Today’s Blog – Tuesday 5th May 2015


Its been a quiet day in both commodity markets and the ASX so far today, so the blog is somewhat shorter than normal.  No doubt “events” will occur shortly which will put some life back into the markets….

Commodity prices

Brent was flat at US$66.45 and WTI declined slightly to US$%58.93   Last Friday’s BHI rig count in the US still showed an ongoing decline – this time by 27 rigs – a similar figure to the previous week’s, which indicates the count is bottoming out, but has not yet bottomed.

Bloomberg has reported that OPEC has blamed “speculators” for part of the extent of the fall in crude prices in the last 6 months.  This handy group of nefarious types are usually also blamed (in all sorts of markets) for prices rising, falling, not rising or falling enough, or being stuck unsatisfactorily in the middle!

Speaking of OPEC (or more accurately, the Kingdom of Saudi Arabia), the FT reported last week that the KSA’s savings fund had declined in the last 2 months by a cool US$36B.  A handy US$691B was still left – but at the rate the new King is dishing out bonuses, etc, to ameliorate potential concerns over his change to the succession, this pool of funds will continue to be eaten up at an uncomfortable rate.  Still, I can’t see the Saudis changing their current tactics of maintaining market share for some time, if at all.

Henry Hub closed up at US$2.80.


Chevron advised the market on Friday that it would not be proceeding with a FID on its Kitimat LNG project in Western Canada this year.  Its new-ish partner in this project is of course Woodside Petroleum Ltd (ASX: WPL).

That is no surprise to your blogster, who notes that all of the British Columbian projects still have multiple issues to work through before FID.  For instance, the most advanced of these projects, led by Petronas, is currently negotiating with native groups over potential payments to them totalling C$1B over the life of its project.  Such negotiations generally do not proceed at the pace commercial parties would like.

Company news – AGL Ltd (ASX: AGL)

AGL’s new MD yesterday announced the filling of senior positions following a recent corporate reshuffle.  No information was given on the future of the company’s upstream gas business, which remains under review.  This business has a book value of A$1B – but contributed a slightly negative EBIT in the most recent financial report.  Clearly if this business could be sold for book value and the proceeds re-invested in AGL’s other EBIT positive businesses, that would be strongly earnings accretive for the company.

However, I very much doubt that AGL’s NSW coal-bed methane assets (the bulk of AGL’s upstream gas business) could be sold at all at present, let alone at what appear to be lofty book values.  It will be interesting to see what the new MD does – cut his losses, put the assets on the back-burner or try to make the political push that would be required to turn them into EBIT positive assets.

Company news – Saudi Aramco

The mightiest of oil companies, Aramco is also going through a corporate re-shuffle – but with a slightly more Game of Thrones aspect to it than AGL’s.   The new King’s favourite son (now second in line to the throne – at least while his father is alive!) has been appointed as Chairman of a new supervisory Board of Aramco.  At 30 years of age, no doubt he has almost 50 years less oil experience than respected Oil Minister Al-Naimi.

Quote of the day

The ignoble/noble art (take your pick – most favour the former) of speculating was illustrated well in the classic 1920s book, Reminisces of a Stock Operator from master stock-market trader, Jesse Livermore.  A quote therefrom, which cuts through in its simplicity:

“Obviously the thing to do was to be bullish in a bull market and bearish in a bear market”.

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