OREANDA-NEWS. SGX Oil & Gas Monthly Report – June 2016.

Oil

  • June was a particularly volatile month for oil prices as the market tried to make sense of fluctuating news and sentiment. In early June, outages in Nigeria, Canada and Venezuela and falling inventories drove Brent prices close to $53/barrel, its highest level of the year. This was followed by six straight days of losses, vertiginously dropping to just over $47/barrel on 16 June on the back of a strong dollar and Brexit fears ahead of the referendum.
  • Brent subsequently climbed steadily to above $50/barrel the day of the referendum as opinion polls indicated an edge to the Remainers campaign. Then, the unexpected decision for a Brexit led investors to flee to safe havens such as the US dollar and gold. Oil droppped back below $48/barrel in the immediate aftermath, before recovering in tandem with global equity markets at the end of the month. The looming threat of Norwegian oil worker strikes added fuel to the rebound. Global economic policy uncertainties arising from Brexit and resulting currency fluctuations will likely be a key driver of oil prices in the coming months.


LNG

  • The benchmark FOB Singapore SLInG index remained in an extremely tight range during the month of June, moving between $4.624/mmBtu and $4.830/mmBtu, an oasis of calm compared to the gyrations in the oil markets; further evidence that gas prices and oil prices have decisively decoupled since the start of the year.
  • As oil markets show increasing signs of returning to balance, the outlook for LNG remains starkly different. The most recent IEA gas market report forecasts LNG oversupply to persist until 2020. Key themes emerging in recent LNG conferences around the world have been ‘flexibility’ and ‘new markets’. As the market moves away from the traditional moorings of 20-year supply contracts, producers have had to develop short-term and spot trading capabilities – Australian companies such as Woodside and Origin are good examples of this; Cheniere, on the other hand, started with the intent to trade. New markets have emerged in Jordan, Pakistan and Poland, to name a few. In the push to find, or perhaps even create new markets, some energy giants are even willing to go downstream to help build regasification facilities and pipelines. All is not doom and gloom though – low prices have given LNG a fighting chance against coal in the energy mix, especially in light of last year’s Paris agreement. And the expanded Panama Canal increases US LNG’s reach and flexibility especially if Russia decides to defend market share in Europe.