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:

$64.68	3/8/2021	03/08/2020	03/08/2019	03/08/2018	03/08/2017
Active Rigs	16	55	67	59	44

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.