Al Attiyah Foundation's Weekly Energy Market Review - July 11, 2020

By Al Attiyah Foundation

By Al Attiyah Foundation

Oil prices climbed more than 2% on Friday after the International Energy Agency (IEA) bumped up its 2020 demand forecast, but record-breaking new coronavirus cases in the United States tempered expectations for fast recovery in fuel consumption. Prices also found support after data showed U.S. energy firms cut the number of oil and natural gas rigs operating to a record low for a 10th week in a row. 

Brent crude settled up 2%, at $43.24 a barrel and U.S. oil settled 2.4%, at $40.55 a barrel. A strong stock market also boosted oil prices. A slate of economic data, including a record monthly payrolls addition, pointed to a revival in U.S. business activity in June. U.S. crude was little changed on the week while Brent notched a weekly gain of about 1%. 

The Paris-based IEA raised its demand forecast to 92.1 million barrels per day (bpd), up 400,000 bpd from its outlook last month. Still, more than 60,500 new COVID-19 cases were reported in the United States on Thursday, a daily record, and the highest daily count for any country since the pathogen emerged in China last year. 

Prices had dropped for a period last week after Libya National Oil Corporation announced it had lifted its force majeure on all oil exports after a half-year blockade by eastern forces. The additional supply will only add to the already bloated oil inventories brought on by the reduced demand for fuel during the initial outbreak. Mounting tension between the United States and China also pressured prices. China said it would impose reciprocal measures in response to U.S. sanctions on Chinese officials over alleged human rights abuses against the Uighur Muslim minority.

Gas Markets

Asian spot LNG prices remained stable last week for the fourth week in a row, with global demand staying weak, and spot market activity reduced. The average LNG price for August delivery into northeast Asia was estimated at around $2.20 per mmBtu, the same level as the previous week. Despite low spot prices, cargo requirements are somewhat muted due to strong gas oversupply around the world, with inventory levels high in Asia and long-term contracts largely covering demand.

Russia's Sakhalin 2 plant offered a cargo for August loading, while Australia's Ichthys plant was selling two cargoes for loading over late July and early August. Exxon Mobil Corp's Papua New Guinea export plant awarded a July loading cargo at $2.15 per mmBtu on a delivered ex-ship basis.

On the demand side, Argentinean energy company IntegracionEnergetica Argentina (IEASA) has received offers from six companies in its tender for August and September delivery. Argentina is one of few countries in Latin America with some spot demand this year, with LNG imports in the region falling to 6.7 million tonnes this year, down almost 38% from a year ago. This has reduced the supply of U.S LNG to the region by 30%. 

European gas continued to slump last week, shedding over 10% in the UK, settling at $1.70 per mmBtu. Furthermore, an uptick in LNG send-out is expected this week which will add to the pressure on prices. In the U.S., the combination of the hot-than-normal weather and strong coal-to-gas switching gave some relief to the Henry Hub price.

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DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of the IndraStra Global.