Al Attiyah Foundation's Weekly Energy Market Review - Oct 17, 2020
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Al Attiyah Foundation's Weekly Energy Market Review - Oct 17, 2020

By Al Attiyah Foundation

Al Attiyah Foundation's Weekly Energy Market Review - Oct 17, 2020

Oil prices edged lower on Friday, dragged down by concerns that a spike in Covid-19 cases in the United States and Europe will continue to weigh on demand in two of the world's most significant fuel-consuming regions. Brent crude futures fell 23 cents on Friday, settling at $42.93 a barrel, and US West Texas Intermediate (WTI) crude futures dropped 8 cents to settle at $40.88 a barrel. Both benchmarks had little change on the week, with Brent rising 0.2%, while WTI was on track to gain 0.7%.

OPEC+, a grouping of the Organization of the Petroleum Exporting Countries and allied producers including Russia, fear a prolonged second wave of the pandemic and a jump in Libyan output could push the oil market into surplus next year. This concern, seen by Reuters in a confidential document, is a much gloomier outlook than just a month ago.
A panel of officials from OPEC+—called the Joint Technical Committee— discussed their worst-case scenario during a virtual monthly meeting on Thursday. The scenario involves commercial inventories from major world consumers remaining higher than the five-year average in 2021, rather than falling below that mark. The group's Joint Ministerial Monitoring Committee (JMMC), will consider the outlook when it meets again on Monday. 

Some European countries were reviving curfews and lockdowns last week, to fight a surge in new coronavirus cases, with Britain imposing stricter Covid-19 restrictions in London on Friday. In the US, even as coronavirus cases continue to soar, drillers have begun adding oil rigs after cutting them to a 15-year low in August. Last week, they added the most oil rigs in a week since January, increasing the count by 12 to 205, according to energy services firm Baker Hughes Co.

Benchmark Oil Prices

Gas Markets

Asian spot prices for LNG rose to their highest in more than 11 months last week, underpinned by expectations that an anticipated cold winter will stoke demand for the fuel used in heating. The average LNG price for December delivery into North-East Asia was estimated at $5.80 per million British thermal units (mmBtu), up 10 cents from the previous week. The price for November delivery was at around $5.70 per mmBtu.
Taiwan's CPC Corp closed a tender earlier last week to buy 12 cargoes for next year, while South Korea's Posco bought a cargo for delivery in the second half of November. There was also buying activity in Japan, as Kansai Electric and Japex were seeking a cargo each for mid-December delivery, while China's Guangzhou Gas was seeking a cargo for late December. 

In the US, natural gas futures traded higher last week, as forecasts for colder weather with higher heating demand and a rise in LNG exports offset an increase in output after Hurricane Delta. Front-month gas futures rose 1.2% on the week, closing at $2.77 per mmBtu, putting the contract on track to rise for a fourth week in a row. As LNG exports rise and the weather turns colder, analysts project average demand will jump for the coming weeks.

Previously, US exports fell from March-July as coronavirus-related demand destruction caused prices to collapse in Europe and Asia and buyers to cancel around 175 US cargoes. Front-month gas prices in Europe and Asia are now trading at their highest since December 2019 and January 2020, respectively, putting them both more than $2 per mmBtu over the US Henry Hub benchmark.

Benchmark Gas Prices

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