WTI $106.53 +$2.13, Brent $113.02 +$3.07, Diff $6.49 +94c, NG $4.76 +25c
Further violence in Iraq yesterday has created what oil markets hate the most, uncertainty and geopolitical tension. Prices as you can see have escalated and this morning are around a dollar higher than last nights close. Markets only look at the ‘what-if’ scenario and not actual oil flow and on that basis the price isn’t coming down anytime soon. My stance on the oil price that the risk for the oil price in the summer is on the upside suddenly for unconnected reasons got a bit stronger.
On one side Iraq exports 2.5m b/d, almost all from the south, which at present the Iraqi Government say is much more militarily strong, it is also a more Shia area where the Sunni forces would have less support. On the other side if there was any shutting in of Iraqi crude for whatever reason, my comments earlier in the week with reference to the Opec meeting and the tight situation developing over the summer would be exacerbated. In the north the same applies to Kurdistan, technically, with an export route via truck and pipeline through Turkey and with little likelihood of the militants taking on the Peshmerga, it could even be a positive as the KRG could point out that it was acting in the interests of the nation.
One more interesting point is what happens about the USA in this process and I am not talking about F16’s here. If for any reason the Iraqi supply is cut off or even reduced and the Saudis were unable to fulfil their swing producer role, the US has two possible course of action. Firstly the strategic stock levels are very high and sales from it have been mooted for some time, this would be an ideal time to get some into the market and ‘help’ the market out should supply be short. Secondly, the US is producing more oil than for many years but exporting none, the debate in Washington is said to be active ( and discussed in this blog recently after comments by Dan Yergin) but unlikely to be decided on until after mid term elections. As a face-saving measure, how about the administration lifts the export ban as a temporary measure again to help out international oil markets? This would appease both sides and the debate could happen with the exports actually happening as a sort of trial, if it worked then the export ‘problem’ may be solved. (And the balance of payments would suddenly look a fair bit better too) Finally I have commented recently that the strength in the oil price in recent months has been partly due to the Chinese buying for their strategic stocks, this morning one leading investment manager called me to express a conspiracy theory that maybe they knew about this all along, I couldn’t possibly comment…
Neatly following on from all that comes the Shaikan production update from GKP this morning. Now in the last few days it has been no surprise to see the Kurdistan stocks fall as investors worry about the political situation, let alone the oil exports. Taking that aside the statement from GKP this morning is actually very positive and on any other day I think the stock would have had a rise like what it used to, so to speak. Plans for 40/- b/d are on track with PF-1 at 16/- rising to 20/- and PF-2 adding barrels from two wells with more to come. Investor concern that although shipments are getting through, payments were much slower should be allayed by news that two substantial payments have already been received this month. Whilst there are many that wont invest in GKP for a myriad of reasons and while the current tension exists it is probably one to watch but I have a feeling that maybe the tide is turning for the company, I hope to speak to Todd very soon…
No news today but yesterday afternoon Faroe announced out of the blue ( to some people but obviously not all…) that they are raising £45m or more in the market. I have been a buyer of Faroe recently as the drill bit is back working for them so would have to recommend partaking in this offer but the way that it has been handles leaves a fair bit to be desired…
Figures this morning from Enteq where revenues are up 24% and significantly new customers account for 25% of that total. The outlook for their addressable market is very positive and with new product lines in the US and elsewhere that growth should continue. However, I always thought that the Enteq model would have provided significantly more acquisitions than it has so far and accordingly the timescale has more than drifted and the market’s patience is wearing thin. Expansion now into the Middle East, China and Russia sounds good but I look forward to seeing a bit more dynamism in the back yard before the stock is a buy.
Range Resources – 2 cheers hooray…
Having not touched this stock for years I seem to be writing about it a lot at the moment but only as announcements are coming thick and fast. It is tempting to say that this one is the best of them all but clearly sorting out the debt and so on does take precedence. Having said that I am sure that the cheers from the Range shareholders will be louder than on Coca cabaña beach last night as two directors associated with the past have left the company, my BUY recommendation remains bang on target as the new brooms continue to sweep.
The Welwitschia-1 well offshore Namibia has been plagued with problems, delays and cost overruns so it wont come as a surprise that the company has announced this morning that it is a dry hole. In addition the well will now not be continuing to the lower targets as it is deemed to be too expensive, I am obviously simple, wasn’t the cost known about when Repsol ran the budgets before they spudded? My thoughts on Tower have been known to readers for far too long, its not changing just yet.
Shelf Drilling came across my desk after the blog had gone into the ether yesterday but it appears to be having another go at coming to the London market via IPO later in the year. This is not the first time it has tried and until I see the company I cant comment on its attractions or otherwise, what I can say is that it will have to be virtually given away with a huge yield to tempt investors who will be putting money towards debt repayments and maybe even previous investors taking money off the table. Watch this space.
I have been asked a few times about my meeting this week with Tangiers scheduled for last Tuesday. Unfortunately it didn’t happen as although I waited for a long time the company never turned up. The new management who replaced a good team must be awfully confident that the upcoming well offshore Morocco is going to come in eh?
So the long wait finally came to an end and the World Cup started last night with Brazil v Croatia. Although it wasn’t a surprise to see a ‘homer’ had been put in charge it was quite surprising to see such blatant pro Brazil decisions being made by the ref. Just think, if there are demos against the system when they win, what on earth would have happened if they lost, not worth considering, lets just make it safe eh? Lots more tonight as Mexico meet Cameroon, the wine tie of Chile v Australia happens and of course the rematch of the final from last time into the bargain.
At Lords, England made a valiant attempt at having a bad day but were rescued by Mo on debut, Joe at his favourite venue and Matt who narrowly escaped being out 2nd ball! With hot weather forecast it should be an interesting weekend.
At the US Open Martin Kaymer, hero of the Ryder Cup ( spellcheck just came up on Kaymer as Kaiser…) takes a good lead after day one with out of form Graeme McDowell not far away.
Muzza loses at Queens which wouldn’t have been in the plans but Rafa also lost yesterday, going out in straight sets in the first round of his Wimbledon warm up tournament.
And in a massive weekend for sport tomorrow sees the second rugby test between the All Blacks and England…
The Miami Heat are on the brink of defeat in the NBA Championship Finals after another home defeat to San Antonio. The Spurs only need one more win to secure the Championship after crushing the Heat in their two home games.
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