In this episode Tavis analyses the price boom, the treacherous environment under Newsom, and Iran drawing the nuclear curtain.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on September 18, 2023. Sometimes I am reminded how much of an engineer I am. Last week I’m making some chicken noodle soup and as I was ready to roll out my egg noodle dough I came across this set of instructions: “With a rolling pin, roll out dough onto a lightly floured counter until it’s very thin – less than 1/4” thick or paper thin.” Now I’m already short a rolling pin so I’m sitting here with my well floured whiskey bottle in hand scratching my head wondering if she means ¼” or paper thin. Egyptian papyrus paper probably wasn’t even a quarter inch thick. I was confused so I met her recipe somewhere in the middle at about 1/16th of an inch and the noodles were okay. A little too thick and kind of had the texture of a dumpling so I’ll chalk it up to a happy accident. Let this serve as a warning to you folks: please air on the side of paper thin. But you didn’t come here to listen to me obsess over noodles, you came here to get the scoop on the biggest energy news and most revealing industry statistics. Welcome to Monday Madness.
Ladies and Gents WTI is really starting to get my hopes up. You never want to count your chicken before they hatch. By that I mainly mean you don’t want to go out and buy the fully kitted Ram with the Rebel package, a tow winch, and roof rack before oil prices have been high for a minute. Yes, we have sat in the 90s for a bit, but they could fall any minute. This time last week we saw a price 87 and a half dollars after a weeks long climb from a valley of $79. I didn’t have the confidence that it would continue its upward march but I was proven wrong. It gained almost a dollar a day on average and went from $87 to $91 by Friday. Things were much quieter over the weekend, but this Monday morning shows even more broken records as it briefly topped $92, and I do mean briefly. For about 30 minutes the price was in the $92 range for the first time since November of last year. It seems like $92 has posed the first real resistance since the price has increased from the end of last month, but I would not be surprised if we are just experiencing a bit of that Monday volatility. I think a much clearer picture will be painted by the end of this week, though the price can’t keep going up forever. Brent has the same movement, but not quite to the same extent. That’s right, the spread is currently at $2.70 which is the lowest it has been for quite some while, and that only adds even more upward pressure to WTI in the case of import desirability. I pray for the day we have interesting notes for natural gas but it continues to surprise nobody and do nothing. Currently at $2.70 after a bit of a price spike, but that is some pretty typical territory.
Next up is the rig count. We’ve had a few weeks of steadily increasing prices. Does that mean folks are confident enough to increase drilling activity? Surprisingly, yes! The count is up 9 to a total of 641 which is 122 rigs fewer than we had this time last year. Not only is this the first positive and greater than 1 rig count in 20 weeks, but this is the largest increase in rigs since November of 2022. Could it be a one-off? Absolutely, but combined with the quickly increasing price I think it is more than just a bit of coincidence. Let’s wait to get a few more weeks of data under our belts before we make any significant conclusions. Basin by basin we are seeing 2 more rigs in the Permian and 2 more in the Granite Wash. That is the only change at that level. State by state we see 7 more rigs in Texas, 1 more each in Colorado, Utah, and Wyoming, and 2 fewer in New Mexico. There has been a good deal of consolidation and other acquisition activity in Texas so I am wondering if this is new operations for some folks or if the new price has just now made it economic for some other areas to get a little more active. Of these new rigs a majority are targeting oil and believe it or not, making horizontal hole. That is an excellent indicator that some folks anticipate the price will continue to rise past $90 because horizontal wells ain’t cheap. We also see a few rigs working on vertical wells but that is to be expected. Far cheaper. With no change in the Gulf we are finally seeing some growing action in Texas, but outside of the Permian which is a bit curious. That is where most of those rigs fell so keep an eye out on next week’s data because it will certainly paint a better picture.
Our last statistic to cover is Thirsty Thursday. I write this one weekly and publish it over on www.rarepetro.com with plenty of additional data and other visual aids that will truly enhance your understanding. Here’s the barebones data of what you missed last week. Unfortunately our lovely streak of drawdowns comes to an end. The EIA predicted a drawdown just shy of 2 million barrels but ended up reporting an almost 4 million barrel build. Not terrible, but still a build of a significant size. The API predicted a similar draw at a cool and even 2 million but ended up recording a build, but a much smaller one at just over a million barrels. The tail end of August and first week of September gave us a combined drawdown of nearly 29 million barrels, so a less than 4 million barrel build really isn’t the end of the world. If we look at recent trends, we have not seen two back to back weeks of builds since late May, so don’t lose hope yet. If the pattern continues, we should be in 5 year historically low territory by the end of the month. Gasoline inventories saw a significant bump in supply as they increased by 5.6 million barrels week over week. It was looking like we would settle into a historical low for 5 years but instead bounced right off that boundary. Just when gasoline prices showed signs of slowly decreasing, they begin to go right back up which is a shame considering this massive build we just experienced. In fact, this is one of the largest builds we have witnessed in months. Either way, the average gasoline price is up almost over 5 cents in a week for regular and 7 cents for diesel. The most expensive gasoline is in Cali at an average of $5.505 with the cheapest remaining in Mississippi at $3.302. Yeesh that is going back to $4 quickly. The category of distillates is finally finding its legs as it begins to pull up from historically low territory with a few weeks of builds. It is not likely to reach the center of the historically normal territory any time soon, but it is still far closer to being somewhere familiar. Propane however continues to establish new record highs weekly, but only barely so.
That does it for the weekly statistics. Next we ought to get into a little bit of the news. Last week California’s Attorney General filed a lawsuit against 5 oil majors claiming that they downplayed climate change and cost the state an incalculable amount in damages. Newsom’s office tweeted… or “X-ed” (not sure what the new verb is) “Big Oil has been lying to us – covering up the fact that they’ve long known how dangerous the fossil fuels they produce are for our planet. It has been decades of damage & deception. With @AGRobBonta , California is taking action to hold big polluters accountable.” The aforementioned “big polluters” are Exxon, Chevron, BP, Shell, and ConocoPhillips though there are many other defendants including the American Petroleum Institute. The authors of the lawsuit are primarily trying to create an abatement fund in order to have money ready to spend on what they would consider future damages. Chevron is understandably upset by all of the hullabaloo and said, “Climate change is a global problem that requires a coordinated international policy response, not piecemeal litigation for the benefit of lawyers and politicians.” I have to agree with Chevron in this litigation. It certainly seems like oil is enemy number one in the eyes of California despite the massive agricultural scene and a city full of combustion engines. If this lawsuit goes through to an actual trial it sets an insane precedent. Here’s the crazy thing: I don’t think Newsom expects it to get to the courts. I think he is just doing his best to paint an image for the public. It’s like accusing your coworker of being a lunch thief even though he didn’t lay a finger on your sandwich. It will still make your other coworkers think twice about leaving their tupperware in the fridge unlabeled near that guy. I feel like that is the same case here. As long as he consistently maintains this stance and throws wildly insane accusations and penalties out he will be remembered as a politician that was “for the climate” despite presenting no results by any metric. We will be sure to keep you posted on how this evolves, but I still want to save time for one more story so we are gonna keep it moving.
Every once in a while Iran pops up in the news. Oftentimes it has been related to oil, but there are still many stories that relate to Iran’s lack of autonomy surrounding nuclear enrichment. As a quick background, there was a governmental administration in Iran that aimed to make Iran a nuclear superpower. As world organizations worked to collectively shut that down the US put them under heavy oil sanctions while the UN and EU threw their own sanctions into the mix. The US still maintains its sanctions, but the UN and EU lifted theirs under the condition that the International Atomic Energy Administration could come by and regularly inspect their nuclear enrichment facilities to make sure uranium was just being enriched to the level of usable for power and not to the level of atomic bombs. Well recently Iran expelled one of the investigators. This is not necessarily against the rules, but when the IAEA sent a few more investigators they too were expelled and prevented from examining the enrichment facilities. The EU is urging Iran to comply, but it sure seems like Iran don’t give a damn. We could give them the benefit of the doubt and just assume they are sick of the west telling them what to do (and I think there is a good chance this is the case), but it is also entirely possible they are preparing something nasty. No idea for who and why but they sure aren’t complying with the Joint Comprehensive Plan of Action.
But folks, that is all I’ve got for this episode. A few decent stories domestic and abroad and some really phenomenal statistics. The inventory report could have been better but that is a molehill next to the mountain that is fantastic commodity price movement. Let’s hope we can keep this momentum going. If you want more information before the next piece of content comes out you can find plenty of it on our website www.rarepetro.com. Just go there and get lost because I am sure you can find something you will like. This is Tavis Kilian with RARE PETRO, until we see you next time, take care, everybody!