Huntington Beach oil spill fiasco, UK inflation, and the new kid in town.
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on October 4, 2021. A new month and a new place! I’ve travelled down to Bakersfield over this past weekend, and I forgot how nice it is to drive out West. I’ve always enjoyed the drive through Colorado and Utah, but Nevada and Southern California was new to me. I don’t recall much about Nevada. Stopped in Las Vegas for some gas and then kept it moving. I really liked the drive through the hills of Southern California, but I wish there would have been a little less smoke in the way of the view. If you are out here in Bakersfield, let me know! I’d love to talk about RARE PETRO, energy, or just meet new people. But I know you didn’t come here to listen to the new guy in town begging for friendship, you came here to hear about all the biggest events and statistics in the world of oil and gas. Let’s do it!
Commodity prices have been very strong recently, and that trend looks like it might continue through this week. The price last week closed in the high $75 range. Trading opened up early this morning at about $76 and ran all the way up to $78 flat which is the price right now. As you know, Mondays are incredibly volatile, so we will have to be patient and see where exactly that price lands. I’d wager it will fall back to $76 by the end of the day, but that doesn’t mean it couldn’t go any higher. Natural gas is seeing a lot of love this morning as well. It had a quick little peak at $6 before falling to $5.85, where it is right now. This one surprises me. There are serious natural gas shortages all over the world right now like we had discussed last week, but there is so much resistance at the $6 point. I think that in the next couple of weeks, it is going to break that $6 ceiling and do another violent run up until it is checked once more. Wherever it sets the next ceiling is certain to offer a resistance similar to the one we see at $6 right now, but you know what they say: “Ceilings were made to be broken.” Or maybe it was rules… Either way, this natural gas price does not seem appropriate given some of the factors we have considered in recent weeks.
Next, a statistic that we have come to expect great things from: the rig count. This past report does not disappoint as the United States added 7 rigs bringing its total to 528, or 262 rigs more than we had this time last year. There was only one major basin that exhibited any change, and unsurprisingly, it was the Permian who added 3. If we look at each major oil-producing state, Louisiana led the charge with 3 new rigs. New Mexico followed closely with 2 with Oklahoma and Texas bringing up the rear with 1 each. I can’t quite recall the last time we saw nothing less than zero in both a basin and state analysis, so that is certainly something to be happy about. Other than that, it seems there is a heavy emphasis on oil wells, which I am surprised about. Of those net 7 new rigs, 7 will be targeting oil. Yes, we have already worked away all that oil we stored in 2020, but I really am dumbfounded as to why no one is looking at new natural gas plays. Of those oil wells, there is a pretty even distribution between vertical, horizontal, and directional. At the end of the day, this is a stellar rig count.
Lastly, the inventory report. I’m sure you all know that you can read it online as our weekly publication of Thirsty Thursday but probably choose not to because I get you caught up here on Monday Madness. I gotta be real with ya, I give you the ole quick and dirty. Yes, some of the information is the same, but you are missing out on a whole lot more. Figures, memes, wit, drink recipes, you name it! Make a pit stop over at www.RAREPETRO.com to see what I’m talking about. Anywho, here’s an overview of last week:
The EIA reported a 4.5 million barrel build despite predicting a small drawdown. But it wasn’t just the EIA who was blindsided… The API predicted an aggressive 2.3 million barrel drawdown but reported a similar observation of 4.1 million barrels. Dear readers, we’d like to apologize as we may have jinxed this week’s report by what we wrote last week:
“We have only seen 2 builds of more than 2 million barrels in the past 26 weeks, so things are going incredibly well. That’s reason enough to celebrate with another drink, no?” Turns out that we have just witnessed the largest build in 6 months, and the 3rd largest build in 2021. While this is a significant build, we gotta look over a larger period of time. Technically, we have seen a downward trend in inventories since about July of last year. Sure we saw the occasional week or two of significant builds, but that is usually worked through in a matter of weeks. If we continue on this path we will be setting record inventory lows in November, but this is historically a great time for oil inventories to replenish through the end of the year.
Problems we saw here in the US are cropping up in other parts of the world. Remember the labor shortage in truck drivers to deliver refined petrochemicals? The UK is experiencing the same thing triggering loads of panic buying. As you may have guessed, Brexit added fuel to the fire as the predicted 100,000 driver deficit is likely because of the people who left in response to the policy. The solution? The military is on standby to make deliveries in case the 25% higher driver wages fail to coax in fresh meat. It’s not just the US and UK struggling. Even China is experiencing fuel shortages and cutting power to millions in order to conserve energy. This means businesses in regions that are rationing power will be slowed even more, further exacerbating the shortage of… well… everything at this point. China seems like it is trying really hard to meet its emission goals, but the coal power plants certainly aren’t helping. This is sure to hamper the major growth that was anticipated for the country. Refineries are working overtime to try to bring gasoline inventories back up after months of trending downward, but they were only able to add 200,000 barrels to existing inventories. That is not a lot considering that they averaged about 10 million barrels in production per day. Global shortages are surely going to play into inventory concerns in the coming weeks, but no one can be quite sure what solutions will be pursued. Distillates continue on the downward spiral as they make minor builds. This still leaves the inventories at record lows compared to the previous 5 years. Propane seems to have the potential to reach back into normal inventory levels, but this winter will definitely be a test of its mettle. Not a lot of interesting things going on in either of these departments.
But that is it for the statistics. Our news story for the day is actually taking place not too far from where I’m located at the moment. Huntington state beach is closed right now despite the nice weather in Southern California. Why? A rather large oil spill has occurred. An estimated 3,000 bbls of oil has leaked from a 17-mile pipeline connecting a production and drilling platform to the coast. The infrastructure is owned by Houston-based Amplify Energy Corporation. If you’ve watched RAREPETRO’s Hydrocarbon History episode on Pipelines, you would know that pipelines are exceptionally safe, especially when used on land. However, that doesn’t necessarily translate to the ocean. Whether it is a pipeline or tanker that experiences an accident, ocean water is fluid and denser than oil, so hydrocarbons will quickly spread on the surface. This spread is difficult to contain and washes onto shores or into other channels affecting even more ecosystems. It is incredibly important to make sure everything is operating appropriately so that you can avoid a disaster like this. RARE PETRO’s geology associate Tim Rathmann pointed something else important. If this had occurred within 3 miles of the shore, it would have been an issue for the state government. This pipeline is so long that the spill was in federal waters, and the oil is washing up onto the state’s beautiful Huntington beach. Amplify is going to have to deal with the feds, the state, and the city. This is going to be difficult to get past considering the opinions of California and our presidential administration. We can all pretty much guess how this one is going to end, so let’s check up on our friends in Europe.
If you look into the inflation rates of the European Union, you would notice that it is a lot higher than usual at 3.4%. Germany is leading the pack at about 4.1% in September which was up 0.7% from August. This is mainly because energy prices in the area are up 17.4% on average. This pushes up the cost of not only gasoline and in-home heating, but everyday goods and food that require energy to be produced. Still, some people don’t think it is due to energy but rather COVID. European Central Bank President Christine Lagarde says, “The key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term. What we are seeing now is mostly a phase of temporary inflation linked to reopening.” Call it whatever you want, but the world is reopening and consuming more energy. She’s as much right as myself. I worry for our friends in Europe as this winter could prove to be incredibly difficult for many families if we fail to find adequate resources in time.
Before we wrap things up, we’ve got a question! Remember, you can write to email@example.com to ask questions, make corrections, or just say hello. This one is from Ms. Julia. She writes:
Hello RARE PETRO,
I was wondering if current political events in the US will continue to increase the price of oil, even though lots of effort is going into green energy policymaking.
Well, Ms. Julia, we thank you for your question. Let me see if I can give you a long answer, and then a short answer. The long answer is that we need only to look a little ways into the past. From 2020 to the present, the price has fallen from $60 to -$40 and then risen all the way up to $75. That is quite the trip for less than 2 years. I believe COVID definitely put a long pause on a run-up that we would have seen either way. The government is stressing the need for green technology. Banks are not investing money in conventional energy. Conventional energy companies are taking the money they have to pay down debts rather than expand production. All of these factors introduce more pressure to the domestic and world markets. So that is the long answer. The short answer to your question? Yes. Current political events in the US will likely increase the price of oil (and gas) despite the effort going into green policymaking. Thank you for your question, and we encourage anyone listening to send in their own to firstname.lastname@example.org.
But that is the end of this episode. Please send us your questions, or go explore our website as we have days worth of content for you to dig through. Whatever your interest, we probably have an energy-related article all about it. Be sure to frac that follow button, and leave a review if you liked the show. It really helps the algorithm and promotes us to a larger audience which allows us to continue delivering content to you. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!