WTI $94.98 -$1.93, Brent $101.56 -4c, Diff $7.08 +$1.89, NG $3.88 +8c
The Brent/WTI differential you may have noticed, is swinging around a lot at the moment, yesterday it was down to Brent rallying and WTI weaker ahead of the expiry today. Brent actually looked technically very dodgy during the day, traders are watching the $101.40 support very carefully and at one stage it touched $101.07 but bounced off it and at the moment we are at last nights close levels. WTI looks a little better after the API inventory stats showed a draw of 1.4m barrels, slightly higher than forecasts.
Underlying of course things do remain bearish as I have been suggesting for some time (see the IG video on the website) as Iraq pushed up production a bit as did Libya and unconfirmed reports of a forecast of the US producing 12m b/d domestically by 2019 swirled around the market. Opec don’t appear too concerned about the price weakness, mainly as the Saudis are pumping flat to the boards in case of an Iraq cessation, they can cut back soon enough if it gets bad but don’t forget as we reach the end of the summer demand will pick up and the slack will be taken up. No, the person who is most worried about the oil price fall is more than likely to be Mr Putin as a protracted fall in oil revenues will hit Russia very hard.
Finally its all eyes on the US for the next few days, tonight sees the release of the FOMC minutes, followed by the Jackson Hole meeting and Janet Yellen’s statement on Friday…
After my recent meeting with Chariot I came away confident that things were going better than the market gives them credit for, the farm-out of this acreage at the top of the list of expectations. Today it is confirmed that AziLat has taken a 25% stake in the four blocks in the Barreirinhas Basin and will pay 50% of the costs of the 3D seismic leaving Chariot with 75% and operatorship. I expect further farm-out activity here and with all due respect, someone with more access to funds for when the expenditure starts to get meaty. Having said that I remain confident that Chariot is doing the right things and will not expose itself to costs that it will not be able to fund in the next year or so. Further de-risking the portfolio is expected before long and accordingly I feel that there is still considerable upside for Chariot.
Yesterday saw results in the sector from three widely differing companies.
Wood Group was a bit of a curates egg and although the company reaffirmed current guidance that ebita would be in line with expectations and up on 2013, it is a mixed bag indeed. At least it wasn’t like last year at this time when the margin expectations were trampled on, this year no such expectations have been allowed to get into the market. The best bit, by a country mile, is shale where things are going gangbusters and if anything they are not doing enough in terms of acquisitions to take advantage of the situation. Engineering is very mixed with subsea, pipelines and downstream good and offshore and Canada weak. The North Sea is ‘robust’ which probably means ok but with cost pressures and in engineering margins are down from 12.2% to 10.7% y/y. With the divvi up 25% confidence remains strong but it is clear that it is pretty hard going out there in some of the businesses. In respect of turbines I stick to my guns that they should have exited this a long time ago and it is a waste of managements time and money keeping it in the Wood family. At 800p Wood is not far off the recent high and is probably high enough for the time being, Capital Markets Day in October being the next detailed opportunity to look at the business.
Cairn Energy is in the doldrums right now and I see no reason why that will change for a while. I find there is a bit of confusion when it says that it is reducing the cost base ‘appropriate strategy for the future work programme’ whilst saying that it has big spending commitments coming up. Whilst I want to get more bullish here the Indian tax situation continues to overhang and ties up a billion dollars of cash or more but the possibility of a big offshore find is still a possibility. he meeting was at the same time as the Wood presentation so I will get more info on Cairn and write up further shortly.
Maersk seems to be losing patience with exploration and with a $1.7bn impairment charge you can hardly blame them. But with four state of the art ultra deep water drilling rigs on the books whether they like it or not they are exposed, I am getting mixed reports on the deep-water drillers and want to watch this market very carefully.
The Gooners came away with a nil-nil last night in Besiktas with Ramsey cleverly getting sent off. Tonight Celtic get another bite of the Champions League cherry and manager Delia Smith probably wasn’t expecting to be here after a disastrous performance last round. LvG is on the transfer move sign Argie defender Marcos Rojo from Sporting Lisbon and parking lazybones Nani back in Portugal.
Jonnie Peacock, hero of London and equally heroic Hannah Woodcock won golds yesterday as their games started on great form.
In Aberdeen for a couple of days, blog will be only a flash tomorrow unless something big goes off…