Al Attiyah Foundation's Weekly Energy Market Review - July 25, 2020

By Al Attiyah Foundation

By Al Attiyah Foundation

Oil prices rose on Friday, lifted by some supportive economic data, but tensions between the United States (US) and China limited gains. Brent crude futures rose to settle at $43.34 a barrel, while US West Texas Intermediate (WTI) crude futures rose to $41.29 a barrel. For the week, Brent rose 0.5%, while US crude rose 1.7%.

Lifting market sentiment, the eurozone business activity grew in July for the first time since the novel coronavirus pandemic hit, according to IHS Markit's Flash Composite Purchasing Managers' Index (PMI). The index is seen as a good indicator of the bloc's economic health. The economic data in Europe was much better than anticipated, which would suggest that demand destruction in recent months because of Covid-19 may not have been as bad as previously anticipated.

Meanwhile, US business activity increased to a six-month high in July but US companies reported a drop in new orders as new Covid-19 cases spiked. The resurgent pandemic has darkened the country’s economic outlook. Some states have reinstated restrictions, which should reduce fuel consumption. The number of Americans filing for unemployment benefits also hit 1.416 million last week, unexpectedly rising for the first time in nearly four months. 

Weighing on prices, China ordered the US to close its consulate in the city of Chengdu, responding to a US demand this week that China closes its Houston consulate. The order continued Beijing's recent practice of like-for-like responses to Washington's actions. Renewed tensions between the world's top two oil consumers further stoked worries about fuel demand.

   

Gas Markets

Asian spot LNG prices held steady last week, under pressure from surplus cargoes in the region as inventory levels in top importing countries remain full, although some inquiries for winter cargoes could boost prices in the coming months. The average LNG price for August and September deliveries into Northeast Asia was estimated at about $2.45 per million British thermal units (mmBtu), up to five cents from the previous week.

Around 20 laden-LNG tankers are still floating on waters mainly in the Far East and in western Europe, according to data intelligence firm Kpler. At least one cargo that loaded from the US and was bound for Europe has diverted and does not have a final destination yet. Buyers of US LNG continued scrapping loadings due to weak global gas demand but fewer cargos were canceled than for the two previous months. 

Still, a delay in the restart of Train 2 at the Chevron-operated Gorgon LNG plant in Australia which has been shut since May for maintenance, could support prices next week. Australia's Department of Mines, Industry Regulation and Safety said this week it plans to inspect the Gorgon plant "as soon as possible" following calls by a trade union to shut the plant for immediate safety inspections. 

In Europe, TTF and NBP gas prices continued to trade rangebound last week, with no significant change in fundamentals. While fundamentals remain balanced, the absence of Nord Stream has not been as supportive as markets anticipated. NBP versus front summer spread is narrowing as the UK gas market remains oversupplied.

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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.