Friday Haymaker
Here We Go (Down) Again!
“It is almost sure we are going to have a recession [soon]. It is quite clear the first two quarters of next year will show that.” -Mario Draghi, former head of the European Central Bank
“The Permian basin is depleting faster than we thought.” -Natural resource experts Goehring & Rozencwajg
Candidly, the last topic I expected to cover during a time of a new war in the Middle East was another oil price swoon. Making this even more surreal is the fact that Europe remains largely cut off from Russian gas. This forces it to use more oil to substitute for natural gas, a process known as fuel switching.
Next up on the bizarre front is that oil inventories remain scary low. Moreover, they continue to be drawn down, despite some recent chatter to the contrary on this, as discussed below.
There is also the fact that Drilled, Uncompleted (DUC) wells look as depleted as the Strategic Petroleum Reserve these days. This has the potential to be a serious problem based on the continuing decline in working drilling rigs which the latest price meltdown will only exacerbate. The DUC situation is one I covered recently but it’s important enough to reemphasize, as well as re-running a visual on this. Basically, it will be extremely hard for these to fall further, and they’ve allowed oil and gas producers to maintain output without a commensurate level of drilling.