In this episode Tavis talks about the weekly stats, Canada’s hesitance for wind, and China’s LNG dreams.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you a brand new episode of Monday Madness on August 21, 2023. Today is the first day of school for many people. Elementary students, undergraduates, and doctoral students alike went to bed last night knowing that the summer was finished. The time for pools and sunshine has gone as they embrace papers and calculations. I for one am happy to be out of school, and I have to be honest… I’m not sure if I would go back for more. Not because I hate higher education, but because those student loans are back to generating interest here in the next couple weeks. Maybe one day I go, maybe not, but good luck to those of you out there headed back to class. But this isn’t a podcast about pep talks for the educated. I’m sure you came here for news and statistics surrounding the world of energy. Let’s get to it!
The first statistic to go over is energy commodity prices. WTI started last week just above $82 but reached a low of $79 by Wednesday. It was able to find some strength and rose to $81.50 by Friday where it lingered through the weekend. This morning we are seeing that same pattern of volatility we’ve seen in most recent Mondays. The price rises a bit only to be pulled straight down by what many suspect is massive coordinated short selling. Whether or not the speculation is accurate, the price doesn’t seem to care why there is downward pressure. In previous weeks, it has shot back up. Today, the price is at almost $81 flat, after peaking at more than $82. I imagine just a few hours from now the price should come back up to repeat previous patterns, but patience will be key. Brent exhibits the same price action, yet the spread still remains surprisingly thin at $3.50. That will only help to improve those already good lookin inventory reports as more countries will look at US oil as a more attractive import from an economic perspective. The spread has held there for a few weeks, but I don’t really anticipate it going down much more. Natural gas had a lonely little bump in price this time last week as it topped out at about $2.90. From there it went down to a low of about 2 and a half bucks. We’ve seen marginal gains today, but the price is only up to $2.60 so don’t get too excited about it. Not a ton more to say in this arena as the price for both oil and gas has been stuck in this multi month tight banding that will need some significant pressure to break.
Next is the rig count. We have seen consistent 5 or 6 hits to the US rig population, but this is the first time in a few months we have seen a double digit decrease. That’s right: 12 rig decrease bringing the total count to 642 which is 120 fewer rigs than we had this time last year. Basin by basin it was the Cana Woodford that took the brunt of the blow with 3 fewer rigs. The Utica and WIlliston lost two, and the Haynesville and Marcellus lost 2 each. Surprisingly the Granite Wash Basin doubled its total by adding one in this most recent report. Otherwise nothing else. State by state Pennsylvania was able to add 2 rigs, and it was the only state to have some positive change. New Mexico and Wyoming each lost one. North Dakota, Ohio, and Oklahoma each lost 2. Both Louisiana and West Virginia lost 3 each. The Gulf of Mexico dropped one too. Rigs making holes of all kinds were dropped across the board with no clear trend. Well, I should say the only clear trend is an absolute demand destruction to drilling new wells and that is before we even consider that all pandemic era DUCs are absolutely gone at this point. Things are getting rough, and I would not be surprised if we were looking at severe supply issues this decade, or even next year.
Our last statistic to cover is the inventory report. The EIA predicted a 2.3 million barrel drawdown, but ended up reporting one much closer to 6 for the second largest drawdown since June. The API predicted a slightly smaller drawdown at 2 million barrels but reported a drawdown that was about 200,000 barrels larger at 6.2 million. This almost perfectly balances out last week’s build meaning August is still down 17 million barrels. The downward trend from the start of the year continues though we still sit just shy of center of the 5-yaer historical range. Don’t be fooled, though — the last 5 years have been anything but normal. Gasoline inventories basically hovered right where they were while prices continued on their uphill climb. It does look like gasoline prices are slowing the rapid change as gasoline is only a little more than 5 cents more expensive than it averaged last week. The most expensive gasoline is in California as it averages $5.182 per gallon. The cheapest is in — you guessed it — Mississippi at an average of $3.334 per gallon. Those of you in Colorado may have noticed that we just crossed over the $4 threshold ourselves. Diesel is 11 cents more expensive than it was last week, and appears to be increasing in price much faster than other fuels. The story remains the same for both distillates and propane as the former grazes the bottom of the historical 5 year range and the latter flies over. It looks as if the increase to the propane supply is leveling out, so it is possible that we return to historically normal territory in September. At the end of the day rigs are falling, the price feels manipulated, and inventories aren’t any healthier than they have been in the past.
Our news story from today comes from our neighbors in the North. Alberta is the premier province when it comes to oil production, and they are pushing back on some renewable projects. A new moratorium prevent the construction of wind and solar projects of 1 or more megawatts in capacity. They are doing this to buy time to study what impacts these projects will have on their power grid and their self described “pristine viewscapes. The CEO of the Canadian Renewable Energy Association is concerned that the moratorium will put $15 billion worth of projects at risk. Surprisingly, most of the projects are located within Alberta – 75% to be exact. I don’t think this is because of any certain conspiracy theories, but because Alberta is a big agricultural province with lots of open space. It would be a lot like constructing wind projects in Iowa and Nebraska across I-80. Either way, the WSJ reported this is an increasing trend of pushback that is developing in areas with the largest rollout which is a big roundabout way of saying Not-In-My-BackYard sentiments are starting to take effect. If this is truly a way to take a closer look at the impacts on electrical reliability and tourism, I think it is great. I do wish it was a bit more of a democratic process rather than the feds just halting a project. I only say that to be intellectually consistent because I would be upset if it went the other way, kind of like the Biden administration did at the start of his presidency. Electrical grids area finicky beast at the end of the day. They weren’t built to be so bidirectional and accepting of electricity from where they intended to distribute. If you get too many unreliable parts in electricity generation, it tends to overload components as the demand remains relatively predictable. This lads to outages and pissed off people. I am eager to see what Alberta discovers, though I imagine bias will definitely play into what they decide.
For our second story we simply have to take a look at China and how they are setting up to emerge as a Global LNG trading power. Trading desks are either emerging in or expanding in parts of Singapore and London. If successful they have the capacity to compete with people you may have heard of before. People like Shell, BP, TotalEnergies, and Equinor. If it is not gas coming directly from China they will still act as the middleman and source deals from other countries. Believe it or not, they are actually securing tons of gas resources from Qatar and the United States. These are mostly short term deals, so it really seems like they are doing their best to not overextend themselves in terms of infrastructure, but don’t confuse short term with small because they are importing 40 million more tons annually since last year, or a 50% increase. According to Reuters a dozen Chinese energy trading companies are hiring even more traders. Even if they don’t own the infrastructure to deliver gas, they do own 10% of the Russian Novatek Arctic LNG 3 project which should come online before the end of this year. They have lots of fishing lines out and are likely feeling around for what holds the largest potential for them.
But ladies and gentlemen that is all I have for today’s episode. Thanks again for tuning in because we absolutely love to learn whatever we can about the world of energy and are happy you are here to join us. If you want more content you can go to our website www.rarepetro.com where we post plenty of periodicals, podcasts, and news from some of our favorite sources. We’ve got a wide backlog of content so go ahead and search for anything you like and I am sure you will find something. Otherwise keep becoming the best energy professional you can be, and we will see you back here next week. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!