One of our predictions for 2017 made at the start of this week has already turned out to be wrong. This was that the Donald would not affect oil markets in the short term (absent a war). However, yesterday’s Presidential-elect news conference moved the oil market materially – a rise of nearly 3% as the dollar fell in response to his agenda-setting.
Our main market moving categories are now “events”, “numbers”, “technicals” and “Trumps”. The latter was more important than the key weekly “numbers” – the EIA’s inventory report – which was ultra-bearish and normally would have sent the market reeling.
The numbers on this occasion were a crude build of 4.1 mmbbls, a gasoline build of 5 mmbbls and a distillate build of 8.4 mmbbls. If that is the start of a trend – watch out low US$40s/bbl (or worse). Hopefully however the Donald can schedule weekly press conferences at the same time as the weekly EIA report and address them in the style that The Economist today pithily characterised as follows:
“the man who spoke to the world on the morning of January 11th was, whether judged in terms of his character or on questions of substance, the same bullying, thin-skinned but brilliantly populist man who campaigned with such success”.
As noted above, oil prices rose overnight, with Brent closing at US$55.10 and WTI at US$52.25.
Some other potentially market moving news items that have emerged recently:
- The US Government is to sell 8 mmbbls of crude from its strategic petroleum reserve (of nearly 700 mmbbls – Australia’s SPR on the other hand is a big fat zero – no geo-political risks in our region!). Funds from the sale will be used for maintenance of SPR facilities.
- Wood Mackenzie has tallied total oil discoveries for the calendar year 2016 – just over 3 billion barrels. Total oil consumed in the year was more than 10 times this……
- OPEC fighting and cheating is on already – with for instance the Iraqi central Government complaining about Kurdish exports to the North whilst shoving as much crude as they can out of Basra in the South.
Henry Hub has been flat-ish over the last few days, closing overnight at US$3.22.
LNG and international gas
Recent news stories on potential changes to the Australia/East Timor maritime border have focused on the East Timorese gaining full taxing rights over the Woodside Petroleum (WPL) operated Sunrise gas deposit.
In our view that project was well down the queue of 100 LNG projects looking to fit into what many in the market have characterised as space for only 5 projects.
Increasing its sovereign risk moves it even further down the queue. So 100% taxing rights over nothing is not a lot.
A bizarre recent story has been the signing of an agreement between Australian and Japanese maritime authorities about the potential shipping of hydrogen from Victoria to Japan.
Apparently this hydrogen would be obtained from Victoria’s large – but very dirty – brown coal deposits. Ahh – that’s a clean fuel! Must be better than that evil fracked natural gas, though say the Citizen Smith’s running the Victorian Government.
To this layman a hydrogen boat would be much worse than a LNG vessel in terms of its safety or its energy density.
This is not a story we expect to ever be turned into reality.
A more interesting story from the disruption side of things concerns a recent PRC Government announcement that the country will invest a handy US$360B over the rest of this decade in renewables (including nuclear). Your blogger is currently in the highly polluted capital of Mongolia – which is experiencing similar horrendous air-borne particulate pollution as Northern China. Not breathing well today is more political than greenhouse gases affecting one’s grandchildren…..
Quote of the day
From a Mongolian man after I explained the recent news stories about the Russians holding some dirt over the Donald (faint-hearted ones look away now):
“What’s a golden shower?”