Asian Spot LNG Prices Fall as Peak Winter Demand Fades
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Asian Spot LNG Prices Fall as Peak Winter Demand Fades

By the Al Attiyah Foundation

Asian Spot LNG Prices Fall as Peak Winter Demand Fades

Oil prices settled lower on Friday, weighed down by a build in US crude inventories and worries that new pandemic restrictions in China will curb fuel demand in the world's biggest oil importer. Brent and US West Texas Intermediate (WTI) crude futures both dropped around 1.5% on Friday, to settle at $55.41 and $52.27, respectively, however, both benchmarks had little change on the week.

Late last year, recovering fuel demand in China underpinned market gains, while the US and Europe lagged. Now, that source of support is fading as the second wave of Covid-19 cases in China has sparked new restrictions, with infections rising by the day and reaching different regions such as Shanghai.

Overall crude inventories surprisingly rose by 4.4 million barrels in the US in the most recent week, versus expectations for a draw of 1.2 million barrels. While the rise in stockpiles was unexpected, refineries hiked output to their highest capacity usage since March, and gasoline and diesel demand increased week on week. US energy firms also added oil and natural gas rigs for a ninth week in a row amid higher energy prices over the past few months, energy services firm Baker Hughes said on Friday. However, the overall count is still 52% below this time last year.

Still, global oil demand could decline marginally in the first quarter of 2021 as many regions, including many European countries, have re-introduced mobility restrictions. The positive effects of vaccination programs on the oil demand recovery may not be visible for several months until a critical mass of the population is inoculated.

An influx of resources for the Covid-19 response and economic recovery. However, some analysts said the move might not be enough to stoke demand.

Benchmark Oil Prices

Gas Markets: Asian prices fall as temperatures rise

Asian spot LNG prices fell last week, as traders started to book cargoes for a warmer season, after a period of peak heating demand which sent prices rocketing. The average LNG price for March delivery into North-East Asia was estimated at around $8.90 per million British thermal units (mmBtu), at the lower range of the $8.00-$14.00/mmBtu estimated the previous week. March prices are more than three times lower than those for February.

Last week, traders estimated cargoes for February at $29.00/mmBtu, after a record high of $32.50/mmBtu on 13 January, according to the Japan-Korea-Marker (JKM), which is assessed by pricing agency S&P Global Platts and used as a reference for spot markets in Asia. Individual companies paid nearly $40.00/mmBtu during the peak demand. 

For the coming month, temperatures in Tokyo and Shanghai, in two of the world's top LNG consuming countries, are expected to rise slightly above the historical average, weather data from Refinitiv Eikon showed. As a result, many traders expect March and April prices to retreat towards $7.00/mmBtu.

For the past two months, the market had experienced supply disruptions in Asia and an acute shortage of cargoes in the region, which made spot charter rates surge six-fold to $350,000 per day within months. However, congestion delaying LNG shipments via the Panama Canal, which has been driving up costs, is expected to ease after March. 

Buyers from the US are expected to cancel up to five LNG cargoes for loading in March, half the volumes that were canceled in February amid a shortage of ships, trade sources said on Thursday. However, the delay in exports has caused US internal gas prices to drop over 10% last week, with Henry Hub prices closing at $2.45/mmBtu on Friday. 

Benchmark Gas Prices

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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.