Join your host Tavis as he goes through the biggest statistics and plenty of news around the North Sea!
Alrighty everyone, welcome back! Another beautiful week to be alive and I’m glad you are taking time from your morning, afternoon, or evening to tune into the RARE PETRO podcast. I’m Tavis Kilian here to bring you another episode of Monday Madness on June 14th, 2021. We got lots to get into, and I know you didn’t come here to hear me thank you for your patronage. You came here to learn all about the current trends and numbers within oil and gas, so let’s get into it!
Well… I suppose I have one more note to make before we get into it. You may have heard me already, but we want to engage directly with YOU. That’s right, you, listening to this podcast. Leave a review, and shoot us an email concerning something you heard in the episode, or a segment you would like to hear. We would love to feature your ideas in a future episode, and your email just might enter you into a little giveaway for some RARE PETRO swag. Be sure to email me by shooting a quick note to firstname.lastname@example.org. Again, we do this show for you, and we definitely value your input.
To kick off our statistics, you know we have to look at WTI prices, and oh boy what a week it was! Last Monday started trading around $69 a barrel. Once we hit Tuesday, the price climbed to $70 only to dip once more on Wednesday before again climbing and staying in the neighborhood of a high $70 barrel. Once trading started Sunday evening it climbed even more to break the $71 mark and has remained there so far this morning. As I record this podcast, the price is about $71.47. You’ve heard me the past couple of weeks folks: it is only a matter of time until we break $70 and remain above. While it is entirely possible we could plunge back to a $69 barrel by the middle of the day today, I don’t anticipate us spending too much time there. At this point, we have more factors applying upward pressure than downwards. Demand is improving. Inflation is shrinking the distance that dollar will travel. Energy investment in oil is lacking and reserves are depleting. New policies create an emphasis on the utilization of low emission high cost energy. I’m not the only one here at RARE PETRO seeing it, our whole team has been talking and writing about it for quite some time. Estimates for the end of last year scoffed at the idea of $60 oil by now, yet here we are after testing the $70 ceiling for two weeks. My only question at this point is where the next resistance point will be, and whether or not we can make it through. At this point, I feel confident we could see $75 oil by the end of July, but I don’t know how much higher it will go. Pretty incredible to think that this time last year oil was worth $37.12 cents. Wait… let me look back in my phone for a second… I have texts dating back to November 25th to another petroleum engineer where I simply text “$45!” Seems like it was so long ago, so let’s not only be celebratory of these prices, but thankful.
Next up, the rig count. After last week’s report of negative 1 rig, we need some good news. Fortunately, this week brings the total up 5 rigs leaving us with 182 more rigs than we had a year ago at a total of 461. It should come as no surprise that the Permian tacked another 4 onto their gargantuan total of 236. The Haynesville has seen more and more activity in recent weeks and it was able to add another rig to bring its total to 49. Unfortunately, the Utica took a heavy hit this week losing 2 rigs dropping its total to 8. From a state by state basis Wyoming was able to almost double their rig total bringing it from 4 to 7. Ohio and Pennsylvania lost 3 rigs together, and Alaska lost 1 of its 4 drilling rigs as well. More and more efforts seem to be going to the Permian as Texas and New Mexico bolster their rig counts, while other states seem to falter. We did see the addition of a vertical rig, however, along with another 5 horizontal. Overall, a great rig count for those involved in the Permian or looking at the US from a macro level. Heavy hits to our friends in the Marcellus and Alaska, so hang in there!
Lastly, I’d like to talk about inventories. If you missed last week’s Thirsty Thursday:
- I feel bad for you
- We saw some really nice drawdowns
Starting with the API report, released June 8, we can see they predicted a 3.5 million barrel drawdown. While they still observed a drawdown, it was about 1.5 million barrels less than they had anticipated. The EIA, on the other hand, released their report a day later and did the complete opposite. They predicted a 2 million barrel drawdown but we actually saw more than double that at 5.2 million barrels. While the API’s number may have differed a little bit, this is even a little bit larger than the drawdown we saw last report. This is sure to apply additional upwards pressure. While crude inventories continue to decrease, gasoline inventories continue to increase . Last week’s report saw a small increase, but this week we see added another 7 million barrels to the reserves. This pulled the weekly total up sharply and keeps it healthily in the 5 year range. Despite adding even more gasoline to our inventories, headlines continue to highlight the record breaking prices all over the nation. This is likely a result of increased summer travel, and after a year of hunkering down inside it seems everyone is ready to hit the road. Even some national parks are requiring you to make a reservation through the summer. Thanks to this uptick in travel and gasoline being an inelastic good, prices at the pump will remain even higher than they were last week despite the build. While not as drastic, both propane and distillates saw a build of 5.5 million barrels. Even though these builds are significant, it only pulls both closer to the 5 year average. Overall, a great report. High WTI price? Check. Increased rig count? Check. Decreased crude inventories? A double check from the API and EIA. Again, keep an eye on that oil price as I see big things happening in the next couple of weeks.
Now for our stories. First, be on the lookout for the results of the US-Russia Summit in Geneva. I have no doubt energy will come into the conversation even though the agenda has not been released. Russia recently put the United States at the top of its “unfriendly countries” list in a nationally broadcasted presentation, so you may want to have some popcorn ready.
Our first story for the day involved Shell who was recently in the news for having a Dutch court rule that their efforts towards the energy transition were not enough. The ruling is forcing them to lower their carbon impact. How do they plan to do this? Well rumor has it that their 260,000 acres in the Permian may just go up for sale. This is 6 percent of Shell’s total oil and gas production from 2020, and could net them as much as $10 billion when sold. Why are they making such a drastic and seemingly desperate sale? The ruling of the Judge also included emissions generated by Shell’s suppliers and the buyers of its products. This means that Shell’s most effective way at accelerating emissions reduction is to sell assets that would produce more emissions the whole way through the value chain. While it may have been difficult to profit from this basin in 2020, there is no doubt in my mind that Shell has made a decent amount of money off of this acreage in the past, so it is truly a shame to see the company let go. It is also likely that Shell is trying to take advantage of the red hot consolidation trend and sell the acreage to people who are swallowing up a greater and greater position. 260,000 million acres is a significant amount of land to add to any one portfolio. I’m happy that Shell is continuing to evolve as a company, but I’m not happy to see their hand forced by the court. As we’ve mentioned on this podcast before, all energy is good energy. It just comes down to the tradeoffs. Unfortunately, the largest metric to judge an energy source today directly contradicts the continued use of fossil fuels. That is right, I’m talking emissions. While a good benchmark for judging environmental impact, it should not be the sole benchmark used. The silver lining of this story is that it again, forces under-investment in oil and gas projects and makes energy that much more expensive. While bad for your neighbor, this is good for those wishing to remain in the oil and gas industry like you and myself. This is likely not the last we have seen of courts interfering with energy production, so only time will tell what supermajor is getting slapped next.
While we are on the topic of the Dutch, we may as well swing over to the Netherlands where local courts are unlikely to interfere. Even though Norway continues to invest heavily in hydrogen and offshore wind, their recently presented energy strategy actually outlines a role for hydrocarbons. The government has developed a plan that they feel will naturally allow oil and gas extraction to fall 65% by 2050.As the Minister of Petroleum and Energy put it, “We will facilitate a future-oriented Norwegian oil and gas industry capable of delivering production with low emissions within the framework of our climate policy.” Even other arms of their own government have recognized that if they cease production, Russia or the Middle East would likely pick up the slack and profit. They aim to hit the market precisely so that they are not left with stranded assets that could have been profitable. I think this idea is genius. From the outside looking in, they are making a calculated yet environmentally conscious play. Not only that, it also affords them the ability to ramp production back up should the world sentiment shift in a few decades. This would be a far superior strategy to phasing out producing assets if one was long on oil. Still, this decision hasn’t pleased everyone, and the Labor Party (their opposing party) is in strong opposition to the plan as government documents fail to highlight how the plan will be in line with Paris Climate Accord temperature goals. Who knows? Perhaps another lawsuit is on the horizon as it lurks beneath the North Sea waiting to rule on the fate of countries and governments.
But, ladies and gentlemen, that is all I have for you today! Lots of geopolitical things to consider, but at the end of the day, most of what we talked about should continue to provide upward pressure on oil prices. Again, be sure to email me anything at email@example.com to be entered into a little giveaway and potentially have your ideas featured in one of the shows. Outside of that, be sure to subscribe and head to rarepetro.com for more educational and entertaining information. Just reading through a periodical or two will give you a strong handle on the markets and current trends, so what are you waiting for? It’s time to learn so we can get that cutting edge on the competition! This has been Tavis Kilian with RARE PETRO and until we see you next time, take care everybody!