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

Oil
§  Weak sentiment continued into the new year with oil plummeting to fresh lows. Brent crude hit US$27.10/bbl on 20 January 2016, its lowest level since November 2003.

§  OPEC’s decision to continue defending market share in its December meeting combined with lifting of sanctions on Iran, thereby releasing a flood of pent-up supply, weighed heavily on the market. Uncertainties around China’s economy and a mild winter resulting in weak distillate demand did not help prices either.

§  Nevertheless, a volatile January ended on a strong note with prices rallying four days in a row, with the March Brent contract expiring at US$34.74/bbl, regaining most of its losses earlier in the month. The reason? Rumours of a possible deal between OPEC and other producers to cut production by as much as 500,000bpd. The rumours stemmed from comments by Russia’s Energy Minister, though Saudi Arabia and the rest of the OPEC cartel have kept quiet so far.

LNG
§  LNG faced many of the same headwinds that oil did during the month. High inventories leading into a mild winter was never going to bode well for prices, and the FOB Singapore SLInG index saw seven successive weekly declines since early December 2015, with the last quote of January 2016 decisively breaking below the $5/mmBtu mark to finish at $4.742/mmBtu.

§  Just as new supply capacity is hitting the market this year from Australia and the US, Japan – traditionally the world’s largest importer of LNG – indicated it will be delaying or diverting unwanted LNG cargoes under long-term contracts.

§  The demand outlook is equally bad in South Korea – the world’s second largest importer – with Kogas reporting that its December LNG sales were more than 20% lower year-on-year. And as a flavour of things to come, India’s Petronet successfully negotiated out of its ‘take-or-pay’ penalty and achieved a price review in its long-term contract with RasGas.