Al Attiyah Foundation's Weekly Energy Market Review - Oct 3, 2020

By The Al Attiyah Foundation

Oil prices fell more than 4% on Friday after US President Donald Trump and First Lady Melania Trump tested positive for Covid-19. The announcement prompted sell-offs in equity markets worldwide and roiled risky assets as rising global crude output threatened to overwhelm the market’s weak recovery.

 

Benchmark Brent and US crude each posted a second straight week of losses. The uncertainty surrounding the US president’s health added to a series of jitters, including a lackluster US unemployment report and increased supply from major world oil producers.

Brent crude was down 4.1%, at $39.27 a barrel, while US oil settled down 4.3% at $37.05 a barrel. Brent was down 7% on the week, while WTI dropped 8%, as the pandemic continues to devastate the global economy and demand for fuel. Last week also marked the grim milestone of one million deaths, and several countries are tightening restrictions and contemplating lockdowns as infections accelerate.

There was more negativity from the US labor market, with its recovery slowing in September, as non-farm payrolls increased by 661,000 jobs last month after advancing 1.49 million in August, the US Labor Department said. The slowdown in hiring compounds problems for economic recovery.

The increasing oil supply also weighed on the market. US energy firms added oil and natural gas rigs in the latest week, according to energy services firm Baker Hughes Co, a signal of more supply to come. The increase was the third in a row and came as price increases in recent months prompted some producers to start drilling again.

Gas Markets

Asian spot LNG prices rose to their highest level since mid-January on spot demand from Japan, Pakistan, and India last week. The average LNG price for November delivery into North-East Asia was estimated at $5.20 per million British thermal units (mmBtu), up 30 cents from the previous week. The majority of the demand came from the Far East, although there was increased demand from the Indian sub-continent. 

Pakistan LNG issued a tender to buy six cargoes for delivery in December, while Japan’s Hokkaido Electric is seeking a cargo for delivery over late November to early December in a tender that closes on Friday. In India, Reliance Industries and Indian Oil Corp both bought cargoes. Chinese gas distributor ENN Energy Holdings also provided support by seeking eight cargoes for delivery over 2021 to 2022, in a tender that closes next week. 

Chevron Corp’s plan to shut production units progressively at its LNG export plants in Western Australia for maintenance over 2021 to 2022 will affect supply. The company plans to close more than one-and-a-half of LNG production units, known as trains, at its Gorgon LNG export plant from 26 April to 14 June, next year, according to a notice.

In Europe, both the TTF and NBP settled bearish on Friday with ample supply from Russian and Norwegian shippers. TTF closed the week at $4.46/mmBtu while the NBP closed at $4.68/mmBtu. Both benchmarks were up over 10% on the week. Analysts expect that persistent lower LNG send-out will continue until late October, as downside risk comes from an oversupplied UK market and bearish global market sentiment.

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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.