Asian countries heavy on sweet, largest US offshore auction, and Indian air pollution.
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another phenomenal episode of Monday Madness on the 22nd of November. Ladies and gentlemen, the time is upon us. I’m talking about what coincides with the holiday season, or what I like to call: “The most unproductive time of the year.” Everyone ends up working a little less focus, the weeks are broken up with parties and travel, and people end up streaming far fewer podcasts (or so our analytics platforms would suggest). Whatever it is you end up doing this holiday season RARE PETRO would like to extend its thanks. Thank you for listening and interacting with us because we do enjoy this work. We enjoy interacting with you as a small community of listeners in order to grow a little more every day. It has now been about 2 full years since we’ve been putting out content, and it has been such an incredible experience until now, and we expect it will only get better. But enough of that! You didn’t come here to be showered with compliments and gratitude, that’s just an added bonus of being someone who listens to this wonderful program. You came here to learn all about the biggest events in oil and gas so let’s dive right in!
First of course, WTI price. Things aren’t looking so hot right now at $76.66. WTI started last week around $82 but fell to $76 by end of Friday. If you are thinking, “that sure doesn’t seem right based on supply and fundamentals,” you might actually be correct. Goldman Sachs (you might have heard of them) has claimed that the price is wrong. Lots of other investment firms agree and are saying that the price is a reaction to the potential release of oil from international reserves. Basically, Goldman Sachs thinks everyon is overreacting to the news of dipping into oil reserves. They claim that this $8 drop since October is about equivalent to to either a 4 million barrel per day drop in demand or increase in supply for the next three months. What does that mean? Well, it means the market is reacting as if there is a simultaneous 100 million barrel reserve release and 1.75 million barrel per day demand increase. This is all according to their models, and they maintain the prediction of an $85 average price for the quarter. Sadly, they didn’t have much to say about natural gas. Natural gas is currently about $4.78 which is a decrease of nearly 30 cents from last week. I would imagine that the same fears are providing downard pressure to the natural gas price. In the past month, oil has fallen 9.5% in price. Natural gas has fallen about 20%. That seems weird to me, because headlines seem to be screaming that the gas supplies are even tighter than oil. We might see some crazy volatility through winter, so buckle your seatbelts folks.
Next, the rig count. Last week we saw some crazy swings in Texas, so let’s see if there’s been a follow-up whiplash this week. Right off the bat, it is looking strong with an overall 7 rig increase. This brings the total to 563 which is 253 more rigs than we had this time last year. Basin by basin the Permian absolutely crushed the competition by adding 6 rigs on the week. The Eagle Ford, Marcellus, and Permian came in tied at second with a rig each. The DJ Niobrara lost a rig. The Utica did even worse by losing 2. This means Texas is now up massively once again with another 7 rigs. That is 16 new rigs for Texas in the past 2 weeks, and I really want to know why. Are people going crazy for natural gas right now and looking to capitalize? That can’t be the case because there was zero net change in natural gas rigs and 7 more oil rigs. New Mexico added 2 rigs, West Virginia added 1, and Ohio lost 2. Like I mentioned, 7 rig increase in the oil category and incidentally a 7 rig increase in the number of wells that will be drilled horizontally. It is possible that folks are getting comfortable with oil prices and are confident that they will remain high enough. Maybe that is why we are seeing all of this activity. Let’s hope it doesn’t continue for too long of a time frame so that we end up making the same mistakes we’ve made in the past. Still, another exceptional rig count.
Lastly, the inventory report which you could be reading on www.RAREPETRO.com. We release these reports weekly and it is a whole lot of fun, and teaches you a new cocktail recipe every week. If you missed it, here’s a quick rundown. The EIA predicted a 1.4 million barrel build in its most recent report which would be in line with the past several weeks of small builds. However, the actual report revealed that it was a more than 2 million barrel drawdown. Last week we saw the API and EIA disagree on whether or not it was a build or a draw. That trend continues as the API predicted a 1.5 million barrel build which was an overestimate of almost a million barrels. While it is nice to see a drawdown from the EIA perspective, we aren’t quite out of the woods yet. The last time a drawdown was reported, a 3 week build followed. Same with the drawdown before that. That being said, next week is likely in favor of a drawdown thanks to folks traveling for the holidays. As for gasoline, the most recent EIA report revealed a slight 700,000 barrel drawdown. Gas prices responded by decreasing in price by about 3 tenths of a cent. This is one of the first times we have seen a price decrease in weeks although it is almost small enough to be considered sideways. Cities all over the US have been complaining about record-high prices, so the United States government has decided to intervene. How? By asking the FTC to investigate why there is such a gap between the price of unblinded and finished fuels. This is not the first time an investigation like this has occurred, but folks are already anticipating a similar outcome: a lack of evidence to validate assertions of price manipulation and market gouging. Of course, these companies are making money off of high energy prices. Energy is becoming a scarce commodity for crying out loud! Distillates and propane are not poised to do anything significant soon. These categories will likely continue to hug their lower limits, although distillates hold the potential to become tight in supply during the start of 2022.
But that is all for our statistics. Time to get into our news stories starting with Asia and their demand for US crude. More specifically, Asian countries are importing more and more sweet crude varieties because the cost to refine sour crude is going through the roof. Hydrogen is often used to remove sulfur from sour crude in the refining process, but the price of hydrogen is going up so quickly that it makes more financial sense for these Asian countries to import sweeter grades from across the ocean. Imports for November are expected to go up almost 20%. Normally, some of the demand for sweet crude would have been met by countries like Angola and Nigeria, but they are currently struggling to boost crude production. If demand for US sweet crude is sustained for long enough, that just means less crude to work with domestically leading to the potential of increased gas prices. This would be a shame because they just started to level out. Some experts even predict that demand could increase in the coming months.
In other news, the Bureau of Ocean Energy Management, or BOEM, revealed in a press release that the largest offshore drilling auction in US history brought in $192 million in bids. 33 companies bid over 1.7 million areas of ocean ranging from 3 miles to 231 miles offshore. The supermajors interested in these waters know that the oil and gas extracted is a lot lower in carbon emissions than the same product that is produced onshore, so it is a great way to bolster portfolios while avoiding attention from rising emissions. The top bidder was Chevron who tossed nearly $50 million into the mix. The next four largest bidders were BP, Shell, Exxon, and… Anadarko? I can only assume that means Oxy, so I’m not exactly sure why Anadarko is mentioned. After the sales are finalized plenty of money will be funneled back into the US Treasury, Texas, Louisiana, Mississippi, Alabama, local governments, land and water conservation funds, and the historic preservation fun. That’s just the money from the initial sales. Royalties will follow. Of course, the “Largest Offshore Drilling Auction in US History” is a headline that is sure to garner some attention. Environmental activist groups are, quite frankly, pissed that this went down so soon after an event like COP26. Pretty much everyone is tired of governmental leadership who promises one thing and delivers another. Either way, there is still the suspension of leasing federal lands, so the Biden administration has its hands full all around.
Next, we gotta talk about India. Recent reports have shown that the air near Delhi contains borderline hazardous levels of pollutants. To combat this, 6 of the nearby 11 coal powerplants were shut down for the rest of November. This means schools and universities are closed, construction has been halted, and government organizations (along with private firms) are urging employees to work from home to avoid burning any fuel during commutes. All factories within the region that have access to gas lines have been instructed to fully use gas for energy rather than coal, regardless of price differences. If they fail to do so, they will be shut down. The Diwali festival from early November seemed to have really made the situation worse causing meteorologists to encourage a lockdown so that the low wind speeds and lower temperatures would not retain the pollution for longer in the coming days. This will hopefully benefit India’s coal shortage as well as inventories at powerplants dropping to critically low levels. This problem could return for quite some time too. Many Asian countries are incredibly reliant on coal. They were able to convince those at COP26 that the verbage for “phasing out coal” should rather be changed to “phasing down coal.” Somehow, that worked, allowing Asian countries to continue to burn dirtier fuel for at least another decade or so.
But ladies and gentlemen that is all I have for you this week. We received no questions over email. We are begging you! We love to research new things and find information to questions that we may not immediately know the answer to. You can send any question you have about energy to firstname.lastname@example.org. If you would rather challenge our opinions or coverage of statistics and news, you can do it there as well. Otherwise, you can find plenty of phenomenal content on our website. I’m talking podcasts, videos, and periodicals. Plenty of content to grow your mind and stimulate some new discussion. This has been Tavis Kilian with RARE PETRO. Happy Thanksgiving, and thanks until we see you next time, take care, everybody!