House of Cards Season 4 is Great, Although Wrong on Energy Markets

by Matthew Mattingly

If you are one of the 30 million domestic subscribers to Netflix (or one that just steals your friend’s login credentials) then there is a good chance that you have watched the television series House of Cards. The fictional, political drama describes the life of Frank Underwood (played by Kevin Spacey) as he ruthlessly develops a plan to gain power within Washington DC. The beauty of the show is how it addresses issues that are affecting politics in present day, even being prophetic by foreseeing topics facing Washington after the show has already been filmed. Examples include….

WARNING: SPOILER ALERT
House of cards table

WARNING: SEASON 4 SPOILER ALERT

Season 4 of House of Cards was released this past Friday and many loyal watchers probably binged watched the entire season over the weekend. I am not going to lie; I already knocked out three episodes myself and looking forward to watching the rest of the season. However, I was disappointed in Episode 3.  Not that it wasn’t entertaining (the Underwoods are as vindictive as ever), but the show missed the mark on America’s current energy position.

In summary, Season 4, episode 3 discusses an oil crisis that is affecting the United States. The crisis is a result of Russia cutting oil exports to get revenge on the Unites States. With less Russian oil available in the world market, the price of oil explodes. Oil pricing moves to over $150/Bbl, gas at the pump is over $6.00/gallon, and shortages occur throughout the United States like its 1973 all over again.  This sets up yet another obstacle that Frank Underwood has to overcome in his presidency and worse yet, it’s an election year.

As usual, this makes for a riveting storyline, and allows more screen time for Petrov (great actor/character by the way), but how likely is it events like this could actually happen? Extremely unlikely, and here’s why: The United States is swimming in oil and natural gas right now! The fracking revolution has nearly doubled production in the United States making others oil producing countries find a new home for their exports. Since the last half of 2014, simple economics of supply & demand have crashed oil prices (House of Cards Season 4 began filming in June 2015) trading as low $30 US/Bbl at the beginning of 2016. Even with the oil market going through a “rally” this past week on the news of potential OPEC freezes, prompt month oil is still having trouble breaking through the $40/Bbl resistance level.

WTI Prompt Month Pricing

Another issue with the House of Cards storyline is the theory that United States depends heavily on Russia oil. Granted Russia is the world’s largest oil producer, but they are mainly exporting oil to Europe and China, not the United States.  In fact, even before the fracking revolution started the United States received very little oil from Russia. The pie graph below illustrates the small percentage of oil that Unites States received from Russia during 2007 and 2008 time period. With little reliance on Russian oil a cut in exports would have a minimum impact on United States oil prices, and would more than likely lead to a larger spread between WTI and Brent oil prices.

US Imports by Country of Origin and US Crude Oil Field Production

Finally, the oil market, specifically the US benchmark WTI market, has a ceiling in regards to price. With so much US oil supply available in shale plays, combined with the quick turnaround for producers to get supply to the market; it would be nearly impossible for $150/Bbl to occur. US producers are ready to increase their exploratory rigs counts at $50/Bbl, could you imagine how many rigs would be in the ground at $150/Bbl?

House of Cards is a very entertaining show that does a great job of bringing the dark side of Washington DC into your living room. What has been fascinating over the years is how the shows parallel itself with current headlines facing the US capital. That is why it was a little frustrating watching Season 4, Episode 3 as it missed the mark on America’s current energy position. Even with this flaw, I definitely recommend watching the show. It was just too hard for an energy analyst to watch Episode 3 and not comment on it.

Confidential: Choice Energy Services Retail, LP.