Al Attiyah Foundation's Weekly Energy Market Review - November 28, 2020

By Al-Attiyah Foundation

By The Al Attiyah Foundation

Oil prices were mixed on Friday but posted a fourth straight week of gains ahead of an OPEC+ meeting early this coming week. Brent crude January futures rose 38 cents to settle at $48.18 a barrel, while the more active February contract gained 46 cents to $48.25. US West Texas Intermediate (WTI) crude settled at $45.53 a barrel. Brent rose 7.2% over the week, while WTI gained 8% for the week after encouraging news on potential Covid-19 vaccines from AstraZeneca and others lifted the markets.

However, questions have been raised over AstraZeneca's "vaccine for the world", with several scientists sounding cautious over the trial results. Several scientists have raised doubts about the robustness of the results showing the injection was 90% effective in a sub-group of trial participants who, by error initially, received a half dose followed by a full dose.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are leaning towards delaying next year's planned increase in oil output, said three sources close to the OPEC+ group. OPEC+ was planning to raise output by two million barrels per day (bpd) in January—about 2% of global consumption—after record supply cuts this year. OPEC+ ministers are due to meet on Monday, and a panel will hold informal online talks on Sunday—a day later than scheduled.

Rising Libyan output is also contributing to concerns about oversupply in the market. The OPEC member, which is exempt from the oil cuts, has added more than 1.1 million bpd of output since early September and has not managed to produce at this level since late 2008. The country's National Oil Corp (NOC) has said it wouldn't be joining any production adjustments until output hits 1.7 million bpd.

Gas Markets

Asian spot prices for LNG rose last week, driven by a surge in oil prices and a potentially colder start to winter, and higher heating demand. The average LNG price for January delivery into North-East Asia was estimated at around $7.40 per million British thermal units (mmBtu), up to $1.00 from the previous week, as eyes moved to January futures as the front month. The rise followed Brent oil futures, which the majority of Asian LNG contracts are priced against, rising on optimism of various coronavirus vaccines. 

The Asian prices were also supported by the prospect of temperatures in Beijing, Shanghai, and Seoul being lower than average over the next two weeks, increasing gas demand for heating. As a result, analysts suggested that heating demand started earlier than usual in North-East Asia this year, with the onset of early cold weather helping an early stock-draw and encouraging Chinese buyers back to the market for spot LNG purchases.

The amount of gas flowing in the US to LNG export plants was on track to hit a record high last week, with a good part of them expected to land in Asia. US internal natural gas futures fell 4% on Friday, weighed down by the steady rise in production forecasts for warmer-than-usual weather. The front-month contract rose more than 7% on the week as it tracked oil’s surge. 

In Europe, the European Commission delayed rules on carbon market permit handouts last week, supporting oil and gas prices. TTF closed the week at $5.09 per mmBtu on Friday while the UK’s NBP closed at $5.57 per mmBtu. Analysts expect the spread between NBP-TTF premium to narrow further this week, as the UK system loosens and consumption in NWE increases.

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