[ihc-hide-content ihc_mb_type="show" ihc_mb_who="14,16,20,23,24" ihc_mb_template="1"] Completion activity continues to bounce along seasonal lines, and we see that trend carrying through into October. We expected to see a bounce in activity across the Permian, Western Gulf, and a small bounce in Williston. Based on activity levels and the current price deck, we expect to see more activity in the Permian and Western Gulf. There will likely be another two spreads activity in the Williston before thing slowdown for the winter. The gas side of the equation will move along a seasonal path, but we don’t see a big increase in activity over the next several weeks. The U.S. should get to about 285 spreads by the time we get into the end of October, but as we move into November there is a normal seasonal slowdown from Thanksgiving until New Years. In order for E&Ps to hit some of their production targets, we will see a bit of a run up into November and a “lower” reduction than previous years during the holiday season. The last six weeks of the year normally sees a sizeable drop, but there was also a much larger spike in front of it. With less equipment in the field, we expect a small reduction as we head into year end. The price deck supports more crude activity in the U.S.- especially as Brent trades in the current range of $88-$96. We have been sitting between $92-$94 where we don’t see much change to that trading range as we head into October. On our YT channel, I’ve discussed the issue with rising Russian diesel costs and ways they were going to try to address the problem. The shortest solution to bring down the price was going to be a temporary export ban in an attempt to move diesel into the country. Russia has many problems when it comes to this strategy: A large part of their refining capacity is on the coast or attached to pipelines that flow West into Europe. They have limited storage so without exports they will have to issue run cuts. Russia doesn’t have a lot of infrastructure to move the product into Russia as most of it was directed as export. So even a pause on exports will still not be enough to move product into the country. Any war effort requires a HUGE amount of diesel to keep a mechanized force operational. Even if they aren’t exporting, the military will claim a large amount of this production to shift it into Ukraine. I also agree with my friend big_Orrin on this one: “I think we are starting to see the effects of sanctions on Russian refineries. They can’t import the necessary technology particularly catalysts. Spent catalysts will really reduce refinery throughput and also force Russia to use export high sulphur middle distillate and gasoline.” The limitations on importing necessary equipment to maintain normal operations is a huge issue, and will remain a problem for the foreseeable future. They can get some help from China, but it will be limited in the long run. “Russia imposed an indefinite ban on the export of diesel and gasoline to most countries, a move that risks disrupting fuel supplies ahead of winter and threatens to exacerbate global shortages. In a government decree signed by Prime Minister Mikhail Mishustin, the Kremlin said Thursday that it would introduce “temporary” restrictions on diesel exports to stabilize fuel prices on the domestic market. The ban, which came into immediate effect and applies to all countries apart from four former Soviet states, does not have an end date. The countries exempt from the ban include Belarus, Kazakhstan, Armenia and Kyrgyzstan, all of which are members of the Moscow-led Eurasian Economic Union. Russia is one of the world’s largest suppliers of diesel and a major exporter of crude oil. Market participants are concerned about the potential impact of Russia’s ban, particularly at a time when global diesel inventories are already at low levels.” Russia will continue to provide product to their “friendly” nations, but the rest of the world is going to get shut out. Russia pausing diesel exports is going to create an even bigger problem for a global market that is already running very tight on the middle distillate front. China, India, and the Middle East have already increased their refined product exports- especially diesel- but Russia pulling volume from the market will create another round of tightness. This will keep distillate crack spreads elevated as we head deeper into maintenance season. The lack of distillate storage around the world and shortage of medium/heavy crude barrels will cause significant problems for consumers even if we have a mild winter. Gasoline prices in the U.S. have stabilized as winter grade blends becoming the dominant volume available. We do see some downside in gasoline prices in the near term, but the downtrend will be muted over the next week or two. Gasoline demand in the U.S. and globally really- continues to fall much faster than seasonal norms. The pressure on the consumer is causing much bigger pain, and is driving them to reduce spending habitats- including less travel/driving. But, prices are still almost $.20 above last year and will be a problem for the Y/Y calculation for inflation. The comps just keep getting harder for the gasoline backdrop. On a month/month basis- gasoline prices have normalized- but the same cant be said for diesel. When we turn to diesel prices, the pain is much greater on a M/M basis while not as bad when you look at a Y/Y level. Diesel is going to be a big pain point for PPI (producer price indexes) and help keep inflation elevated within the U.S. The issue will only get worse as we head into the winter months and heating oil demand spikes. A normal or cold winter is going to cause another big pain point for consumers and drive another round of spending reductions. On a Y/Y basis- the numbers aren’t as critical but when you factor in the comps getting easier over the next few months and limited downside in diesel prices- pain points aren’t going anywhere. The U.S. economy continues to slowdown with the PMI data showing more pressure in key areas. For those that have been following our insights/YT channel, we have been saying that the manufacturing front was going to find a floor and bounce slightly- while the service side of the equation deteriorates over the next few months. The below data embodies that perfectly: U.S MANUFACTURING PMI (SEP) ACTUAL: 48.9 VS 47.9 PREVIOUS; EST 48.2 U.S SERVICES PMI (SEP) ACTUAL: 50.2 VS 50.5 PREVIOUS; EST 50.7 U.S S&P GLOBAL COMPOSITE PMI (SEP) ACTUAL: 50.1 VS 50.2 PREVIOUS; EST 50.4 The U.S. economy will show growth, but the pace of growth is slowing in a meaningful way- especially when you look at the underlying consumer. The rise in diesel prices and re-acceleration of inflation isn’t going to help the situation at all! The slowdown in economic activity will pull down crude demand as well, which have already seen out of South Korea: Platts: South Korea crude imports tumble to 30-month low amid lackluster economic activity. The world’s fourth-biggest crude importer received 73.59mb of crude oil in August down 24.1% from 96.92mb imported a year earlier and down 10% from July. The issues aren’t limited to just SK, but will continue to be a problem throughout the remainder of this year and well into next year. For those that have been following us, you know that I have been talking about rates moving higher over the last three years. I expected to see the 10 year breach 4% with a likely move above 4.5% (which happened today) as well as a Fed Funds Rate that was going to push to 5.75%. Our view was that the Fed would “pause” rate hikes in September but it opens us up for one in November. We will get another acceleration in inflation this month with more follow through into October, and it will cause the Fed to raise a quarter point. I do think the Fed stops at this last juncture, but will keep rates at those levels for at least 12 months. This is going to cause broad pain for all global entities- especially emerging markets. The fed is making it very clear- and eventually the market will start paying attention: “Investors expect rate cuts, but more than half of Fed members say rate will top 5% a year from now.” The Fed is being VERY clear with their direction and expectations- but the market has been fighting this belief HARD. I think as the market slowly comes to realize there is no “pivot” we will see a broader pullback in the equity markets. I think it’s important to remember just how weak the consumer is getting, and the pressure we believe this is going to put on smaller/ regional banks. The bank system for the “majors” will be in a comfortable position heading into this squeeze, but we will likely see more problems in the smaller banking sector. In general, we expect to see more FDIC insurance stepping in across the country, and the Chinese banking/real estate crisis is FAR from over. As consumption and the general consumer slows down faster, it will pull down the U.S. economy as well as other regions around the world. I think the sooner the market accepts a “higher for longer” scenario- the sooner we get a bigger correction in the market. We have said from day one- the recession won’t be deep but rather shallow and prolonged- which is so far playing out perfectly. I will go deeper into this view next week as I head back to NY following my travels for Sultech. I hope everyone has a great weekend. [/ihc-hide-content] [ump-visitor ] To unlock the content you need a Enterprise Account! [/ump-visitor] [ump-logged-user ] This content is visible only for Enterprise Account! [/ump-logged-user]