Join your host Tavis this Tuesday for a post-Labor Day episode analyzing the damage in Louisiana, rising California gas prices, and blooming friendships between Russia and China.
Audio Transcript
Alrighty everyone welcome back! This is Tavis Kilian with RARE PETRO coming at you on Tuesday, September 7 with an episode of Monday Madness. Yes I know, it breaks the formula, but we just got off of labor day weekend! I hope you all had lots of fun and took awesome little trips, or even just took the time to kick back and relax. Those 3-day weekends feel a little magical whenever they come around, no? Either way, I know you didn’t come here to listen to me reminisce on the very recent past, you came to hear all about the biggest news and developments within the energy industry. Let’s do it!
WTI is currently sitting at $68.33. While that doesn’t sound too appealing, there are some interesting data points to look at. I’m sure most of you remember the price dips in mid to late August that moved the price from the seventies to the low sixties. Over the next few weeks, we saw oil climb back to $70 and even spent a little bit of time above it during Thursday and Friday of last week. Things were even better back in June and July when we spent most of our time at or above $70. It’s been a while since we talked about price ceilings. Back when things were really bad, we often saw resistance at key numbers like $45, $55, and $60. The price would keep bouncing off of these ceilings as it tested new high prices, eventually spending a little time at or above before dipping back down to repeat this described cycle or breakthrough. I believe this ceiling of $70 is offering more resistance than necessary. In the past month or so we have been really big on looking towards the long term. All you have to do at this point is sit tight, and trust the process. We spend quite a deal of time highlighting factors that support these claims, but more on that later in this episode.
Next is the rig count, one of the best performing metrics of 2021. We routinely see almost exclusively gains here, and this week is just a bit different. We are down 11 rigs. That may be shocking, but you have to remember that Hurricane Ida did a lot of damage to the gulf area, and all offshore drilling activities were halted. Because of this (and a few onshore rigs) Louisiana is down 14 rigs from last week. Otherwise, Oklahoma, New Mexico, and Alaska saw a 1 rig increase. You might be wondering: “How long does it take for an offshore rig to get back on its feet post-hurricane?” Well, I could burn up several minutes of our time together explaining ti to you, or I can point you to www.RAREPETRO.com where you can learn about the BSEE, proper procedure, and offshore safety. One of our newest periodicals should be able to answer most of your questions. Again, you can read all about offshore hurricane evacuation procedures on www.RAREPETRO.COM.
The last statistic to cover of course is domestic inventory levels. If you missed our weekly “Thirsty Thursday” inventory report, I’ll get you up to speed real quick. The EIA comes bearing good news with its latest inventory report. They predicted a 3 million barrel drawdown which would have been mostly consistent with the few small draws we’ve witnessed recently. Turns out they were off by a lot as they reported an actual 7 million barrel drawdown. This is the largest draw the EIA has reported since mid-July! The API also underpredicted with the guess of a 2.8 million barrel drawdown. Their data shows that it was much closer to 4 million. While not as high as the EIA’s report, it is still refreshing to see draws of this magnitude once again. We don’t mean to dampen the good news, but there is something to keep in the back of your mind for the rest of this report. Many aspects of production, transportation, and refining in the South have been interrupted by Hurricane Ida. Most of this inventory data is from before the storm hit, so there are likely to be some big swings in next week’s report. As this is Thirsty Thursday, we invite you to pour one out for those affected by property damage, or even worse, the loss of a loved one due to Hurricane Ida. Be thankful if your situation is better and be generous if you can. Oil seems to be doing well enough, but what of gasoline inventories? The past few weeks left us below the historical 5-year range for this time period, and we will remain there despite a 1.3 million barrel build. Under normal circumstances, another build paired with the progression of time would bring these inventories back to normal levels. Unfortunately, Hurricane idea (and the past 2 years in general) is anything but “normal circumstances.” Utility company Entergy has already mentioned it will likely take days to simply assess the damage carried out against the power infrastructure, and then potentially weeks to repair that damage. This means roughly 1/4 of the Gulf’s refining capacity will be down until these repairs are completed. This means the price of gasoline will likely be much higher for residents in that area for quite some time (assuming they are able to get it). While news within the US for gasoline is about what you would expect between a shortage of drivers and Ida, we have hit a big international milestone. Algeria has finally halted the sale and production of leaded gasoline. This leaves the entire globe devoid of lead gas supporting infrastructure, signaling its ultimate end.
But that is about all we have for our statistics, and it is about time we dig into current events. As you might expect, fuel shortages are all over Louisiana. As people have learned in the past, you can’t quite rely on power to be provided by utility companies, so gas generators are key. Unfortunately, by Thursday morning of last week, only 35% of Baton Rouge and New Orleans had fuel. This is why the US Department of Energy announced it will utilize the Strategic Petroleum Reserves (or SPR) to address fuel shortages in the area. For those of you who don’t know about the SPR, it is the world’s largest supply of emergency crude oil that was established to reduce the impact of disruptions of supply. It is located in underground salt caverns along the Gulf of Mexico with a capacity of 714 million barrels. Still, this is an atypical use case for the emergency reserves. The last time they were drawn on was in 2011 during the unrest in Libya that disrupted world supply. Still, this is sure to help people as the few refineries up now are borrowing the SPR oil to sell. They will be repaying in full at a later date with interest on top. ExxonMobil Baton Rouge will be receiving one and a half million barrels from the SPR. While this is a solution for the short term, there is much to be fixed in the coming weeks before most people have access to reliable power. Transmission lines are strewn across the Mississippi making travel impossible. 100% of transmission lines in New Orleans initially failed. Power plants were already at a razor-thin margin above peak demand. It is gonna be tough for lots of people for the coming weeks for sure. Be sure to help if you can, and be a little kinder to everyone you encounter.
But next, we bring things out to the West where Californians have their own set of problems. While they have a sufficient amount of gasoline, it is costing them a pretty penny. A year ago, gasoline on Labor Day weekend would have cost you $3.24 per gallon of regular grade. 2021 of course is the year of new records and regular grade is now at $4.39 which is more than a dollar above the national average of $3.24. This is primarily because more people are traveling. When compared to the last 2 years, road trips requiring overnight hotel stays are up 1474% according to the Auto Club of Southern California. The top destinations were Zion national park, Las Vegas, the Grand Canyon, Sand Diego, and Yosemite. I myself had a few friends visiting these locations, and even a couple who flew in from the Northeast. I’m certainly not surprised people are getting restless and antsy with current events.
Lastly, a story that I’m surprised is flying under the radar. Back last year RARE PETRO began talking about yuan-based oil contracts. That is, contracts backed by Chinese currency rather than the US dollar. Now, Gazprom Neft, a subsidiary of a Russian Gazprom gas company, has started accepting yuan as payment for the jet fuel it supplies China. This was a long time coming as Russia has been trying to move away from transactions under the American dollar. China has also been trying to push the yuan as a common international currency. Because of this, a growing population of hydrocarbons are being exchanged for yuan and rubbles starting this September. Chairman of Gazprom Neft, Alexander Dyukov, told a Russian news agency that all aviation fuel settlements will be traded for yuan by the end of the year. Still, while this particular story is a bit alarming, the writing has been on the wall for quite some time. Two years ago, Rosneft set the Euro as the default currency for crude and refined products in an attempt to avoid US sanctions. Between the declining value of the US dollar and our historical trigger happy sanction policies, it is a little difficult to be surprised.
But I’m afraid that is all the time we have for this episode. I know the news came off as a bit dystopic and negative, but we are trying to objectively deliver as much news as we can. If you are looking for more energy content, you can find days of backlogged content on this very podcast from a slew of different segments. Other than that there are plenty of articles up on www.RAREPETRO.com that have come oddly close to predicting many future events in energy. We’ve got them all cataloged and easily searchable. Other than that, you can suggest future content by emailing us directly at podcast@rarepetro.com. All ideas and criticisms are welcome. Again, this is Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody!
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