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

Oil

  • At the end of May, Brent crude prices rallied past the key psychological $50/barrel level for the first time since November 2015. WTI also rallied past $50/barrel for the first time since July 2015. This rally could be seen as a continuation of the one which started in April after the market shrugged off the disappointment of the Saudi/Russia talks.
  • Factors contributing to the rally came from both the supply and demand side. These included unrest in Nigeria (taking 800,000 barrels / day off the market), wildfires in Canada (up to 1 million barrels /day), plus a crude stock draw in the US. Sentiment-wise, the extension of President Maduro’s emergency powers means turmoil continues in Venezuela, and the IEA indicated risks to oil demand growth are now to the upside. OPEC’s upcoming 2nd June meeting is not a factor as the Saudis and Iranians have yet to see eye-to-eye and the production quota will almost certainly remain at 31.5 million barrels.

LNG

  • The benchmark FOB Singapore SLInG index remained in a tight range during May, fluctuating between $4.292/mmBtu and $4.443/mmBtu, as the market tries to balance a myriad of factors. Angola (which has been shut down since April 2014) and Australia’s Gorgon are both poised to return to the market. Asian demand has been sporadic, with GAIL and PTT issuing buy tenders in May; Argentina and Poland were also looking to buy cargoes and Egypt will be due to tender for 10 cargoes.
  • Spot LNG in Asia has clearly broken its link with oil prices this year. Whilst crude oil has been steadily rising from its historic lows in January, LNG prices have fallen. This has been reflective of the two market’s diverging fundamental outlooks. A variety of disruptions have affected supply in oil, nudging the market closer towards ‘balancing’. LNG however remains heavily oversupplied, with even more supply set to enter the market, especially from the US and Australia. In the coming months, buyers and sellers will inevitably be entering into some extremely delicate discussions. Sellers with long-term contracts indexed to oil are now feeling a lot better compared to the start of the year, but buyers will surely be trying to minimise offtake on these contracts and instead sourcing more volume from the spot market. The market’s need for a trusted and robust gas-to-gas price continues to grow, which can in turn be the reference Asian LNG index in the contract negotiations which will be happening sooner or later.