Investors Shouldn’t Panic, Yet, After Argentina Elections
Mauricio Macri has lost the presidential elections in Argentina to Alberto Fernandez and VP running mate Cristina Kirchner, but there’s no need to panic - yet. What’s not clear is whether this is going to be Fernandez running the show or the devastatingly populist Kirchner. If it’s the former, there’s hope. If the latter, markets will be shattered. So far, the markets believe it’s Fernandez, who is now tasked with fixing an ailing economy with unemployment at 10.6%, inflation heading towards 55% and a suspended $57-billion line of credit with the IMF that needs to be renegotiated. In the oil patch, where Argentina’s wonderfully prolific Vaca Muerta shale is at stake, the single cause for concern so far is leftist pressure on Fernandez to freeze natural gas and power tariffs, and to peg oil product prices to pesos instead of dollars in order to curb inflation and boost economic growth. So far, both in the oil and gas and metal mining sectors, Fernandez has shown keen interest in securing additional foreign investment; however, his power here will depend on how much he has sold himself to the Kirchnerites along the way. So far, Kirchner has stayed in the shadows, but with Fernandez’s victory solidified, she could still emerge as an overpowering force. From the beginning, there has been talk of the possibility that she was using this to escape prosecution and would manage to force Fernandez to step down and assume…
Investors Shouldn’t Panic, Yet, After Argentina Elections
Mauricio Macri has lost the presidential elections in Argentina to Alberto Fernandez and VP running mate Cristina Kirchner, but there’s no need to panic - yet. What’s not clear is whether this is going to be Fernandez running the show or the devastatingly populist Kirchner. If it’s the former, there’s hope. If the latter, markets will be shattered. So far, the markets believe it’s Fernandez, who is now tasked with fixing an ailing economy with unemployment at 10.6%, inflation heading towards 55% and a suspended $57-billion line of credit with the IMF that needs to be renegotiated. In the oil patch, where Argentina’s wonderfully prolific Vaca Muerta shale is at stake, the single cause for concern so far is leftist pressure on Fernandez to freeze natural gas and power tariffs, and to peg oil product prices to pesos instead of dollars in order to curb inflation and boost economic growth. So far, both in the oil and gas and metal mining sectors, Fernandez has shown keen interest in securing additional foreign investment; however, his power here will depend on how much he has sold himself to the Kirchnerites along the way. So far, Kirchner has stayed in the shadows, but with Fernandez’s victory solidified, she could still emerge as an overpowering force. From the beginning, there has been talk of the possibility that she was using this to escape prosecution and would manage to force Fernandez to step down and assume the presidency. Another area of concern is rising populism across the region as protesters take aim at pro-market policies that have exacerbated inequality. What happens elsewhere in the region tends to reverberate quite widely.
Welcome to the Second Arab Spring, As Unrest Hits Fever Pitch in Iraq ...
As we continue to keep a close eye on the situation on the ground in Iraq - the real flashpoint for a broader Middle East war and a showdown between Iran and the United States - a slaughter of protesters in the holy city of Karbala does not bode well. On Tuesday, unidentified masked gunmen opened fire on protesters in Karbala, killing 18 people. That adds to the death toll of 240 people so far during the past several weeks of protests and violence. The unknown identity of the gunmen, which witnesses have invariably claimed were Iraqi security forces and Iran-linked militias, among other possibilities is likely to lead to further violence spread by panic and chaos. Iraq is also set for intensified chaos as two political factions, including that of influential Shi’ite leader Moqtada al-Sadr, back the ousting of Iraqi Prime Minister Adel Abdul Mahdi. This is an important development because Al-Sadr, who is a nationalist-leaning ,populist Shi’ite influencer has sought support for ousting the PM from one of his key rivals, Hadi al-Amiri, head of an Iran-backed Shi’ite militia alliance that boasts the largest number of seats in parliament behind Al-Sadr. PM Al-Mahdi is rather impotent when it comes to fighting Iranian influence in the government through powerful militias, but Al-Sadr is playing with fire here by seeking out his own pro-Iranian enemy to take down Mahdi.
And Spreads to Lebanon
Similar anti-government protests in Lebanon have now forced the resignation of Lebanese Prime Minister Saad Hariri, who said Tuesday he would step down over his failure to resolve the crisis. As with Iraq, what makes this a flashpoint in the Iran-U.S. conflict is that the people are protesting governments and armed political factions that are close to Iran. In Lebanon, it’s Hezbollah. In Iraq, it’s the fact that last year, the Fatah Alliance, loyal to Iran, won 48 (nearly 15%) of the seats in Iraq’s parliament, and Iranian-backed Shi’ite militias are one of the key forces fighting back the ISIS threat here. In the oil patch, Lebanon’s long-awaited exploration of its portion of the Levant Basin is likely to be dealt another major setback with the resignation of Hariri and the political paralysis that will ensue.
In Syria, The Game Isn’t Over, Yet
Trump has expressed interest in cutting a deal with ExxonMobil or another energy company to tap Syrian oil reserves. This expression of interest came during his announcement of the death of ISIS leader Abu Bakr al-Baghdadi. This is a non-starter. Under incredible pressure to spin the Syria withdrawal as a victory for the US, the death of the ISIS leader indeed helps, but he will be replaced very quickly. The death of ISIS will only be brought about with the death of its ability to raise money as it operates much like an organized crime group. Trump’s Exxon plug should be viewed as nothing more than spin at this point due to the fact that this oil now effectively belongs to the Assad regime and the Russians who will develop and exploit it. Once the US stepped aside and betrayed the Kurds who controlled this oil, it was immediately taken out of play as far as the US is concerned. There will be no US “deals” for Syrian oil, short of a sudden reversal in plans to include an all-out assault against the Syrian regime, the Russians and Iran.
Global Oil & Gas Playbook
- Rumors are now spreading that the Saudis will launch the Aramco IPO on November 3, after many delays, with trading for a 1%-2% share to begin with. The leak of this rumor by unnamed sources to media yesterday suggested that the Saudis were possibly testing the waters at the last minute; however, state-run media have also stated that the Aramco IPO will be held Sunday, and media in the Kingdom is tightly controlled by the royal family. Officially, MbS and the Kingdom’s energy minister said on Wednesday that the IPO would happen soon and “at the right time”. Russia’s and Norway’s SWF have said they have no plans to invest in Aramco’s IPO. Russia’s RDIF isn’t outright shunning Aramco, but will not invest heavily because it is already heavily exposed to oil. Norway’s SWF is more definitive, saying that it has no plans at all to invest in Aramco, without listing specific reasons.
- Guyana presidential candidate Robert Badal has said that if elected, he will not renegotiate the controversial deal the country sealed with Exxon to exploit its oil riches. He would, however, look to analyze energy contracts going forward. Exxon is set for an early startup for its Liza Destiny floating storage, production, and offloading unit located in Guyana’s Stabroek block. The new timeline for Phase 1 production is slated for December.
- Right across the maritime border in Suriname, we’re anxiously awaiting news from Apache on drilling results from its first well in Block 58 - an endeavor that investors are hoping will prove that the Suriname side of this basin is as prolific as the Guyana side, and an obvious extension. Word on the street is that Apache may provide an update on progress by the end of today, when it issues its Q3 earnings report. But another development has taken investors unaware and sent stocks down: Right in the middle of a potentially game-changing drill, Apache has lost its high-profile geologist, Steven Keenan, senior VP of worldwide exploration. Keenan apparently stepped down two days ago, and whatever the reason, investors are nervous about what this means for the Suriname drill. Make sure you are online for Apache’s Q3 call later today because it will be an important one.
- US natural gas exports in the first half of the year doubled from the first half of 2018, and are expected to continue to rise as new nat gas pipeline infrastructure in Mexico and new LNG export capacity comes online. In 2020, the EIA expects the US to export 7.2 Bcf per day.
- Mexico's state-run Pemex has reported slightly higher production figures for the quarter, but also posted a $4.6-billion loss amid lagging exports and domestic sales. Revenues dropped over 20% from the same quarter last year.
- South Sudan’s government will offer up 14 oil blocks for exploration in a licensing round by the first quarter next year. The country is currently producing 180,000 barrels per day, which represents all of its revenue. Several international exploration and production companies have already demonstrated their interest, despite allegations of corruption and fueling civil war through foreign oil entities. The licensing offer announcement marks a shift in strategy from the previous method of direct negotiations with explorers. South Sudan has declared a state of emergency on Wednesday due to flooding, including in oil-rich regions that are the country’s only hope of recovery after its civil war. President Salva Kiir said this would pose challenges to oil production, but that output had not been affected.
- Trader Vitol has been ordered by the US energy regulator (FERC) to pay over $3.5 million in fines for manipulating the California power market in 2013. Civil penalties against Vital are over $1.5 million, along with another $1.2+ million in which Vitol will have to disgorge unjust profits plus interest. Votal trader Federico Corteggiano was also fined $1 million for his role in the scheme.
- Canada’s province of Alberta, which relies largely on oil sands for revenue, will begin taxing oil sands emissions in a bid to help fight climate change. The plan will impose a CAD$30 per tonne price on carbon for the largest emitters, and possibly $50 per tonne by 2022.
- UK Prime Minister Boris Johnson is expected to soon make an announcement about banning fracking. An open supporter of the shale industry as a means to reduce reliance on natural gas imports, Johnson is now in an election challenge and trying to straddle that fence between looking out for its shale industry and concerns over the tremors that have been linked to fracking. No timeline was provided for the announcement.
