Did gasoline prices go up as expected this week?
Yes, and to the tune of a 5.4 cent national average increase. Based on last week’s analysis on the impact of increased crude prices on gasoline, expect prices at the pump to continue to creep up another 5-10 cents this next week as the market continues to adjust to the investor optimism in demand.
AAA has a useful chart updated weekly showing prices across the country, demonstrating the impact of state taxes and regional market (see graphic).
Last week’s crude oil gains holding steady
Crude oil prices continue to hold on to the jump to $32/bbl seen last week, adding another $1/bbl as it slowly climbs. Continued momentum in opening up the economy, demand possibly catching up with supply by the end of June, and Russia considering extending output cuts beyond June have kept investors cautiously optimistic.
Even still, current prices are hardly a cause for celebration. Most oil companies are hoping for $45-$50 oil in order to resume normal activity.
“At $30, the financial blood-letting will continue. Roughly 73 E&Ps in the U.S. could be forced into bankruptcy this year if oil remains stuck at $30 per barrel, according to Rystad Energy. Another 170 companies would go under in 2021. If oil falls back below $30 per barrel again, the number of bankruptcies would climb even higher.” – OilPrice.com
Texas mineral owners brace for significantly higher property tax rates
Right when unemployment hits a record high and royalty checks are mere fractions of what they were in February (if still coming at all), mineral owners are facing the tough reality that property taxes are based on a January 1st appraisal values.
Typically these property taxes (or “ad valorem” taxes) end up being roughly 2-3% of annual income, however the tax is a fixed lump sum regardless of what the next year’s annual income actually is and the assessment only changes once a year (just like a tax appraisal on a house). Lower commodity prices and shut-in wells are reducing some mineral owner’s income enough to where the property tax could be up to a whopping 15% of actual 2020 royalty income, adding insult to injury on an already tough year.
US Rig count down another 6% from last week
The US rig count dropped another 21 rigs this week from oil drilling while gas drilling maintained rig count. There are now only 318 active rigs in the US, a reduction of 474 rigs since just March 13th.
Notably, the Eagle Ford is hanging in with the lowest activity decline at 24 active rigs (down from 80) largely due to ConocoPhillips’ decision to maintain seven drilling rigs and build a large “DUC” (drilled uncompleted) inventory in DeWitt and Karnes County. Recent presentations from the company summarizes ConocoPhillips’ view (and others in the industry) that “companies with strong balance sheets and low incremental cost of capital are uniquely positioned to add value for shareholders in current circumstances by deferring production.”
