Aussie Open, second test and Burns Night
WTI $99.21 -37c ; Brent $109.69 -66c ; Natural Gas $2.56 +4c
Good morning
The oil price is slightly off today after the IMF reduced their forecasts for world GDP, as if we needed to be told and with few other bullish stats around. On the subject of stats, the Wall Street brigade of analysts yet again showed their collective incompetence by being out by a factor in their guesses (and I use the word advisedly) for the API crude inventory which was forecast at 800,000bbls and came in at 7.3m – full marks chaps.
Finally on the oil price front I heard a story yesterday that rather tickled me, a suggestion has been made that China and India, in order not to have to pay for Iranian crude in Yankee dollars they would pay Iran in gold. Now even at 1m barrels a day it doesn’t take a mathematician to work out that they would need 50 tonnes a month of gold so if that happens you know which forward market to buy first!
President Obama gave his State of the Union address last night where he showed a new –found interest in the resources industry after being told that it was actually doing rather well. Calling it “American made energy”, (natural gas to you and me) he dedicated his administration to the further development of shale gas in the future. The idea of natural gas being the clean- and cheap- fuel of the future obviously appealed to him and he couldn’t resist a poke at ‘old oil’ who he claimed had been subsidised by the taxpayer ‘for a century’. Talk about bandwagons and jumping, this speech ironically also suggested opening up more than 75% of the US’s offshore oil and gas resources, the rest having been successfully exploited by tax break driven explorers of the past!
The signing of a deal between South Sudan and Kenya yesterday, to build a pipeline from the oilfields to the port of Lamu is sure to create further problems in the short term even if it does ameliorate matters in the long run. South Sudan have been aggrieved by the $32 a barrel tariff charged by Sudan and have recently shut in all their crude which amounts to around 375,000 b/d. I suspect that with a pipeline needing to be built and funded ( less easy when you have just shut in $40m a day of revenue) which will take at least a year at most optimistic expectations, tensions are likely to remain very high for the foreseeable future.
Company news today is a bit thin so the Weir Group acquisition of Novatech LLC for $176m (£113) is our lead story. After the last few days when investors have been worried about the company’s exposure to the shale gas industry this acquisition shows that the company are happy with the sector and accordingly buying a pumps and valves business to complement SPM and Seaboard makes a lot of sense. Paying for the business out of existing facilities, Weir say that the acquisition will be immediately earnings accretive and returns will be higher than its current cost of capital. We have thought very carefully about our Weir recommendation in recent days and feel that as with Hunting, the opportunities far outweigh any negatives in this still dynamic, fast growing area of oil services. Accordingly we still remain very positive on both stocks, charts on both below.
Weir 1 Year chart
Hunting 1 Year chart
Finally in company news, Lochard Energy has raised £3.38m at 7p, partly to pay for costs of Athena and partly to settle certain costs associated with the Senergy litigation. Of the placing which is being done in two tranches totalling 48m shares, Henderson Global Investors are taking 20m shares as a related party transaction as they hold 26.7% of the company. Below is the Lochard chart which is a slightly different ball game!
Lochard 1 Year chart
And finally as per the header blog celebrates Burns Night so it would be childish not to congratulate Andy Murray on his easy win in Melbourne earlier today, also the English cricketers have recovered somewhat from their abject misery of last week, losing the toss but keeping Pakistan to 256-7 at last sight.
Finally finally Mario Balotelli is apparently considering leaving British football after being charged with violent conduct at the weekend. I’m free anytime to drive you to the airport, just give me a good five minutes’ notice.
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