Monday Madness: More coal, please

Posted: October 3, 2023

In this episode we explore the recent price jumps, India’s refusal to step away from coal, and the upcoming refinery maintenance.


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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 October 3, 2023. I thought for sure this had to be one of Colorado’s warmest Septembers on record. After all, we just got into October and the leaves have just started to turn down here on the plains. After all, everything I hear in the news references record breaking heat waves and unprecedented weather patterns so I decided to do a little digging. Turns out it was the 8th warmest. The highest ranking years are between 2015-2021, but years 5, 6, and 7 are 1948, 1981, and 1931 respectively. Strange to think that this September was beat out by one from 1931. But I think I had better move it on before I get accused of cherry picking or ignoring “very alarming recent trends,” because let’s face it: I’m no meteorologist. So let’s move on from the realm of meteorology to energy by reviewing some of the biggest energy news and most impactful statistics.

Commodity prices are starting to cool off from their incredible sprint up a mountain. Early last week WTI jumped up to $95 before dropping back down to about $92. The price then took a sharp drop on Monday to a little bit less than $88 before bouncing back up to $90. I still believe $90 is an appropriate floor because while the return was not as fast as I expected, it still got there. We will have to see how the rest of the week plays out, but I’m still remaining optimistic despite a $15 runup in a month. Brent is staying committed to the same big movements, but the spread is incredibly… I don’t know whacky? At one point last week the spread was 68 cents. I can’t recall the last time it was that narrow. It has since spread apart, but not by much. At this moment we have a spread of $1.42. That is insane! It certainly helps WTI as it appears to be a better import for the rest of the world when the spread is that narrow. Keep an eye on this because this is different from anything we have seen in quite a few years. Natural gas has been spending some more time higher and higher in price. It seems like we are seeing a trend for the past couple of months that is actually headed upwards. At the moment it is at about $2.940 and I think a steady $3 should not be too far into the future if it gets chilly. I didn’t think I would say this anytime soon, but I am excited to see what natural gas has in store for us. 

Next up is the rig count. Another rather disappointing week as we drop 7 rigs bringing us to a total of 623 which is 142 rigs fewer than we had this time last year. Basin by basin the Williston and Mississippian each gained one. This is now the only rig in the Mississippian. Otherwise the Granite Wash and Marcellus lost one while the Permian lost 5. It feels like rigs in the Permian have been dropping like flies, but the year over year change is only 32 fewer. State by state New Mexico is up 2, while Louisiana and North Dakota are up one. Pennsylvania is down one, Oklahoma is down 2, and Texas is down a whopping 8. The Gulf has been quiet for a while but they put up a rig too. Of the rigs being laid down we are losing fierce ones making horizontal holes and looking for oil. The last time we had this many rigs was actually on the way back up from the total destruction due to covid back in February of 2022. This is an incredibly strange thing to see. We had one big positive week, but outside of that rigs are damn near on the endangered species list. While we saw small rig counts before, it was usually not when we saw $90 oil prices. People are just afraid to put more money into oil right now because we have been reminded very violently that the good times really don’t last. Folks aren’t confident that we will see good prices too far into the future, and I can’t say I blame them. I believe this only adds fuel to a soon to be violent fire of amazing oil prices, so let’s keep our fingers crossed.

Our last statistic to review is Thirsty Thursday that we publish every week on, and I gotta say – I think it is one of the best damn inventory reports on the internet. If you missed it last week, here’s the skinny. The EIA continues to make meek predictions for drawdowns and anticipated 1.3 million barrels would disappear. The true data exceeds expectations as we saw a 2.2 million barrel drawdown. The API predicted a 1.65 million barrel draw but ended up reporting quite the opposite. A 1.6 million barrel build that came right out of left field, and a significant contrast to the EIA’s data. While the API would disagree, the EIA believes we are still solidly within that few week draw and single week build pattern. If that remains true, we should expect to see another draw next week, API be damned. Total motor gasoline inventories increased by 1 million barrels over the last period which is good news because prices seem like they are headed in the same direction. We are approaching a mid point of the historical 5-year range which should help to promote some increased price stability. California and Mississippi retain their respective crowns of most expensive and cheapest gasoline at $6.032 and $3.255. Note that California gas prices went up over 21 cents in just a week and exploded past $6 per gallon. The national average fared much better than California as it actually decreased by about 3 cents. Even diesel dropped a cent and a half. Distillates are breaking into historical normal territory as the bottom drops out for this time period as distillates go sideways. Propane should be hitting its peak any second but it is possible it continues to go a bit higher and set new short term historical highs. At the moment it seems like it is beginning to flatten out, but it did fake us out back in August so no one can be too sure yet. 

But that brings us to the end of our statistics. Time for the stories starting with one from India. All too often we read stories from the west (Europe and US alike) about the strive for green and renewable energy. We seem to forget that we aren’t the only variables in the equation, but countries like India and China are not going to play ball. India’s largest power company controls a good deal of coal production. They recently reported an 83% increase in coal production for the first half of the fiscal year, and for good reason. Coal still generates 70% of India’s electricity, and that is no small amount. If anything, their consumption will go up even more as dispatch for coal has gone up 94%. This comes as no surprise because India’s officials brazenly predicted an increase of power generation from coal to meet rising power demand. There’s just no way to get around it folks. If you need electricity for 1.4 billion people and you need it now, you use conventional energy. This past summer they were short on electricity as it got hot and everyone cranked the AC. I wonder what it would be like if you put 1.4 billion folks through rolling blackouts. While the rest of us send billionaires and politicians to climate summits, India sits at home allowing their power company’s chairman to say, “The coal phase-out in India will take 2-3 decades, if not more.” We can identify all sorts of climate goals and metrics, but I guarantee you it all become a moot point when India is generating most of 73 gigawatts of power with coal. At that point one of the best thing you could do for the climate is switch to oil, but I imagine India is avoiding that for the time being so they can protect themselves from price shocks. If climate activists want to do something meaningful, they should stop sitting in the streets of England and see what they accomplish in India. Actually, that is a terrible idea. If an activist is listening, please don’t expose yourself to that because it would not be appreciated.

Next it is time to talk about some general maintenance. This fall will see a bunch of refinery capacity going down for maintenance. 2.5 million barrels per day of capacity to be exact. It is being described by Bloomberg as the heaviest maintenance season since before Covid-19 with an 11% increase of offline capacity. This will likely do nasty things to all types of commodities. Distillates could severely decrease despite being already low, and gasoline sure ain’t getting cheaper. The good thing that could come out of it is a decreased domestic supply of propane that has been at relative highs due to great international demand. The most entertaining thing to watch will be Gavin Newsom blowing a gasket in California as gasoline runs up to six and a half dollars a gallon. The new fuel watchdog agency will certainly have its work cut out for it. I know refinery maintenance has to happen eventually and it has been planned for months, but this has got to be one of the worst times to do so. Fingers crossed folks, and go fill out your tanks right now.
But that is all we’ve got for today. If you need more, you know where to find it. is the place to go for independent research, great podcasts, and fantastic video interviews with some of the most interesting players in the industry. We’ve also got a great influx of news from some of our favorite sources. Otherwise we have a large backlog of content from this very podcast. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!

Related Tags: califormia | iran

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