Volatile energy prices, international court conflicts, and expanding protests in Europe.
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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 this snowy snowy morning of March 27, 2023. That’s right, virtually ¼ of the way through this year and we still have some new snow on the ground. Nothing to be surprised of in Colorado, but I am excited to be back outside and playing golf without the need of 3 layers. Funny thing is that even with that getup I still find a way to get absolutely toasted by the sun. But you didn’t come here to listen to me rant about my most recent sunburn in the cold cold weather. I’d wager you came here to listen to all the news and statistics regarding the energy industry. Let’s get to it.
WTI has been heavily toying with our emotions this month. The first few days had several hours above the $80 ceiling we had been fighting for so long. Since then it has plummeted to as low as $85. If you had been watching the price last Friday you may have had a scare in the morning as the price absolutely dropped off a cliff falling about a dollar an hour before quickly turning around. This morning it has actually been quite graceful to us as it has already gone up over a dollar from opening. It currently sits at $71.16 which is not high 70s, but it could be a whole lot lower so let’s not complain too much. Brent looks the exact same at a now less than $6 premium. Natural gas has spent the same month-long timeframe falling from $3 to $2 flat this morning. If I had to guess, this is likely where the price will sit for some time, if not lower. US markets just can’t service European interest, though that could also have something to do with the US supposed involvement in the bombing of the Nord Stream pipeline. Natural gas is certainly not the strongest commodity at the moment, but I’m sure it will have its day.
Next is the rig count. Last week we were surprised with the first build in weeks, and that trend seems set to continue. 4 more rigs which brings the total to 758, or 88 more rigs than we had this time last year. Of course the big mover was the Permian with 3 new rigs. Otherwise the Cana Woodford and DJ each put up a rig. The Granite Wash and Mississippian each lost one. From a state perspective New Mexico is up 2 while Texas, Colorado, and Lousisana followed with 1 rig. Only Oklahoma dropped rigs at a state level, losing just one. The Gulf of Mexico added one rig to the offshore total. A pleasant surprise to see 2 weeks of rig builds, but things may be changing quickly with the depressed commodity price. Enjoy the small wins this week, but I imagine a lot of those rigs are coming down soon.
Last statistic to visit is the state of domestic inventories. Typically Nick Fernhout covers this on Thirsty Thursday, but last week he was on spring break, so here are some quick statistics to get you caught up. The EIA predicted a slight 1.5 million barrel drawdown but ended up reporting just over a million barrels in a build. The API made a much similar drawdown prediction, but reported a build of more than 3.2 million barrels. This is now the second build in a row fresh off a 10 week streak, though the builds do seem to be decreasing in magnitude. Sure, too early on to make much of a prediction, but this time last year we saw a few significant builds, so we’ll just have to see what April brings us. Fuel prices seem to be stabilizing in the mid $3 range for most grades nationwide despite gasoline once again breaking below its historical 5-year range. With summer around the corner, it is pretty safe to say that we can expect to see fuel prices go right back up in the coming months with increased driving activity. I recommend you road trip down to Mississippi where the gas is back below $3 a gallon on average. Hawaii relinquishes the crown for king of the most expensive gallon as it finds its way back to California where it has remained for most of the past 3 years. Even diesel seems to be settling down a bit as it is 5 cents cheaper when compared to last week’s prices. Distillate stocks are falling and tease of breaking out of its 5-year historical range after only 6 weeks of being in historically normal territory. Propane is threatening to do the opposite, though this one tends to pull back just before things get too squirrelly. Overall, a pretty normal week compared to recent months. Crude build, and slight decrease in most other petroleum products.
That rounds off all of our statistics. Our first news story regards international law. Iraq has just won a landmark case against Turkey regarding Kurdish oil exports. The government in Baghdad has long considered these exports illegal. Believe it or not, this dispute has gone on for nine years. Essentially, the Kurds are a near autonomous region in Iraq. They are represented by the Kurdistan National Government and have flowed oil from the Kurdish region of Iraq to Turkey. The Kurds loved it because they made a good deal of revenue. The Turks loved it because it allowed them access to more energy resources. Iraq didn’t love it because there was more supply to local customers that was likely affecting their prices which is tough for them as OPEC’s second largest producer. They took the disagreement to the International Chamber of Commerce’s International Court of Arbitration as Iraq claimed Turkey was violating an old pipeline agreement from 1973. Basically, Iraq claimed Turkey was allowing the Kurds to export their oil to Turkey without Baghdad’s consent and violated the agreement. The court decided Iraq was right, fined Turkey 1.5 billion (which was apparently far lower than what Baghdad asked for originally), and now the Iraqi and Kurdish government are excited to establish tools for overcoming this arbitration boundary. Sounds to me like Turkey got the worst end of the deal all after that earthquake that has still left many Turks devastated. Turkey was originally receiving about 75,000 b/d from Iraq and as much as 440,000 b/d from the Kurds. This is only an estimate as the region does not report its exports. This will likely do 2 things. Firstly, it makes Turkey that much more dependent on Russia despite already importing 50% of their energy from Russia in December. Secondly, it will likely cause major conflict between the Kurds and Iraqis. This oil revenue was about the only way they could maintain independence from Baghdad, so this is likely not the end of this. Russia may be getting more cozy with folks in the Middle East, but you can find news on the joint cooperation of China, Russia, and the rest of the world as long as you google it.
Next, a quick update on worldwide labor strikes. They will soon begin in Germany, have just kicked off in the UK offshore environment, and continue to grow in France. Last time we talked I believe we mentioned the LNG ports were shut down as workers simply left in protest of the forced raising of the retirement age by 2 years. Well, that has since spread to refineries. Exxon’s Port Jerome refinery processes 236,000 bbls per day… well I should say processed. It has since been shut down this morning as we add another tally to the number of closed refineries. Outside of this one France also has 3 other closed refineries. TotalEnergies’ Gonfreville & Donges with capacities of 246,900 and 219,000 respectively and Petoineos’ 207,000 bpd refinery in Lavera. That’s over 900,000 barrels in daily refining capacity for those of you playing along at home. Both Total and Exxon hold most of the refining capacity in France, so I am excited to see how the French government reacts. What good is shifting the retirement age to 2 years if you people spend months halting all development within the country and losing out on billions of GDP? I suppose it is up to Macron to see if his push for the vote without parliament’s approval was worth it.
But folks, that is all we have for today. We’ve got another episode of the Wacky World of Energy which should be coming out in just a week or two where we start to talk about the growing influence of Russia and China as they play nice and build bridges in the Middle East. I’d love to talk about it in this podcast, but the discussions gets to be too in depth and enlightening to fit into this podcast. Frac that follow button so you don’t miss out. Otherwise you can always count on myself and the Nickterns to continue to bring great podcasts and periodicals to the table. If we aren’t release fast enough for your liking, check out www.rarepetro.com as we have multiple years worth of backlogged articles, periodicals, podcasts, video interviews and more. We enjoy doing the research to see what we can learn about the world around us, and we would be delighted to see you again next week. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!