David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Alaska Oil Reserves May Have Grown 80% on Giant Discovery

    Alaska’s oil reserves may have just gotten 80 percent bigger after Dallas-based Caelus Energy LLC announced the discovery of 6 billion barrels under Arctic waters.

    The light-oil reserves were found in the company’s Smith Bay leases between Prudhoe Bay and Barrow along the Arctic shore, according to a statement from Caelus on Tuesday. As much as 40 percent of the find, or 2.4 billion barrels, is estimated as recoverable, the company said. That compares with the state’s proved reserves of 2.86 billion barrels in 2014, almost 8 percent of the U.S. total, Energy Department data show. 

    “It’s a really exciting discovery for us, and we think it’s really exciting for the state of Alaska,” Caelus Chief Executive Officer Jim Musselman said in a phone interview. “They need a shot in the arm now.”

    Alaska’s oil output has been gradually declining, to 483,000 barrels a day last year from a peak of more than 2 million barrels a day in 1988, Energy Department data show. The last major field brought online was Alpine in 2000, which averaged 62,000 barrels a day in September, Alaska Department of Revenue data show.

    Musselman, the man who engineered the $3.2 billion sale of Triton Energy Ltd. to Hess Corp. in 2001, founded Caelus in 2011 to explore and develop petroleum resources on the North Slope. In 2014, the company formed a partnership with affiliates of Apollo Global Management LLC to invest in oil and gas properties in Alaska.

    The development will cost between $8 billion and $10 billion over the life of the project, which could be brought into operation by the fall of 2022, Musselman said. Located about 125 miles from any other facilities, the company will need to build pipelines and roads. An oil price of about $65 a barrel and greater certainty on state tax policy and incentives is needed to develop the field, he said.

    “A lot of the investment decision is going to revolve around what happens within the state from a regulatory standpoint,” he said.

    Caelus said its newly discovered field could produce as much as 200,000 barrels a day.

    This section continues in the Subscriber's Area.

    Hurricane Matthew Is a $15 Billion Threat Headed to Florida

    Here is the opening of this worrying report from Bloomberg:

    Hurricane Matthew has thousands fleeing the U.S. Southeast where it’s expected to batter the coastline and threaten electricity supplies to more than 1 million people. Potential losses are seen as high as $15 billion.

    Matthew will bring 120-mile (193-kilometer) winds to the Bahamas starting Wednesday, along with flooding rains and storm surges that could push the ocean 15 feet (4.6 meters) above high-tide levels, the U.S. National Hurricane Center said in a 4 p.m. New York time advisory. The Category 3 storm closed the Buckeye oil terminal in Freeport, Bahamas, and could disrupt oil shipments along the U.S. East Coast.

    The National Weather Servicewarned that winds, heavy rain and storm surge could kill, wash out roads, cut communication links and cause outages lasting weeks. Evacuations could push storm damage to $10 billion to $15 billion mainly in losses related to economic disruption, said Chuck Watson, a disaster modeler with Enki Research in Savannah, Georgia. Jonathan Adams and Jeffrey Flynn, analysts at Bloomberg Intelligence, projected losses to be closer to $5 billion, with Florida bearing the brunt. 

    “The big thing is that the Northeast gets spared, which is good and bad because they actually needed the rain, and the Outer Banks too,” said Evan Duffey, a meteorologist at AccuWeather Inc. in State College, Pennsylvania. “Regardless, the Bahamas and Florida are going to see a deteriorating situation throughout the day. Landfall is still possible in Florida.”

    This section continues in the Subscriber's Area.

    Musings from the Oil Patch October 4th 2016

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section

    What we found surprising in the EIA’s forecast was the lack of penetration by EVs into the vehicle fleet. Based on the bars shown in Exhibit 8 (prior page) for plug-in and all-electric vehicles, the EIA’s sales total is less than one million units in 2040. To be honest, we find that acceptance rate to be extremely low given what the automobile industry is planning, at least based on their rhetoric. As a result, we are not sure what to make of the EIA’s outlook for gasoline consumption, which is shown in Exhibit 9. 

    We will be working in the future to improve our forecasting model, but the conclusion we derive from our work is that the growth of the EV segment of the vehicle fleet will have an impact on gasoline consumption. The question is how much that impact will be. By 2025, according to our forecast, the impact may be anywhere from 500,000 barrels a day (b/d) to 1.0 million barrels a day (mmb/d) of reduced gasoline consumption. That is the equivalent of one to two huge refineries in this country. Moreover, the destruction of gasoline demand in later years becomes even more meaningful – nearly 2.5 mmb/d to 4.6 mmb/d - a huge impact on the refining industry let alone overall oil consumption in America. If we extrapolate the U.S. experience to the rest of the world, there will be a noticeable impact in transportation fuel markets. Regardless of whether our forecasts are right or not, the issue of EVs, and the associated issue of self-driving cars, will have an impact on oil demand, forcing the oil producing and refining sectors to have to re-examine their long-term strategies. 

    This section continues in the Subscriber's Area.

    Email of the day on the differences between moving average calculations

    Reading your last comments on precious metals, I noticed that you are using 200-day exponential moving average. And I thought that the talk was always about simple MA, I even remember David stressing using it and not EMA a number of years ago. I looked through the charts mentioned recently; both by you and David, and they all have EMA. Can you please comment on this and explain your choice, because two measures can be quite different. For example, simple MA on the silver chart is at $17, while EMA, is at $18 where the price currently is. 

    This section continues in the Subscriber's Area.

    All eyes on the spending cap

    Thanks to a subscriber for this note from Deutsche Bank focusing on the Brazilian market. Here is a section:

    Speaking at the Senate Economic Committee on Tuesday, BCB President Ilan Goldfajn. Goldfajn repeated several statements that had already been published in the central bank’s Inflation Report last week, reaffirming the intention of making inflation converge to the 4.5% target in 2017. Goldfajn also repeated the remarks published in the Inflation Report about the three conditions for the authorities to initiate an easing cycle (namely limited persistence of food price shock, disinflation of IPCA components, and lower uncertainty about the fiscal adjustment implementation). The Goldfajn, however, added that the BCB “does not have a pre-established timetable for monetary easing,” as the COPOM decision will depend on several factors, including inflation expectations and forecasts. This comment suggests that the BCB has not yet made a final decision to cut rates, perhaps because market inflation expectations for 2017 have not converged to the 4.1% target yet. Despite Goldfajn’s cautious remarks, we still expect the COPOM to cut the SELIC rate by 25bps at the next meeting later this month.

    This section continues in the Subscriber's Area.

    U.K. Stock Gauges Hit Simultaneous Highs 1st Time Since '99

    This article by Aleksandra Gjorgievska for Bloomberg may be of interest to subscribers. Here is a section: 

    “It’s not just the FTSE 100 -- this is a buy U.K. phenomenon,” said Alan Higgins, chief investment officer at Coutts & Co. in London. His firm oversees 14.6 billion pounds ($19 billion). “We have a really nice combination of sterling weakness, reasonably robust economy and generally not a bad environment for risk assets.”

    The FTSE 100 and the FTSE 250 climbed 1.8 percent at 3:06 p.m. in London, while the FTSE Small Cap excluding investment trusts index advanced 1.7 percent.

    The falling pound is helping the three gauges because their members get a big chunk of their revenues from overseas -- almost three-quarters for FTSE 100 companies, and about half for those on the FTSE 250, according to JPMorgan Chase & Co. and UBS Group AG. JPMorgan Asset Management has estimated the measure of smaller shares also gets about half of its sales from abroad.

    The pound fell to its lowest level since 1985 on Tuesday, surpassing the bottom reached following the June 23 vote, after three senior figures in Prime Minister Theresa May’s administration said financial-services companies will get no special favors in secession talks. That increased concern that the nation is heading for an exit that would restrict access to the EU’s single market. May said on Sunday she will trigger the process of leaving the bloc by the end of March, which will mark the formal start of a two-year negotiation process.

    Recent data have reinforced optimism that the domestic economy is weathering the aftermath of the vote. The construction industry unexpectedly grew in September, while a manufacturing gauge jumped to its highest level in more than two years. A Citigroup Inc. index tracking economic surprises in Britain is near a three-year high, and the International Monetary Fund upgraded its outlook for the nation, predicting growth of 1.8 percent this year from the 1.7 percent projected in July.


    This section continues in the Subscriber's Area.

    Australia Stands Pat on Rates as Commodity Rebound Gathers Pace

    This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:

    Lowe’s key challenge -- like many of his developed world counterparts -- is generating inflation; part of that involves trying to tame a currency that’s up more than 10 percent in around nine months. The Aussie’s revival, even if partly justified by a jump in iron ore and coal prices and a better outlook for key trading partner China, puts pressure on services industries that are key growth drivers for the post-mining boom economy.

    The new governor offered insights to his strategy in the RBA’s renewed agreement with the government, stressing financial stability concerns as part of monetary policy. The risk of further stoking Sydney’s housing boom should discourage him from further cuts, especially as the economy grew an annual 3.3 percent last quarter and unemployment has fallen to 5.6 percent amid rising terms of trade, or export prices compared to import prices.

    Coking coal prices have surged more than 150 percent this year as output from China, the world’s biggest miner, tumbles under government pressure to cut overcapacity. Iron ore, Australia’s biggest export, has rebounded 30 percent, though analysts are skeptical about the rally’s durability. Still, the jump in prices for Australia’s biggest exports is a boon for the economy and a government struggling to rein in its budget deficit.


    This section continues in the Subscriber's Area.