it sure beats the hell out of a 5 to 15 million barrel build. The API predicted a slightly larger build of 1.5 million but reported a 1.7 barrel drawdown. Commodities will likely continue getting tighter in supply, though you wouldn’t know it based on market pricing alone. Gasoline has just teased its way back into historically normal territory for the past 5 years as total domestic barrels reach 218.2 million. Still, that increase in supply hasn’t stopped prices from steadily increasing over the past few months. We are still a far cry away from the outrageous prices of last year, but if current trends hold out we could easily be back there in 2 year’s time, and that is without the excuse of price volatility. The most expensive gasoline is over in Cali (where we happen to be headed) in which you can find a gallon for an average of $4.90. The cheapest can be found in Mississippi for $2.97. I would expect that these prices go down with the oil price, but I suppose the dwindling supply is having an even larger effect than we give it credit for. Distillates continue to build but are still on the low end of the 5 year range which was only expanded by last year’s lows, so I suppose that is par for the course there. Propane has recently experienced record setting exports to other countries, but you may be surprised to know that we have more than we have had historically. The old high for this time period was just shy of 65 million barrels equivalent. The most recent tally puts us over 72 million. I suppose we can always go back to the midwesterer’s way of propane heaters if Saudi Arabia really tries to create shortages in our markets.
But that is all we’ve got for our statistics. Next up is the news starting with a story that may illustrate a bit more clarity from our conversation last week. According to the Washington post, some Pentagon documents were leaked that revealed Saudi Prince Mohamad Bin Salman may have threatened potential retaliation if the US took any action against them. In order to clarify that we have to rewind the clock to October. You might remember that was around the time OPEC announced some cuts. Now gas prices had gotten pretty high and Biden was worried about midterms and ended up reacting a bit violently promising “consequences.” Nothing ended up materializing from that situation, and it was presumed that Biden either lost interest in the situation or straight up forgot. Those aforementioned Pentagon documents paint a different picture. That document claims the prince said “he will not deal with the US administration anymore.” He also promised “major economic consequences for Washington,” although it’s not known if he made the remarks to a US official, or they were part of an intercepted conversation. Giorgio Cafiero, CEO of Gulf State Analytics, “Mohammed bin Salman is keen to let Washington know that the US needs Saudi Arabia just as much as the Kingdom needs America. The crown prince wants Biden and everyone else in Washington to respect Saudi Arabia’s sovereignty and right to make decisions which advance the country’s national interests.” I gotta say, I agree with the analyst. Imagine for a second you are the Prince. After years and years of fellow OPEC members dealing with various sanctions from the US or even straight up public shaming on an international level, you have to be at your wits end at some point. If I was him, I would be sick of being treated like Saudi Arabia needed the US more than the other way around. The Middle East may have been reliant on the US back in the day, but our military presence is nearly non-existent after that messy removal from Afghanistan. We’ve have flirted with the idea of repricing oil in any other currency on some segments in this podcast, and it is possible that those gears were set in motion back in October. If that is the case, Saudi Arabia could be drawing up the framework for executing a swift conversion with all OPEC members and any other folks that may not hold the US in the highest regard. Russia already opened that door by declaring it would sell its oil in only yuan or gulf currencies. At this point it just comes down to when exactly Saudi feels like pulling the rug out from us. Keep an eye on international markets because this could be one of the largest ever financial reconstructions in the history of energy production and it is not likely to be pretty.
But I will have to stop it there because any more discussion in this realm could easily turn to straight speculation. What we know for a fact is that the rest of the oil market is tired of the US calling the shots, and the dollar grows weaker. If you want to learn more about stories like this, please subscribe to the podcast. If you don’t have room for another podcast on your plate, consider visiting www.rarepetro.com where we repost lots of stories from our favorite sources and even post our own content. We have a fun little piece talking about the growth of the BRICS organization that should be posted later this week, and you will want to see what implications that holds for international energy markets. Thanks again for joining us! This is Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!