A plague sweeps through the rig count, the US claims it wants to refill the SPR (again), and Iran raids the Gulf.
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Audio Transcript
Alrighty everyone, welcome back! I do apologize for the delay in released content over the past few weeks, but I was away attending to personal business. I should be back and settled into your regularly expected releases for the time being. Apparently, I missed the great mill moth migration for the year while I was out of the state. I only noticed because there are loads of those dead suckers all over the ground, and one was able to follow me in the door last night. Poor fella probably didn’t get any sleep last night, but I was able to toss him back outside so that he can hopefully catch up with the rest of his crew. I know lots of people aren’t fond of the moths, but I tell you it sure beats what I dealt with growing up in Iowa. Since we lived right on the river, we would deal with an explosion of what many call shad flies or may flies. Right around May or early spring these little critters would end up coating every surface near the river. Their gestation period was only a few hours, so tens of thousands of these bugs were soon living, mating, and dying all within the span of a day. The infestation would last a couple of weeks, before more or less balancing out, but I especially hated riding to work. We lived on a bluff that was high enough to be safe from the worst of it, but I would have to ride my bike down to my fry cook job at our town’s only bar and these things would stick to my arms and face and just not. Let. Go. Once I finally got to the bar I would then have to sweep and shovel piles of the recently deceased shad flies over the balcony into the river. But I know you didn’t come here to listen to an amateur entomologist talk about the stickiest damn fly known to man, you came here to get the long overdue analysis of industry statistics and most revealing energy stories. Let’s get to it!
Commodity prices will start us off. Since I’ve been gone a couple weeks, we can look at the data since the start of the month. When I had last reported WTI prices were roughly $77 a barrel. By the end of the week it had settled a little closer to $75. The following Monday was less than ideal as prices started to fall even lower to bottom out at 68 and a half by the 2nd. Not a strong way to open the month. Luckily for us, the price started to climb a bit but stopped before it could get back above $74, much less $75. Again it fell which brings us to the end of last week which saw a roughly $71 barrel. This morning the price opened at a flat $70 before briefly dipping below. It only stayed there for 6 hours, before pulling up pretty sharply. At present we are looking at a $71.26 barrel of WTI. Given the geometry of recent trading, it seems we have at least temporarily stopped trading downward which leaves our floor at roughly $70 with a ceiling no higher than $75. Again, these commodity prices make little sense given the state of supply and geopolitical events, so we’ll just have to patiently await a higher price. Brent continues to outpace WTI with a spread of an almost even $4 which is not too terribly large given the data from the past year. Other than that, the Brent benchmark is essentially identical. Natural gas has continued to do just about nothing since I was away. It is still oscillating between a range of $2 to $2.50. I wish I had more interesting news here but we are observing a months old pattern at this point and it seems like we will need to hear some pretty dramatic news to change that. Until that news comes, we will be happy with the current price of $2.38.
Next up is the rig count! Now I haven’t checked yet, but if I had to guess I would say we are still within that 740 to 760 range. Alright, now that I have looked at the data, it appears I was wildly wrong. The rig count now sits at 731 which is a 17 rig decrease from the week before. This leaves us only 17 rigs higher than we were last year. Since there is so much change, I will hit it all from a state level. It seems that the only places to gain rigs were Colorado, New Mexico, and Utah who each gained one. Otherwise Alaska, North Dakota, Ohio, and West Virginia each lost one. Pennsylvania and Texas each lost 2. Oklahoma lost 3, and both Louisiana and Wyoming lost 4. Wow. This is the largest week over week decrease since June 5, 2020 which was 154 weeks ago. It seems that producers are just responding to decreasing commodity prices and putting less effort towards new production. Surprisingly the Gulf of Mexico gained 2 rigs on the week bringing them to a total of 22 which I believe is 6 more since we last visited this statistic. A very poor development in the rig space, but this only pulls the slingshot that much further back for when markets recognize how inappropriate commodity prices are.
The last statistic of course is Thirsty Thursday which has been covered by Nick Fernhout. Now we only have so much time on this podcast so I’ll have to skip the cocktail recipe like we usually do, but that is only one of the things you are missing by not reading this report on www.rarepetro.com. Here’s what Nick had to say: Interestingly, the EIA forecasted an inventory draw this week and reported a build. Not only was it a build but a decent-sized one at nearly 3 million barrel. The API also expected a draw but like the EIA reported a build and an even larger one at that of 3.6 million barrels. This build marks the largest we’ve had in 12 weeks! Little swing in either direction has helped to keep US oil inventories well within the past 5-year range, which bodes well for consumers. Good for consumers is the slow descent of gasoline prices. Less good is the slow decent of gasoline stocks… It feels like we’re waiting for those stocks to bottom out after which prices will likely climb back up. A drop of 3 cents is nothing to celebrate but I’ll take it. Meanwhile Mississippi gas has crossed over to the better side of $3. Diesel dropped even more and is now 5 cents cheaper. Distillate stocks are also down and are getting scarily close to the levels seen during the “diesel crisis.” The United States continues to inch towards being a net crude exporter as it sells crude to Mexico, NATO allies, China, and a few other commercial partners. However, imports from Canada and a few other countries continue to outweigh crude oil exports. The trend towards becoming a net oil exporter continued this week and, if trend-ology is to be believed, looks to be accomplished within a decade.
Thanks again to Nick Fernhout for putting that report together. That sums up all of the statistics for the week, so now we will move to the news. Since commodity prices are much lower, the US Administration believes it will start purchasing crude oil to fill the Strategic Reserve as early as June. Secretary of Energy Jennifer Granholm said, “That congressionally mandated sale of 26 million barrels will be completed by June, and it’s at that point where we will flip the switch and then seek to purchase.” This would be a wise strategy considering that the SPR is at its lowest levels since 1983, and Russia doesn’t seem to be letting up on military conflict anytime soon. Not saying that I want us to get involved, just saying that I think it would be beneficial to have resources on hand should anything pop off with anybody. Another thing to consider is how the world reacted the last time the US mentioned they may refill the SPR. If I remember correctly, OPEC announced some cuts that in turn caused a slight jump in oil prices making it – once again – uneconomic to refill the SPR. So far, no such announcement has been made, but that doesn’t mean a similar occurrence wouldn’t pop up in a different way. The petrodollar is incredibly volatile at this point, and the world has reasons for influencing the price either way, but we will just have to wait and see what happens. If we do begin to buyback oil as a country, I wouldn’t be surprised if we saw a little boost to commodity prices.
Next, a little bit of an expansion building on a story we looked at 3 weeks ago considering Iran and their tanker seizures. Iran has seized a 3rd tanker in just 19 days as the Persian Gulf becomes more and more heated. Apparently it was an tanker that was originally seized many years ago, so Iran is justifying this as reclamation of their property. It would kind of be like if your bike was stolen from your porch, you found it 2 months later outside of a coffee shop and stole it back. Thing is, no one is quite sure who is telling the truth. According to Iran’s Justice Department, “The seized 10,000-ton oil tanker Purity had been illegally leased to a foreigner by falsifying documents since 2018 and its Iranian owners were deprived of the benefits of the oil tanker.” According to the US Navy 5th Fleet, “Iran’s continued harassment of vessels and interference with navigational rights in regional waters are a threat to maritime security and the global economy.” Whether or not Iran is in the right, this wouldn’t be the first of possibly outlandish claims. Late last month, Iran’s state television showed footage of their Navy hopping off a helicopter onto a Turkish operated and Chinese owned tanker bound for Houston. The commandos seized the tanker. According to Iran, the craft had previously hit an unidentified Iranian vessel knocking several crew members overboard, and fleeing. Considering China’s recent meetings with Iran, I would be surprised if the government was making these attacks on known Chinese infrastructure, so maybe the Navy is acting autonomously, or someone has paid them to secure goods by any means necessary. I can’t be certain, but things are certainly not normal in the Persian Gulf. This is at least the 5th commercial vessel seized by Iran in two years.
But ladies and gentlemen, that is all I have for you today. Again, I apologize for taking a good deal of time to get this out, but content should be pretty regular for the coming weeks. You may even get a special episode of the Wacky World of Energy from the road. If you don’t want to miss that, make sure you frac the subscribe button! Plenty of energy based content to enjoy, and it has the added benefit of helping you become a more informed and competitive energy professional. All of the content is free, we just ask that you take advantage of it. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!