Al Attiyah Foundation's Weekly Energy Market Review - Aug 1, 2020

By Al Attiyah Foundation

By Al Attiyah Foundation

Oil prices, although down slightly on the week, rose on Friday and were on track for monthly gains, benefiting from the news that U.S. oil output cuts in May were the largest on record. Brent crude posted a fourth month of gains and U.S. crude posted a third, as both rose from depths hit in April when much of the world was in lockdown due to the coronavirus pandemic.

In support of oil prices, U.S. crude oil production plummeted in May, falling a record 2 million barrels per day to 10 million bpd, the U.S. Energy Information Administration said in a monthly report on Friday. Traders will next week closely monitor oil production output increases by OPEC and its allies. The group collectively plans to increase production from Saturday, adding about 1.5 million barrels per day to global supply, after slashing output in the wake of the pandemic.

The dollar also extended its dramatic fall on Friday and was on course for its biggest monthly drop in a decade, after news on Thursday that U.S. gross domestic product collapsed at a 32.9% annualized rate - the steepest decline in output since records began in 1947. Investors typically use dollar-denominated commodities as safe havens when the currency weakens.

Globally, the economic outlook has dimmed again, with increasing coronavirus infections raising the risk of renewed lockdowns and threatening any rebound, according to Reuters polls of more than 500 economists. Weaker refining margins around the world, lower Chinese oil demand, and high crude inventories are also putting further pressure on oil prices.

Gas Markets

Asian spot LNG prices rose to a four-month high last week, supported by an extended shutdown of one of the production lines at Australia's Gorgon plant following delayed maintenance works. The average LNG price for September delivery into northeast Asia was estimated at around $2.70 per million British thermal units (mmBtu), $0.25 per mmBtu above last week's level.

The maintenance on Train 2 of the giant Gorgon project began on May 23 and a restart was initially planned on July 11 but has been delayed until early September. Gorgon is carrying out repairs after a routine inspection of the train's propane heat exchangers during planned maintenance found weld quality issues, a spokesman for Chevron that operates the plant said last week. 

The rise in this week's prices is the first to have taken place since late March, Reuters price assessment data showed. But the price is still seasonally weaker than in previous years and around 34% below its level a year ago. Asian demand also continues to be largely sluggish, but some buying took place this week in Japan and Pakistan.  

In Europe, both the TTF and NBP closed higher on the week at $1.82 and $1.79 per mmBtu respectively. The sideways movement was partly due to restored Norwegian gas flows to the UK via Langeled. Analysts predict a sideways/bearish price outlook for this week, as all major fundamentals remain flat, although some downside may come from external fuels.

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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.