Today’s Blog – Tuesday 19th January 2016

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Introduction

Over the last few days a story has been circulating in Middle Eastern media which has not been picked up much in the West – but which plays to one of our favourite themes – the hidden Game of Thrones playing out in Saudi Arabia (which could have immense consequences for oil markets).

The story has been about the potential for the ailing King to abdicate in the short term (even in a few weeks) – and for him to be succeeded not by the Crown Prince, but rather his favourite son, the Deputy Crown Prince, Muhammad bin-Salman.

Following his recent, expansive and arguably unprecedented interview with The Economist, bin-Salman has been recently named by that august journal as the “de facto” ruler of the Kingdom of Saudi Arabia.

The House of Saud dynasty in the KSA has never conducted a transfer of powers in this way and no doubt there would be plenty of room for disgruntlement amongst rival princely factions.  Particularly when said “de facto” ruler’s reign has arguably been one of disaster after disaster (oil price, Yemen, Iranian deal, executions, etc).

If disgruntlement ever turned into serious internal conflict – hello the oil price doubling in a day!

Commodity prices

Oil markets were flat yesterday, particularly as there was a public holiday in the US. Brent closed down slightly at US$28.77 – after falling below US$28 during the course of the day’s trading.  WTI remains at US$29.42.

Last week we reported on the current contest amongst investment bankers to call the lowest oil price.  Well now reality has trumped them – the low quality North Dakota Sour grade is currently selling for minus 50c – yes, producers are having to pay the Flint Hills North Dakota refinery to take this crude off their hands.

Democrat Party inclined readers will note that this refinery is owned by the infamous Koch Brothers – who will no doubt use the profits from this deal to finance yet more nefarious political activity…..

The US holiday meant that the Henry Hub gas price was also flat at US$2.10.

LNG and international gas

In another nadir for LNG prices, recently Platts benchmark Asian spot price for February fell below US$6/mmbtu.

Net that back to the field for the higher cost LNG plants like Gladstone and see what the well-head price is – close to that paid for North Dakota Sour.

This low price meme was reflected in recent Reuters reporting on Gazprom’s Power of Siberia pipeline project to China – the Russians said they are now expecting lesser volumes to be delivered later, given the poor pricing environment for gas in Asia.

No doubt the very considerable engineering challenges posed by this pipeline may also be a cause of delays.

Company news – FAR Ltd

FAR announced today the next stage of its offshore Senegal delineation program – the spud of the SNE-3 well.

Given current market sentiment, a successful well would likely lead to a sell-off of FAR shares, as the market would think – “oh no, they will want to spend more money next!”.

Company news – Armour Energy (AJQ)

AJQ’s “beautiful partnership” with the Aubrey McClendon led American Energy Partners  (AEP) seems to be falling apart almost as soon as it has been struck.  The two parties are now litigating over the terms of a farm-in deal by AEP into AJQ’s NT acreage.  And this is just after AEP took a strategic stake in AEP.  The lawyers in our readership should rush for their phones.

Presumably coincidentally, AEP recently took a stake in Argentina’s Vaca Muerta tight oil play – arguably the best shale play in the world after the US plays.  If I was AEP, I would rather invest there than in the NT.

Quote of the day

The Economist today notes that China’s leader Xi Jinping is making a rare visit to the Middle East, with the following optimistic attitude:

“He still believes China can rewrite the region’s rules of diplomacy and strengthen economic ties without getting involved politically.  Good luck with that.”

 

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