Al Attiyah Foundation's Weekly Energy Market Review - Aug 8, 2020

By Al Attiyah Foundation

By Al Attiyah Foundation

Oil prices fell nearly 2% on Friday, limiting their weekly gain due to concerns the global recovery could falter from a resurgence of Covid-19 cases. The rise in infections remains the dominant issue for the fuel demand outlook. Brent crude fell 1.5% on Friday to settle at $44.40 a barrel, while US West Texas Intermediate (WTI) crude fell 1.7%, to end at $41.22 a barrel. Brent rose 2.5% for the week, while WTI gained 2.4%.

Cases in the US are still rising in several states, while India recently reported a record daily jump in infections. More than 700,000 people have died in the worldwide pandemic. Meanwhile, talks between US lawmakers over another round of stimulus have stalled. US President Trump has threatened to pull White House representatives out of talks and instead issue executive orders to address economic needs. 

Also supporting prices was OPEC member Iraq’s indication that it would cut its oil production by another 400,000 barrels per day in both August and September. The nation has been a laggard in fully meeting its pledge as part of an April deal to reduce supply. OPEC’s cuts in production have helped crude to recover from lows reached in April when Brent slipped below $16, a 21-year low.

US non-farm payrolls for July came in slightly better than expected but still showed sluggish and constrained employment growth. US Democratic leaders said the jobs report showed more investments were needed. Still, US energy companies cut the number of oil and natural gas rigs this week to a record low for the 14th week. US oil rigs fell by four to 176 this week, their lowest since July 2005.

Gas Markets

Asian spot LNG prices jumped to a more than four-month high last week, tracking firmer gas prices in Europe and the US, and as major cities in North Asia face warmer-than-usual weather potentially boosting demand. The average LNG price for September delivery into northeast Asia was estimated at $3.10 per million British thermal units (mmBtu), up 40 cents from the previous week. 

The recent rise in spot prices has seen buyers snap up cargoes at prices that are still low compared with previous years. The market is bullish due to supply issues from the Gorgon project in Western Australia and because of firm European and US gas markets. Prices across Europe rose last week on the back of lower Russian flows, while those at the Henry Hub in the US gained on hotter-than-normal weather. 

Tokyo, Beijing, and Shanghai are expected to see warmer-than-usual temperatures next week, according to Refinitiv weather data, potentially boosting demand for electricity as people switch on air conditioners. As a result, countries across the region were in the market looking for September to October cargoes. 

In the US, natural gas futures on Friday jumped to their highest since December after rising by the most in a week since 2009. Although US and European gas contracts mostly trade on their fundamentals, gas at the European Title Transfer Facility benchmark in the Netherlands also soared this week, jumping 50%. That made it profitable for more US LNG cargoes to go to Europe again for the first time in months.

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