Today’s Blog – Friday 22nd May 2015


No sooner do I point out the possibility that the oil market might be like Wile E Coyote at the point he has run over a cliff, but not looked down yet, when we have 2 consecutive days of >US$1 rises.

That’s the oil-field equivalent of a TV commentator putting the mockers on a football player lining up to kick for goal by saying “he won’t miss from this distance”.

Commodity prices

As noted above, Brent closed up at US$66.54 and WTI at US$60.72.  The bulls were supported by both “events” (fighting in Iraq, Yemen, etc) and “US numbers” (inventories down).  The positive inventory numbers earlier in the week, which were initially considered to be boosted largely by the dis-connected West Coast market, were reinforced with a decent draw at the key Cushing hub as well.

The quality of data in oil markets ranges from average (US inventory numbers) to very poor (demand) to blatantly manipulated (OPEC reserves).  A Reuters report this week brought home this poor data quality issue.  It noted that if one took the supposed current supply and demand gap and compared this to actual inventory builds, then there is at least 100mmbbls unaccounted for (i.e. which should be in storage but which do not appear to be).

Henry Hub edged up slightly to US$2.97.


Ongoing Asian buyer support for Gulf of Mexico (GOM) LNG projects (linked to Henry Hub gas pricing), notwithstanding the low crude price (and hence lower oil-linked Asian LNG prices) remains strong, as recently evidenced by:

  • Cheniere (the largest and most mature GOM LNG player) stating a few days ago that it is in discussion with Chinese buyers – who have yet to sign up for Henry Hub linked gas – but see the merits in supply diversification.
  • Japan’s Tokyo Gas stating earlier in the week that it was seeking upstream gas investments in the US to match the liquefaction capacity it has already contracted for from a couple of plants under construction.

Company news – BHP Billiton Ltd (BHP)

BHP has just been fined US$25M by the US’s SEC over violation of US foreign bribery and corruption laws.  This was in connection with hospitality at the Bejing Olympics back in 2008.

This shows the very long length of the arm of the law with respect to such provisions (and which apply not only from the US – e.g. the UK also has a tough system).

I expect large companies to very closely look at their hospitality policies over such matters – which in the oil patch will currently be exacerbated by the culture of tokenistic cost cutting that this blog referred to yesterday.  Corporate boxes and even a beer and a pie at the footy will no doubt feel the flow-on effect of this BHP case.

Company news – Santos Ltd (STO) and AGL Ltd (AGL)

The Sydney Morning Herald (SMH) reported today that STO was facing significant problems from environmental regulatory agencies in  NSW over its proposed Narrabri (Gunnedah Basin) CBM project.  No good news ever seems to come from this project, which has cost the company quite a bit more than $1B.  It is not clear if the objections are politically motivated (which would not be surprising) or whether STO has just stuffed up – or both.

The SMH also reported today that AGL may chose to exit from its upstream gas business – which is heavily focused on CBM assets in NSW.  My view remains that there are no likely buyers for these assets even in a fire sale, let alone at AGL’s book value of ~$1B.

Quote of the day

I’m rounding off the week of gangster quotes with Scarface’s Tony Montana (Al Pacino).  A great definition of personal business ethics which should be strived for in the oil patch as well as the cocaine patch:

“I never f**ked anybody over in my life didn’t have it coming to them. You got that? All I have in this world is my balls and my word and I don’t break them for no one. Do you understand?”

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