Looking the other way as illegal oil flows in, Libya’s grand reopening, and EPA standards that may raise the cost of gasoline.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you an early morning episode of Monday Madness on June 6th, 2022. Strange to think that we 42.9% done with the year, but here we are! In just a few more weeks we will have put a full wrap on H1 of 2022, and it certainly fits in with the kookiness of the 20s that we have experienced so far. But you didn’t come here to reminisce on fond memories of the past. You came here to get the scoop on the most revealing statistics and impactful news stories within the realm of energy, so let’s get to it.
First, we’ve got to take a look at commodity prices. Last week WTI saw an average of about $115, but it ended up climbing above $120 early Monday morning. Since then it has fallen just a bit to about $118 but it sure looks like we will be retesting the $120 ceiling very soon, especially with the full-blown conflict between Russia and Ukraine still going on. While this is all very fine and interesting, we must also consider that natural gas is on a run-up at the time of writing the script. I’ve even had to go back and update this section as the price keeps climbing and climbing! Monday started at about $8.800, but fresh fears of tight global supply have pushed it all the way up to $9.30. I’m telling you, folks, $9.00 and $9.50 will offer some heavy resistance, but I think the summer months will make $10 natural gas a reality. Not too much else to say here as we are still operating within the same parameters we have been for weeks now. These commodities are volatile, and any news will be sure to result in super speedy change.
Next up is the rig count. It seems that we are about where we need to be because the acceleration in activity from recent weeks has leveled out and this week we see no net change. This leaves us at 727 total rigs in the US which is 271 more rigs than we had this time last year. This is a really weird set of data to look through because analysis of the major basins shows one rig lost by the Cana Woodford, DJ-Niobrara, and Haynesville. No mention of any new rigs. State by state we see Wyoming gets 2 new rigs while Texas, California, and North Dakota each lose one. Other than that and this data sheet is a ghost town of 0s. Still, don’t get discouraged by no change! Look at the long term. Rigs are up quite a bit since 2020 kicked off, and we are just about 100 rigs away from being at preandemic rig count levels. Not too shabby at all.
We wrap up statistics with our inventory report. Last week we celebrated one year of full year of weekly Thirsty Thursday reports and celebrated with a bottle of champagne. If you missed the celebration, that’s too bad! Still, here is the content you may have missed. The EIA predicted expected to capitalize on the recent small draws with another just over 1 million barrels. The reported drawdown was almost an even 5 million barrels. The API expected inventories to stay unchanged, but they too reported a draw. A much smaller draw, but a draw nonetheless. This alludes to a possible trend of drawdowns. The last time we saw 3 consecutive weeks of drawdowns was way back at the start of this year. With peak driving season and the reopening of economies (Shanghai included) in full force, it looks like domestic inventories could get that much tighter. About everyone would be thankful for cheaper gasoline at this point, but that looks unlikely. The most recent inventory report reveals that inventories did fall, but only by about 0.7 million barrels which is one of the better numbers from recent weeks. Up until now, it looked like domestic inventories would continue on a downward spiral, but this new report provides some hope for leveling out. Still, if inventories changed by zero barrels every week, we wouldn’t see normal domestic levels until about July, and that would just be scraping by on the bottom of the historical range. As you might imagine, this has done nothing positive for gas prices. Depending on where you are, a gallon of gas may cost as much as an hour of work at minimum wage. For a minute there it looked like prices were going down, but it turns out $4 gas was just temporary relief before experiencing more price increases. At the end of the day, I’m more of an energy analyst than an official data scientist, but it sure looks like gasoline is getting more expensive much more quickly. At this point, it may be cheaper to spend your gas money on energy drinks and coffee so that you can run or bike everywhere. Maybe not healthier, but certainly cheaper. Propane inventories are still in healthy territory. Distillates just saw a much-needed build as the US works to address the growing issue of diesel shortages which is expected to compound and further exacerbate existing inflation issues. Freight and shipping are only getting more expensive thanks to labor shortages but this severe lack of diesel certainly isn’t helping. Here’s hoping we can get those domestic distillate inventories even higher through the year.
But that rounds out all of our weekly statistics! I still can’t believe we made it through a whole year of these inventory reports on top of all of the other content we put out. The audience is certainly growing, as we are near 25,000 total podcast plays and just surpassed 500 cumulative hours of watch time on YouTube. I’d like to take this opportunity to thank you dear audience. Thanks to your continued support of the media arm of the company, we’ve encountered some friendly and interesting folks and expanded our network. Not only that, but your continued viewership ensures I keep a job, so thank you for this past 2 and a half years of content.
Alright, that’s enough sappiness. We’ve got news to look at! As energy prices get higher and higher, it seems that the US is getting more desperate to introduce any supplies to the market. This is why some experts believe that the US may start turning a blind eye to illegal trades that go against US sanctions, especially in the case of Iran. While a nuclear deal has not yet been reached, Iran’s oil exports are expected to increase so they can get in on that sweet sweet high price action. At the latest count, Iran was producing 2.55 million barrels of oil a day although it has the capacity to produce as much as 3.8 million. Mike Mueller, head of Asia at Vitol said it well: “If the midterms are dominated by needing to keep gas prices low in America, turning a somewhat greater blind eye to the sanctioned barrels flowing out, and competing with Russia for that matter, is probably something that you might expect to see. There’s a chance that Uncle Sam might just allow a little bit more of that oil to flow.” Consider that the Biden administration was practically begging some of these larger countries to produce more. Why would they not allow a few extra thousand barrels in here and there? Won’t have a huge impact, but it’s better than commodity prices getting worse and worse. I’d imagine the EU will consider a similar approach to sanctioned oil with the recent bans, which makes you question why they even exist in the first place.
In better news, Libya has once again opened their largest oilfield. The Sharara field has a capacity of about 300,000 barrels per day and was non-operational due to a series of protests which demanded a transfer of powers from existing Prime Minister Dbeibah to now sworn in Bashaga. These protesters were also upset with the way current oil and gas revenues were distributed. Since the protests started Libya had been exporting less and less oil getting as low as 819,000 bbls per day in April which was the lowest volume since October of 2020. Still, the Sharara field won’t be operating at full production until the country is able to set up a mechanism for fair oil revenue distribution. Delayed revenue has been a hurdle for everyone involved, especially as infrastructure budgeting has been impossible despite a serious pipeline leak that removed 22,000 bpd of production. Libya has really been struggling with getting oil to market, but they may be able to do their part soon enough.
Next up we’ve got some updates from the EPA. First, they rejected dozens of requests from small refineries looking for biofuel exemption. They feel we are mostly out of the pandemic, so we should be able to hold people to some pretty serious standards. Next, biofuel requirements were lowered through the pandemic to cut refiners a break, but now they are looking to get slightly above 2019 levels. For reference, importers and refiners were required to blend 20.09 billion gallons of renewable fuel into gasoline and diesel. In 2020 that dropped to 17.13 billion. This year the goal is 20.77 billion gallons putting us back on track for continued increase. Oil groups are lobbying against this decision as they feel there is just not enough ethanol to meet demand meaning that the price for ethanol, and transversely, gasoline could go up. Not only that, but about 25% of the blended biofuels cannot be corn ethanol, but rather advanced biofuels. This is not a new requirement, but it still seems like the days of $3 gasoline are in the rear view mirror at this point. At some point, the presidential administration has to consider how these high energy prices are hurting families, but we apparently have not yet reached that point.
But ladies and gentlemen, I’m afraid that is about all the time we have for today’s episode. If you want more content, be sure to follow us on LinkedIn as we always post the newest content there, or you can go dig through years worth of content on www.rarepetro.com. We’ve got everything sorted out, so go ahead and search for any energy-related term and we are almost guaranteed to have written a piece about it. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!