Al Attiyah Foundation's Weekly Energy Market Review - Dec 19, 2020
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Al Attiyah Foundation's Weekly Energy Market Review - Dec 19, 2020

By Al Attiyah Foundation

Al Attiyah Foundation's Weekly Energy Market Review - Dec 19, 2020

Oil settled up to a nine-month high on Friday, rounding out seven straight weeks of gains as investors focused on the rollout of Covid-19 vaccines from Pfizer and Moderna and a decline this week in the US dollar. Pfizer has now applied for approval in Japan for its vaccine, which is being used in the US and UK. US Vice President Mike Pence said approval for Moderna's vaccine could come in the next few days.

Brent crude settled up 1.5%, to $52.26 a barrel on Friday, after touching $52.48, its highest since March. US West Texas Intermediate (WTI) crude also settled up 1.5%, to $49.10 after reaching $49.28, its highest since February. Both benchmarks had a weekly rise of about 5%. The US dollar rebounded slightly on Friday but stayed near two and a half year lows reached a day earlier. A weak dollar makes oil and other commodities cheaper for buyers using other currencies.

Oil gained support last week from weekly US supply data showing crude inventories fell more than expected. The oil and gas rig count, an early indicator of future output, rose by eight to 346 in the week to 18 December, the highest since May, energy services firm Baker Hughes said in its closely followed report on Friday. OPEC and its allies, known as OPEC+, are also supporting the market by slowing the pace of a planned increase in supplies next year. OPEC+ plans to add 500,000 barrels per day of supply in January and will meet in early January to decide on the next steps. 

President Donald Trump on Friday signed into law a two-day stopgap extension of existing federal funds passed by Congress to avoid a midnight government shutdown, as lawmakers negotiate a $900 billion pandemic aid bill and as part of $1.4 trillion government spending package. 

Benchmark Oil Prices

Gas Markets

Asian spot prices for LNG hit a six-year high last week as a cold spell gripped the region at a time when supply had been curbed from several plants globally due to unplanned maintenance. The average LNG price for January delivery into North-East Asia LNG-AS was estimated at $12.70 per million British thermal units (mmBtu), up to $1.60 per mmBtu from the previous week, while February deliveries were estimated at $11.20 per mmBtu.

Front-month prices had risen to six-year highs of above $13 per mmBtu earlier last week before slipping lightly after the front-month contract rolled over to February and supply returned to some plants. Tight shipping is also boosting cargo and tanker prices, as tanker rates to carry LNG surged 15%-35% over the past week to more than $150,000 a day, as the strong demand in Asia's recovering economies, led to a clamor for scarce ships.

Power prices in Japan surged on Thursday to the highest in more than two years amid plummeting temperatures and heavy snowfall in some parts, isolating communities, cutting power, and prompting the government to call an emergency meeting to address the situation. Temperatures are expected to dip below normal in Seoul, Beijing, and Shanghai towards the end of the year, suggesting further LNG demand in the region. 

TTF lost 30 cents on Friday and closed at $5.70 per mmBtu, as robust renewables and stricter Covid-19 measures in major European cities suppressed demand. Heating demand is also expected to be curbed by warmer than normal temperatures across Europe until year-end. US internal gas futures also edged up over 4% last week, supported by increased heating demand due to cooler weather.

Benchmark Gas Prices

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