A Screenshot Worth 10,000 Words -- June 12, 2022

Link here.  

**********************
Update

A huge "thank you" to a reader who fact-checked this for me.

The above screenshot was sent to me by a trusted reader but no date was provided for the actual news article. The date for the file photo was July 25, 2019.

It turns out the AP fact-checked this and the story is accurate.

But most interesting, this occurred even earlier than I thought. The EV-risk to the California grid apparently occurred even earlier, back in the June, 2021 heat wave.

AP'S ASSESSMENT: Missing context. The headline being shared was from a June 2021 heat wave — not mid-March 2022 — and was a voluntary recommendation that residents charge electric vehicles and do other activities outside of certain peak periods.

The link is to a Fox source (FOXLA) and the google app generally doesn't allow link to Fox. 

So far, here in Texas, we haven't had similar alerts despite a record-breaking heat wave this weekend. 

Huge thanks for a reader catching this, fact-checking and confirming, not only that it was accurate but it occurred last year.  

Again, my usual disclaimer.

On Taxes -- June 12, 2022

Almost 60% of Americans paid no federal income tax in 2021 -- CNBC.

• on top of that, Texas has no state income tax
• despite paying no federal taxes, all are entitled to participate in America's story

XOM's taxes, link here:

• with no change in tax rates, XOM would pay even more if it weren't for faux environmentalists "keystoning" America:

More Evidence This Is Not An Oil Production Problem -- It's A Refining Problem And Inflation Problem -- June 12, 2022

Updates

June 13, 2022: WTI adjusted for inflation.

Original Post

Are we back to counting DUCs? Of fifteen wells coming off the confidential list this next week only two -- both Zavanna wells -- 13% -- report production data. Link here.

• one can debate the reason for the high price of oil and yet we are seeing more oil than necessary
• I used to suggest it was a refining problem; that remains true to some extent;
• a bigger problem is inflation (to include transportation inflation);
• but it appears the big problem is spare capacity

For the reader concerned about dates: Yergin noted this in March, 2022.

Spare capacity:

• although it was called something different years ago, we noted this on the blog maybe a decade ago;
• a lot of folks call it under-investment, and that's been a recurrent theme over on twitter;
• I was never concerned about under-investment, but I was wrong; I never anticipated Russia's suicidal ideation;
  
• Josh Young started talking about this a year ago (?); perhaps  too much of a new face to have been taken seriously, and he concentrated on Canadian oil;
• but the guy who wrote the bible on oil, made it clear, back in March, 2022; archived.
  
• when did Brent / WTI really start to surge
• 70-year chart here;
• but let's look at 10-year chart:
• there was the anomaly, February, 2020 - April, 2020
• recovered to baseline February, 2021; the baseline extended back to late 2014, when oil plunged from $120 to $60
• after February, 2021, steady increase but not clear what might happen, through October, 2021
• but by January, 2022, the chart seemed to reflect what others were starting to notice: a question about spare capacity
• from November, 2021, to June, 2022, it's been pretty much a straight line from $70 to $120
• in March, 2022, when CNBC posted Yergin's analysis, oil was trading below $100 and just ready to break out
• of course, March, 2022, was the month Russia invaded Ukraine

Thoughts:

• so, let's put some numbers to this:
• baseline, when global supply / demand (oil) balanced: $60
• inflation: add 20% since March, and that's being very, very liberal; probably closer to 10% but let's say 20%, which adds $12 = $72
• demand change from 2019 / 2020 anomaly (pandemic), it's almost looking like a wash at the moment; it certainly appears global oil supply is more than meeting global oil demand (global oil demand held back by continued on-again/off-again Covid lock downs in China); with that, I can't see adding anything to the $72-price point based on supply/demand now
  
• going forward, inflation, add another 10% -- no one is suggesting that; that is way too high but let's put that in as a place holder, $72 + $7 = $80 in round numbers
• spare capacity / under-investment: call it what you want but the market is looking ahead three months (height of driving season in US) and six months out (China continuing to open up) and analysts see a spare capacity / under-investment premium of $40 currently and as much as $80 if one accepts the analysis of Goldman Sachs, JPM, and others
• remember: it's the price of that last bbl of oil that determines the price of oil.
  

Spare capacity / under-investment

• under-investment? why? Oil sector pretty good at anticipating demand and responding in kind
• so why the under-investment?
• politicians suggest oil sector under-invested over the past twenty years for greedy reasons
• to cut to the chase, under-investment wasn't for greedy reasons; under-investment was due 1000% due to "keystoning" of America; oil sector was not allowed to invest in America in the past ten years, perhaps twenty years if one considers when plans for the Keystone X were first being drawn up;
• any doubt: "leave it in the ground" -- policy statement from our current SecEnergy.
  
• it will be impossible for the US to make up for that under-investment in any meaningful time frame; it's just not going to happen, and again, mostly due to continuing "keystoning of America";
• Plan A: America's production would meet global demand; can't happen in current environment
• Plan B: global demand will need to be met by OPEC (B1) and Russia (B2)
• oil at $120 suggests analysts feel Plan B will fail
• maybe, without Ukraine, Plan B would have held together for another year or so
• Ukraine simply compressed in time the whole spare capacity issue
• again, global oil supply more than meets demand now; price is forward-looking
  
• analysts suggest Ukraine changed everything

What does this mean going forward:

• WTI: in fairly narrow trading range right now -- $118 - $122
• any signs of "truce talk" between Ukraine - Russia: skittish oil traders will take profits, get out quickly, resulting in quick drop in oil price to well under $100
• if Russian sanctions aren't quickly lifted after truce, oil will gradually move higher again; the volatility in the price of oil after a truce is announced will ebb and flow in line with political comments coming out of the EU
• OPEC will get a lot of ink but overall production cannot make up for shortfall in Russian production; we'll know more after Biden's visit to Saudi Arabia in July
  

Initial Production Data For Wells Coming Off The Confidential Well This Next Week -- June 12, 2022

The wells:

• 38662, conf, CLR, LCU Reckitt 12-22H1X, Long Creek, no production data,
• 38658, conf, CLR, LCU Ralph 11-27HX, Long Creek, no production data,
• 38598, conf, Murex, Sheldon Mark 34-22H-A 3MB, Tioga, no production data,
• 38436, conf, WPX, Wounded Face 14-15HEL, McGregory Buttes, no production data,
• 37330, conf, Petro-Hunt, Lovdahl 158-94-32C-29-3H, Tioga, no production data,
• 37329, conf, Petro-Hunt, Lovdahl 158-94-32C-29-2H, Tioga, no production data,
• 38435, conf, WPX, Wounded Face 14-15HW, McGregory Buttes, no production data,
• 38434, conf, WPX, Wounded Face 14-15HB, McGregory Buttes, no production data,
• 38433, conf, WPX, Wounded Face 14-15HX, McGregory Buttes, no production data,
• 38432, conf, WPX, Wounded Face 14-15HC, McGregory Buttes, no production data,
• 37188, conf, Zavanna, Edgar 10-3 6TFH, Poe

Date	Oil Runs	MCF Sold
4-2022	24417	25168
3-2022	11742	21194
2-2022	11550	15607
1-2022	27390	23057
12-2021	11641	6840

• 37010, conf, CLR, LU Reckitt Federal 2-22H, Long Creek, no production data,
• 37186, conf, Zavanna, Edgar 10-3 4TFH, Poe,

Date	Oil Runs	MCF Sold
4-2022	21681	21832
3-2022	13536	17658
2-2022	16008	20935
1-2022	23045	18628
12-2021	15096	9058

• 38477, conf, WPX, Hall 14-15HIL, McGregory Buttes, no production data,
• 38134, conf, CLR, Dennis FIU 8-8H, Cedar Coulee, no production data,

Wells Coming Off Confidential List This Next Week -- June 12, 2022

Monday, June 20, 2022: 30 for the month, 168 for the quarter, 328 for the year

• None.

Sunday, June 19, 2022: 30 for the month, 168 for the quarter, 328 for the year

• 38662, conf, CLR, LCU Reckitt 12-22H1X, 
• 38658, conf, CLR, LCU Ralph 11-27HX, 
  
• 38598, conf, Murex, Sheldon Mark 34-22H-A 3MB,

Saturday, June 18, 2022: 27 for the month, 165 for the quarter, 325 for the year

• 38436, conf, WPX, Wounded Face 14-15HEL,
  
• 37330, conf, Petro-Hunt, Lovdahl 158-94-32C-29-3H,

Friday, June 17, 2022: 25 for the month, 163 for the quarter, 323 for the year

• 37329, conf, Petro-Hunt, Lovdahl 158-94-32C-29-2H,

Thursday, June 16, 2022: 24 for the month, 162 for the quarter, 322 for the year

• 38435, conf, WPX, Wounded Face 14-15HW,

Wednesday, June 15, 2022: 23 for the month, 161 for the quarter, 321 for the year

• 38434, conf, WPX, Wounded Face 14-15HB,

Tuesday, June 14, 2022: 22 for the month, 160 for the quarter, 320 for the year

• 38433, conf, WPX, Wounded Face 14-15HX,
  

Monday, June 13, 2022: 21 for the month, 159 for the quarter, 319 for the year

• 38432, conf, WPX, Wounded Face 14-15HC,
  
• 37188, conf, Zavanna, Edgar 10-3 6TFH,
• 37010, conf, CLR, LU Reckitt Federal 2-22H
  

Sunday, June 12, 2022: 19 for the month, 156 for the quarter, 316 for the year

• 37186, conf, Zavanna, Edgar 10-3 4TFH,
  

Saturday, June 11, 2022: 18 for the month, 155 for the quarter, 315 for the year

• 38477, conf, WPX, Hall 14-15HIL, 
• 38134, conf, CLR, Dennis FIU 8-8H,