Join your host Tavis this week as he talks about strong pricing, international energy shortages, and a Judge’s refusal to acknowledge the Feds.
Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on this dreary morning of June 21st, 2021. You think you are pretty good at networking? I wanna pitch a scenario. Imagine this: you are at an oil and gas networking event and while having a drink you run into someone who researches the market and other oil and gas subsectors. He gives you his card and tells you he will provide free information regarding current events, and all you have to do is follow him on LinkedIn so that you are subscribed to his content. I’m talking price analysis, inventory reporting, updating you on geopolitical events, and the man offers to do it for free. Do you take him up on it? I’m sure some of you listening said, “Well, duh! That’s free info to take advantage of. Of course I will take him up on it.” Well if that is the case, I sure hope you are subscribed to this podcast! We deliver the same information at no cost to you. So go ahead and bump right into that subscribe button. Consider it the exchange of a business card. You can even add myself or the RARE PETRO team on LinkedIn should you ever want to reach out to us or simply stay up to date on what the hell is going on, because it is bound to be a wild year. But I know you didn’t come here to hear me manipulate you into subscribing, you came here to learn all about the most revealing statistics and biggest current events, so let’s dive in!
First of course, WTI pricing. Last Monday I was reporting to let you know we finally broke through $70 and had even climbed to $71. Lucky for us, pricing remained strong through the week! It climbed through about Wednesday where it encountered a high of $72.83 before dipping to a low of $70.33 on Thursday. Thankfully, it only spent moments that low before bouncing back to the mid $71 range. Currently the price is at about $72.81 so I see no reason why we won’t see prices of $73 in the next week or so. Considering that the low was still above $70, I think the price should be comfortable in the $70s for quite some time. More and more banks and analysts are eyeballing a $80 target in the near future, which is a position RARE PETRO has maintained for quite some time now. Don’t believe me? Simply search “price” or “demand” on rarepetro.com, and you will encounter some early segments that will back me up.The world is slowly returning to the way things once were, and that includes drinking down more and more oil. There are a few articles circulating highlighting the demand is outstripping the supply, and I recommend you check into those as it could establish some groundwork for you to draw your own conclusions. Ultimately, the price is in a fantastic place right now especially when you consider it was $40.73 a year ago today.
Next, the rig count. We’ve spent all of 2021 kick starting more and more activity, so why stop now? That’s right, 9 more rigs on the week bringing the total to 470, which is 204 more than we had a year ago. Talk about growth! In 2021 alone we have seen 119 new rigs. If we dive a little deeper, we see that the DJ-Niobrara came out swinging with a 50% rig increase bringing the total from 6 to 9. Move over Permian, there’s a new kid in town! Speaking of the Permian, it was only able to post 1 more rig, but that still brings its total to 237. The Granite Wash, Utica, and Williston basins all saw single rig growth, and both the Eagle Ford and Marcellus lost a rig. The Marcellus appears to be losing steam because that is the third rig it has lost in about a month dropping its total to about 27. It should come as no surprise that those new rigs are mostly drilling horizontal oil wells. Phenomenal week for the rig count, especially for Colorado. It seems like this new price point is unlocking areas that may have previously been uneconomic. Let’s keep bringing that total up!
Lastly of course is the inventory report which you could have already known about had you signed up for RARE PETRO’s weekly Thirsty Thursday inventory report! If you missed it, I’ll fill you in real quick. Both the API and EIA predicted a 3-ish million barrel drawdown. The API reported 8.5 and the EIA reported a 7.35, absolutely smashing their estimates. This puts us at the 7th straight week of drawdowns. Even if a few of the drawdowns in May were shy of a half million barrels, the last builds we saw were only 600,000 and 90,000 barrels. Sure, demand is improving worldwide, but there are definitely some players who are thirstier than others, like China who continues to buy and use hydrocarbons like their lives depend on it. Gasoline showed up to the party with yet another build, but that is a report from the 11th of June, so we should be seeing a more updated report soon enough. Despite the build, prices are up about 2 cents a gallon from last week. Other distillates saw a small build, but the huge draws on crude really overshadow everything else.
Overall, a phenomenal week for our statistics. What is not to like about climbing WTI prices, a growing rig count, and shrinking inventories? I think this summer is going to be a whole lot more fun than last, so be sure to strap in and join RARE PETRO on this wild ride.
Next our stories. If we take it on down to Louisiana, we’ve got a huge landmark in the era of the drilling moratorium. Judge Terry A. Doughty of the US District Court in Monroe ruled that the Biden administration lacks the right to stop leasing federal territory for drilling and production without approval from congress. This is especially bad news for the administration as a majority of congress is Republican and pushing it into their territory could result in a lifting of the ban. This preliminary injunction was drafted to support the states that are harmed by the lack of revenue being generated from lease bids and tax. The states currently suing the federal government include Louisiana, Alabama, Alaska, Arkansas, Georgia, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, and West Virginia. The Interior Department responded to the order saying they would comply, but continue the review of current leasing and permitting practices. A spokesperson for the department said that the coming report “will include initial findings on the state of the federal conventional energy programs, as well as outline next steps and recommendations.” To me, that response sounds like the report is mostly finished, and the department plans to issue new rules and guidance, so I am not incredibly excited to hear what they have to say. Overall, I believe the judge is right. Not only are these states missing out on much needed revenue, but the feds are as well. So many projects surrounding restoration and water use are dependent on revenues generated by oil and gas, and 2020 already did enough damage to funding. This report has to come out soon, and I want to read what the government has to say, but this situation is growing messier and messier by the day so I hope a resolution is reached soon.
Our next story centers around shortages. There’s shortages of anything anymore! Lumber, computer chips, workers… The next thing to add to the list turns out to be natural gas. That’s right, Europe is short of natural gas which is imperative for electricity generation, so they are turning back to coal. Coal usage in the continent jumped from 5 to 15% this year after a colder and longer winter depleted gas reserves. Germany, the Netherlands, and Poland are some of the largest offenders who are turning back to coal to resume regular levels of power generation. While this is beneficial for coal producers (especially when you consider they’ve been breaking record after record for coal pricing), it has also pushed Dutch futures gas prices higher than anything seen since about 2008. In the short term, the Dutch will net a large profit from these expensive gas prices, but Russia will surely want in on the action once the Nord Stream 2 is complete, especially considering the fact that electricity usage in Germany, Spain, and the Czech Republic and relatively flat everywhere else. This certainly does not bode well for European countries who will be attending climate talks in Glasgow later this year.
While we are on the topic of shortages, I’d also like to talk about electricity shortages in the West that are a result of a crippling drought. The California Department of Water Resources is in charge of 8 hydroelectric facilities that are estimated to operate at about 30% of their 10-year average generation. If that wasn’t bad enough, streamflow forecasts for Utah, Wyoming, Colorado, New Mexico, and Arizona are among the five driest on record. Think of Lake Powell, the main reservoir that feeds into Nevada’s Lake Mead where the Hoover Dam makes use of the water for power generation. Lake Powell is projected to receive only 25% of the water it normally would between April and July. I’m sure you listeners have heard about this heat wave already. People are being asked to reduce their power consumption so as not to strain the electric grid, but that rarely works. I would not be surprised if we saw some rolling blackouts in more states like California saw during their wildfires last year. Things are just getting drier and drier. States that would have been able to supply excess electricity to California before will likely need to make use of it now, so hopefully things don’t get too bad out there. All energy is good energy, especially when there’s an energy deficit, so it is possible we see some old coal and diesel plants start back up so that everyone’s energy needs and wants can be serviced.
But that is the end of this podcast! Things are heating up, no pun intended, and I think we will be seeing high oil prices for quite some time now. Join RARE PETRO for the ride, and be sure to subscribe. If you would like to have a more direct impact, please reach out to us! You can contact us at podcast@rarepetro.com. Tell us what you liked about an episode. Tell us how you feel about one of the segments. Provide insight to things we may have left in the dark. Really, whatever you want to say! If you do that, we will be entering your name into a little giveaway so that you can get some RARE PETRO swag! Again, this has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!