Crude Observations

Fear and Loathing

As promised, this week’s blog is going to continue the midsummer tradition of being shorter than normal, because for every writer like me who needs a vacation from blogs there is an equally deserving reader who needs a vacation from my blather.


As luck would have it, I am in Las Vegas this week doing a bit of a family thing. It’s a great trip and we are doing many fun things but my ability to channel my inner Hunter S. Thomson and find the down and dirty of the Strip both physically and in prose is a bit compromised given the early bedtimes we are racking up. Unless of course I can count going to see a Cirque show as a psychedelic journey into the abyss of the American Dream. It was Cirque, so it’s already psychedelic by design. But it was about the Beatles and called Love, so I’m not sure gonzo dude would approve.


Interestingly enough, this is my fist trip into the heart of darkness that is Las Vegas (yeah, yeah, I know – I have also not seen ET yet, sue me) and, with very little in the way of preconceived notions, I found it a bit of an odd place. The contrasts between the people, the massive hotels, the 24/7 activity and itinerant nature of the visiting population gives it an energy and vibe that is decidedly transient, frantic, fascinating and often times disturbing. Great meals and the very top restaurants contrast with $3 hotdogs from a gift shop. Sleek and polished hotels with gleaming windows contrast with the utter banal and seedy weirdness that is Circus Circus, the very definition of a rundown concept that needs to be retired. The income disparity is startling – high end casinos and luxury cars compete with large numbers of homeless and destitute people and one can’t avoid thinking that each has a high likelihood of joining the other depending on the whims of lady luck.


There is a unseemly and seedy underbelly to Las Vegas with an off the beaten path or around the corner collection of “gentlemen’s clubs” (please, eye-roll) and erotica and sex museums. Take a wrong turn off the boulevard and you’ll be surprised by what you see.


The outside lights of the Strip at night are only outdone by the ADD inducing clink, twinkle and flash of the massive casinos with their massive, constant and shambling sea of humanity in various stages of sobriety and dress, the perfectly turned out middle aged couple side stepping a shorts and muscle shirt wearing tattoo advertisement, all of who carrying drinks from one place to another, with nary a window to the outside world to be found. And then you accidentally burst outside once more, usually through some disproportionately small door only to be appropriately greeted by the plague of locusts (grasshoppers) that have invaded the city, carried in by monsoon rainstorms, attracted ironically to the beam of light targeting the heavens from a giant replica pyramid (Pharaoh would be proud) and travelling in swarms so large they show up on weather radar as a storm system.


And through it all, a structured and precisely run entertainment mecca. Magic, entertainment of any kind for anyone, gluttony, vice, gambling – all delivered in a continuously frantic fashion to the hungry masses.  It exists for its own unique purpose and that is to please, cajole, entertain and ultimately take as much money from its visitors as is humanly possible and it executes all of this to perfection.


So yeah – I kinda liked it.


Actually not true. I really liked it and can’t wait to return, perhaps sans kids so that I can partake a bit more of the raison d’etre and throw some money away on gambling instead of investing in energy stocks – I think the odds of that are more in my favour anyway.


In the meantime, I wrote an epic hipster blog during my stay here.


But, as they say, what happens in Vegas stays in Vegas.


Instead I’m going to use this opportunity to share with you a brief overview of topics I will be covering in the next couple of months. And if I get inspired I just might share what I wrote here in Vegas. Or I might not. It all depends.


Final reflection on Vegas? An attempt to tie this back into energy, so maybe I can wrote off the whole trip as a business and research expense.


Aside from being a crazy weird place, Las Vegas is huge and in the desert. And it consumes a monumental amount of energy. The primary way to get around is by car, taxi, ride share. Anyone who spends any more than a second here or in Phoenix or anywhere in California and tells you with a straight face that the changeover to renewables is tomorrow and will be easy should immediately run for office because they are a professional liar. Las Vegas is as energy intensive a place as I have seen. And there are a lot of trucks. The lights and the air conditioning are always on. 24/7. This place is the poster child for gratuitous energy consumption.


At any rate, some fun topics that may or may not grow up to be articles.


Whither oil prices?


This is clearly a major concern for everyone. I contemplated writing about it this week, but the situation is still too volatile. The market is currently ignoring the actual data and is instead trading off the macro data which is all slowing global growth and trade wars. Meanwhile, inventories are coming down, Permian producers are reining in growth plans, the Middle East is a mess, Venezuela is a mess and world prices are being set by inventory numbers in the US and stupid tweets. The Saudis and OPEC want and need the price to be higher. US producers need the prices to be higher to realize any type of share price appreciation yet can’t stop producing because, well, I don’t know really know why they can’t. Canada wants the price to be higher, but really only for heavy oil. The rest of the world just wants the price to be stable. Donald trump doesn’t appear to care one way or another. Puppetmaster Putin? He owns Russia so he doesn’t care either way, but he’s probably just fine with what’s happening. Until he isn’t.


Whither gas prices?


As is typical, natural gas prices are laying a late summer egg. North American production is still rising (another memo that American producers didn’t receive) and in places like the Permian, the amount of gas that is being flared exceeds the amount that is consumed by all the residents of Texas. Is there any catalyst around that can support prices? Or do we just have to wait it out? Is there enough LNG coming on stream to absorb all the excess capacity? Or, given its abundance, are we destined to live in a cheap energy world for the foreseeable future which, let’s face it, is actually a pretty good outcome. Finally, on the subject of natural gas, can anyone explain to me what wizardry is at work at Peyto? How many consecutive quarters now of profit?


Permania or Ponzi?


I know, I know. I wrote about this a lot. But there are currently two very divergent theses going on about the Permian. On the one hand, we have legitimate industry forecasters and analysts as well as the EIA saying that US oil production could conceivably grow to be double Saudi production by the mid 20s and that there is more oil reserves in the Permian than in all if Saudi Arabia and that this makes the US the world’s swing producer. On the other hand are a bunch of analysts who think that the Permian is a commodity Ponzi scheme. A high decline, capital eviscerating money pit. Who’s right? Who knows? Personally, I find the growth argument to be less plausible, especially in a lower price environment. But who knows right? We will investigate and see.


Are trade wars actually easy to win?


This one is self-explanatory. If there is one thing Donald Trump has taught us it’s that the old school, 1930’s inspired way of doing things for the economy isn’t going to cut it anymore. We are in a new global paradigm where nothing is easy. Not trade wars. Not politics. Donald Trump, bless his heart, is turing the once free-trade champion of the world into a protectionist, trade-averse, unilateral treaty seeking empty shell of itself.


NFL Preview.


That’s right. Deal with it.


Official Canadian election preview


I know, I already did this. And nobody west of Brandon and east of Kelowna liked what I had to say. But that was scenario analysis. A lot can happen in couple of months. So, as we get closer in, the actual tea leaves will start to show and I will make an official call. And I will provide some real rationale along with a gut feel and maybe take the mood of the country at that time. Word of warning though, the prediction may or may not be the same as the other one. But it will come with some super funky socks.


Q3 Report Card


Ah, the fearless forecast. All those picks and predictions seemed so smart just a few short months ago. I may have given up on this. It’s been that kind of year.


M&A state of the union


You’d think deal flow would dry up in this environment and usually you’d be right. But we are seeing a huge amount of deal flow. And deal closings. So the demise of M&A is vastly overstated.


Poetry Kick


Yes, sometime in the next three months I will treat everyone to some original poetry.


A preview


There once was a struggling writer

With no subjects heavy or lighter

So he faked his way through

A blog that was due

And left for a Vegas all-nighter


Oh, and in case anyone was wondering about my earlier comment…


I did the requisite gambling activity. I played $20 on a slot machine to pass the time. And left with $144.50.  Meanwhile Peyto reported it’s 1 billionth consecutive quarter of profitability and growth and the stock fell.


No talent. No special skill. Dumbass luck. Not sure if there is a message in that. Maybe it’s inside that blog that I won’t share.


Prices as at August 9, 2019

  • Oil prices – Again, WTF?
    • Storage posted a increase week over week
    • Production was up slightly
    • The rig count in the US was down and Canada was up
    • Prices fell then rallied. Then cratered on Trump tariffs. Makes perfect sense.
    • Natural gas storage was up and remains higher than this point last year
  • WTI Crude: $54.23 ($55.21)
  • Western Canada Select: $41.58 ($43.09)
  • AECO Spot : $1.29 ($1,32)
  • NYMEX Gas: $2.135 ($2.154)
  • US/Canadian Dollar: $0.7576 ($0.7565)



  • As at August 2, 2019, US crude oil supplies were at 438.9 million barrels, a increase of 2.4 million barrels from the previous week and 31.5 million barrels above last year.
    • The number of days oil supply in storage is 25.4 compared to 23.4 last year at this time.
    • Production was up for the week at 12.300 million barrels per day – fully recovered from GOM storms. Production last year at the same time was 10.800 million barrels per day.
    • Imports rose to 7.148 million barrels from 6.663 million barrels per day compared to 7.931 million barrels per day last year.
    • Exports from the US fell to 1.865 million barrels per day from 2.574 million barrels per day last week compared to 1.850 million barrels per day a year ago
    • Canadian exports to the US were 3.728 million barrels a day
    • Refinery inputs rose during the during the week to 17.777 million barrels per day
  • As at August 2, 2019, US natural gas in storage was 2.689 billion cubic feet (Bcf), which is about 4% lower than the 5-year average and about 15% higher than last year’s level, following an implied net injection of 55 Bcf during the report week
    • Overall U.S. natural gas consumption rose by 1% during the report week. Gas consumed for power reached 44.4 Bcf/day, an all time high
    • Production for the week was up 1% week over week. Imports from Canada were down 9% from the week before. Exports to Mexico were up 1%
    • LNG exports totaled 29 Bcf
  • As of August 9, 2019, the Canadian rig count was up 3 at 140 (AB – 94; BC – 7; SK – 33; MB – 3; Other – 3). Rig count for the same period last year was 207.
  • US Onshore Oil rig count at August 9, 2019 is at 764, down 6 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was down 2 at 169.
    • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
  • Offshore rig count was up 1 to 23.
    • Offshore peak rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 67%/33%


Trump Watch: It was a rough week in the United States dealing with horrific tragedies.

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