In this episode Tavis observers the same old statistics we’ve come to know and love, and some successes for China and Brazil.
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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on August 30, 2023. This is of course being released on a Tuesday because I took some time to go to visit a buddy in Michigan. A low tech vacation spent tubing, building fires, and fishing. I was able to piece together enough tackle to make it work, and I ended up catching 3 perch between 5-6 inches. The third one I caught was just a textbook hook set in cheek and the largest of the fish. The first barely held on by his lip, but I was able to get him back to the dock. The poor second fella was caught in the wrong place at the wrong time as he swam past as I jerked my line. Caught him right above his eye, and I think I ended up giving him a quick little fish lobotomy because he started swimming in upside down circles. But you didn’t come here to listen to “The Misadventures of Left-Lobe Lenny the Perch.” I imagine you came here to get filled in on the latest statistics and most revealing stories within the world of energy. Let’s get to it!
Last week WTI price was trending into the dirt. The lowest we saw was about $78 last Wednesday. The good news is that it has only gone up from there. By the end of last Friday it was a solid $80. Now that it is Wednesday we just hit a weekly high at 2 cents shy of $82. Nothing too incredibly crazy moving price action, and at this point it is just oscillating in territory that we’ve become very familiar with since December. It is trailing behind Brent by about $4.50 right now which is getting wider than from previous weeks. This means fewer people are importing WTI in comparison to other benchmarks, but we will just have to see how that develops through the winter. Natural gas is priced much tighter than WTI and has simply oscillated in the same spot for many months. Still, it is all relative, and relative to last Wednesday, we are up 30 cents to $2.80. I am almost certain that it will come right back down to $2.50 within just a few days. Nothing strange to see about commodities here, but if you have a tool that has a high enough resolution of 15-30 minutes, I recommend you look at the dips that we see early Monday mornings. Crazy little jerks down as much as a couple of bucks that are immediately wiped out by a fast little rebound. I won’t elaborate what I believe is going on here, but the immediate strength and rebound found in the price action is reassuring to say the least.
Next is the rig count which appears to be back to regular double digit declines. The most recent report shows a 10 rig decrease in the US which is 133 fewer than we did this time last year. We are at a total of 632 rigs. The last time we were this low was back in February of 2022, so the only dip worse than the one we are experiencing right now is the demand destruction from 2020. Basin by basin the Marcellus was leading the pack with 1 more rig added to the total. No other basin saw positive numbers. The Cana Woodford & the Eagle Ford each lost one. The Haynesville lost 2 and the Permian lost 7 total. State by state this means Oklahoma and West Virginia gained a rig each. No other positive change at the state level. Louisiana lost 3 while New Mexico and Texas split the Permian losses at 5 each. The Gulf of Mexico lost one too. Most of the rigs that got laid down were targeting oil and making horizontal hole, but that’s not to say we didn’t lose some directional and vertical as well. Everyone knows the story by now folks: E&P companies are not willing to continue to develop given these commodity prices. Why spend the money to produce cheap assets when a little bit of patience could go a very long way. I would imagine one month of $85 pricing could convince people otherwise, but until then I think you can count on the count falling much much lower.
Everyone held their breath this week as the EIA released the results of their latest inventory report. They predicted a drawdown smaller than last week’s at 2.85 million barrels, but ended up reporting another 6 million barrel drawdown. The API was not nearly as optimistic as they predicted a smaller than 3 million barrel drawdown but still ended up delivering good news as they witnessed a 2.4 million barrel drawdown. This continues a great trend for August inventories as they down more than 20 million barrels. This is quickly reflected in the trendline from the EIA as the current trend puts us below historically normal territory by October. If anyone is putting money on it, it is entirely possible we get into higher oil prices this winter. The most recent gasoline data shows a 1.4 million barrel build to the supply, which has helped too cool prices, but only marginally. California has a 20 cent lead on Washington state for the most expensive gas at an average of $5.260 per gallon. Remember: that is just an average. There are 2 counties in Cali paying more than $6 per gallon. The cheapest gas remains in Mississippi but is still going upward in price. $3.304 ain’t shabby at all, but it is certainly more expensive than it was last week. Average US gas price decreased by almost 4 cents. Diesel became one cent more expensive week over week which is much slower than it has been increasing as of late. Distillates looked like they were going to begin trending upwards again, but it looks like it is possible we set historically low records once again after breaking them just last year. Propane sits on the opposite end of the spectrum, but appears as if it will enter historically normal territory once again very soon.
For our first story, we have some news from China, or more specifically, PetroChina. PetroChina is the largest producer and one of the largest refiners in Asia and they recently released numbers reporting their record high profit for the first half of 2023. As you likely recall, lots of China’s economy was all jacked up and slowed down. “In the first half of 2023, domestic market demand recovered steadily, and refined products consumption showed recovering growth, returning essentially to 2019 levels. Domestic supply of refined products has accelerated recovery,” PetroChina said. Now there is a super significant part of that sentence. Returning essentially to 2019 levels. Now global consumption may not be back to that point quite yet, but China’s economy is recovering quickly, and why shouldn’t it? The rest of the world demands a lot of goods, processing, and energy on their behalf, so at this point business is boomin. PetroChina processed 673 million barrels of crude in H1 alone which is 12.6% greater than the same metric a year ago. PetroChina reported increasing oil and gas production both locally and internationally in addition to higher refining throughput and gasoline production. In the first half of 2023, production of marketable natural gas increased by 7.3% while domestic oil output increased by 1.2%. Those stats make sense especially considering the natural gas conversation we had this week. If you don’t know what I’m talking about, last week’s episode was great and you should be able to find it by searching for the “RARE PETRO Podcast” wherever you get your podcasts. Still, it is not all sunshine and daisies all over Chiba. A different state major, China Petroleum & Chemical Corporation (also known as Sinopec) reported a 20.1% decline in net profit over the same period. They cited similar concerns that some Americans might, revolving around lower prices and a slightly weaker than expected fuel demand recovery. Ultimately, things are trending in the right direction for China, but they are not free of the same difficulties that we are experiencing.
While discussing good news from China, we also have news from a friend of theirs: Brazil. They just set a new production record for the month of July as they produced 4.48 million barrels of oil per day. Overall, output for oil is up 18.6% year over year, and gas is up 13.6% year over year. Petrobras is Brazil’s national oil company and they are largely responsible for a ton of this growth. Some analysts are predicting 61% growth in production from now to 2030 which is an increase from a reported 2.15 million barrels per day to an estimated 3.46 million barrels per day. Unsurprisingly, the company has also released some new commitments to decarbonization as they will dedicate a larger percentage of revenue towards these new projects. Petrobras CEO Jean Paul Prates reiterated that dividends will likely not be where they were in previous quarters due to reinvesting the portfolio towards thes decarbonization and new exploration projects, so it definitely seems like their eyes are to the future.
But folks that is all I have for you today. If you want more content you can always find more on www.rarepetro.com. Otherwise go ahead and subscribe to this podcast and you will be alerted anytime we release something new and fresh. If you just want to stay up to date on all things oil and gas we push plenty of our favorite news sources to the website. Thanks for tuning in as we are trying to become the best energy professionals we can possibly be, and we are glad you like to join us. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!