February 21, 2019 - Nom Geo
Reservoir to Bowser 3
This morning I bought petrol (or gasoline if you like) for the family car, an economical Kia, for AUD$1.45 per litre, much higher than the AUD$1.09/L being charged back in mid-January when an oil glut was expected to keep prices of Brent and West Texas Intermediate (WTI) under $60 and $54 per barrel, respectively.
While motorists might silently curse the higher prices, Brent is hitting above $67 per barrel overnight, and WTI at $57 per barrel which means that oil company shareholders will continue to be rewarded with dividends over 2019, as in 2018.
But there is nuance in the numbers and it might be worthwhile to consider that the gap between Brent and WTI has widened from around $8 up to $10 or more per barrel. This might have something to do with Brent’s spread of molecules being seen as more useful for refiners, but it could also be linked to producers in West Texas and in Oklahoma being punished for an ongoing shortage of takeaway pipeline capacity.
To understand better it might be useful to look at some other price benchmarks. Louisiana Light, the OPEC Basket, Nigeria’s Bonny Light and Russia’s Ural’s Blend all show the same trajectory as Brent over the past two months. For the record, overnight prices for Louisiana Light were at around $65/bbl, OPEC’s crude basket stood at close to $66/bbl, Bonny Light was $68/bbl and Ural’s oil was $64/bbl.
Happily for Alberta’s oil sands producers, Western Canadian Select (WCS) was almost at $44/bbl and continues to maintain parity with US oil price movements. Its 12 month range was from a low of $12.59 to $56.2/bbl but at current prices and under much lower volatility Canadian producers should be able to deliver a dividend to their long-suffering shareholders in 2019.
Natural gas prices in the US and global LNG futures are trading at close to two-year lows. This is due to a combination of mild winter weather and also better pre-winter organisation by large buyers who are wary of being caught short. Asian LNG April futures look like they will range from $5.9 to $6.5/mmBtu and this might weigh heavily on the results of some producers such as Australia Pacific LNG, Gladstone LNG and Woodside Petroleum.
In any case, it looks like I will continue paying a premium for petrol, but operators of LNG-fuelled trucks in north-eastern China should have a good reason to smile over the next few months…