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Oil Sinks Below $30 As Traders Fear Tidal Wave Of Iranian Oil

Oil Sinks Below $30 As Traders Fear Tidal Wave Of Iranian Oil

Before updating you on these week's events in energy, we first take a look at the key figures for the oil and gas industry:

(Click to enlarge)

(Click to enlarge) Related: War Between Saudi Arabia And Iran Could Send Oil Prices To $250

Oil prices briefly dipped below $30 per barrel this week as the depressed market continues. Market watchers seemed to be competing with each other to see who could publish the lowest prediction for oil prices, with Standard Chartered raising the possibility of $10 oil. It wasn’t too long ago that sub-$30 oil sounded ridiculous, so nobody can predict where the true bottom will be. The only thing that everyone knows is that today’s prices are unsustainably low since a large portion of global oil production is not profitable right now. The big question is when we will hit bottom.

The ongoing crash in oil markets led to Wood Mackenzie’s much-publicized figure that $380 billion worth of oil projects have been cancelled since 2014. The totality of cancellations will result in nearly 3 million barrels of oil production that will not come online over the next decade. The markets have yet to grasp the ramifications of such massive cut backs, but the world could find itself dearly short of supply in the coming years given the dramatic pullback in exploration. For now, everyone is focused on the near-term.

Bond prices for embattled energy companies are rapidly deteriorating. The Wall Street Journal reported that bonds for WPX Energy (NYSE: WPX) and Oasis Petroleum (NYSE: OAS) plummeted on Thursday, with each losing about 12 percent of their value. Oasis’ bonds with a 2019 maturity date are trading at just 53 cents on the dollar while WPX’s bonds maturing in 2023 are trading at just 65.5 cents on the dollar. Related: Forget $20 - Oil Prices At $8 Per Barrel In Canada

Cheniere Energy (NYSE: LNG) was set to ship the first LNG cargo from U.S. shores this month, but the company has hit a snag. The Sabine Pass export terminal will delay that inaugural shipment until February or March over “instrumentation issues.” The setback is a minor one for an $18 billion facility.

More worryingly for Cheniere and its peers is the fact that a tidal wave of liquefaction capacity is coming online around the world this year and next, and LNG spot prices have crashed. Just a few days ago ConocoPhillips (NYSE: COP) announced that it had shipped the first cargo from its Australia Pacific LNG facility, exporting natural gas extracted from coal seams. Chevron (NYSE: CVX) announced on January 15 its intention to bring its massive Gorgon LNG project – a $54 billion project – online early this year. Gorgon is an elaborate LNG export terminal off the western coast of Australia, a facility that has suffered from huge delays cost overruns, but is finally nearing completion. Chevron is the operator on the Gorgon LNG project, but its partners include ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS.A), as well as several energy companies from Japan.

In addition to ConocoPhillips and Chevron, other LNG exporters are slated to bring export terminals online this year. Oil markets have suffered a supply-driven bust, but the problems of too much capacity are about to hit the LNG markets even harder.

While the oil and gas industry suffers, the global market for clean energy is doing very well. This week Bloomberg New Energy Finance published 2015 figures for solar and wind, revealing another record year for clean energy investment. Globally, an estimated $329 billion was invested in clean energy last year, up another 4 percent from 2014. Wind and solar saw 64 GW and 57 GW of new installations, respectively, which are record highs. The achievements are all the more impressive since they took place during a period of extremely cheap fossil fuels. “These figures are a stunning riposte to all those who expected clean energy investment to stall on falling oil and gas prices. They highlight the improving cost-competitiveness of solar and wind power,” BNEF’s chairman Michael Liebreich said in a statement. Related: 27 Billion Barrels Worth Of Oil Projects Now Cancelled

The Obama administration announced on Friday its plans to overhaul the federal program for coal leases. The plan will include a moratorium on new coal leases until the Department of Interior conducts a comprehensive environmental review of the program, which will include the impact of coal extraction on climate change and wildlife. The move follows the President’s promise to address the issue in his State of the Union address earlier this week. Coal extraction on federal lands represents 40 percent of the coal mined in the United States, but the state of Wyoming accounts for 80 percent of publically-mined coal. The news is yet another nail in the coffin for coal producers in the U.S.

Argentina’s state-owned oil company YPF signed a preliminary deal with American Energy Partners LP to develop shale gas in the sought after Vaca Muerta Shale in central Argentina. The $500 million deal would include a pilot project in the Bajada de Anelo block in Neuquén province, which would last until 2018. American Energy Partners is headed up by Aubrey McClendon, the former chief of Chesapeake Energy (NYSE: CHK). McClendon will have to scrape together the agreed-upon capital from private equity over the next few months. YPF’s CEO Miguel Galuccio said that the experience that McClendon brings to the table will help develop the Vaca Muerta and bring competition to Argentina’s shale gas industry. YPF already has deals with other foreign companies, including Chevron and Petronas. But, in a departure from other deals, American Energy will lead the operations in an effort to accelerate development.

As the conflict between Iran and Saudi Arabia continues, a strengthening of ties between unlikely actors could be taking place in the Middle East. Israel and Saudi Arabia have found common ground in their efforts to beat back Iranian influence in the region, according to the WSJ. While the two countries do not have formal diplomatic ties, still have major disagreements over very large issues, and have a long history of hostility, they both are feeling increasingly insecure as their respective alliances with the United States hit some rough patches. As a result, they are strengthening their relationship, at least unofficially. The implications of closer relations between Israel and Saudi Arabia are unclear, but this “realignment” in the Middle East is reshuffling long-held hostilities.

By Evan Kelly of Oilprice.com

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  • Adam on January 16 2016 said:
    Need to add the COTC money market short poistion number to this article. 30M shares were sold short adding to a historically high short position already. That is 6M barrels per day. Longs added 17M To their position resulting in 13M of artificial supply on the market this week.

    The short position stands at 213M barrels short. That is 40% of our commercial oil in storage sold short. The position has increased by 80M barrels in just 3 months This is the highest short position ever I believe.

    This market dynamic is the most major contributer to price right now and not one single "expert" is talking about it. Instead stories are made up about longs dumping shares when they actually increased their position.

    What a joke.., but wait, its not a joke because countries are colapsing, hundreds of thousands are losing their jobs, currencies are collapsing, and so much more.
  • Joe Blow on January 16 2016 said:
    NYMEX shorts increased their position this week by 17%. They shorted 6M barrels of oil per day. Never in the history of NYMEX has the position been so high. Never in history has it been shorted at this rate. They added 2/3s of US supply per day this week as they grew their position.

    This needs to be reported as millions of jobs accross the world are at stake along with currencies and potential war. It is a complete scam that manipulators are able to force the market to its knees via oil.

    Are they leveraging larger short poistions in say BP, leveraged Ruble, leveraged CAD$ , or whatever else by selling 1$B short in oil??

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