WTI $48.36 -43c, Brent $50.11 -85c, Diff $1.75 -42c, NG $2.95 +2c
As is often the case on a Monday morning the prices above can be different following weekend movements and today has seen further weakness with WTI now at $47.25 and Brent changing big figure at $48.81. In no particular order here are a few factors influencing oil markets at the moment.
The non-farm payroll number beat the whisper again on Friday but very much like the UK, there were very weak levels of wage growth. Gasoline leads the way in terms of pleasure in the wallet department but the combination of strong employment data and weak wage growth is foxing economists. In the UK today we have had the first reported signs of petrol being sold at below 100p a litre which may be a gimmick but will surely be situation normal as crude oil falls. If you want an outside bet for Chancellor Osborne’s March budget you might see a reduction in fuel duty which at this price isnt such a silly idea…All the weekend papers had stories about the budget too but they are all angling for tax breaks for the North Sea, something that Gideon has already hinted at.
The UAE Ambassador the the United States, Yousef Al Otaiba said yesterday in a speech that Opec had ‘no plans of cutting production no matter how much prices fall’. The fall is clearly going to last for a while as for a number of reasons, such as the effect of hedging and forward sale commitments, policy doesn’t turn on a dime but the Baker Hughes rig count for last week may just be showing some give in the situation. The fall of 61 rigs is the biggest weekly fall since 1991 and the total is now 1750 from 1811 the week before, 30 of those rigs being lost in Texas alone.
Finally fires at two refineries in Ohio and Pennsylvania will inevitably take some demand off the table for WTI which wont help the situation but will only be marginal.
As I discuss below the ‘operational update’ season is upon us, to be rapidly followed by the majors results which start with Schlumberger on Thursday. With the dramatic fall in the oil price we can expect a painful few weeks of significant reductions in profits and forward guidance, rarely before have the tin hats been needed so badly…
Having said all that Ithaca has provided what at the end of the season might be amongst the most optimistic statements, good as it is one of my preferred stocks. Last years production was in line with guidance at 12,300 b/d, 95% of which was oil, for 2015, not including Stella, the figure should be much the same. If all goes to plan Stella will kick in in the 3rd quarter of this year and will add 16/- b/d, a ‘step change’ indeed for the company.
One of the reasons for being positive on Ithaca, apart from the significant increase in production is that its hedging policy has been remarkably successful in these markets. Today the company reveals that it has 6,300 b/d of oil hedged at an average of $102 from January 2015 to June 2016 which not only offers decent protection but according to the company means that for them break-even is below $20 a barrel. In what will be a difficult season this may be about as good as it gets.
Lamprell have probably been over-cautious in their statement today but better be safe than sorry should the rig market in the Gulf go into melt-down this year. For 2014 financials will be slightly ahead of expectations and with cash of $275m going up in the short term things do look positive but history must be adhered to and things can change very fast in this market. Lamprell say that their order pipeline will be affected by the ‘challenging market environment’ but its impact is at present unclear. They warn to expect 2015 revenue to be down around 10% and financial performance of the same order, there will be some pressure on margins one suspects.
Lamprell should be ok, it has a yard full of profitable business and a strong order book from highly reputable clients but especially with its recent history, albeit under previous management, there are no prizes for sticking ones neck out at this point in the cycle…
Board meetings at Afren must be like sitting round the witches cauldron in Macbeth, ‘when shall we three meet again, in thunder lightning or in rain’ I think was the refrain, centuries later little has changed, even the number of executives present today might be less than in the Bard’s day… Today’s bad news comes in the form of a new CPR from Barda Rash in Kurdistan which has produced a ‘material reduction to previously published reserves and resources’. 2P reserves are totally eliminated, from 190m barrels and the 2C number falls from 1,243m barrels to 250m.
The board says that it is ‘considering strategic options for Barda Rash’ which is understandable but I wouldnt spend much time on it as there are bigger fish to fry with Barbarians at the gate and as yet, no new CEO, that can’t come soon enough…
A 2014 production update from Sound who are still probably wearing the yellow jersey and look likely to be as strong as anyone as we survey 2015. Total production last year was 4.44MMScm which is significantly higher than before as Rapagnano was on for the full year and Casa Tiberi came onstream in July. Making a contribution of €1.2m ‘broadly’ covers Sound’s Italian cost base and with gas from Nervesa expected this year the number should increase a fair bit more by this time next year. The company say that gas prices remain largely unaffected which is comforting in this environment and with lots of exploration upside over the next 18 months the situation is rosy, not something I can say about many of my companies at the moment…
Gulfsands, for whom this week may well be something of a turning point, has announced that the DRC-1 well on the Rharb Centre permit in Northern Morocco has flowed 7.1 Mcf/day and will be suspended as a potential producer. As I read it this well only did that for 6 hours which seems rather short but they must know best…The rig moves to drill the DOB-1 location which should take 28 days.
BP has lost another Court case in the US, this time in the 5th Circuit Court of Appeal the company failed, albeit marginally, to overturn a previous judgement that makes the company liable for civil penalties regarding the Macondo oil spill in 2010. They are back in court again soon, when aren’t they I guess, and of course have figures on Feb 2nd of which more about soon.
So to the football where Chelski opened up a bit of a lead by beating the Magpies whilst the Noisy Neighbours only drew at the Toffees. With the Saints deservedly winning at Old Trafford where Man U left Falcao out of the squad and didn’t have a shot on target, reversed the two teams position in the league. Some of these new managers are already having an effect as Alan Pardew’s Eagles beat Spurs and the Baggies beat the Tigers.
Oh to be at The Wanderers yesterday as the West Indies scored 236 runs in less than 20 overs to chase down South Africa’s 231 thus completing the highest ever run chase in T20 history apparently. The Windies go an unassailable 2-0 up in the series.
And the rugby threw up some great games and fantastic results at the weekend as well, with the highlight probably Sale beating top of the table Saints. With Bath beating the West Midlands Wasps and the Quins seeing off Leicester 32-12 all that remained was an epic 24-23 victory by Gloucester over Sarries. The only bad news was seeing Ben Morgan being carried of with a broken leg which might mean his World Cup is in doubt.
Hopefully a run-down of a great weekend of American football tomorrow!