Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 21 October 2016

Secret Santa to deliver budget windfall (QLD trade boom)

Windfall for national income

Oil prices hit their highest level since 2015 this week, while there is some talk of prices continuing to recover.

Despite having worked in the resources sector for many years, I don't spend much time trying to second guess commodity prices these days (read: poor track record, lol).

That said, commodity exports are so integral to Australia's fortunes, you really do have to analyse what's taking place to get any real feel for the outlook.

BMI Research notes that it sees "significant potential for an upwards break in Brent towards $60 per barrel".

BMI argues that this is due to "bullish technical drivers and supportive conditions in the broader financial markets".

Counter-intuitively, despite higher fuel prices this would be very good news for Australia as an exporter of both crude oil and natural gas. 

US LNG (gas) futures hit a 22-month high last week hitting levels last seen in 2014, before easing. 

Natural gas spot prices are also trading back at Q4 2014 levels after a horror slump. 

This is timely boost for national income in Australia (and revenues from the port of Gladstone in Queensland) given that LNG export volumes are only now just beginning to ramp up and are expected to triple between 2015 and 2021.

More than $200 billion has been invested in Australian LNG projects over the past decade, and the massive ramping up of production will be a significant boost to both real and nominal GDP growth.

Coal fires

Meanwhile, coal prices are going absolutely bananas.

Coking coal spot prices in particular have exploded from US$72/tonne to US$245/tonne in less than twelve months, for a staggering +240 per cent increase.

More good news for Queensland here, with trade surpluses set to be the order of the day for the Sunshine state.

Source: CBA

Metallurgical coal is Australia's second most valuable export commodity, after iron ore, while thermal coal, LNG, oil, and gold also feature prominently. 

Such a dramatic supply squeeze in the coal sector will never persist for too long, but even so it's becoming a significant windfall for Australia.

Kris Kringle!

Even iron ore is holding up better than expected at close to US$60/tonne, while gold has been the biggest export success story of the year to date.

What a cheeky Christmas bonus gift this will be for Treasurer Morrison!