Oil Prices Rise 2% But Post Weekly Decline On Demand Fears
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Oil Prices Rise 2% But Post Weekly Decline On Demand Fears

By the Al Attiyah Foundation

Oil Prices Rise 2% But Post Weekly Decline On Demand Fears

Oil rose more than 2% in volatile trading on Friday but finished the week about 7% lower as a new wave of coronavirus infections across Europe dampened hopes that fuel demand would recover soon. Benchmark Brent crude settled up $1.25 a barrel, or 2%, at $64.53 a barrel. U.S. West Texas Intermediate rose $1.42, or 2.4%, to $61.42. During the session, both traded within a wide range of more than $2 a barrel. 

On Thursday, oil slid 7% as large European economies reimposed lockdowns, while vaccination programs there were slowed by distribution issues and fears of the AstraZeneca COVID-19 vaccine after several reports of possible serious side-effects. However, Germany, France, and other European nations decided to resume using AstraZeneca doses on Thursday following the European Medicines Agency's findings that the benefits of the vaccine outweighed the risks. The earlier suspension of the AstraZeneca vaccine has made it harder to overcome resistance to vaccines.

Last week, the U.S. energy firms added the most oil and natural gas rigs in a week since January even as oil prices pulled back from a recent 28-month high. That puts the rig count, which has climbed over the past seven months, up 68% since falling to a record low of 244 in August 2020 according to Baker Hughes data. The total count, however, is still 361 rigs, or 47%, below this time last year. The U.S. oil rigs rose nine to 318 last week, their highest since May, while gas rigs were unchanged at 92.

Meanwhile, in a recent forecast of the oil market, Goldman Sachs bank said that headwinds related to European Union demand and Iran supply would slow market rebalancing in the second quarter, though it expects that OPEC+ to act to offset that.

Asian LNG Prices Stable As Both Demand And Supply Stay Firm

Asian spot LNG prices were almost steady last week, with the world's largest buyers in the Pacific absorbing supply as U.S. exports continue to recover after the Texas storm. The average LNG price for May delivery into Northeast Asia was estimated at about $6.55 per mmBtu, in line with the previous week, trader sources said. Prices were stable despite a warmer season in the northern hemisphere, which reduces demand for heating. Temperatures in Tokyo, Shanghai, and Seoul are expected to be higher than average over the next two weeks, weather data from Refinitiv Eikon showed, reducing heating demand.

In Europe, higher gas demand amid the current cold snap and coal-to-gas switching in the power sector due to higher emissions price is supporting the TTF summer market. This further reduced gas inventories leaving even more space for summer injections, which would rely on strong flows of LNG. With shoulder season in Asia crimping demand, the UK, in particular, is proving very attractive for U.S. cargoes. 

In the U.S., natural gas futures rose on Friday from an eight-week low in the prior session on record LNG exports and midday forecasts calling for cooler weather this week than previously expected. Front-month gas futures for April delivery rose 5.4 cents, or 2.2%, to settle at $2.53 per mmBtu. On Thursday, the contract closed at its lowest since Jan. 22. That put the contract down for a fourth week in a row for the first time since June 2020. It lost about 2% last week, leaving it down around 24% since it hit a three-month high of $3.31 per mmBtu during the Texas freeze in mid-February. 

The low U.S. gas prices, however, are making the international market attractive for sellers. The U.S. LNG exports are on track to hit record highs in March as tumbling shipping rates and lower prices than in Europe and Asia continue to attract buyers. However, traders say U.S. LNG exports cannot rise much more until new units enter service in 2022.

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.