Monday Madness: April 5 ’21

In this episode of Monday Madness your host Tavis discusses the implications of infrastructure, locational price fixation, and climate change in the courts.

Audio Transcript

Alrighty everyone welcome back! This is Tavis Kilian with RARE PETRO and this is another episode of Monday Madness recorded and released on Monday April 5th. April fools, happy Easter and all that. Sure was a busy week for me and I hope those of you listening also stayed occupied and had some fun. I’m really excited for this new weather, as I feel we made it through the false Spring. That’s not to say there won’t be more snow, but it is definitely time to get outside and catch some rays. I can already feel everyone’s mood improving, so let’s make this a great month, shall we? Now I know you didn’t come here for a seasonal pep talk, you came to hear the best industry news and statistics surrounding oil and gas, so let’s start off with WTI pricing, shall we?

As I write this script, WTI sits just above $59. Strange to think that a month ago prices were in the range of $63-$64. That is not to say prices are falling though. They did take a hefty dip on the 17th, but have been bouncing around between $59 and $62. On a very fine scale, it really does look like it is testing an upper limit of about $62. As soon as it hits that, it falls back to $59ish for a few days before rocketing back up to $62. We are in the midst of a 3rd “cycle” of that that has been going on since the 18th of March. Again, this is a very small window of time, as it gets difficult to predict pricing in a range this small. If we instead look back, say… 6 months, it looks like we have broken outside of that track establishing the boundaries of the price climb we experienced. That is not to say that the price is going down however. It is simply behaving differently than we grew comfortable with since November. I still feel there are enough sources of upward pressure to continue to push that price into higher and higher territory. Ultimately, we are looking at some relatively steady pricing and it could take another surprising event to jump start another climb.

That is about all I have for pricing, so next we move onto the rig count. According to Baker Hughes rig count released last Friday, the United States is up 13 rigs! Quick side note, Canada fared much worse and ended up losing 12 bringing them to a national total of only 69 rigs. The US saw its biggest gains in, say it with me folks, the Permian basin. They were able to put up 3 new rigs, surprise surprise, but who did the next best? Who will be the “Second Place Stud of the Week?” Turns out the Eagle Ford has come out of nowhere with a 2 rig increase! This brings their total to 33 rigs for a 6 and a half percent increase. Not bad at all for the Eagle Ford if I do say so myself. On a state level Texas, New Mexico, and Oklahoma put up 4, 3, and 2 rigs respectively, so from a drilling perspective, this has been a very good week. Come to think of it, the last time we saw a 13 rig increase was back in the middle of January. But, there’s lots of rigs going up, so what type of wells are we seeing drilled? Of that 13 rig increase, we saw 11 horizontal rigs, and negative 2 vertical rigs. Negative? Yeah, you heard me right. The other 4 of the 13 rig net differences from a week ago is thanks to directional pads. Good number of horizontal wells going up, and I’m glad to see someone developing directional wells too. We are now down to a total of 20 vertical rigs (unsurprising) and up to a total of 19 directional, and 391 horizontal. Very pleased with the findings of this drilling report.

You know our statistics wouldn’t be complete without mentioning inventories, and I’ve been itching to talk about this segment this week. If you have been following the last month of episodes for Monday Madness you are definitely aware that we have been building our domestic inventories pretty aggressively while simultaneously failing (or in the best case sustaining) to produce an adequate amount of refined products. So what is new this week? Well, the API and EIA have released new reports last week that have some mixed results. The API claimed we were just shy of stocking up on another 4 million barrels of crude. Not a terrible build, but also undesirable for the argument of a higher price. However, the EIA reported an 876,000 barrel draw. Pretty insignificant as it only offsets that last week of builds while barely denting the other month’s worth. Still, I don’t want to complain whenever I see a draw on inventories, even if it is as tame as the EIA’s report. What about those refined products that I was mentioning? Well, distillate inventories jumped up pretty significantly which lands it smack dab in the middle of the 5 year range. Propane and gasoline, however, have been sucked just a bit dryer in the past week. Remember when I predicted Spring Break triggering a small draw on gasoline inventories? Well I can’t attribute that to the drawdown for certain, but I know that in the past 2 weekends I’ve been on the road for a total of 24 hours, and I’m not even a college kid who gets spring break anymore! I would wager that you, dear listener, have probably been outside once or twice to try and enjoy this warm weather. Us humans are big fans of getting out and about when it is warm, so this draw on gasoline inventories is kind of a double whammy. If you were to look at the 5 year range that I always talk about, gasoline has been hugging the bottom boundary. Gasoline demand diminishes in the winter, but once warmer months arrive, the demand goes back up. This means that the current trajectory of gasoline supply could fall outside of the 5 year range and establish a new low. Then again, these refined products can swing in either direction incredibly quickly, so we shouldn’t hoard gasoline just yet. Lastly I wanted to mention if you look at inventories split between the east coast, midwest, and gulf coast, the gulf coast saw the biggest gasoline draw. Again, this doesn’t confirm my estimate about spring break, and I’m not trying to brag (not too much at least), but your boy has some pretty decent estimates.

By the looks of our statistics, things are in okay territory. But what about our new stories? Well, first up the new Biden infrastructure plan. Last week his administration revealed a $2.25 trillion infrastructure bill. Where are we getting the money from? Perhaps in another episode we can talk about that. Breaking the documents down further shows $115 billion goes to things like repairing roads and bridges, but $16 billion was set aside to pay displaced workers to start plugging abandoned wells across the country. This is almost identical to how some governors and mineral leaders chose to use their CARES act money near the end of last year. It’s actually pretty cool to see the support from a federal level, surprising even. Even so, this seems like it will only benefit a couple dozen thousand people, no? Well, think about the $115 billion that goes to roads and bridges. Whether you are fixing a single pothole, expanding a lane, or completely redoing a section of the interstate, you need lots of oil and gas. Those machines that need to flatten and heat the materials used in roadwork run off of fossil fuels. The machines that extract the materials run off of fossil fuels. Hell, roads are fossil fuels. Most roads today can be categorized as “asphalt concrete,” and contain bits of rock, sand, and bound together with asphalt. Asphalt is made of the superheavy components of crude, known as bitumen. In the United States, there is a decent amount of heavy oil in California and Utah, with a few more fields scattered about. Canada is the true champion of this realm as they sit on the Athabasca oil sands which are perfect for extracting bitumen. I wouldn’t be surprised if Canada was to supplement a healthy portion of our demand for bitumen during this infrastructural overhaul. Unfortunately, it is going to have to come to the states by means of truck or rail rather than being transported on the Keystone XL that would have been partially powered by the wind and sun. So much for the climate being the center of the Biden administration’s focus, huh? Ultimately, this bill is going to provide a decent increase to the demand for oil products, and put some people back to work which is a big win for the United States.

If things aren’t so bad here, how is it going for the rest of the world? As it turns out, the Saudis are handing the Chinese the short end of the crude trading stick. Saudi Arabia is changing the pricing of its crude. If you are from Asia, you can expect a 40 cent increase per barrel. If you are from Europe or the US, it is now 20 cents, and ten cents cheaper respectively. Of course, both China and India are upset with this new decision as Asian buyers are paying $1.80 more than the Oman/Dubai average which is the basis for price setting. Of the 80% of crude imported to feed India’s demand, 60% comes from the middle east. I would imagine this will not be the case for long. I could see India importing America or European oil, sure, but I don’t necessarily see China asking us for help. While they could ask the US for some of their oil, they are already taking a massive quantity of Iranian oil, which is still sanctioned by the US. Whatever angle you take when looking at this story, it seems like the US is fine. Cheaper pricing for imported crude, and potential increased demand for exported crude. As to why the Middle East is doing this, I’m not quite sure. Unfortunately for China, this seems to be the new trend. Remember those pre-paid oil contracts from Iraq? Iraq froze them and asked for more money when prices started to increase. Now, OPEC+ limits production in order to raise prices, which only hurts China’s wallet as they showed no signs of stopping the import of massive quantities of oil. It seems like the world is aware that China is on an industrial and manufacturing sprint, and wants to squeeze every possible penny out of them. I feel like this is the beginning of many more news updates to come.

Lastly I want to mention something I brought up in Basin Breakdown about 2 months ago. Cities across the United States have been taking supermajors to court. Sounds pretty standard, but these cases are not being tried on a federal level, but rather state or county level. All of these lawsuits are attempting to get funding from these supermajors to address climate change. Basically, they feel it is the fault of the supermajors for generating emissions, and want millions of dollars in order to offset the costs of “extreme climate change” that they predict will have to come from taxpayers. Finally, one of these cases concluded in New York. The court said global warming is a uniquely international concern which requires federal intervention in the form of policy making and regulation. The judges recognized that only the EPA can regulate greenhouse gas emissions. This was a warning shot to those across the US trying to pull a similar stunt. Casey Norton, a spokesman for Exxon wrote, “As we’ve said from the beginning, lawsuits like New York City’s do not belong in the courts and do nothing to advance meaningful efforts that address climate change. We support global efforts from policymakers, companies, and individuals to develop real solutions.” I gotta say that I understand where he is coming from. This was an attempt at a cash grab, not necessarily a solution that would have changed anything. Besides, why does the fault fall on the middle man when it is every community in the United States that consumes fossil fuels? I was worried about these trials initially, but it is nice to see that the courts haven’t quite lost their minds yet.
But that is all I’ve got for you! If I haven’t satiated your appetite for all things oil and gas, go to our website! Not only do we have plenty more material for you to consume, but we have also constructed a page that houses all of the places we love to acquire our data from. You can find this “useful links” tab on our homepage of www.rarepetro.com. If there is a topic you would like us to cover, or if you have any other feedback whatsoever, the best way for you to reach out is to contact me by emailing podcast@rarepetro.com. Again, I’m Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody.

Music: https://www.bensound.com/royalty-free-music

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