Unstable commodity prices, wild claims from the IEA, and Poland’s defiance against Gazprom.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on May 23rd, 2022. Folks, it is now the most stressful time of the year, moving time! While I’m sure most of you listening either have a house or rent the same property year after year, some of us younger folks are a bit more transient. I’ve dealt with scrolling through Zillow, I’ve dealt with dozens of tours, and now I am dealing with doing my best to move out in a timely manner so my friendships with current roommates don’t implode on themselves. One more week! But I know you didn’t come here to listen to a man use this podcast as his personal rambling forum for any stresses he may encounter, you came here for the latest news and statistics outlining the state of the energy industry.
First we start with commodity pricing. At this point, there is no telling where the price may travel. It seems as if WTI has given us a crazy range between $95 and $115 and can fall anywhere on any given day. This morning, WTI prices are down about a dollar to $109 which ain’t too bad but the spread between WTI has once again widened to about $3 which makes much more sense than the mirrored prices we witnessed last week. Last week WTI was as high as $115, and I anticipate we could see numbers at least that high again sometime this week. Natural gas is actually up just a little bit this morning to about $8.400. This is going to be the exciting one to watch as it has been hypersensitive to geopolitical news up to this point. Last week it moved half a dollar in half a day alone. In fact, this morning it started out below $8 but has been skyrocketing upwards. This highlights just how fragile supply is at international scale. Ultimately you can expect some crazy price action movement, but I cannot guarantee whether that will be up or down.
Next is the rig count. This statistic has been performing well for 2 years, and carries on that tradition today with 14 new rigs for the week bringing our US total to 728. This is 273 more rigs than we had this time last year. The Permian basin saw some explosive results with 8 new rigs. We’ve seen a decent amount of mergers and acquisitions lately, so I’m wondering if this is a result of acquired or merged entities putting the pedal to the metal. The next best basin was the Eagle Ford with 3 new rigs which is huge. The Eagle Ford struggles to boast the same low lifting costs that the Permian has, but at $100 a barrel, damn near anything is possible. The Haynesvile added 2, and the Ardmore Woodford added one. The only basin to lose a rig was the granite which is now down to a total of 3 rigs. You can pretty much guess what the state by state results reflect, but just in case you didn’t know the location of some of those basins, I’ll break it down for ya. Texas is up 12, Oklahoma up one, and Louisiana up one. I’m almost worried to see growth this fast. While it is still less than the number of rigs we had in 2019, I do worry that folks may again repeat the mistake of the past where too much comes back and we trend right back in the other direction. Still, we are a couple years out from seeing any of this new hole producing, so it is not too pressing of an issue. Almost all of these rigs are making hole that is horizontal and targeting oil which does check out given commodity prices. Another strong rig count, but how are inventories holding up?
You could have known the answer to that question if you read the weekly inventory report on www.rarepetro.com. Thirsty Thursday is an absolute delight to read, and gets you very well-versed in the world of domestic commodities. If you didn’t catch it, here is what you missed. After a few weeks of rather significant builds, it is almost frightening to open the latest inventory report. Even the EIA expected another small build of nearly 1.4 million barrels. Thankfully we are greeted with a big draw! The API expected a similar draw at 1.5 million barrels, but they too underestimated what the actual results would be. Finally some good news. Another big draw to balance out the builds. While the trendline for the trajectory of domestic oil inventories appears to be pointing more positively, we are not out of the woods yet. Remember, this is a time where slight builds are to be expected, but we are still far lower than the historical 5-year range. While domestic crude inventories continue to decrease, gasoline follows. As GasBuddy analyst Patrick De Haan puts it, “Oil prices continue to go up. Gasoline consumption is up. Inventory is down. Basically, all of the ingredients to push up gas prices are doing just that.” Apparently, this simple equation is still stumping the United States Government. According to the latest EIA report, gasoline inventories decreased by a whopping 4.8 million barrels. We haven’t seen a drop off like that since February of last year. Propane has pretty much been able to take care of itself for the last few months, but distillates are severely lagging. Fortunately we witnessed a small boost to inventories, but that doesn’t mean anything special. Last time distillates saw a slight boost to inventories we witnessed a steady plunge in the following weeks. Things seem to be in purgatory right now before they get incredibly bad, or incredibly okay which aren’t the most reassuring outcomes.
But hey, that is all we’ve got for our statistics. Tight supply, high prices, and lots of new rigs. We’ve certainly seen worse in the past! It is now time we get to our news stories. For some really fun analysis and unbridled speculation, I urge you to look at our new series that looks at all the craziest headlines in the wacky world of energy. A new episode will be out on Wednesday, and I think you will really enjoy it. Otherwise I’d like to take a moment to discuss a rather surprising statement released by the IEA. According to the organization, current circumstances are not an excuse to further increase the world’s dependence on fossil fuels. The Executive Direction, Faith Birol, said “We need fossil fuels in the short term, but let’s not lock in our future by using the current situation as an excuse to justify some of the investments being done. Time-wise, it doesn’t work, and morally in my view, it doesn’t work as well.” This greatly contradicts statements from other energy organizations like the EIA who believe natural gas plays a huge role in the energy transition through 2050. Faith Birol continued on to say, “The best way to protect people from future price shocks is to invest as much as possible of this in an accelerated & secure clean energy transition.” To those of us at RARE PETRO, that feels like the exact opposite way to avoid ridiculous pricing arrangements surrounding the more unreliable energy systems. As both Saudi Arabia and the UAE have mentioned, the current energy shock is not just a result of Russia’s actions, but also the persistent levels of low investment in conventional energy shortages. If the current plan is to live in squalor for 30 years until the energy systems of tomorrow are forced to function effectively, then perhaps I should be looking to relocate to a location where energy is cheap and abundant. People are accustomed to a certain quality of living, and I think the coming months will really challenge how comfortable folks are with their lifestyles.
In our next story, Poland is voluntarily refusing any energy from Gazprom. The Yamal-Europe pipeline has been delivering energy to Poland for quite some time, but the country believes it is in their best interest to shut that deal down. The current contract expires at the end of 2022, but the Polish Oil and Gas Company claimed in October of last year that it doesn’t expect it would be forced to buy gas from Russia past then. Poland says it will be looking to diversify gas supplies and has so far been in negotiations with Qatar, and the United States. The United States has just hit a 7 week high on natural gas deliveries, but how long can that continue? Qatar has been cited many times as a country that can help alleviate the energy shortage in Europe, but just how effective can they be? Does all the infrastructure exist? I believe all of the changes and renegotiations are moving too violently and may leave a few parties with their pants down. The energy landscape in Europe keeps evolving every day, and lines are being drawn in the sand between those who crave energy, and those who crave righteousness.
But that is all we’ve got this week. Like I mentioned before, plenty of news in this week’s episode of the Wacky World of Energy, so be on the lookout! Otherwise we have got plenty of content at www.rarepetro.com, and we are working out the kinks on a new newspulse distribution that sort of disseminates articles from our favorite sources. Lots of big things are in the works, so please join us for the journey! This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!