08-05-2015, 10:36 PM
Oil has fallen to a six-month low, and hopes of a quick rebound are fading as demand heads into an autumn swoon. Brent crude tumbled below $50 on Monday for the first time since January. Gasoline fell the most in almost three years.
Oil’s drop below $50 may be just the start as demand swoons
Following the supply of a further 100,000 tonnes of East Siberian Pacific Ocean (ESPO) crude to the Chinese market in July, total volumes of ESPO crude exports by Gazprom Neft since the commencement of supplies have now reached 10 million tonnes. Payment for all ESPO crude supplies despatched by Gazprom Neft to China throughout 2015 have been made in Chinese currency: negotiations with purchasers on potential payment in rubles are ongoing.
Gazprom Neft’s exports of Siberian crude reach 10 million tonnes
Meanwhile, an industry which by simple math cannot generate free cash flow (FCF) on $100 oil is disintegrating before our eyes, with millions affected by the fallout. Targeting individuals has become a regular theme in the media but now it appears to have moved to certain industries. Below demonstrates that even on $100 oil shale isn’t self-sustainable on a FCF basis, never mind $50 oil.
Top 6 Myths Driving Oil Prices Down | OilPrice.com
LNG prices in Asia are linked to oil prices; when oil prices were high Asian economies were forced to pay exorbitant prices for their imported gas. In the case of Japan where the Fukushima incident led to the shutdown of 54 nuclear reactors, at one point LNG prices reached almost $20 per one million British thermal units (mmbtu). During that time the North American fracking revolution unleashed a huge amount of gas into the market, creating a fantastic opportunity for the U.S. gas industry to capture the arbitrage between Asian and North American prices and export daily billions of cubic feet to foreign destinations. So promising was the LNG play that a 2014 report by Citi Group projected that the U.S. would become the world’s leading LNG exporter by as early as 2020. But ironically the same fracking miracle that flooded the North American market with surplus natural gas also led to a spike in oil production and contributed to the fall in global oil prices. Since oil and gas prices are linked the collapse in oil prices led to an even sharper decline in LNG prices. LNG spot prices in Asia have recently fallen below $7/mmbtu, a level nearly one third of last year’s peak. While at the well head U.S. gas price –below $3/mmbtu – is among the cheapest in the world, when slapped with liquefaction and tolling costs the price could reach $9/mmbtu, no longer competitive in many markets including Asia.