Al Attiyah Foundation Weekly Energy Market Review | 21 August 2021
Each week, Al Attiyah Foundation publishes its energy market review, bringing you the latest global news from the oil, gas and petrochemicals sector.
Oil Posts Biggest Week of Losses in Nine Months as Delta Variant Spreads
Oil prices closed out their biggest week of losses in more than nine months with another down day on Friday, 20 August, as investors sold futures in anticipation of weakened fuel demand worldwide due to a surge in COVID-19 cases. Brent crude fell 8% on the week, settling down USD1.27, or 1.9%, to USD65.18 a barrel, its lowest since April. US West Texas Intermediate (WTI) crude for September settled down USD1.37, or 2.2%, to USD62.32 a barrel on Friday, to lose more than 9% for the week.
The crude market has now posted seven consecutive days of losses. Numerous nations worldwide are responding to the rising infection rate due to the coronavirus Delta variant by adding travel restrictions to cut off the spread. Futures contracts suggest that the market expects plenty of supply in the coming months. The premium for the front-month Brent contract over the third-month contract has nearly halved between late July and now, indicating that near-term supply will not be as tight as the market had expected.
China, the world’s largest crude importer, has imposed new restrictions with its ‘zero tolerance’ coronavirus policy, which is affecting shipping and global supply chains. The United States and China have also imposed flight-capacity restrictions.
The US dollar hit a nine-month high on signs the US Federal Reserve is considering reducing stimulus this year. Oil prices move inversely to the US currency, making oil more expensive for foreign purchasers when the dollar rallies.
While the Delta variant drags on fuel demand, supply is steadily increasing, with drilling firms adding rigs for the third week in a row. US oil rigs rose 8 to 405 this week, their highest since April 2020, services company Baker Hughes said.
Asian Gas Spot Prices Fall as Cargo Rivalry with Europe Eases
Asian spot prices for liquefied natural gas (LNG) fell last week as a decline in European gas and oil prices saw competition for short-term fuel supply between the two continents ease. The average LNG price for October delivery into Northeast Asia was estimated at about USD15.50 per million British thermal units (mmBtu), down USD1.55 from the previous week, industry sources said. Spot prices for cargoes delivered in September are estimated at about USD15.20 per mmBtu, they added. Brent oil futures, over which the majority of Asian LNG contracts are priced against, hit lows not seen since May over concerns that new COVID-19 cases could weaken global demand. European gas futures prices fell after Russia’s Gazprom raised supply estimates to the continent, offering at least a brief relief as Europe tries to increase its inventories from decade-low levels. Milder weather in key consuming countries for LNG has also helped to reduce pressure over prices for the fuel, which is used to generate electricity used for cooling. Temperatures in Seoul and Tokyo are expected to be lower than average over the next two weeks, weather data from Refinitiv Eikon showed. PetroChina was seeking cargoes for delivery between 1-5 October in Tangshan, China, at a USD0.40 discount over the Japan Korean marker, the reference price assessed by S&P Global Platts. Engie bid at USD16.59 for a cargo to be delivered between 30 October and 3 November to Pipechina Tianjin. Shell is offering six cargoes for delivery between Oct 2021 and March 2022 loading from Sabine Pass project, with bids due on 19 August.
US natural gas futures gained on Friday as the weather outlook turned slightly warmer, potentially boosting demand for gas used for air conditioning. Front-month gas futures rose 2.1 cents, or 0.5%, to settle at USD3.85 per mmBtu. Prices touched a one-month trough on Thursday, pressured by a weekly storage report that showed a larger-than-expected injection. With European and Asian gas prices more than three times higher than the US fuel, analysts expect LNG exports to remain elevated this year.
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