Nov 29, 2021

News from the Oil Patch: Prices recover from Friday freefall

Posted Nov 29, 2021 9:25 PM

News from the Oil Patch, Nov. 29
John P. Tretbar

Crude prices have recovered about half of the losses posted on Friday, which saw the biggest one-day dive since April of last year. A new COVID variant raised fears that travel bans would hammer demand. But Reuters reports some traders now view Friday's response as overdone. Crude prices rebounded more than five percent Monday.

OPEC and its export-allies will discuss their response to the new COVID variant at their meeting this week, but will have little knowledge of the actual impact the variant will have. They postponed their scheduled technical meetings to buy time. Ministers from OPEC, Russia, and other exporters have returned 400,000 barrels per day back to the marketplace each month for the last several months.  They meet Thursday to set production policy for January. Bloomberg reports some delegates want to ditch their planned output increase in the short term.

The benchmark Nymex crude contract settled Friday at $68.15 per barrel. That's more than ten dollars a barrel lower than Wednesday, the biggest price drop since April of 2020. But on Monday traders pushed that price back above $70. In early trading, the near-month contract for light sweet crude was up nearly seven percent to $72.72 per barrel, a gain of more than four and a half dollars.

We could see a similar price correction Monday in Kansas. Kansas Common crude at CHS in McPherson dropped more than ten dollars on Friday to end the week at $58.50 per barrel. That's down nearly $16 from the first of the month.

The rig count in eastern Kansas is up one to 14 drilling rigs either scheduled, moving to, or currently on drill sites. Independent Oil & Gas Service says the count west of Wichita was unchanged at 27 active rigs. Operators were drilling wells in Barton, Ellis and Stafford counties, and were about to spud one in Russell County. Most of the drilling increases elsewhere in the U.S. have been of the horizontal variety. Baker Hughes reports another increase in its Rotary Rig Count, and another spike in horizontal drilling activity. There are 569 active drilling rigs in the U.S., a net increase of six oil rigs. The count in North Dakota was up four rigs, while Texas was up two.

Based on spudded wells, this year's drilling activity in Kansas up more than 80% over last year at this time, with a 39 percent increase in active operators in the state. Independent Oil & Gas Service reports operators in eastern Kansas completed 19 new wells last week, and Western Kansas checks in with 11. That brings the year-to-date total to 808 new completions compared to 732 at this time last year.

Kansas Regulators okayed 44 new drilling locations across the state last week, 26 east of Wichita and 18 in Western Kansas, including one in Barton County, two in Ellis county, one in Russell county and one in Stafford County. That's 1,035 new drilling permits so far this year, compared to 412 by this time last year.

Independent Oil &  Gas Service reports 14 active rigs in eastern Kansas and 27 west of Wichita. Both tallies are unchanged. Drilling was underway on two leases in Barton County and one in Ellis County. Operators were preparing to spud new wells in Russell and Stafford counties.

Baker Hughes reports another increase in its Rotary Rig Count, and another spike in horizontal drilling activity. There are 569 active drilling rigs in the U.S., a net increase of six oil rigs. The count in North Dakota was up four rigs, while Texas was up two.

Independent Operators in Texas report that states oil-and-gas employment grew by 2,300 jobs from September to October, marking the sixth consecutive monthly increase. The Texas Independent Producers and Royalty Owners Association (TIPRO) said the latest total marks a 22,800-position increase over last year. The group gets its numbers from the U.S. Bureau of Labor Statistics.

Oklahoma's October gross tax receipts grew by double digits again, fueled by high crude prices. The Tulsa World reported gross tax receipts for the month of $1.27 billion, a 16% increase over the same time last year. State Treasurer Randy McDaniel attributes growth to rising oil and natural gas price. For the third consecutive month, oil and gas tax revenue exceeded $100 million.

As prices rebound and pipeline projects advance, a group of energy contractors predicts a big increase in drilling activity in Western Canada next year. The uptick follows a year in which Enbridge completed its Line 3 pipeline replacement and two others major pipelines in the region began construction. According to the Canadian Association of energy Contractors, operators in Western Canada will drill 27% more wells next year than this year, returning to pre-pandemic levels.

Last week's announcement of the sale of strategic crude reserves has not had the desired effect, at least not yet. The U.S. made it official Tuesday, joining China, India, South Korea, Japan and Britain in the coordinated release of tens of million of barrels of crude from strategic reserves, expected to hit the market next month. The move was thought to be a way for major consumer nations to battle rising inflation. But the markets went the wrong way after the actual announcement fell short of expectations.

Some U.S. lawmakers are seizing on the energy price surge to revive the long-standing NOPEC. As we've reported before, the legislation would subject the OPEC oil cartel to the same antitrust laws used more than century ago to break up Standard Oil’s monopoly. The “No Oil Producing and Exporting Cartels Act” -- known as NOPEC -- would allow the U.S. government to sue members of the cartel, potentially seeking billions of dollars in reparations. The legislation has faced opposition from the State Department in the past. But the House Judiciary Committee did approve the latest iteration by a voice vote in April. A Senate version has attracted sponsors from across the political spectrum, from Iowa’s conservative Republican Chuck Grassland to Vermont’s liberal Democrat Patrick Leahy. No floor votes have been scheduled.