Al Attiyah Foundation's Weekly Energy Market Review - December 5, 2020

By Al Attiyah Foundation

By Al Attiyah Foundation

Brent crude oil futures rose more than 1% on Friday, remaining just under $50 a barrel, as expectations of a US economic stimulus package and the possibility of a vaccine for the coronavirus overrode rising supply and increased Covid-19 deaths. A bipartisan, $908 billion coronavirus aid plan also gained momentum in the US Congress on Thursday as conservative lawmakers expressed their support and Senate and House of Representatives leaders deliberated.

Brent settled up 1.11% at $49.25 a barrel on Friday, hitting its highest since early March at $49.92 during the session. West Texas Intermediate (WTI) rose to $46.26 a barrel, after touching a high of $46.68 a barrel. Both benchmarks gained for a fifth consecutive week, with Brent up 2.2% and US crude up 1.6%. 

In further support to prices, OPEC+, comprising of the Organization of the Petroleum Exporting Countries and its allies, on Thursday agreed on a compromise to increase output slightly from January but continue the bulk of existing supply curbs to cope with coronavirus-hit demand. OPEC and Russia agreed to ease deep oil output cuts from January by 500,000 barrels per day (bpd) with further as yet undefined increases every month, failing to reach a compromise on a broader policy for the rest of 2021. 

OPEC+ had been expected to continue existing cuts until at least March, after backing down from plans to raise output. The increase means the group will reduce production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd. While some analysts predict an undersupplied oil market, even under the new higher supply quotas, others expected the barrels would tip the market into oversupply.

Gas Markets

Asian spot prices for LNG rose to a nearly two-year high this week as demand continued to be firm for heating during winter and as buyers faced supply issues. The average LNG price for January delivery into North-East Asia was estimated at $8.10 per million British thermal units (mmBtu), up 70 cents from the previous week. February deliveries also remained high, with Shell, for instance, selling a cargo for delivery in early February, to BP at $8 per mmBtu, according to data from S&P Global Platts.

South Korea's Korea Gas Corp (Kogas) bought seven LNG cargoes for delivery in winter through a tender last week and maybe seeking more, according to a Refinitiv source. South Korea will reduce the operations of coal-fueled power plants this winter to cut fine dust emissions, which in turn is stoking demand for LNG in power generation. Eight of the nation's 60 coal power plants will be halted during the season.

US natural gas futures gained more than 2% on Friday on forecasts for demand to rise as the weather turns seasonally colder in coming weeks and LNG exports remain near record highs. That increase came after prices dropped almost 10% on Thursday on previous forecasts for milder weather. Friday’s prices settled at $2.58 per mmBtu, reversing last week's 7% rise.

In Europe, both the TFF and NBP rose last week, as the latest weather forecast confirmed below-average seasonal temperatures for the next couple of weeks, both in the UK and NWE. A security guard strike in Norway ended on Thursday after they reached an agreement, which in turn eliminated the looming risk of any impact on Norwegian flows.

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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 IndraStra Global.