Today’s Blog – Wednesday 25th November 2015

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Monday’s market fluctuations in response to what was otherwise a typically anodyne speech by Saudi Arabia’s Oil Minister, al-Naimi, reminded everyone of the power of the Kingdom in the otherwise weak organisation that is OPEC.

US energy analysts Tudor Pickering Holt (TPH) summarised the picture well in their daily note of yesterday:

“Rule number one of OPEC is listen to the Saudis as they are driving the bus. Rule number two – when listening to other OPEC members, refer back to rule number one”.

TPH concur with our view that the most likely outcome of next week’s OPEC meeting is “do nothing” – but notes small probabilities of a supply cut (10%) or even a supply boost (15%).

As we stated yesterday, we think there is another small probability (say <10%) scenario – Russia seeks to establish itself (with some key allies) as the new swing producer.  We note that Putin is visiting Iran at present and the 1,500 years of Sunni/Shia enmity seem as high as just about forever at present.

Russia/Iran/Shia Iraq could dominate the Gulf States in terms of current production – and in Iran’s case in particular, genuine, if long term, spare capacity.

As we noted yesterday – intriguing but unlikely.  If however this started to happen, it would certainly re-cast the “events” world for oil markets.

Commodity markets

Crude prices rose reasonably strongly over-night – in response to Middle Eastern “events” for a change.

Brent closed up ~3% to US46.14 and WTI rose ~2.5% to US$42.87.  The “events]” in question was the shooting down of a Russian jet taking part in the Syrian bombings by Turkey.

In the meantime, the “numbers” build-up in the US to Wednesday’s inventory numbers went on, with analysts predicting a small decline.

Henry Hub natural gas prices fell a few cents to close at US$2.19.

Company news – Australian companies

There is very little news of interest emerging from the Australian oil patch at present, due to:

  • The run up to Christmas/year end is on and business, especially in sunny Australia, is reducing its pace (to put it mildly – Test Matches need crowds, etc!.
  • Lack of funds means exploration is the exception rather than the rule.
  • The soap opera from the Santos strategic review has ended – at least for just now (roll up, roll up for tickets for next year’s AGM).
  • The Woodside/Oil Search takeover proposal is stuck in the no man’s land of a buyer not willing to pay a large premium and a target with a strong position such that it can effectively reject what has been offered to date.
  • Some asset sales are taking place – but interest is constrained by a lack of funding at most potential buyers.

Hopefully there will be a few surprises, and “events” (of the non-Middle Eastern kind) will arrive to spice things up a bit.

Quote of the day

Following on from yesterday’s quote about the sheer scale of investment required to actually produce the Middle East’s oil reserves and resources, we have another quote from al-Naimi that illustrates the scale of the issue:

“Annual depletion from producing fields is running at about 4 million b/d. The petroleum industry needs to add 5 million b/d of new production every year to satisfy future demand.  This needs financial solutions at the Arab and international level. Investment should include all the phases of production and manufacturing.”


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