In this episode Tavis discusses tantalizing commodity details and how the world of seaborne trade is changing.
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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 13, 2023. It really feels like spring is almost here! I know it’s only mid-March and we are almost guaranteed to get slammed with another surprise snowfall or two, but we seem to be almost out of the woods. It was a decent winter with a nice holiday season, but I am ready to get back out there and soak up that SUNshine in the pretty state of Colorado. But you didn’t come here to talk about your favorite summer activities and how best to enjoy a little vitamin D, you came here to learn all about the biggest news and statistics surrounding the world of energy.
Starting of course we take a look at commodity prices. WTI continues to tease us with that $80 ceiling. Last week we spent several hours spanning Monday and Tuesday above $80. I believe that is the longest period we have witnessed a greater than $80 price since we have fallen below. It is a good sign when we continue to test that ceiling with greater frequency as that can often be an indicator of overcoming it in the near future. Until then, we will have to settle for a barrel sale in the mid 70s. Once WTI fell below $80 last week it continued to fall to about $76. This morning it opened at $76.51 but has since stabilized around seventy five point five. Brent continues to exhibit identical price action at a slightly narrowed $6 premium. Natural gas continues to do what natural gas has been doing best and remains incredibly volatile spanning a range of almost $2.70 last week to as low as $2.40 early this morning. Now bear in mind that this is simply Henry hub gas pricing. Depending on where you are, especially in places that are aggressively phasing out natural gas power generation, you could easily see at least 10x an increase in price. I’m quite surprised Henry hub has remained as low as it has, but it is likely a function of being so closely located to Texas that produces staggering amounts of natural gas compared to places that don’t like California. Patience will be here in the commodity pricing world as I think the only direction to go is up, it just might take extra time for markets to realize that.
Next we have the rig count. We have recorded another decline, this time 3 rigs. This brings us to a total of 746 rigs operating in the United States which is only 86 more than we had this time last year. The plateau is real and it seems the current healthy range remains somewhere in the neighborhood of 740 to 760. Basin by basin seems relatively stagnant for all but one. The DJ, Mississippian, and Eagle Ford each gained a rig. The marcellus lost one rig, and the big needle mover was the Permian who somehow dropped 6. Don’t be too alarmed though, because 46% of all US rigs reside in the Permian so this is a relatively small change. State by state this leaves Alaska up 3, West Virginia up 2, and Colorado up 1. Louisiana, New Mexico, and Pennsylvania are all down 3 each. A slight emphasis in the arena of rigs drilling horizontal hole as both directional and vertical lose strength. The gulf of Mexico was no help as it also lost 2 rigs. Certainly not the strongest rig count we have seen this year, but if the past few weeks are telling of a pattern, then we are likely in for more small declines for at least another month.
Our last statistic to visit is the Thirsty Thursday report from Nick Fernhout. He writes one every week on www.RAREPETRO.com and always pairs a tasty cocktail recipe with great visual aids. I can verbally recap the info, but I highly recommend taking a look at his work every Thursday afternoon to massively enhance your understanding of domestic commodity supply. Here is what he had to write: Do my eyes deceive me? Do your eyes deceive you? No, there really is a draw this week. The EIA reported a 1.7 or so million barrel draw. Who would have thought we’d see a draw this week? Well, the API did when they forecasted this week’s crude oil inventory to drop by 308,000 barrels. The API reported a much larger draw than the EIA did at 3.8 million barrels. Well, here’s another reason not to trust my betting advice. I thought we’d follow the same pattern and see a moderately sized build this week but nope, we get the first draw in 11 weeks. We had a little bump in gas prices this week which is likely due to the drop in gasoline stocks the past few weeks. Gas is just slightly more expensive, 7 on the week cents to be exact. A gallon of gasoline in California will cost you just about $5 while a gallon in Mississippi will cost you $3. Diesel on the other hand cheapened a bit but by only 3 cents. Here is a new section of the report, I thought some insight into the US’s oil imports and exports would be good to cover, so here is a first take at presenting that data to you. First the big picture. Below we are looking at US crude oil imports, exports, and net beginning in 2019 and up to last week. Zooming in on just this week; while net crude imports/exports are positive, other petroleum products exports heavily outweigh imports this week, bringing the net imports/exports into negative territory.
That concludes Nick’s research! Thanks again for another great Thirsty Thursday report. Next up, we’ve got some news to discuss. If you remember Biden’s inauguration, you remember that within a few days several oil projects had their life support yanked, most notably, part of the keystone pipeline’s ability to operate. Knowing that, this next headline may come as a shocker: Biden Greenlights Controversial Alaska Oil Project. That’s right, the Willow project aims to cover 3 drill sites in the National Petroleum Reserve. This area is estimated to contain some 600 million barrels of oil in which slightly less than 200,000 bbls are expected to be produced daily. This should help ConocoPhillips to create a slew of jobs and an estimated $17 billion for the feds. The peculiar part is that as recent as Friday the White House commented that no decision had been made while the Interior Department introduced a slew of new protections for 16 million acres within the Petroleum Reserve. Many environmental groups counted their eggs before they hatched and considered this a victory only for the Biden administration to reveal this decision on Monday morning. Alaska Senator Dan Sullivan has considered this “one of the biggest, most important resource development projects in the state’s history. Not the most groundbreaking story, but especially surprising considering the current political climate and administration. Perhaps Alaska fits well into the mainland’s “Not-in-my-backyard” argument.
Next, news from France. Usually when you hear that you expect a story regarding Total, but in this case, it regards the people. If you haven’t heard, there have been recent efforts by France’s governments to continue to shift the goal posts pushing the retirement age from 62 to 64. The people have made it clear that they will not have that and strikes have sprung up across France affecting sectors ranging from power supply, refinement, and fuel delivery. This has most notably affected the LNG import terminals as workers have gone on full strike there. The halted operations have sent the European gas benchmark up 25% in price last Thursday and Friday, partly aided by a recent cold snap in Northwest Europe and renewed concerns about France’s nuclear power fleet availability. Despite all of this added economic pressure, the French Senate voted in favor of the age adjustment. Of course this doesn’t mean that it has been signed into law, but it is certainly closer to being codified than it was last week. Unfortunately, shutting down these terminals doesn’t only affect france. Gas deliveries to Europe and the recently rocked Turkey fell by nearly 19% due to the protests. Europe specifically may be experiencing they lowest levels on LNG imports since October of 2022. This will be an interesting one to watch because the implications are serious, and this is only a taste of the civil unrest that we are seeing in Europe.
Folks, that is the end of this episode. Sorry it got out a little bit later than anticipated! Anthony and I took some time this afternoon to prep and record the next episode of Wacky World of Energy for release in the next few weeks, so be sure to frac that follow button and check out our website for plenty more content. If you ever wonder, “where in the world are they finding all of this news” then you can find our “energy headlines” page on the website where we link a lot of our favorite sources and stories. That should save you a little bit of the legwork on learning. We bring a lot of great content, and are excited that you are willing to join us as we continue to learn and grow.