In this episode Tavis talks about the largest rig count build this year and the plague of energy protests.
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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 March 20, 2023. The big news circulating at this point is the future of economic collapse. With the downfall of SVB and some less than desirable rumors in the financial sector, folks are getting worried and many fear bank runs are coming soon. While nothing about the future is set in stone, take comfort in knowing that any news like this always prompts the doomsday bell ringers to crawl out of the cracks and take to the streets. You will never know the future, but you can prep for it. Some of the best advice I can offer is that you should keep one ear to the tracks as plenty of folks offer information from both sides of the spectrum. As a matter of fact, the next episode of the Wacky World of Energy will discuss these things, so go ahead and frac that follow button so you don’t miss any of the important information RARE PETRO can dish out. But why tease you with the content when I can deliver it? Let’s kick things off.
Commodity prices are somehow defying all expectations and fighting all signs of inflation. Eggs may be nearly 3x more expensive than they were 1 year ago (that’s a real statistic by the way), but energy is down 40% despite organizations and countries all over the world warning of a potential energy shortage.Today WTI bounces between $66 and $67 per barrel despite being about $75 last week, and spending several hours above the $80 ceiling the week before. Things aren’t adding up folks. I am at a loss to look at point in history where similar things have happened, but I can’t quite nail it. At this moment in time, I am still incredibly bullish on oil in the long term, we just might have to go through a period of hurt to get there. Remember the oil prices of post 2020? We might have to spend a few months in that territory before the true tightness of energy commodities is realized. At that point I believe there will be a mad dash for all hydrocarbons, even those dirty ones like coal and lignite. Brent isn’t doing that much better. It maintains a $6 premium, but exhibits the same pattern of movement. Natural gas has also been affected by the recent decline of WTI prices as it fell from $2.60 an mcf last Monday down to what seems to bottom out around $2.20 today. I can’t imagine it will fall much lower than that, but we will just have to see what the near future has to offer. After all, I have been wildly wrong before.
Next of course, the rig count. Surprisingly, we have some good news here! After 4 weeks of declining active rigs, we are now up 8 to a total of 754 which is 91 more rigs than we had this time last year. This is only the 3rd build we’ve seen since the start of the year, and the largest by 5. Because of that, I think we have good reasons to be happy, but this week is anomalous especially when considering recent price action so the next few weeks will likely be very revealing. Basin by basin we have 7 new rigs in the Permian, 5 more in the marcellus, and 1 more in the DJ/Niobrara. The Eagle Ford lost 2 and the Utica lost 4, but otherwise we saw no change in other major basins. This puts Texas up 5, New Mexico up 3, and both Pennsylvania and West Virginia up 2 each. Ohio is down 3 and Louisiana is down 2. The Gulf of Mexico added 2 to its total as well. That is a lot of noise! Most of these new rigs will be targeting gas and be drilled directionally. A busy rig count, but a very positive one as well.
Our last statistics to sift through are all inventory related, so we will be pulling content from Nick Fernhout’s “Thirsty Thursday” periodical published last week. Always best enjoyed with his featured cocktail and fantastic graphs. Here’s what he had to write: It’s not like I expected there to suddenly be a few draws, but I hoped we would see at least a few. It looks like we are back to builds. This week it’s a 1.5 million barrel build. The EIA had forecasted a 1.188 million barrel build. The API reported a similar-sized build of 1.155 million barrels, however, forecasted a much smaller build at just over 0.5 million barrels. Fears of regressing economies have been fueling build after build not only here in the US, but in other major petroleum exporting countries as well. Lately, however, those fears have been lessened as China, one of the largest consumers of petroleum products, has been recovering. The overwhelming crude oil inventory hasn’t seemed to have a positive effect on gasoline prices. Perhaps if more of it could be refined the price of gas would respond positively. There is still a disconnect between turning crude oil inventory into gasoline inventory. Gas is just slightly more expensive at $0.003. California is still the most expensive gas in the country and Mississippi the least expensive. Diesel dropped this week by just 5 cents. While distillate stock, primarily responsible for diesel price, has remained flat. Propane and propylene haven’t done anything exciting in about a year.
Thank you Nick for that great report. Now we move onto some news stories.
Last week we talked about how French employees at LNG terminals were striking in response to the raised retirement age. That seems to have inspired some folks in the UK to strike for their own improved working conditions and better pay. 1,400 offshore workers at 5 contractor companies have voted to initiate strikes to demand better pay and working conditions. This puts dozens of platforms at risk of going dark. These strikes will eb affecting companies like BP, Shell, TotalEnergies, CNRI, EnQuest, Harbour Energy, and Ithaca Energy according to a union statement. This isn’t just a few roustabouts on a platform. This is coming from people working electrical, production, mechanical, deck crews, scaffolders, crane operators, pipefitters, platers, and pretty much anyone else on the rig being represented by a union. Here are some excerpts from the statement:
“Unite, whose members will take action at companies enjoying record-busting profits, predicts that platforms and offshore installations will be brought to a ‘standstill’ due to the specialized roles its members undertake. Oil and gas companies have been given free rein to enjoy massive windfall profits in the North Sea; drilling concessions are effectively licenses to print money. 1400 offshore workers are now set to take strike action against these employers who are raking it in but refusing to give them a fair share of the pie. This will create a tsunami of industrial unrest in the offshore sector.”
The strikes are set to hit various platforms between March 29 and June 7th in a series of 24, 48, and 72 hour stoppages. Now here’s the thing, had oil been $100 a barrel for 2 years it would have been totally appropriate to request something like this. Unfortunately, the year of high commodity prices is now behind us (somehow), and we are looking at the possibility of far lower prices. The only thing Europe has going for it is ridiculous natural gas prices which is likely what these workers are looking to get a piece of. I personally worry that commodities could crater at any moment since they seem to be ignoring market fundamentals. If that happens, oil corporations may do what they have always done: cut costs by cutting the workforce. I really don’t think the UK could handle that it could very easily send commodity prices right back up. There is such a fine and precarious balance between commodity price and supply for heating and energy that something this dramatic may not go well for the unions representing these employees. The hands that work the commodity always demand fair compensation for getting the work done. Still, a quick look at indeed for jobs in the North Sea turned up a posting for a Offshore Mechanical Technician. It requires a few basic certifications and pays over 3 times what an equivalent day of work even with the UK’s new “Minimum Living Wage” going into effect in April of this year.
Still, all of this comparison to standard work is a moot point because there is one thread tying these two groups together: inflation. No matter who you are in this world, you are likely feeling the effects of inflation and decreased energy availability. Prices are going up much faster than wages are, and the sad truth is that this is a future in which most of the world did not prepare for. Add collapsing banks into the mix and you don’t have a great recipe. Best case scenario things are expensive. Worst case scenario we have a period of significant economic restructuring in the United States, and therefore the rest of the world utilizing the dollar. Some at RARE PETRO believe this could be the beginning of the rollout of a centralized and controllable federal currency. Forget Dogecoin, we could be receiving deposits of FedRes-coin and USA-coin. Again, lots of this is worst case extrapolation, but the world is definitely changing. The best thing you can do is continue to learn and expose yourself to all parts of the energy industry. This podcast is a great way to get a bunch of your information as we do all the hard work. You just have to subscribe, sit back, and enjoy! We will be back very soon with more. This has been Tavis Kilian with RARE PETRO. Until we see you next time, take care everybody!