Today’s Blog – Friday 18th December 2015

 

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Introduction

Naughty oil market!  I go away for a couple of days and you continue to misbehave, with WTI now dropping through another support level – with US$35 now breached.

Earlier this week respected blogger Euan Mearns released his prediction for the oil price one year for just now – US$37 – and that after periods of lower prices in the interval.  We could not fault his logic – which is everyone is producing flat out, demand is increasingly only slowly and additional Iranian crude will come back to the market.

We could add that material Libyan supply could also come back.

Calls this week from OPEC members Nigeria and Indonesia for an emergency meeting to agree to cut production would seem to have very little chance of success.  And Indonesia seems to have already forgotten that it is material importer and that as such low prices are in its interest.

Commodity prices

As noted above, WTI closed at US$34.95, whilst Brent was down at US$36.94.  The last few days have seen bad “numbers” from US inventory reports, with crude stocks up nearly 5 mmbbls (counter to the normal pattern at this time of year) and gasoline/distillate stocks up 4.3 mmbbls.

Some observers have concluded that outside the US there is very little spare physical capacity and that the US is acting as the storage destination of last resort.

This is happening at the same time as Washington finally seems likely to deliver the removal of the 1970s crude export ban (as we speculated some weeks ago).  In the lead-up to this the WTI-Brent spread has been narrowing.

Henry Hub is suffering even worse than crude, with the closing price yesterday being US$1.73 (i.e. now less than US$10.50 per barrel of oil equivalent).

LNG and international gas

Good news for Australia but bad news for over-supplied global LNG markets – the mighty Gorgon project should be ready for the despatch of first cargoes in February.

Alert to shipping lanes – this is similar timing to first cargoes leaving the US gulf coast and the ongoing ramp-up from Gladstone in Queensland.

At the same time, Indonesian authorities have recently flagged they expected there to be 50-60 “spare” cargoes to sell into tight LNG spot markets next year.

Governments and fracking

The UK Government has just awarded 93 onshore oil and gas licences.

Based on the history at Cuadrilla, drilling may start on these in 10 or more years time.  Councils still have an approval role and there will likely be fierce opposition to any operation with a hint of fracking – i.e. in the eyes of opponents, all of them.

Judging by the map of licence areas, God has cunningly deposited the UK’s shale basins largely outside the areas in which the governing Conservative Party holds most of its seats.

Company news – Santos (STO) and Beach Energy (BPT)

This blog is very aware that all of its readers like nothing more than dry facts about oil prices, inventory levels and dry holes, and that gossip and tittle-tattle about the industry is of no interest whatsoever.  Bearing that in mind – please skip to the next article.

For those left – some gossip on the CEO succession processes at STO and BPT earlier this year.  Various sources have advised that STO’s new CEO, ex Woodside executive Kevin Gallagher, was passed over for the much smaller BPT job earlier in the year for his ex-Woodside colleague, the short stinted Rob Cole.  Never mind Kevin, the BPT Board has not shown themselves to be the world experts in managing CEO succession issues.

Company news – BPT and DLS

More prosaic stuff – various legal milestones were reached this week in connection with the BPT takeover of DLS.

Company news – Origin Energy (ORG)

The Australian newspaper today flagged that ORG’s plans to prune down its upstream business could extend beyond the Cooper and Perth Basins.

This accords with our view that ORG is on track to at least give its Board the option of completely exiting the upstream.

Company news – Woodside Petroleum (WPL)

WPL recently provided a guidance update that is a microcosm of the whole oil industry – it will increase short term production whilst reducing capital expenditure.  The result is the same for both – short term revenue maximisation and fewer long term growth options.

Quote of the day

In his end of year annual press conference, President Putin joined in the fun that is the battle for Republican nominee for the US Presidential race, describing The Donald as:

“There is no doubt that he is a very bright and talented man.”

Will the Nixon-ian Ted Cruz be jealous of such praise, coming as it does from a political operator of the degree of ruthlessness that he seems to want to aspire towards himself?

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