In this episode of Monday Madness we look at routine data, high German OPEX, and the 11th bout of sanctions against Russia.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on June 22nd, 2023. Those of you who are a bit more observant than the average cat may realize that this episode has been written, recorded, and released on a Thursday. I do apologize for getting out of this week’s episode so late, but things had gotten to be pretty busy on the RPX side of things. Even so, I could probably count on two hands the number of episodes I have missed for Monday Madness, and many of them were during one project in the middle of LA. Nonetheless, this episode will get released and not because I feel like I owe it to you, but because it keeps my edges sharp as well. We at RP are passionate about learning all about everything we can in this industry. Fundamentals, geopolitics, and engineering are all much more related than you might expect. But this is likely one of my most boring cold openings I’ve put together for the show yet so I think we oughta go straigt into the content.
WTI actually had a decent week from Monday until about now. Once markets opened things stabilized around the $91 to $92 range. On Wednesday we saw this little runup to $72.50 that started to look really nice. Whelp, all good things must come to an end, and that happened Thursday morning as WTI plummeted all the way back down to $69 where it resides currently. Brent continues to maintain a four and half dollar spread over WTI with similar price action, so nothing out of the ordinary there. Natural gas continues to look less than impressive as it hovered around $2.60 this week, but if you expand the scope a little wider, we are actually up 40 cents from where we were about 3 weeks ago. I’m curious to see where it goes as gas has been low for months but I do think we will have to wait until winter to see any significant semi-permanent results. Ultimately commodities remain volatile, oil is too low in price to spur any significant developments, and people are getting impatient. Par for the course this many months in.
Next is the rig count. Last week the slaughter slowed down as we dropped only one rig bringing a temporary reprieve from the abysmal rig decrease. I mentioned that the hemorrhaging had stopped, but we weren’t out of the woods yet. The downward trend is easily visible, and the ride continues this week. Down another 8 rigs bringing the US total to 687 or 53 fewer rigs than we had this time last year. This also means that in 2 months we have lost 68 rigs. So who were the biggest losers? At a basin level it was the Permian and Marcellus who were down 4 each. The Eagle Ford is up 2, and (surprisingly enough) the Utica is up 3 rigs for the week. State by state we have a whole slew of change. On the negative side is New Mexico down 4, Louisiana down 3, while Oklahoma, Pennsylvania, and West Virginia are all down 2. The only 2 states to see something good are Alaska (up 2) and Ohio (up 3). It is clear that emphasis is falling away from unconventionals as we lost 10 rigs making horizontal hole yet gained a rig each making directional and vertical. I think this is the beginning of a large response to suppressed commodity prices. People are recognizing that we are stuck in this band and nothing can really force the price any lower or higher. Would you work hard to produce more when your breakeven price has climbed? Probably not. Until things become a little more attractive in the pricing arena, we will likely see the rig count to fall pretty low. I’ve got no idea where it levels out, but I have a bad feeling we are still several weeks or maybe even months out from that.
Lastly, we have Thirsty Thursday which is hot off the press from Nick Fernhout. I know I always mentioned that you should check out these reports when you get the chance, but that rings true today more than any other time I mentioned it. It’s only one day after it has been published! It is easier to have the cocktail recipe we share since it is the end of the week, and hey: You’ve been working hard this week so you deserve it. The figures are great and they have never been more relevant in a Monday Madness than now, so check it out on www.rarepetro.com! Anywho, here is what Nick had to report this week: Let’s first take a look at the EIA’s data, a forecasted build of 1.9 million barrels and a reported draw of nearly 4 million barrels. If you work at the EIA and are reading this, why are the forecasts so off lately? The people, me, want to know. Let’s first take a look at the EIA’s data, a forecasted build of 1.9 million barrels and a reported draw of nearly 4 million barrels. If you work at the EIA and are reading this, why are the forecasts so off lately? The people, me, want to know. Whether it be out of luck or reliance on a different set of data the API forecasted a seemingly more accurate draw of 0.5 million barrels against the reported actual draw of 1.25 million barrels of crude. There is nothing too exciting to note about either figure this week. Crude stocks are smack in the middle of their 5-year range and draws/builds are ebbing and flowing as normal. For two months or so now the price of gasoline has been very steady despite gasoline stocks rising and falling tens of millions of barrels over the same period. Perhaps a sign of gasoline prices’ stability? Or maybe something else at play. As I said earlier, gas prices are steady. This week the national average dropped just $0.005. In other news, we have a new leader for the most expensive gas in the country. As long as I have written this weekly report I have never seen Washington State top the charts, but here we are. At $4.948 per gallon, Washington is not the place you want to fill up your gas-guzzling car. Diesel costs the same as it did last week, however, distillate stocks are rounding the curve and are into the flats this week.
Next up, our news for the week. This first article is an excellent case study for what may be in store for a group or country should energy prices get to be too high. According to CNBC, German energy prices are so high that companies are starting to jump ship and move out of the country. This is all coming from the lips of the head of the German Industry Federation, Siegfried Russwurm. He mentioned that folks from family owned businesses to large German headquartered corporations are leaving due to the cost of energy, legal red tape, and the current climate. It makes sense in the case of a small family business, but the large companies are finding success everywhere except for their home country, so now is as good a time as any to relocate. This is a bit comical considering the central bank President was quoted back in April as saying the country’s energy crisis was “more or less solved.” The month after that the government announced $4.4 billion dollars in subsidized electricity assistance in an attempt to shield businesses from high costs. Fortunately the cost of energy in the United States is quite a bit lower thanks to our ability to produce a good amount of hydrocarbons. We may have had a slightly different situation had we been more dependent on Russia for our natural gas and oil. Energy independence is an incredible dampener to price volatility. Not to say you won’t be affected, but it can limit just how dramatic energy inflation might be for the general public. Some food for thought when talking about the importance of energy independence with others.
To finish the podcast we will take a quick look at the situation surrounding Russian sanctions. Now I wasn’t exactly keeping count, but apparently the EU has settled the 11th package of sanctions against Russia, and this one is the Mack Daddy. According to Commission President Ursula cond der Leyen, this new round will “deal a further blow to Putin’s war machine with tightened export restrictions, targeting entities supporting the Kremlin.” The package essentially targets countries acting as middlemen that continue to funnel supplies into Russia. It turns out sanctions are only effective if people agree to follow them. There has been a surge in demand for EU products from Armenia, Kazakhstan, Kyrgyzstan and others that are publicly friends like Saudi Arabia, Turkey and China. This is wigging out the EU because everybody and their mom knows that these products are still making their way into Russia. Not only that, but this package also bans access to EU ports if your ship is even suspected of engaging in ship-to-ship transfers involving Russian oil. If you are an avid listener and follower of this podcast, you would know that this was a prediction from RARE PETRO when the conflict started. Sanctioning Russia won’t stop them from getting supplies. If anything, it just further draws a line in the sand and better defines who is on who’s side. If it didn’t work the first time, it probably won’t work the eleventh.
But ladies and gentlemen, that is all I’ve got for you today. Thanks again for joining along for another episode from the road. I’ll be back by the end of the evening, so you will get another episode fresh on Monday Morning, and you will also probably get an episode of the Basin Breakdown any day now. If any of that interests you, go ahead and follow this podcast. We are available on all the major platforms and even SoundCloud, so accessibility shouldn’t be a concern. If you aren’t big on listening to podcasts, you can always check out our written content posted on our website at www.rarepetro.com. All this information is free, and I might even go as far as to say it is valuable so you have nothing to lose and everything to gain. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!