A rebound in prices, a rough week for the inventory report, and an energy secretary who makes bad news look pretty.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another enthralling episode of Monday Madness on September 12, 2022. While I’m in Bakersfield I’m staying with my mentor and good friend, Marty. Yesterday I started putting up decorations for halloween! Some may say it’s too early, but I’m definitely on board. I’m not the type of guy to decorate for Christmas until a couple weeks after Thanksgiving, but the earlier you can get going on Halloween, the better. Is there a more fun holiday? I don’t think so. The bar crawls, the parties, the creative costumes, the movies… it’s all great! The hardest part is coming up with your own costume. I’m trying to put together Alex from the Clockwork Orange, but I’m still a few items short. If anyone knows where I can get a big old codpiece from, please let me know! But you didn’t come here to listen to me beg for suggestive costume accessories for a holiday more than a month out, you came here to get the most interesting stories and industry data from the present. Let’s dive in.
Let’s take a look at the recently underwhelming commodity prices. After a dramatic selloff, it seems they are back on the up and up. After falling below $82 last week, WTI began pushing back towards $85, and even passed it. This morning it climbed to $88 where it remains, but only barely. It seem as if we are looking to level out around the area of $87.50 so keep an eye out for any funny business as the week progresses. Brent is performing exactly the same but with a $6-7 premium at any point. That is a pretty large spread, so I hope that gap narrows by a dollar or two by pulling up WTI, though it is more likely they will meet somewhere in the middle. Natural gas spent the start of this month around 9 and a quarter, but ended up falling. Last week was pretty underwhelming as it held in the $8.00 range but even spent some time in the high sevens. I’m quite surprised this isn’t higher, especially considering just how many places across the US were hotter than they’ve been all year. You would expect that to support demand for use in power generation as air conditioning and cooling. Regardless, this is a pretty healthy point for it to be and I wouldn’t be surprised if it stabilized somewhere between 8 and a quarter to 8 and a half.
Next up is the rig count. Last week’s decrease was one of the worst we have seen in years. Will the trend continue? Kind of. While the rig count isn’t awful, we did decrease by 1 bringing us to a total of 759 which is 256 more rigs than we had this time last year. That is the important part to focus on. Yes we may be seeing a few decreases here and there, but we are ultimately much better off than we were last year. Basin by basin the Mississippian basin was the only to see growth with 1 new rig which actually doubles its total. The Permian was the only basin to lose any rigs as it fell from 342 to 340. Otherwise its crickets. State by state we observed a decent deal of change. Alaska, New Mexico, Utah, and Kansas gained a rig. This is now Kansas’ only rig, so I am curious to see if it is for testing purposes or if we are seeing some novel new exploration. Louisiana and Oklahoma are down 1 each, and Texas is down 3. Texas is still up big on the year, but they have been consistently putting rigs down. Of the net rig change we are seeing a shift of focus from oil to gas with all of the new ones being directional rather than horizontal or vertical. The Gulf of Mexico is down one rig to 13, which ain’t too bad considering they only had 4 total rigs this time last year.
Lastly we will take a look at the inventory report being written by our intern Nick Fernhout. I’m thinking he’s giving me a run for my money content-wise. They are informative, and maybe even more fun to read, but we will let you be the judge. You can find the latest edition on our website at www.rarepetro.com. If you missed last week’s, here is what Nick had to say: We’re red this report, in more ways than one. Both the EIA and API reported builds. The EIA reported a build of over 8.8 million barrels, after they expected the opposite, a drawdown of a quarter million barrels. The build is likely due to the increased imports over the last week and even more assuredly due to the release of more oil from the Strategic Petroleum Reserve (SPR). Over here at Rare Petro we were surprised to see such a build, apparently so were the folks over at the American Petroleum Institute. The API expected an even larger draw than the EIA at more than 0.7 million barrels. Boy were they off, but who can blame them. The API also reported a build of only 3.645 million barrels. As mentioned earlier, the SPR is responsible for most of the build. As per the Biden Administrations instructions 1 million barrels per day are still being released. That trend will continue as late as early October, after which the SPR will remain stagnant until the beginning of 2023 when the current plan to refill the reserve will be put into action. Yet a new low has been reached by the SPR, this is the lowest the reserves have been at since 1984. Now keep in mind the reserve was begun in 1975 and slowly filled over the next three and a half decades until it peaked in 2010. So the last time the SPR was this low was when it was initially being filled, do with that information what you will, but it does come across as slightly concerning. The bar chart above makes this weeks build really stand out when compared to the last 3 weeks of drawdowns. And, as can be easily inferred, the build is one of the largest three in the bast several months. But again, how much of a build is it really if most of the oil is flowing from the SPR? U.S. gasoline stocks remain below the 5-year range, although do follow form by dipping from around May to November. California takes its “highest priced gas in the country” crown back from Hawaii this week with a state average of $5.306 with Hawaii just 1 cent behind. While gas prices in some of the more expensive states have risen in the past week, the general trend is downward. Falling oil prices typically mean falling gas prices, a not-so-surprising phenomenon that experts believe to be behind pump savings. Distillate stocks remain outside the 5-year range, whereas propane/propylene stocks follow their 5-year range to a T. Distillate stock is usually built up in the months leading up to the winter, when it is typically used for heating. With stock levels lower than is usual for this time of year, experts are confident the combination of winter demand and waning supply will help to drive prices up.
But that is all we have for the statistics portion of the podcast. I’ve got a lot on my plate and will have to jet here pretty quick to get to everything, but there is one article I’d like to discuss as the news has been a bit quiet for the past few days. This article was shared on LinkedIn by US Secretary of Energy Jennifer Granholm. I’m sure most of you have already drawn an opinion up based on that name alone, but let’s look at the content of the article and some responses from folks on LinkedIn. The article is titled “More People now Work in Clean Energy than in Fossil Fuels.” According ot a report from the IEA, 40 million individuals are working jobs related to clean energy. That is 56% of total energy sector employment in the US marking 2022 the first year in history that clean energy workers outweigh hydrocarbon energy workers. Well… I say “hydrocarbon” but of course the article identifies that group as “fossil fuels.” The article mentions that these jobs include those in upstream (solar panel manufacturing and biofuel crop production) and those in downstream (windfarm operators and sellers of electric vehicles). The article then goes on to focus on gender equity in the energy space rather than focusing on meaningful factors to expand on the presented data. Sure, only 16% of energy jobs are occupied by women compared to 39% economy wide, but I want to know more about what jobs were considered “clean” or why there is projected growth of 13 million new jobs by 2030. Though I knew Granholm wouldn’t provide this data I decided to sift through the comments to see what else I could find. Keep in mind that the oil and gas industry is one of the most active on LinkedIn and often comments with strong bias. Despite that, they often bring great points to the table. One commenter who is writing for energy-musings.com said “I did a review of green jobs a few years ago. If a bus or garbage company had electric vehicles, all the driver were classified as green workers sInce any one driver might drive the electric vehicle. Grossly overstated the number of green workers.” A gross overestimation is something I expected, and I’m sure the same is not afforded to conventional energy. I highly doubt a delivery driver for Amazon is considered a “fossil fuel” employee if they drive a van with a combustion engine. Another commenter further expanded by sharing his findings from the Bureau of Labor Statistics. They said, “Two points: 1. The energy sector has always been very automated and productive especially electric power production. It only takes about 25 full-time employees to operate and maintain a 600 MW Combined Cycle Gas Turbine plant, about a 100 for a similar sized coal plant. For oil and gas production, similar small numbers of technicians for enormous energy production. Yet, it take a small army of installers to place solar panels on frames to create intermittent generation of 600 MW. 2. Granholm uses 40 million employees worldwide, in the U.S. the number is less than 600,000, (see BLS website) TOTAL energy employees. So let’s keep things in perspective, last year solar and wind together provided less than 5% of America’s TOTAL Primary Energy.” Again, these statistics are very clearly unfair. Lastly, one of our favorite content producers and commentators, Doug Sheridan, left a comment of his own. “Imagine a future in which every single worker is needed to deliver the same amount of energy that a small fraction of total workers is able to deliver today. Would that really represent progress?” Short, sweet, and hits the nail on the head. We are supporting inefficiencies in the energy space in not only the sense of raw output, but economics as well. This large workforce makes a small fraction of the energy already provided by conventional energy workers which leaves a massive potential for lower pay for clean energy workers and bad economics for ratepayers.
Folks, RARE PETRO is big on looking at things for what they are and knowing what something is, and what something isn’t. We love to boil it down to the raw data so that you are able to draw your own conclusions. If you also enjoy thinking for yourself, frac that follow button so that you can stay up to date and receive all of the statistics and data we are able to put out there. This has been Tavis Kilian with RARE PETRO. Until we see you next time, take care everybody!
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another enthralling episode of Monday Madness on September 6, 2022. It’s a brand new month, but it is still just as hot as the last one. It is currently 115 degrees here in Bakersfield, and I am so thankful that rolling blackouts have not affected this area, knock-on-wood. I hear there is risk of it in the coming days for some parts of California so be sure to stay safe and hydrated out there. I know most of our audience is based out of Denver and the temp is 99 degrees there, but that advice goes out to you too. I’m not one of those people who says, “Oh you think it’s hot out? Talk to me when it hits 130 degrees. THEN you will know real heat.” The way I see it, hot is hot. Thankfully fall is just around the corner. I would also like to add that the Wacky World of Energy should be returning within the next week or two, so those of you who have been asking me about its absence will not have to wait much longer. Other than that, I think I’ve done enough empty talking, so it is time we get into the meat and potatoes of today’s episode. Let’s do it!
First off, commodity prices. Even though prices are much better than they were a year ago, I’d be lying if I said I wasn’t a little disappointed. Early this morning WTI was as high as $90 and has since settled down to about $87 which is still lower than the $88 average we saw last week. It still tracked the same pattern as Brent despite being worth about $6 less. In recent weeks we have seen natural gas excel where oil has faltered. That is not the story this week. After days of being $9 it lost its strength Friday evening. Since then it has fallen about $2 and sits at $7.996. While that certainly seems like an aggressive fall off, it is in line with the head and shoulders pattern it has been building for a year now. I thought it would continue to build through winter, but now my confidence is waning. I still think it should sit somewhere between $6-$9 through winter, but like Uncle Ben says in Spider Man: “With great supply shocks comes great volatility.” At least that’s what I think he said. It’s been a while since I’ve seen those Toby McGuire flicks. What I’m trying to say is that a $5 natural gas price point through the winter would be incredibly unexpected, but not implausible. We’ve certainly seem crazier drops not too long ago. Ultimately, these prices seem to be losing some steam they have built in recent months, but they are still in great territory.
Next up is the rig count. If the commodity prices were bad, this is just salt in the wound. The rig count fell 5 which is the biggest decrease of the year. If we look at the largest basins we see the Permian is at fault with the biggest decrease. They lost six rigs, and the Cana Woodford was the only other basin to have a net negative change as it lost one. Otherwise the Ardmore Woodford, Arkorma Woodford, Eagle Ford, and Haynesville each gained 1. The Williston led the pack with a 2 rig increase. State by state saw much less change. Both New Mexico and North Dakota gained 2 rigs each. Texas dropped 9 whole rigs. Lemme repeat that, Texas lost 9 rigs overall. The last time Texas lost 9 or more rigs was back in June of 2020. I couldn’t tell you why the rig count fell so aggressively, but if any of you know we would love to get your insider opinion at podcast@rarepetro.com. Who knows? We just might feature it on the next episode. There appears to be a shift of focus as we lose 9 rigs targeting oil and gain 4 rigs looking to produce gas. The Gulf of Mexico even took a heavy hit as it is now down 2 rigs. I don’t want to spend too much time focusing on negatives, so let’s move on.
Thirsty Thursday now has a new author! Nicholas Fernhout, one of our interns, took the reins and I gotta say, he knocked it out of the park. You can find it on www.rarepetro.com. If you didn’t get an opportunity to read it, here is what you may have missed. After last week’s drawdown of 3 million and a quarter barrels, it was hard to predict which way domestic inventories would go. The EIA thought a slight drawdown of nearly 1.5 million barrels was in order. They were off by more than double as this week’s drawdown was 3.3 million barrels; we’ll take it! The API, on the other hand, expected the drawdown to be a lot less, half in fact, of what the EIA did at 0.6 million barrels. However, they reported a far different number too. Rather than a drawdown, the API reported a slight build of 0.6 million barrels. The SPR continues it’s downward trend, reaching lows it hasn’t seen since the middle of 1985. Looking at the graph it is also pretty easy to see that the slope of the recent decline is the steepest it has ever been, oil is moving fast, and it isn’t flowing into the SPR. Gasoline is still becoming cheaper, the average dropped by 5 cents over the past week, a modest amount, but nonetheless, it means we’re all paying less to drive around. The EIA did note that this is the highest-priced gasoline has been leading up to labor day since 2014, so there is definitely some more room to fall. For the second week in a row, Hawaiians are paying the most to fuel up at $5.300 per gallon That’s a difference of $1.975 between Hawaii and the cheapest state to fill up; Arkansas, where it costs just $3.325 per gallon. Distillates stocks continue to fight as the gap between current and historical grows even wider. This is likely due to the high demand for distillates in the current business cycle, until business slows, distillates will continue to lag behind historical levels. Unlike distillates, propane trades just as expected based on its 5-yr range and continues to increase.
So there you have it. Bad news from the commodity prices and rig count, but good news from our inventory report, which I would argue is most critical given our current energy landscape. But enough on the statistics. It’s now time to get into the latest events.
After teasing us for months, the G-7 have finally revealed their price cap plan they hope to use in choking out Russia’s economy. Unfortunately, it seems as if it will be another futile strategy. According to US Treasury Secretary Janet Yellen, “This price cap is one of the most powerful tools we have to fight inflation and protect workers and businesses in the United States and globally from future price spikes caused by global disruptions.” While she is correct in theory, it lies in the assumption that 1, Russia will respect it, and 2, the rest of the world will abide by rules. The conditions say that Russian oil will not be insured in transportation if sold above the price cap. This should dissuade transporters from taking the risk of buying it, and importers from risking failed deliveries should something go wrong. The biggest concern at this point is that an exact price cap is unknown. Is it $70? $50? How low can you go? In the end it may not matter as Russia has repeatedly said that they will refuse to honor a price cap, and I don’t see that changing any time soon. Even if other countries did decide to abide, it wouldn’t be the end of the world for Russia thanks to the booming markets in China and India. Another thing to consider is that Russia is currently delivering 0 gas through the Nord Stream pipeline, so we may not want to throw out policies like this to lengthen the time at which it is “down for maintenance.” My greatest fear is that this backfires and actually reduces the energy resources countries receive should shipping companies refuse to take on the risk of transporting uninsured cargo in an energy landscape that is screaming for more resources. Essentially it has become a game of chicken in which Russia is driving an 18 wheeler and the rest of Europe is on bicycles. Sure together they are mighty, but I wouldn’t be surprised if people got so desperate they chose to side with Russia in terms of energy security. I don’t see this ending the way the west wants, and I am ultimately baffled as to what these politicians do all day. It’s been 6 months and this is just a variation of a solution that has been proposed 10 times over. I hate to be a pessimist, but Russia has the gold and you know they say about he who has the gold.
Side note: while writing this script my phone just screamed at me warning of grid overload in California. Too bad we decommissioned natural gas power plants in recent years without establishing a reliable and consistent baseload capacity. You reap what you sow I suppose.
Since we were on the topic of Russian energy, we may as well end with a story that I could not report on if I was a Russian citizen. Ravil Maganoc, chairman of Russia’s second largest oil producer Lukoil, died last Thursday at the Central Clinical Hospital in Moscow. The company released this statement, “We deeply regret to announce that Ravil Maganov, Chairman of Lukoil’s Board of Directors, passed away following a severe illness. Ravil Maganov immensely contributed to the development of not only the Company but of the entire Russian oil and gas sector.” What they failed to mention was that his “severe illness” was a terminal and chronic allergy to gravity because he passed away after passing through the 6th story window of the hospital. If that doesn’t arouse enough suspicion, know that he is the second Lukoil executive to die of what some would consider “mysterious causes” this year. There is still an investigation into former executive Alexander Subbotin as he was found dead in the basement of a house that was not his. I think it boils down to 3 factors. Lukoil is the second largest company after Gazprom. Additionally, Lukoil is the country’s largest non-state enterprise in terms of revenue. Lastly, Lukoil released the following statement earlier this year: “We stand for the immediate cessation of the armed conflict and duly support its resolution through the negotiation process and diplomatic means.” I’m sure we are missing a few pieces of the puzzle even so, but I’ll allow you to draw your own conclusions. Russia is pursuing brutal strategies to silence opposers and distributing sickening amounts of pro-war propaganda. They clearly have a goal to control the baltic region and a warm water port, and they certainly don’t care who gets in their way.
Not the brightest episode of Monday Madness that we have had, but certainly an informative one. Come to think of it, there is something to learn in every piece of content RARE PETRO releases so you may as well frac that follow button. You can also find us on LinkedIn where we are regularly pushing out content that will just make you that much more of an informed energy professional. If you want the upper edge in the professional energy landscape, look no further than our content. This has been Tavis Kilian with RARE PETRO and until we see you next time, take care everybody!