The Game of Thrones over in the Middle East continues to rapidly notch up its conflicts, violence and intensity – with potentially very consequential impacts on energy markets.
Immediately following on from the unexpected embargo imposed on Qatar by the Saudis and friends (an expanding group – now including African Muslim nations, etc) has been a series of suicide attacks against major targets in Iran – its Parliament and possibly the even more sensitive (in religious terms anyway) – the tomb of Ayatollah Khomeini. These events are arguably related – and threaten major escalation in the centuries old Shia/Sunni rift.
Some intelligence analysts have been quoted as saying that President Trump has been played for a fool by the Saudis (no!) and there are clearly major rifts in the US Administration over support for Qatar.
So what do these “events” mean for oil and gas markets:
- The bear case for oil is that the current OPEC deal will either openly collapse – or as a minimum cheating will escalate. Result – more oil into markets and an oil price that could hit the US$20s again.
- The bull case for oil (if not the world) is that military escalations result in the passage of crude cargoes in the Gulf being interrupted. Result in this instance – hello US$100+ oil again.
- On LNG, our view today is somewhat less sanguine than yesterday. Again physical interruptions to Gulf traffic – Qatari LNG cargoes – could arise. Spot LNG prices would respond on the upside. Unlike for crude, there is no behind pipe gas that could just be turned up and flood markets.
“Events, my dear boy, events!”
Crude markets took exactly zero notice of these “events” last night – rather they were focused on a very poor and unexpected set of “numbers” from the weekly EIA inventory report. Brent closed down ~3.5% at US$48.19 and WTI was smashed nearly 5% down to US$45.72.
Earlier in the week predictions were that the weekly crude stocks would be a continuation of the previous few months’ withdrawals of a few million barrels each week. Instead the EIA reported a build of 3.3 mmbbls (although 1.7 of this related to SPR sales). Gasoline also grew by 3.3 mmbbls and distillate rounded out the unfortunate trifecta with a build of 4.4 mmbbls. If this is repeated for a few weeks, the bears will have a field day.
Given these multiple issues, oil prices are likely to be highly volatile – and could dramatically break up or down depending on the news flow du jour.
Henry Hub was more sedate – falling 1.3% to US$3.02.
The Victorian Government deserves a prize (in a highly competitive contest) for its sheer shameless hypocrisy – a State that has banned all onshore petroleum activities (“why? – just because we can – one of our hipster mates in Melbourne saw that movie Gasland and do you know what, gas came out of a tap!”) has just escalated its calls for tougher domestic gas reservation policies and export restrictions. Pathetic.
Not as bad – but still somewhat pathetic – is news that the New South Wales Government is gazetting some exploration acreage. But in the West of the State – as far away from Sydney as possible – where the sound of braying Mooses is the only noise one might hear (do Mooses actually bray – any Canadians out there?). And where capital markets will not put any exploration dollars. Pointless.
Company news – Woodside Petroleum (WPL) and FAR
The longstanding pre-emptive rights dispute between WPL and FAR might finally be publicly hotting up. WPL has issued an ASX announcement this morning stating that FAR is seeking to block its assumption of certain operating roles – on the grounds that its deal to acquire Conoco’s interests in Senegal was not properly dealt with.
FAR has not issued its own ASX announcement – which gives the impression, no doubt deliberately – that it is playing a cool hand whilst WPL’s CEO is coming over all emotional.
Company news – AWE Ltd
AWE has announced today it is moving to FEED over its onshore Perth Basin Waitsia gas development. It will be fervently praying that the East Coast frack ban moratorium (already in place South of Perth) does not infect Sandgroper politicians as much as Victorians.
Quote of the day
WA’s Premier McGowan might be far too busy dealing with the big issues to impose a gas moratorium. In sticking to impeccable socialist principles he is developing a policy for when and where mid-strength beer should be sold in Perth’s new football stadium:
“I have a view that if there’s going to be midstrength for the crowd there should be midstrength for the people in the boxes. I don’t think it should be a two-tiered system.”