Al Attiyah Foundation Weekly Energy Market Review | 23 January 2021
Each week, Al Attiyah Foundation publishes its weekly energy market review, bringing you the latest global news from the oil, gas and petrochemical sector.
This week: Asian Spot LNG Prices Fall as Peak Winter Demand Fades
Oil Markets: Oil falls as COVID-19 cases trigger clampdowns
Oil prices settled lower on Friday, 22 January, weighed down by a build in US crude inventories and worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.
Brent and US West Texas Intermediate (WTI) crude futures both dropped around 1.5% on Friday, to settle at US$55.41 and US$52.27, respectively, however, both benchmarks had little change on the week.
Late last year, recovering fuel demand in China underpinned market gains, while the US and Europe lagged. Now, that source of support is fading as the second wave of COVID-19 cases in China has sparked new restrictions, with infections rising by the day and reaching different regions such as Shanghai.
Overall crude inventories surprisingly rose by 4.4 mn barrels in the US in the most recent week, versus expectations for a draw of 1.2 mn barrels. While the rise in stockpiles was unexpected, refineries hiked output to their highest capacity usage since March, and gasoline and diesel demand increased week-on-week. US energy firms also added oil and natural gas rigs for a 9th week in a row amid higher energy prices over the past few months, according to energy services firm Baker Hughes. However, the overall count is still 52% below this time last year.
Global oil demand could decline marginally in Q1 2021 as many regions, including many European countries, have reintroduced mobility restrictions. The positive effects of vaccination programmes on the oil demand recovery may not be visible for several months until a critical mass of the population is inoculated.
Gas Markets: Asian prices fall as temperatures rise
Asian spot LNG prices fell last week, as traders started to book cargoes for a warmer season, after a period of peak heating demand which sent prices rocketing. The average LNG price for March delivery into Northeast Asia was estimated at around US$8.90 per mn British thermal units (mmBtu), at the lower range of the US$8.00–USD14.00/mmBtu estimated the previous week. March prices are more than three times lower than those for February.
Last week, traders estimated cargoes for February at US$29.00/mmBtu, after a record high of US$32.50/mmBtu on 13 January, according to the Japan-Korea-Marker (JKM), which is assessed by pricing agency S&P Global Platts and used as a reference for spot markets in Asia. Individual companies paid nearly US$40.00/mmBtu during the peak demand.
For the coming month, temperatures in Tokyo and Shanghai, in two of the world’s top LNG consuming countries, are expected to rise slightly above the historical average, weather data from Refinitiv Eikon showed. As a result, many traders expect March and April prices to retreat towards US$7.00/mmBtu.
In the past two months, the market had experienced supply disruptions in Asia and an acute shortage of cargoes in the region, which made spot charter rates surge six-fold to US$350,000 per day within months. However, congestion delaying LNG shipments via the Panama Canal, which has been driving up costs, is expected to ease after March.
Buyers from the US are expected to cancel up to five LNG cargoes for loading in March, half the volumes that were cancelled in February amid a shortage of ships, trade sources said on Thursday, 21 January. However, the delay in exports has caused US internal gas prices to drop over 10% last week, with Henry Hub prices closing at US$2.45/mmBtu on Friday, 22 January.
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