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The Energy Report: Mamma Put These Drills in the Ground

Published 09/29/2023, 09:45 AM
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Mamma put these drills in the ground

Mama put these drills in the ground, can’t go offshore anymore, it’s getting too dark to see. I think we’re knocking on heaven’s door.

Biden and his team once again have chosen optics ahead of common sense. When it comes to his politically driven obsession with becoming the most radical environmental President in history, even if his plans do not help the environment and could put years of economic hardship on the most vulnerable of our population.

It seems like it is more important for Biden to look good when he panders to the extreme environmental base. Besides he might be able to get Hunter a speaking gig for big bucks at the Sierra Club or something.

The latest act of political OPTICS comes in the form of reports that Biden’s 5-year offshore oil production plan does not include any lease sales for 2024. That is a real shame for the US economy and the environment. It is a shame for the economy because the US and the globe are facing a global oil supply versus deficit that is being exploited by OPEC and Russia.

The best way to respond to that is to increase US oil production. It is also a shame for the environment because offshore drilling in the Gulf of Mexico is the cleanest form of oil production on the planet. That means that every barrel that is produced because of oil that can’t be produced in the Gulf of Mexico because of the lack of Biden’s lease sale will be produced in a dirtier fashion somewhere else. Maybe in Venezuela or Iran or Russia because Biden’s policies seem to be empowering those oil producers and seem to want to help them produce that dirtier oil.

Yet the Biden apologists, like California’s governor Gavin Newsom tried to mislead Sean Hannity after the Fox Business Networks republican presidential debate that Biden should be credited with record US oil production and record US product exports.

That spin left a bad taste in the mouth of many in the oil and gas industry of the Biden groupies trying to take credit for oil production and investments that were made long before Biden was in office. They also believe that they could be producing more oil and refining more products if they were not being threatened with lawsuits and an uncertain regulatory environment.

Governor Newsom, from the land of $7.00 a gallon gasoline and rolling blackouts, wants to ban the internal combustion engine in his set and is locked in some type of energy fantasy land. Let’s hope he never becomes President of the United States because if he pushes the same type of energy policies he has in California, well, God Help us.

If the Biden team is going to take credit for the success of the US oil and gas industry, the same industry he accused of war profiteering and price gouging, he might as well take credit for the Milwaukee Brewers clinching their division and for fixing up Taylor Swift and Travis Kelce. Of course, knowing Biden like we do, he probably will. I am sure it will include some folksy story about how he took Taylor and Kelce along with Jill and Hunter to a baseball game and gave advice to the Brewers manager.

But will he take credit for the energy crisis that may be coming? The Wall Street Journal is reporting that US shale producers are not responding to the oil price increase as they have in the past.

The Journal writes that,

“Frackers are constrained by investor payouts, inflation, and interest rates, keeping spending in check”.

They write:

“In the Permian Basin of New Mexico and West Texas, the most active oil field in the nation, the number of rigs drilling for crude as of last week had declined by about 12% to 314 since the end of April, according to oil field services company Baker Hughes—even as U.S. oil prices jumped by about $13 a barrel over that same period. Some oil executives said most of the shale industry plans to stand pat even as global oil prices increase further. Most shale companies have vowed to hand over their winnings from high energy prices to investors via share buybacks and dividends. They also face pressure from inflation and high interest rates.”

But what they should also include is that frackers are frustrated by the Biden team. Concern about methane regulations, frivolous lawsuits, and ESG makes it more unattractive to take the risks that have always been associated with oil and gas production. The Biden administration is looking to kill that entrepreneurial spirit that has long driven the success of the oil and gas industry that has powered the success of the American Dream.

Yesterday oil pulled back from the key $95.00 resistance area as those heavily long hedge funds decided to take profits so they could get the month-end bonus. Remember that the hedge funds business is to take profits. Still, fundamentally the oil is still in a solid uptrend as WTI traders are speculating what might happen if the Cushing, Oklahoma delivery point runs dry.

John Kemp at Reuters points out that even,

“Cushing stocks are at the lowest level for the time of year since 2014 and before that 2008, when futures prices were trading around $121 and $148 per barrel respectively, adjusting for inflation”. 

He still thinks that “There is no doubt the global petroleum market has tightened since the start of the third quarter as a result of Saudi and Russian production cuts as well as an improving economic outlook in the United States. But it has probably not tightened anything as fast or as far as the sudden depletion of inventories at Cushing and the rise in futures prices suggests.

He points out that:

“The draw-down of crude inventories in the rest of the United States and other major consuming centers in Europe and Asia has been much more modest. The differential depletion of inventories around the delivery point and abrupt shift into a rampaging backwardation are classic hallmarks of a short squeeze.”

Still, regardless of the magnitude of the shortage, it does not change the fact that the globe is still short of supply.

The world seemed to get a false sense of energy security because of a historically warm winter and the mantra that China’s economy was horrible despite the fact that they were consuming and refining record amounts of oil. The oil market was also facing a lack of liquidity as regional bank failures and rising global interest rates led to fears of economic collapse.

Yet despite those fears, if you could separate the fact that global oil supply was sinking, especially if you excluded the global response from the world’s SPR reserves, it was masking a structural shortage that is finally coming to light. Now the question becomes, will the world’s oil and gas industry to do what they need to do to solve it?

Not if you listen to the International Energy Agency. The IEA stated in 2021 that there is “no need for investment in new fossil fuel supply,” making clear that additional fossil fuel expansion is incompatible with global climate goals.” Is that why we are facing a global shortfall of energy?

This week the IEA  doubled down saying that, “its Net Zero Roadmap says that “the path to 1.5 ̊C has narrowed, but clean energy growth is keeping it open. As per the roadmap, there is no need for investment in new coal, oil, and natural gas. They Say that Global carbon dioxide (CO2) emissions from the energy sector reached a new record high of 37 billion tonnes (Gt) in 2022, 1% above their pre-pandemic level, but are set to peak this decade.

Maybe it will peak because energy will be too expensive and we will be all broke.

Diesel fuel looks poised to make a bit of another run and RBOB futures are trying to bottom near the lower Bollinger ban. Seasonal weakness for gasoline has helped the heat short/gasoline/widow maker trade.

Natural gas is making noise and is looking more like the bottom is in. As we said yesterday, unless we see the price for natural gas start to rise, we will see production start to peak.

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