Monday, March 8, 2021

Idle Rambling On The Price Of Oil -- March 8, 2021

Link here

What came / comes first, the chicken or the egg. In this case, what came / comes first, high oil prices or a recession?

Screenshot of the graphic with no markings on it. See if anything jumps out at you.

The same screenshot of the graphic with my observations:

Some other observations / comments:

  • Saudi Arabia can't survive on $60 oil;
  • Saudi Arabia would like oil high enough as possible without pushing global economy into a recession;
    • but if survival is in question, worries about a global recession are moot;
  • under the new US administration, US E&P companies are being very, very careful with plans for expansion;
  • the new administration killed the Keystone XL; stopped drilling/fracking on federal lands; slowed permitting across the board; put the DAPL in question
  • "everyone" suggests there is a real shortage of oil coming on line; there may be an excess now, but the daily production is not keeping up with projected demand;
  • the interesting thing is that "everyone" has been suggesting that for several months now -- that production was not keeping up with anticipated demand, but what is becoming very interesting is that the two largest global economies, China and the US, may be coming out of the pandemic a lot faster than "anyone" predicted; see all the stories at this post; if so, it's even worse with regard to daily production keeping up with demand;
  • inflation tends to push the price of oil up;

Everything suggests WTI will get back to $80 sooner or later. The only question is whether the price of oil will melt up, slowly and orderly, or whether it will be more of a spike.

That's why I posted the graphics above. I was curious. Does the price of oil move up/down in an orderly and controlled fashion? 

It's a fool's errand to try to predict the price of oil, but everything suggests that this time next year we may look back on $65-WTI with fondness. 

The graphic again, with more comments:

(1): the drop from $120 to $40 occurred when Saudi Arabia opened the taps in an effort to destroy US shale, what "we" call the Saudi Surge, 2014 to 2016.

(2): Saudi then put policies in play to move the price of oil from $40 to $70 before it dropped back to $60. I don't know the specifics why oil dropped back to $60 at that time, but I do know that Trump was jawboning Saudi Arabia to keep oil prices from surging -- linking US protection for Saudi with affordable oil prices. 

(3) Then the "black swan" -- Covid-19 -- completely unexpected and the price of oil plummeted from $60 to $20 (even going negative at one point). 

Going forward:

All things being equal, one would expect the price of WTI to return to where it was at (2) -- at $75 to $80 -- before Trump started working Prince MBS to bring the price of oil down. But all things are not equal. 

For one thing, we're coming out of a year-long, global "lockdown." And, on top of that, it appears we are coming out of it faster than Dr Fauci and the CDC thought possible just two months ago.

For a second thing: inflation. Treasury bonds. Yields. Commodities in general are surging and the number one commodity? Oil.

Third: Trump has that "something" that could convince Prince MBS to hold prices steady. That certainly is not true with the present administration. Even under the best of circumstances, the present administration would have very little sway on Prince MBS. But with recent "things" coming out of Washington -- specifically the Khashoggi report -- there is no love lost between the Saudi king and the US president. 

And that circles back to the fact that Saudi Arabia cannot survive on $60 oil. 

"Every" analyst was said to be surprised that Saudi -- given all the facts -- did not elect to raise production at the March meeting but twisted arms to maintain lower production for at least one more month. 

That decision may have been nothing more than wavering, not sure what to do. But one could also argue that Saudi was willing to let global oil supplies deteriorate even more, even as China and the US come out of the global recession / pandemic much more quickly than anyone imagined. 

Saudi needs $100-oil, and soon. 

I remember some years ago, a "talking head" opined that we would see $200-oil before we saw $40-oil again. That talking head was wrong then, but he/she may be right this time around.

Returning To Normal; Gasoline Demand Is Going To Surprise -- Texas -- March 8, 2021

Breaking news: Dak reaches deal with Dallas Cowboys; or, vice versa: Dallas Cowboys reach deal with Dak. 

Now, back to regular programming

On/about February 19, 2021, four days after the Texas deep freeze, I said that in two weeks the deep freeze would be forgotten (don't take that out of context) and in four weeks "we" would be all back to Covid-19 normal. 

Today, March 8, 2021, less than four weeks later, commercial activity in Texas is back to normal, there is no evidence of gasoline shortages, and Bloomberg is reporting that Gulf Coast refiners are emerging from the deep freeze and buying US oil again. Whoo-hoo!

Chevron is restarting its refinery at Pasadena, TX

I guess that's why WTI dropped back today:

  • things are back to normal in Texas; and,
  • the hooties inflicted little (if any) damage on Saudi Arabian facilities

So, there you have it.  

But having said all that, Julianne Geiger has another take on this. Link here Using the same Bloomberg article / data, here is how she reported the story:

  • just seven of 18 refineries along the Gulf Coast are operating normally;
  • throughput may be down as much as 5.5 million bbls/day
  • weekly US percent utilization of refinery operable capacity dipped to 56% during the week ending February 26, 2021 -- the lowest operable utilization of operable capacity since the EIA began tracking the data in November, 1990;
  • all signs point to this utilization increasing and crude stocks decreasing;
  • the largest refinery in the US, Motiva's 607,000 bop Port Arthur refinery restarted its largest crude oil processing unit relatively quickly, on February 26, after 11 days;
  • several other refineries will open in the next week or so;
  • however, Shell's 318,000 bpd Deer Park refinery could be down until April;

OPEC+ surprise move: shows OPEC is still "in control." Link here. 

 If what the tea leaves are suggesting is accurate, Saudi Arabia has changed its strategy completely. This could get very interesting very, very quickly. $150 oil? The tea leaves suggest that is Saudi's goal. They don't think US shale can recover under Biden. That's what the tea leaves suggest.

Gasoline demand: will soar this summer. Link here

Holy sh*t: I think things are moving more quickly than anyone imagined. Northern Californians are taking to the open road in much greater numbers, an early signal that gasoline demand may be returning a year after the pandemic paralyzed the economy. Link here

Tea leaves: WTI could melt up to $80 before end of 1H. I really don't think that will happen but I bet we start to see such talk in social media. If you doubt me, scroll through energy sites over at Twitter. 

For the record, last week's "global demand" graph -- let's see how "steep" the curve turns over the next four weeks.

Not-ready-for-prime-time: there must be a gazillion great investing opportunities, but it's hard for me to not acquire more shares in US pipeline companies.

Tiger update: Ambien. Link here. Halcion, not the same drug as Ambien, is well known for retrograde amnesia, for which I have a great USAF real-world mission story, but I'm pretty sure I shouldn't post it. In fact, I have two great Halcion stories from my time in the USAF. The second one I can relate. Maybe when I'm in the right mood and have lots of time, I'll post the story.

Retrograde amnesia is a form of amnesia where someone is unable to recall events that occurred before the development of the amnesia, even though they may be able to encode and memorize new things that occur after the onset.

Sixteen Rigs; Hess With Six New Permits; Four Producing Wells Reported As Completed; Seventeen Permits Renewed; And A Partridge In A Pear Tree -- March 8, 2021

Active rigs:

Active Rigs1655675944

Six new permits, #38195 - #38200

  • Operator: Hess
  • Fields: Manitou (Mountrail), Alkali Creek (Mountrail)
  • Comments:
    • Hess permits for six more EN-Rehak wells in Alkali Creek/Manitou, SWSW 11-155-94
      • 38195, 297 FSL 829 FWL,
      • 38196, 297 FSL 862 FWL,
      • 38197, 297 FSL 895 FWL,
      • 38198, 297 FSL 928 FWL,
      • 38199, 297 FSL 961 FWL,
      • 38200, 297 FSL, 994 FWL,

Seventeen permits renewed:

  • Zavanna (6): six Shorthorn permits in Williams County;
  • CLR (6): five Fuller permits; one Gordone Federal permit, all in Dunn County;
  • Hess (2): two EN-Madisyn-LE permits in Mountrail County;
  • Oasis: one Lars permit in Mountrail County;
  • BR: one Cleetwood permit in McKenzie County;
  • Prima Exploration: one State permit in Divide County

Four producing wells (DUCs) reported as completed:

  • 35669, SI/A, Zavanna, Stranger 28-21 5TFH, Poe, first production, 12/19; t--; cum 164K 1/21;
  • 35670, SI/A, Zavanna, Stranger 28-21 6H, Poe, first production, 12/19; t--; cum 227K 1/21;
  • 35671, SI/A, Zavanna, Stranger 28-21 7TFHXE, Poe, first production, 11/19; t--; cum 138K 1/2
  • 36007, loc/A, BR, Kermit 2-8-32MBH, Peshing, no production data,

Can One Imagine How Bad This Would Have Been Without Global Warming And Rising Atmospheric CO2 Levels -- March 8, 2021

I assume John Kerry is winging his way to Beijing to put the correct spin on this story.

Link here. This links to my "favorite" writer at that website.

The linked article begins:

Natural gas imports to China jumped by 17.4 percent on the year in the first two months of the year to 28.68 billion cubic meters thanks to the coldest winter in decades, according to Platts data.

The harsh winter in Asia drove a huge spike in demand for natural gas in the region, which led to a surge in spot market LNG prices. Now, this demand is retreating, and prices are down to more normal levels.

China is among the world’s top natural gas importers, along with Japan and South Korea, and therefore a prime target for gas exporters. 
PetroChina, for example, doubled the amount of Russian gas it receives via the Power of Siberia pipeline to 28.8 million cu m daily over the first two months of the year. Sinopec, for its part, ordered 30 cargos of liquefied natural gas for the period to make sure there was an adequate supply of the fuel.  
China is dependent on imports for a solid portion of its gas consumption, so the country is making an effort to also boost domestic production to reduce this dependence. Last year, despite the pandemic, it made progress in that respect, with natural gas production jumping 15 percent on the year. Domestic production was likely to continue growing thanks to robust demand and efforts to decarbonize the Chinese economy.

Yet self-sufficiency in gas is still a dream—and it may remain a dream. China has massive shale gas reserves but exploiting them is challenging because of the complex geology of the deposits and difficulties in attracting foreign investors who could help fund such an endeavor.

It's too bad POTUS is working to kill the US fossil fuel industry just when the world needs us most. To help decarbonize the Chinese economy.

CDC Covid-19 Guidelines -- Change #4571 -- 11:38 A.M. March 8, 2021

Take a screenshot. 

It's likely these guidelines will change by noon. Today. And fifty governors and at least three large city mayors will weigh in with their own "guidelines." And, of course, it's just a matter of time for the president to call this "Neanderthal" thinking.

By the way, this was not the policy of the CDC while the former president was in office.

Atmospheric CO2 -- FWIW -- February 8, 2021

The data was released March 4, 2021, but was not posted by "Earth's CO2 Home Page" until today.  

We shut down the global economy for a full year, and the rate of rise in atmospheric CO2 has not changed one iota -- which suggests there is something else going on. Well, duh.

Link here.

Still Life

Natural Gas Pipeline Company, Kinder Morgan, Brookfield -- For The Archives -- March 8, 2021

Natural Gas Pipeline Company: Brookfield Infrastructure and Kinder Morgan agreed to sell a 25% interest in one of the largest interstate pipeline systems in the US:

  • 9,100-mile pipeline
  • transports natural gas to the Chicago area
  • transports natural gas to large LNG facilities along the US Gulf Coast
  • the two sold their 25% interest to funds controlled by ArcLight Capital Partners
  • the partners will each retain a 37.5% interest in NGPL
  • Kinder Morgan: operator
  • the deal valued the NGPL at $5.2 billion
  • Kinder Morgan and Brookfield acquired full control of NGPL in 2015
  • they paid a combined $242 million for a 53% interest in the company, valuing it at $3.4 billion
  • they're now cashing in on this investment at a much higher valuation
  • other deals mentioned in the article
  • bottom line: the sale will boost the financial flexibility of these companies, increasing their ability to achieve their strategies

The bigger story here: with all the difficulty building new pipelines (and even keeping old pipelines operating) existing pipelines keep getting more and more valuable. Headwinds which result in huge moats for investors like Warren Buffett:

  • regulators
  • faux environmentalists
  • governors aspiring to run for national office
  • sovereign nations inside continental US (that in itself is beyond the pale)
  • huge CAPEX
  • take longer to build than nuclear reactors

Warren Buffett noticed this decades ago. I think he built Berkshire Hathaway Energy around this strategy. And these companies pay huge dividends.

Dak -- March 8, 2021

As predicted, it looks like Dak is "leaving" the Cowboys. [Later, in fact just hours later -- wow, was I wrong -- and so were talking heads on which I based my post -- see first comment -- Dak and Cowboys have reached a deal.]

If that happens, it was telegraphed a year ago. 

I do think the tipping point: the injury.

Thank You, Mr Biden -- Shuts Down The Keystone XL -- Puts Tens Of Thousands Of Americans Out Of Work -- And Imports Even Worse CO2 Emitting Crude Oil From Russia -- March 8, 2021

The bigger story, here, of course, is that no matter how many pipelines are closed, how many CBR unit trains are derailed, crude oil will find its way to consumers. 

And, if China can't get the oil it needs, it will simply burn coal it imports from Australia because the Hillary crowd was successful in shutting down the US coal industry.  

The other big story here, of course, is how fast oil demand / gasoline demand is rising even when only a few US states have opened up and most of Europe remains in lockdown.

The Dow is up 400 points. Oil is off a bit.  

UNP is surging. Lots of CBR. I'm lovin' it. 

As an investor, I was not going to make any money off the Keystone XL, but with the pipeline out of the picture, CBR is back in play and that's where I will do quite well. So, yes, thank you, Mr Biden. 

By the way, the Keystone was never designed to transport any US oil in the first place, so I'm not sure what all the fuss was about from people like me in the first place. Oh, that's right. Rule of law. And science. And common sense. And fair play. 

American jobs. Maybe I'm naive. I've always been concerned about jobs for Americans, but apparently our national leaders and governors are not, nor are the voters who voted to put Biden into office. So perhaps that's being naive, being worried about American workers in a global economy. RJM.

Parting Shot -- Or Perhaps, Better, "A Parthian Shot" -- Monday, March 8, 2021

A week before the devastating, crippling unfavorable event in Texas just last month (February, 2021), no one predicted how severe it turned out to be. 

And yet we know to the tenth of a degree how much warmer the earth will be one hundred years from now. 

Link here

No Dog In This Fight.

Link here

After seventeen years, the story is almost Biblical in time span. 

Backstory, from Forbes, October 3, 2019, or how long does one carry a grudge?

The US government announced yesterday a 25% tariff on all single malt Scotch whisky imports, as part of a wider set of tariffs aiming to punish the European Union.

Taking effect October 18th, the U.S. Trade Representative’s office released a list of hundreds of goods that will get hit hard beyond whisky. It includes Parmesan cheese from Italy, olives from France and Spain, wool clothing from the U.K, and European aircraft. The overall list covers approximately $7.5bn of goods.

So why is this happening? It all has to do with planes, rather than the tariffs that the E.U. had placed on Bourbon in 2018 (which in turn were initially placed because of U.S. tariffs on E.U. tariffs). This latest round is the result of a dispute that originally began in 2004, when the U.S. complained to the World Trade Organization about the subsidies the E.U. was providing to Airbus for the development of its A380 and A350 planes, to the detriment of Boeing. The case has been rolling ever since, and has now escalated following a WTO ruling issued yesterday as global trade wars between the Trump administration and the rest of the world heat up.

It certainly is a major piece of bad news for the Scotch whisky industry, as the U.S. is its largest market. Overall Scotch whisky exports to the US last year were worth $1.3bn, accounting for over a fifth of total global exports by value. The U.S. single malt market itself is worth $463 million dollars, over a third of the entire global market for Scotch single malt.

We have a huge liquor store with probably the biggest and best Scotch selection in the world about ten minutes, by bicycle, down the road from us. I haven't visited that store in, what? Maybe a year? 

But this week, I'm going there to price some Scotch whiskies, won't buy any, and then two weeks later, will go back and check the prices again. 

My hunch: the prices will remain unchanged. The store is a "discounter" so it will drop prices if it can but my hunch is that demand will keep prices unchanged. 

For the past several years I have bought a gift box of "special" Scotch -- you know, the Christmas Scotch that comes in a big wooden box with a couple of nice Scotch glasses -- and have never opened them. I now have at least seven such gift boxes. My plan is to start enjoying Scotch again, on my 90th birthday. I figure by then, the harmful effects of alcohol will be the least of my worries. Let's see, that's about twenty more gift boxes of Scotch. LOL. 

Also, if oil gets back to $150/bbl, I will sell a few shares of CVX and buy a $2,300 bottle of Scotch and see if it's really that much better than the $55 Scotch that I used to buy.

I guess I better put in the disclaimer now that I've mentioned CVX:

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

Five Wells Coming Off Confidential List; WTI Slips A Bit Overnight -- Monday, March 8, 2021

YCC: what is it?

Gasoline demand, link here: gasoline demand jumped almost 6% for the week ending Saturday, March 6, 2021, pushing demand to the highest since the pandemic started, for the second straight week. And, note: only a few states have re-opened; most of Europe is still locked down; only China is looking at the pandemic in its rear-view mirror and back to building coal plants as fast as they can. Argus Media is reporting that Australia has resumed shipping coal to Australia.

Back to the Bakken

Bismarck Tribune: a year of disruption. Bakken businesses ride out a bad year.

Kyle Ostrand found himself looking up townhouses in Williston, trying to talk his workers into becoming roommates after the oil price collapsed last year. 
Some of them without families in town agreed to live together, and although they don’t necessarily work long hours anymore to bring in big paychecks like when oil was booming at the start of 2020, they’re still employed by 3 Forks Services. 
The company provides transportation, logistics and crane services across the Bakken oil patch. 
“It’s made it a whole lot more affordable for them to share housing like that,” Ostrand said. “We’re trying to do what we can to help lessen the expenses for these guys in any given month and hope they can continue to help ride it out with me. We’re in it together trying to help make ends meet.” 
Hundreds of businesses like 3 Forks do the boots-on-the-ground work in western North Dakota to help big-name companies drill and produce oil. They have endured a year of hardship as the coronavirus pandemic decimated the demand for oil and, thus, for their services.

Active rigs:

Active Rigs1655675944

Five wells coming off the confidential list:

Monday, March 8, 2021: 12 for the month, 68 for the quarter, 68 for the year.

  • 37713, drl/NC, Moris 12-26H1, Oakdale, no production data,
  • 37672, drl/drl, Minnkota Power Cooperative, J-ROC1 1, wildcat, Precambrian;
  • 36206, F/A, CLR, Polk Federal 13-33HSL, Banks, first production, 10/20; t--; cum 114K 1/21;
Sunday, March 7, 2021: 9 for the month, 65 for the quarter, 65 for the year.
  • 35712, F/A, Whiting, Renbarger 24-34HU, Banks, first production, 9/20; t--; cum 90K 1/21;
Saturday, March 6, 2021: 8 for the month, 64 for the quarter, 64 for the year.
  • 37793, drl/NC, CLR, Morris 14-26HSL2, Corral Creek, no production data,

RBN Energy: Energy Transfer's purchase of Enable Midstream helps its gas and liquids segments.

Over the past quarter-century, through a combination of greenfield development and acquisitions, Energy Transfer (ET) has built out integrated networks of midstream assets that add value — and generate profits — as they move crude oil, natural gas, and NGLs from the wellhead to end-users. A couple of weeks ago, ET took another big step in its expansion strategy, announcing its plan to buy Enable Midstream in a $7.2 billion, all-equity deal expected to close in mid-2021. The assets to be acquired will augment the synergies ET has already achieved, particularly regarding NGL flows into its Mont Belvieu fractionation and export facilities as well as flows of natural gas through Louisiana’s central gas corridor to LNG and industrial demand on the Gulf Coast. Today, we examine how the Enable Midstream acquisition may help propel ET forward.