Today’s Blog – Wednesday 16th November 2016

Today’s blog is a shorter “flash” blog 

Editorial

Earlier this week news emerged of some material investment moves by Warren Buffett’s Berkshire Hathaway – which the broader investment community will always look closely at and take some cues from.

Two decisions in particular seemed to represent negative views on the oil price – at least in the short/medium term.  The first – and most surprising given Buffett’s long term and well known antipathy to the sector – was the making of large investments in US airline companies.  A couple of years ago Buffett noted that:

“Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results.  It’s been a death trap for investors.”

Berkshire has also been selling out of its large investment in Canadian oil sands company Suncor Energy.

So Buffett is going long on an industry whose performance is inversely correlated to oil prices and taking a shorter than previous position on one of the highest cost areas of oil production.

He is not always right – but compared to us, he is about US$70 billion in front.

Commodity prices

Crude prices had a very sharp upwards run yesterday – more than 5% in both London and New York, with Brent up to US$47.04 and WTI closing at US$45.83.

The drivers of the day were pretty insubstantial in our view – various noises from OPEC members about the meetings they are having to push for a freeze/cut decision at their formal conference due on 30th November.

Henry Hub closed up ~1.4% at US$2.71.

LNG and international gas

This morning we noted a report from Alaska about the regulatory process surrounding the proposed AKLNG project in the State – which illustrated that there is a fairly large thicket of regulations and red/green tape that could do with pruning by the incoming Federal administration.

Specifically, the Federal Energy Regulatory Commission has just lobbed the project with 278 pages of questions and requests for information – in connection with only 5 out of 12 required draft environmental reports.

And this is for a project which has zero chance of going ahead given current LNG markets, its misaligned ownership, cost structure, weak State Government leadership (and sovereign risk), etc.

On the other side of the Pacific (but apparently within viewing distance according to ex-Governor of Alaska, Sarah Palin) – an overnight development in Russia supported our thesis of yesterday about a brawling Kremlin.

This was the arrest on apparently flimsy charges of Economy Minister Ulyukayen – who had recently earned the displeasure of Rosneft’s CEO Igor Sechin (clearly echoed by “Tsar” Putin who would need to approve any such move).  Instability in Russia will only encourage the strong long term secular trend of distrusting it as a potential gas supplier.

Quote of the day

Another one from Buffett on investing in airlines:

“If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money”.

 

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