Today’s Blog – Friday 24th July 2015


Its a slightly later than normal blog today – your correspondent was inspired by last week’s Open Championship at St Andrews to venture out onto the links.  Naturally swearing and frustration ensued – but probably less so than for oil traders with long positions in the last week or so.

Commodity prices

Oil prices fell again last night, with Brent closing at US$55.27 and WTI at US$48.45.  No particular new stories came out – rather the fall was an ongoing reaction to the prevailing view that there is a material over-supply, with this week’s EIA inventory numbers reinforcing that.  And no-one in the Middle East was smiting anyone any harder than normal (which was still pretty hard, but hey, markets get used to these things).

The Henry Hub natural gas price fell a few cents to close at US$2.82 – again on fears of enduring over-supply, as informed by weekly higher-than-normal storage injection statistics.


Russian officials said this week that the proposed Altai gas pipeline (to take gas from existing Western Siberian gas-fields to Western China on a route just between Kazakhstan and Mongolia) had been “postponed”.  The rationale given was that Chinese gas demand was less than expected – which rings true with other recent news about Chinese growth and low gas demand.  What is true for pipeline gas is also true for hoped-for LNG sales to China.

Typically, the Chinese/Russian interaction on Altai is not only about markets.  The Chinese said that they had offered to do things cheaper than the Russians in terms of building (and owning……) the gas pipeline – but the Russians had likely not been too keen on the surrender of sovereignty that this would involve.

Governments and fracking

Cuadrilla’s long delayed shale gas exploration program in the North of England is now taking the next regulatory step – the appeal of the recent Lancastrian Council decision to prevent its drilling program.  Over recent years Cuadrilla has no doubt spent much more on the legal profession than on geologists and engineers – and in my view this proverbial “field day” for the lawyers is likely to continue.

Over in Oklahoma, the State Government is introducing new restrictions on oil-field activities to deal with the increasing incidents of seismic activity that scientific opinion is increasingly saying is caused by oil-field waste-water injection.  The media has reported this (in headline terms) as reduction in “drilling activities”.  However, it is clear that the new regulations address water-disposal, not drilling and completions.

Governments and Strategic Petroleum Reserves (SPR)

The US’s SPR was making political news this week – with a plan in Congress to sell barrels out of the SPR to generate funds to pay for roads. The US SPR holds ~700 mmbbls, so it is an attractive piggy-bank to raid when Congress cannot otherwise agree on tax measures.  The Senate’s Lisa Murkowski (R-AK) has strongly opposed this proposal, on the sensible grounds that the SPR is there for a reason other than to be raided for cash.

Unfortunately in Australia, we have no SPR and the political will to remember that the nation can actually be vulnerable to oil supply shocks of various magnitudes (1941 anyone?) is non-existent.

Company news – AWE Ltd (AWE)

AWE announced today that it would not proceed with the – wait for it – fracking of a well previously planned in one of its smaller Perth Basin joint ventures.  Although the announcement couched the rationale for this decision as being on technical grounds, my view is that this was a sensible move to avoid stirring up potential local opposition to its much larger other Perth Basin current activities.

Quote of the day

From the wit of P G Wodehouse on the type of golf I was playing today (that reminds me – our regular character The Donald would no doubt fit well into one of Wodehouse’s novels….):

“The fourth hole found him four down and one had the feeling that he was lucky not to be five.”

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