In this episode Tavis we review great price and rig statistics and look at a tumultuous weekend for LNG.
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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 September 11th, 2023. When is it that you are old? I know I am a bit younger than many of the people that listen to this podcast, but I think I am finally getting to be middle aged far earlier than expected. My girlfriend and I were looking for events to fill our weekend with and found plenty of beer festivals, clubs, and loud shows. Rather than attending any of these, we spent some time reading by a pool and then picked up groceries to cook, and boy did we COOK. I loved every second of prepping every dish and realized I far preferred hours in the kitchen to the club. I don’t know if there was any singular moment where this switch occurred, but I’m here, and I am ready for it! But you didn’t come here to listen to a 20 something year old lament aging as your knees and lower back hurt, you came here for the biggest oil and gas news and statistics. Let’s get into it!
This time last week the price was at $86 right before it shot up to almost $88. From there it tested the $88 high 4 times with the most recent occurring this Monday morning. By the looks of it, we should test $88 again. It came knocking on that door frequently which is a great indicator of strength. I would not be nearly as jazzed if it plummeted after brushing up against $88, but it just didn’t. Brent is following the same movement patterns, but with a $3.50 premium. Keep an eye on these two big boys because good prices can be coming. Of course by good I mean high prices because that benefits all of us in the industry at the cost of increasing energy prices for the masses. Natural gas is exceedingly painful to speak about anymore because it has been doing the same thing for months and months. A near flat oscillation between $2.50 and $2.80 for almost a year. I’ll keep you posted on any strange news in this arena, but I just don’t see it happening soon. Overall, prices are in a fantastic spot right now and I hope for that to continue!
Next up is the rig count. With improved prices comes improved rig populations as we add one more rig to the US total bringing it to 632 or 127 fewer rigs than we had this time last year. Basin by basin was binary in change. You got one, or lost one. The Permian was up one while the DJ-Niobrara, Eagle Ford, Marcellus, and Williston lost one. State by state we’ve got a lot more change as Texas is up 4, Cali is up 3, Utah and West Virginia are down 1, and New Mexico and North Dakota are down 3 each. One more rig went up in the gulf of Mexico. There is still no love for the horizontal hole as all new rigs were making directional hole as the horizontal category continues to plummet. Just costs too much money at the moment. Much less change compared to recent weeks as we are now only seeing only the second positive change in 19 weeks, so that is something to celebrate.. I guess. This is a hard category to be excited about because rigs have been dropping like flies for months. Let’s just hope things are starting to flatten out and not get any more excited than that.
Our last statistic to look over is the inventory report which we cover weekly as Thirsty Thursday on our website www.rarepetro.com. If you didn’t have a chance to look at our excellent visual aids and detailed analysis, I’ll be sure to get you caught up on the big ideas. After an overwhelming month of drawdowns, the EIA was not shy in predicting another 3 and a quarter million barrel drawdown. Imagine their surprise when they ended up reporting another greater than 10 million barrel drawdown. The API also predicted and reported strikingly similar numbers to the EIA. The predicted a slightly smaller drawdown of just less than 3 million barrels (identical to the previous week’s prediction) but ended up reporting an even larger drawdown of close to 11.5 million barrels. As you might imagine, this looks incredible on a week over week change graph with a large emphasis of lines pulling down below zero 4 out of the 5 previous weeks. In 5 weeks the EIA’s numbers shown we have decreased domestic inventory levels by nearly 34 million barrels. On the cumulative graph we are dangerously close to establishing a trend that will break into new historical lows in the middle of September. It is likely trajectories will change as we were making small but significant builds to the inventory this time last year, but a lot of the data was artificially inflated by US SPR releases. Now that those have stopped, the market appears to be out of balance — at least in the sense of establishing a healthy base of domestic inventories. Gasoline inventories have decreased by only 200,000 barrels which essentially means they have remained stable. No major changes here, and that seems to bring some relief to the pricing. The average gasoline price in the US has decreased by about 1.2 cents per gallon from last week. Diesel, on the other hand, has come down by a little more than half a cent. Hey, a decrease is a decrease no matter how small. California has defended its championship belt of heavyweight gasoline prices as it averages $5.296 per gallon. Mississippi continues to celebrate the cheapest national average at $3.305. Let’s hope gasoline prices can remain on this downward trajectory so that all of our wallets can share a sigh of relief. Distillates are fighting hard and just might pull up before they crash into the boundary of the historical low, though we will see in about 4 weeks time. Propane exhibits a surprising and cool amount of stability as it maintains a steady trajectory and just barely tops historical normal territory as it’s about 16 million barrels above the median of almost 80 million barrels for this time period.
But that rounds out all of our statistics. Time to get into the news! The LNG markets got to be a bit bleak looking this past weekend. We are dealing with strikes at Australian export facilities as of Friday because Chevron was not willing to cooperate with employees looking for higher wages. Seems like a bold time to initiate a strike because, yes the platforms that these strikes are occurring on make up for 5-10% of global LNG export supply, prices for the commodity are likely not high enough for Chevron to justify an increased wage. Now if LNG was back up to $9-$12 then maybe, but you have to remember that we are simply down from an all time high in 2022. There was a slight spike in pricing, but again, Chevron may not have the funds available to keep the labor around. In addition to the strikes, Norways serves as Europe’s top gas supplier (as Australia doesn’t directly export to the region), and they are now experiencing outages due to regular maintenance. Nothing crazy, but it certainly pushed prices a bit higher today. As if that wasn’t enough, volumes of feedgas at the Freeport LNG facility plummeted over the weekend. They fell from 1.6 billion cubic feet per day to 702 million cubic feet per day from Friday to Saturday… a more than 50% decrease. By Sunday that had fallen to 284 million. This Monday we are back up to 622 million cubic feet, but the markets in Europe are already responding to these factors. Front month futures for LNG are up 7% this afternoon, and it looks like things could only get more expensive, especially if these Australian strikes continue. It seems like 2023 was the year of the striking LNG facility, so let’s hope that everything gets wrapped up by winter because that is a season where huge demand leads pricing to be especially sensitive to situations such as these.
In our next story, we took a look at the conflict between Russia and Ukraine. As with any large-scale military conflict of our world’s long history, resources play a vital role. It turns out the oil platforms offshore Crimea provide more than just oil as they are also great for controlling that area of the Black Sea. According to the country’s Defence Intelligence, Ukraine has regained control of the Boyka Towers (oil and gas drilling platforms). According to quotes from the released video, “Russia has been deprived of the ability to fully control the waters of the Black Sea, and this makes Ukraine many steps closer to regaining Crimea.” While the Ukranians faced the resistance of a fighter jet, they were able to push it off. This is good for Ukraine because Crimea and the Black Sea are only becoming increasingly frequent stages for battle. This should secure a good deal of oil resources for Ukraine as the platform was supposed to be under operation by Chernomorneftgaz since 2014. I can’t be certain how much these platforms are producing, but at this point I’m sure anything is helpful through this conflict that has gone on for about 19 months.
But folks that is all we have time for today. If you are looking for more content, please stop by www.rarepetro.com to find plenty of our other backlogged content – some of which dates as far back as late 2019 and early 2020 when we were making predictions on commodity prices for things like copper. Sounds crazy, but it all ties to energy, and we were often very close to being correct. Other than that we have news from some of our favorite sources pushed out almost daily. If you enjoyed this content go ahead and subscribe to it because all of this information is absolutely free. We are trying to become the best informed oil and gas professionals we can possibly be, and hope you join us. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!