Join your host Tavis this week as he discusses bullish price outlooks, a growingly gassy China, and EV remorse.
Audio Transcript
Alrighty everyone welcome back! This is another podcast from the RARE PETRO Network, and I am Tavis Kilian bringing an episode of Monday Madness on May 3rd, 2021. Instead of April showers bringing May flowers, it seems that we have an extension to the showers. It started late last night and should last through the entire day. I for one am excited! The hills of Golden always look so green and vibrant after the rain. Who knows? Perhaps 2020 was the rain for the oil and gas industry, and 2021 will be the bright sunny day breaching through the clouds! Whoops… sorry, I got carried away there. I know you didn’t come here for my metaphorical musings, you came to hear the hottest news and statistics regarding the industry, and gosh darn it I’m gonna give ‘em to ya.
First things first, WTI pricing! Despite some rather mediocre statistics in recent weeks, the price is climbing. As of writing this podcast, the price seems to have settled in the low $64 range after some regular Monday morning volatility. Those estimates of $70-80 aren’t sounding too far off now, especially considering places like India are still getting hammered with lockdowns. Another thing to note, crypto markets are also doing incredibly well, but conventional stock market indicators show little to no change. Just some food for thought. As for the WTI price, I’ve scoured the web looking for some big factors, but it really seems like it is people hopeful for returning demand. Some places are lifting travel restrictions, but that should only affect fuel consumption minimally. Ultimately, you will want to keep a close eye on pricing because, yes it’s on the right side of the scale, but only just barely. A single event could tip that scale either way and I think prices would be incredibly sensitive.
Next, of course, is the rig count. Last week you will remember we saw our second negative change this year. Of course, it was only one rig, which is no biggie. This week however we see a two rig increase bringing the total to 440 rigs! May not sound big, but let me put it this way: This week alone offsets all the negative weeks for the year of 2021. That’s right, the record low is -1, and it happened twice. Perhaps a statistic of more notable significance is that the year over year rig count is finally positive! If you weren’t aware, it had been declining for quite some time. It peaked at 1083 rigs back in the final week of 2018, and has more or less been falling every week. As if it wasn’t bad enough, 2020 came and went leaving us at a minimum of 244 rigs in the middle of August. That’s a difference of 839 rigs in just about 20 months. Thankfully, when you set lows like that, it’s much easier to surmount it when things get better. Now that price and demand is recovering, our rig count continues to increase. This greatly contrasts the crash in pricing and rig count we saw a year ago today, and that my friends, is why we are finally at a positive year over year count. Like I said, maybe 2020 was the rain, and 2021 is the sun. If we break things down on a basin by basin level, we do see that the Permian was yet again the biggest loser as it dropped two rigs. Most other basins saw no change, but our favorite underdog, the Eagle Ford saw a single rig increase! Happy to see that, but still strange to see a second week of Permian rig losses. Perhaps they added too much too quickly, and activity is starting to slow down, or perhaps people finally have their hands full with new wells, and are directing all of their attention to that. Either way, a good week for the rig count.
To wrap up the statistics section we will be discussing domestic inventories. Again, trying to make a dent in the massive 40 million barrel build that we saw a little over a month ago, and things haven’t been going that well. A new report from the API predicted a build of nearly 400,000 barrels, but it turns out they were off by a magnitude of 10 as it was a build of 4.3 million barrels. The EIA on the other hand overpredicted a build of 660,000 when in reality they saw a 90,000 barrel build. Regardless of if you over or under predicted, they both predicted a build, and a build we saw. While this is incredibly undesirable, you have to remember prices are continuing to climb, further reinforcing RARE PETRO’s bullish predictions. What happens when we finally go back to a reasonable demand of fossil fuels and deplete our inventories? I would predict that the price would go higher! Then again, I have no clue why prices rise despite these builds, so there are many more factors at play. Remember, if it isn’t a fundamental factor, it could be financial, geopolitical, or technical. If we look at some of our refined products, we see propane inventories saw little change and continue to hug the lower quartile of their 5 year history. Distillates continue to sit happily in the middle of their 5 year historic range, and gasoline again goes sideways! I’m telling you folks, I still believe gasoline is at a very sensitive point and a single week could drastically change what we pay at the pump. But, that fully wraps up all of our factors for the week! I know it was a short section, but things have been relatively mild lately. Lots of change close to zero, and for all you fellow residents of the United States that are listening, lots of waiting on policy makers to give the greenlight for many things oil and gas. Still, little change is better than change for the worse, so at least we’ve got that going for us!
Next up, the biggest headlines that have popped up recently starting with someone we’ve been talking about a lot lately: China. Most of you know that when oil got cheap last year, China bought up a ton of the stuff. They also continued to build coal fired power plants that raised their capacity by roughly 30 gigawatts in the year of 2020 alone. Despite being members of the Paris agreement, it’s fair to say that China is a big fan of fossil fuels, so it should come as no surprise that their natural gas consumption is set to increase another 10% on year over year. According to a senior PetroChina gas executive, China’s demand for natural gas will be driven by the utility sector at gas fired power plants to back their renewable sector. Even though China has a renewable capacity of roughly 900 gigawatts, 3 times more than the United States has, they know that they need reliable sources of energy to back the supplemental renewables. In 2020, China consumed 11.5 trillion, that’s trillion with a T as in tango, cubic feet of natural gas. Again, that is only set to grow. Of that gas, about 60% was sourced domestically, and the rest was imported. Even though China is attempting to invest more in natural gas production, they will still need to import lots of that gas. Their domestic production is expected to grow about 5%. State owned PetroChina will be producing a majority of the gas, with Beijing based Sinopec picking up some of the slack. To sum things up, China is consuming more and more fossil fuels at an incredible pace. The funniest part of this article is the mention of a poll that showed there was a huge shared concern in China’s energy industry. That concern: demand growing slower than it should be. That’s right. I’m out here throwing out statistics like 10% growth and units like trillions of cubic feet, and these guys are worried that the demand might outpace the supply. Just another reason to be bullish I suppose.
Our next story revolves around a study from the University of California regarding electric vehicles. The study looked at drivers who purchased electric vehicles between 2012 and 2018, or long term owners. The study found that nearth a 5th of EV drivers in California have switched back to gasoline cars because charging was too much of a hassle. While the group who switched back to internal combustion engines was a minority at only 18%, that is still a significant number, especially when you consider that 20% of hybrid vehicle owners switched back as well. The biggest problem of course goes back to charging. Let’s break it down a bit, shall we? Chargers are classified in 3 different categories. Level 1, Level 2, and DC Fast EV chargers. Let’s start with the best. DC fast chargers are the chargers you see along interstates or within large charging lots. It puts out a whopping 480 or more volts along with 100 or more amps allowing someone to charge their EV in 30 minutes to 1 hour. These are the stations that often get the most attention as they make sense and justify the ownership of an electric vehicle, assuming that your vehicle is even compatible with this type of charger as many are not. Our next charger, the Level 2, can be used personally, but usually requires the installation of a 240 volt power circuit, which is double the voltage of your typical wall outlet. Pricey to install, yes, but worth it as it can deliver anywhere from 16-40 amps of power output which equates to 14-35 miles of range per hour, which is not nearly as good as the direct current fast chargers, but still doable if you use the car daily, and not too pricey costing in the neighborhood of $600. Lastly, we’ve got one of the most common methods of charging, the Level 1 charger. This is the sort of charger you plug into your garage outlet that supplies 120 volts of electricity. This charger provides between 12-16 amps of continuous power which equates to a measly 3.5-6.5 miles of range per hour. If you drive this car anymore than 40-50 miles per day, it is simply unfeasible to own the vehicle with this charger as you don’t have enough time between commutes to effectively charge the car. Anecdotal evidence sourced from participants shows that this was the biggest turn off. I read an account from another fellow on a forum that claimed the exploding popularity of EVs meant that his go to charging stations were often occupied, many times by hybrid vehicles that only needed 30 minutes or so to fully charge leaving the user’s vehicle in a danger zone of too little range as he could sometimes only charge his car at home at night, and as we just discussed, this is not always feasible for some owners. Again, 20% isn’t the majority, but it is significant. If anything, this just highlights the required emphasis needed for a focus on more electric infrastructure. California has the most charging locations, yes, but they have a ratio of 25.7 electric vehicles to charging outlets as of 2019, and I imagine that is only further exacerbated as time goes on. Could be worse though. Jersey has a ratio of 34.8 EVs to charging outlets.
Whew! That was quite the deep dive on EVs, but again, RARE PETRO is all about learning, especially with topics that we may not be so familiar with. If you want to keep learning about the energy industry from a perspective of commodities, markets, politics or any other reason, you will definitely want to subscribe to the podcast. It’s easy to listen to, and makes you look that much better than the rest of your competitors within the industry! If you want to get your hands dirty with some of the data that we look at every day, go to rarepetro.com to find a page compiling our favorite useful links. While you’re there, you can find a ton of our other research and services. Again, this is Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!