Today’s Blog – Monday 9th May 2016

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The weekend saw big news in the oil patch with potentially much greater implications than the dominant media stories about the massive Canadian wild-fires in the Albertan oil patch.  This was the replacement of Saudi Arabia’s long serving oil minister, Ali al-Naimi, who has effectively led oil policy in the Kingdom (and hence over OPEC as well) for the last few decades.

His successor is current Aramco Chairman Khalid al-Falih – who will head a Ministry with a new name – the Ministry of Energy, Industry and Mineral Resources rather than the boring old Oil Ministry.

Clearly the fingerprints of the KSA’s de facto ruler, Deputy Crown Prince al-Salman are all over this move, as it fits well with his recent promotion of his plans to diversify the economy, etc.

The move potentially also reflects a response to the “debacle in Doha”, which saw in the days running up to it quite different messages coming from al-Naimi (there will be some sort of a deal) and al-Salman (we will not do a deal with Iran).

It may be that al-Naimi was seeking to move OPEC back towards a price rather than market share focus, but al-Salman is sticking to the course set (it may be politically dangerous for him to change it) in 2014 – and believes his own hype about the liberalisation of the KSA’s economy.

What will crude markets make of this unexpected change?  If our thesis is correct, then the move is bear-ish – but on the other hand any hint of destabilisation in the world’s largest crude exporter could aid the bulls.

Commodity prices

Crude prices finished up ~1% at the end of the week (although were down for the week as a whole by around 3-4%).  Brent closed at US$45.37 and WTI at US$44.66.

The Albertan wild-fires have now shut in a material ~1 mmbopd of production, which should overhang the market even more this week as players absorb the vivid media images, etc.

Human reality is that “events” closer to the homes of the commodity market players will affect markets more than those in more exotic places like Nigeria and Venezuela.

The former has recently seen another physical attack on production facilities by “rebels” whilst in the latter Halliburton is following Schlumberger in cutting back work due to non-payment.  Production will inevitably fall if the two super-giants of the service sector are not undertaking ongoing work.

Friday’s BHI rig count continued its fall, with oil rigs down 4 and gas rigs down 1.

Henry Hub closed up 1% on Friday (and 2% for the week) at US$2.10.  Canadian gas production and exports to the US are also being affected by the fires.

LNG and international gas

Another LNG market liberalisation story – Russia’s Rosneft announced last week that it had sold its first ever LNG cargo – to Egypt.

Rosneft is building up a LNG trading capability many years away from actually having its own LNG production (e.g. from Sakhalin) – no doubt to the annoyance of its local rival Gazprom.  Divide and conquer did I hear you say Mr Putin?

Company news – Santos (STO)

It seems that this blog is not the only purveyor of rumours about STO’s Chairman on the one hand crying poor whilst on the other hand using a corporate jet.  On Saturday that august journal the Adelaide Advertiser noted that it had asked STO whether the company owned, leased or used a jet.

In a reply that appears to be a finely legally parsed one, STO’s CEO advised that “Santos does not have a corporate jet”.

Hopefully this story will run and run.

Quote of the day

A quote from al-Naimi that seems to show some – but clearly not enough – accord of thinking between himself and al-Salman:

“We know that pumping oil out of the ground does not create many jobs. It does not foster an entrepreneurial spirit, nor does it sharpen critical faculties”.


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