Today’s Blog – Wednesday 15th June 2016

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Its another short blog today folks.

We spoke about Brexit yesterday morning and later in the day the Australian market had a very bad day inspired by fears of instability caused by a “leave” vote in the UK next week.  Oil stocks performed even worse than the market overall.

Can we think of any against-the-herd potential positives that could come out of Brexit for oil markets?  Thats a struggle and the following lame dot points are hardly a ringing manifesto for change:

  • If the hopes of its proponents prove correct, Brexit may deliver a stronger UK economy in the long term as it shrugs off sclerotic Euro rules – and duly encourages European reformers more generally – leading to a stronger world economy and higher oil demand.
  • In a rather different scenario, Brexit causes a complete investment strike in the North Sea and production falls faster than trend – which could have some marginal impact on global crude supplies.
  • Err, that’s about it.

Commodity prices

On Monday WTI fell through the very short lived US$50 barrier and overnight it was the turn of Brent to do the same.  The former closed down nearly 1% at US$48.49 and the latter fell a bit less to US$49.83.

Brexit fears appeared to be the prime cause, notwithstanding fairly bullish medium term reports coming out from the likes of the IEA, who made the following prognostication for the second half of this year:

“Assuming no further surprises [we expect the] oil market to be balanced”.

Henry Hub continued its rise – up nearly 3% overnight to close at US$2.60.

LNG and international gas

An interesting snippet on what in the West is a fairly obscure source of international gas – gas piped all the way from Turkmenistan to China’s East Coast along the West-East pipeline (and which therefore directly competes with LNG markets).

This was that the pipeline had recently passed the 300 billion cubic metres of shipped gas mark (or nearly 11 trillion cubic feet to us volumetric imperialists).

Company news – Exxon (XOM)

The Australian Financial Review (AFR) today published a rather strange story noting that XOM might sell a fairly large chunk of its >50 year old Bass Strait operated oil and gas assets.  The source of the story was said to be industry service sector giant Schlumberger (SLB) – and we cannot imagine why SLB would be quoted in this context.

XOM and its partner BHP “no commented” the suggestion.

The increasing desperate world-wide search for yield in any form by investors would suggest one of the few reasons why someone might want to buy such a late life asset over which it could exert effectively no influence.

Quote of the day

Some refreshingly non-politically correct and patriotic comments from a Russian MP on his countrymen’s recent rioting in the Euro Championships currently being held in France (note to self – cancel those tickets to go the World Cup in Russia in 2018):

“In nine out of 10 cases, football fans go to games to fight, and that’s normal.  The lads defended the honour of their country and did not let English fans desecrate our Motherland.  We should forgive and understand our fans.”


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