Today we have time for only a shorter flash blog
Whilst we were toiling over yesterday’s blog, Rex Tillerson was being grilled in US Senate hearings into his proposed appointment as Secretary of State.
With some sort of weird serendipity, our blog bemoaned Australia’s lack of a strategic petroleum reserve (SPR) whilst living in a potentially volatile geo-political region – at the exact same time that Tillerson raised the concept of a blockade of China’s recently built military facilities in the South China Sea. The last US blockade was over Cuba in 1962…..
Even Australia’s sanguine politicians and bureaucrats should be able to see that any such blockade would have massive geo-political consequences – not least of which could be potential disruptions to the greater than 3/4 of a million barrels of crude (and more so product) that we import every day from the likes of Singapore (consult your map Canberra – not far from the South China Sea). However, we fear that in the short term at least they will be slow to grasp the connection.
Crude prices rose again overnight, with Brent up ~1.6% to US$56.o1 and WTI up ~1.5% to US$53.03. The bullish factors of the day were positive news about cuts actually taking place in Saudi Arabia, the Gulf States and Russia – and positive news on higher than forecast Chinese demand. OPEC has scheduled a somewhat informal meeting in Vienna next week to discuss progress on the cuts, which could provide more market fillips.
Henry Hub closed up strongly (~5%) at US$3.38.
LNG and international gas
Russian gas increased its market share in Europe in 2016 – basically it was cheaper than competing LNG sources and the North Sea continued to decline. However, as more US liquefaction capacity comes on line over the next few years, US gas should be able to increase its currently tiny market share in the Old World.
Cold weather in Europe as well as Asia has strongly boosted LNG spot prices in both the Atlantic and Pacific. More US liquefaction will allow more trading of Henry Hub priced gas into these currently pricey markets. The ultimate result should be higher US prices and lower prices elsewhere. That will likely do more for the US coal sector than any change of political sentiments towards coal in Washington.
Quote of the day
From US Secretary of Defence in 1962, Robert McNamara:
“I want to say, and this is very important: at the end we lucked out. It was luck that prevented nuclear war. We came that close to nuclear war at the end. Rational individuals: Kennedy was rational; Khrushchev was rational; Castro was rational. Rational individuals came that close to total destruction of their societies. And that danger exists today.”