Al Attiyah Foundation's Weekly Energy Market Review - Dec 12, 2020

By The Al Attiyah Foundation

By The Al Attiyah Foundation

Oil prices settled lower on Friday, as demand worries due to new coronavirus-related restrictions on business in New York overshadowed progress toward vaccination programs. On Friday, Brent futures settled down 0.6% at $49.97 a barrel, although the contract had risen above $51 a barrel on Thursday. US West Texas Intermediate (WTI) crude settled the week at $46.57, having risen almost 3% in Thursday’s session. For the week, Brent was up 1.5%, and WTI was up less than 1%. That was the sixth consecutive week of gains for the first time since June.

Restrictions in New York were weighing on Friday’s prices after funds had placed net long bets as Brent topped $50 a barrel in the previous session. Governor Andrew Cuomo ordered New York City restaurants to suspend indoor dining effective Monday, amid an uptick in cases. However, promising vaccine trials have helped lift some gloom over record increases in the number of coronavirus infections and deaths around the world, and Mr. Cuomo sounded a note of optimism, saying he expected 170,000 doses of Pfizer's vaccine to be in New York as early as next week. 

A big jump in US crude stockpiles last week served as a reminder that there is still plenty of supply available, but it was all but ignored as bulls ran through the market this week. Another signal of abundant supplies came on Friday as US energy firms this week added the most oil and natural gas rigs since January as producers keep returning to the well pad. 

A fall in world shares as markets confronted the risk of Britain leaving the European Union without a trade deal also weighed on sentiment last week. On Friday, British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen said a deal was unlikely.

Gas Markets

Asian spot prices for LNG rose last week to the highest since September 2018 due to high demand for heating, a supply crunch, and increasing freight rates. The average LNG price for January delivery into North-East Asia was $11.10 per million British thermal units, up to $3.00 from the previous week. Prices for February delivery were estimated at $10.50 per mmBtu. 

Temperatures in Beijing, Tokyo, and Seoul are expected to be lower than average over the next two weeks, weather data from Refinitiv Eikon showed, increasing gas demand for heating. The rise in imports in China, as the economy recovers, and the lack of shipping availability is also helping to push prices up. LNG imports by China hit a one-year high in November, and many traders expect it to increase further. 

Production issues in Australia and Malaysia, two of the largest exporters, and delays in the Panama Canal, through which the US ships part of its liquefied gas, are adding to tighter supply. LNG prices in Asia have now increased more than five-fold since June when lower demand due to the coronavirus pandemic drove them below $2.00/mmBtu. Prices are expected to stabilize in the second half of January with record volumes coming from the US, where natural gas prices are below $3, making exports profitable.

US internal natural gas futures rose to a one-week high on Friday on forecasts for cooler weather and more heating demand over the next two weeks and the continued record LNG exports. Front-month gas futures rose 1.5%, to settle at $2.59 mmBtu, their highest close since 2 December. For the week, the contract gained about 1% after sliding more than 9% last week.

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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.