A day late, but valuable information nonetheless. Welcome back to Monday Madness!
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness. This may as well be our Fourth of July episode, since next Monday we will be off for the holiday next Monday. Don’t worry, we will still have plenty of content to get to you next week, we will just be talking a little time off Monday, and my mom will be in town so this podcast will have to wait! Otherwise, GO AV’s! The Colorado Avalanche just won the Stanley cup, and I heard fireworks going off last night in celebration. Always funny that the only legal fireworks in this state are the ones that don’t leave the ground or explode, but folks always seem to find a way around the rules. That’s the beauty of America to remember on the 4th. Just because the government told you to do something, doesn’t mean you exactly have to listen. That was the very basis of this country’s inception, so keep questioning the narratives that are fed to you and researching the facts of the matter, not just the reactions. But you didn’t come here to watch me teeter or the edge of incitement and political revolution, you came for the biggest news and statistics in the world of energy, so let’s get to it!
Quick disclaimer, this episode is in fact coming out on a Tuesday, so all information presented will be relevant to Tuesday. The RP team got a little busy on Monday, but we knew we had to get this podcast out. You deserve the best content that we can offer, so let’s take a look at those commodity prices. It has been a while since we could describe WTI price action as stable, and it looks like that will remain true this week. The end of last week left WTI crude at about 105 bucks. This week it has already climbed, and it looks like $120 oil is well within our sights once again. The current price is $112 but the root issue of diminishing supply has not been addressed. Brent prices have increased much more quickly meaning the current spread is at about six and a half dollars. Natural gas is floating dead in the water at $6.50 due to the LNG explosion from 2 weeks back. It looks like that won’t be ironed out until much closer to the end of 2022, so US natural gas is worth much less than other commodities that can actually reach Europe. Overall, energy is still ridiculously expensive, and we continue to consume Russian oil.
Next up is the rig count. I don’t know what happened, but the rig count absolutely popped off! Our newest count is up 13 rigs bringing us to a total of 753 which is 283 more rigs than we had this time last year. Many basins are on the come up this week. The Permian is leading the pack with 4 new rigs. The Cana Woodford and Eagle Ford each gained 3 while the DJ, Granite Wash gained one. The only basin to lose a rig was the Mississippian who dropped one leaving it with only one other. On a state level, Texas is up 6, Colorado 4, and Louisiana, New Mexico, Oklahoma, and Wyoming are up 1. Pretty much all of these rigs will be making horizontal hole into oil reservoirs. The Gulf of Mexico saw no change. There’s clearly still room to grow, I just hope producers can keep pace and try to maintain production rather than let it stall out.
Lastly of course is the inventory report which came out last week as RARE PETRO’s “Thirsty Thursday” report. If you didn’t catch it, then you missed out on some lovely pina coladas and great data. Here is what you may not have heard. At the time, the EIA had some data delays, so most of our numbers came from the EIA. They were expecting a drawdown of about 1.5 million barrels. Somehow they were off by about 7 million barrels as the build was rather significant at 5.6 million barrels. By the API’s data, this is the 3rd largest build of the year. This is likely a result of the increased oil imports as refineries alone were responsible for 33.5 million barrels last month. Demand for gasoline is already strong, and president Biden’s newest gas tax holiday may actually increase the demand for gasoline in the short term. This just pulls the slingshot even further back so those prices can really launch themselves once the grace period has finished. A tax holiday has historically shown that those involved in the supply chain find a way to pocket the difference in pricing resulting in a very small decrease in the price of the good (if it changes at all) before becoming more expensive in the long term. Good thing we have also introduced the loftiest plant-burning goals in this country’s history! Wouldn’t want that gasoline price to get too low now, would we? Fortunately, gasoline prices are taking a bit of a break from running up any higher, but it is too early to determine whether or not they will be driven down in the coming weeks. Not much has changed in the realm of refining capacity, and the meeting with energy secretary Granholm was largely unproductive. Distillate inventories are trending upwards, but very slowly. Propane is wildly close to its inventory levels year over year, but the consistency could be challenged later this winter. It would be easier to talk about this if the EIA data was released, but we will surely bring more information to the table next week.
There you have it folks. Demand is up, rig count is up, and prices have nowhere to go but up. How’s about we get into some of our stories?
Our biggest story carries some strong implications, but here are the facts. Iran has applied to join the BRICS group of major emerging economies. Now if you aren’t familiar, BRICS is an acronym encapsulating a group of emerging economies between Brazil, Russia, India, China, and South Africa. Relations between Russia, India, and China have never been better, and Iran seems to want in on the fun as it is sick of playing by the US’s rules. At present, the group represents 41% of the world’s population, accounts for a quarter of world GDP and is responsible for 16% of world trade. It is fair to say that this group has some weight to throw around. I believe China would vouch for Iran as they are the biggest importer of Iranian oil. Could this allow a better opportunity for Russia to trade with Iran? Probably. Everything about this story seems to suggest that Iran will be welcomed with open arms. Remember a few months ago when we talked about folks getting sick about US sanctions and aligning with folks that treat them better? We may see some new markets emerge, and it seems as if China is building the foundation of a Yuan based petro contract. I’m eager to see how this develops, but my hopes are certainly not high.
Next, the head of the IEA says that the uneven transition to green energy is likely going to prop up oil prices for much longer and result in underinvestment in green energy. While more funds are in fact going to green energy projects, it is only a fraction of what would be required to replace our conventional energy systems. Until we get to that point, the IEA believes high energy prices will negatively impact more folks. In Africa, the quickly rising costs of food and energy in the last year took away the access to electricity for 4% of the continent. For reference, that is about 25 million people and a decade of progress of bringing cheap and abundant energy to the masses. Now that more folks are worried about having enough reliable energy, investment into the energy of yesterday is returning. Millions are being dumped into coal mining operations. This means emerging economies have lagged and are seeing zero increase in available green energy systems as they turn back to harvesting coal from open pits. Because of this, Mr. Birol of the IEA has encouraged oil and gas companies to use the “once-in-a-generation opportunity” to invest in speeding up the transition. I got a lot of this information from a New York Times article and wanted to highlight their last sentence of the article. “At present, such investments account for a mere 5 percent of oil and gas companies’ capital investments.” A mere 5%? ExxonMobil’s capital investment plan looks to invest about 20 billion dollars annually in the coming years. Can 1 billion be referenced as a “mere” 5%? What of the dozens of other companies worldwide who are investing into similar projects? What about BP who is investing much more aggressively into becoming an integrated utility company? What about the 500,000 barrels per day of lost refining capacity that has now been rekitted to process vegetable oil and renewable diesel? These companies are investing lots of funds into the project that the world demands they invest in, and it has resulted in high energy prices. Sure there are many more factors at play. It is just upsetting to see someone who is a supposed energy expert witness all of this and call for even more green energy. Remember how a mere 4% of Africans lost access to electricity? That “mere” 25 million is just the beginning. What country was able to navigate an industrial age with green energy? None of them, yet the developed world wags its finger in Africa’s face and says “I don’t care if we emit more per capita. You aren’t allowed to make use of this energy. What if instead you build a whole load of unreliable infrastructure and try to support yourselves off that?” It’s a selfish take, and it is the very same attitude that is driving Iran closer to Russia and China.
The energy transition is likely not going to get any easier. It is frustrating to see energy prices go up so aggressively despite having plenty of oil right under our feet. This is why we encourage you to follow the RARE PETRO team as we continue to perform our own research and draw our own conclusions. We put out new content almost every weekday, so be sure to follow us on LinkedIn as well. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!