Oil Settles After a $2 Increase, Despite OPEC+ Production Cuts

By the Al-Attiyah Foundation

 

Oil prices settled up more than $2 on Thursday despite news that OPEC+ reached a deal to gradually ease production cuts from May. Brent crude settled up $2.12, or 3.4%, to $64.86 a barrel. U.S. oil settled-up $2.29, or 3.9%, at $61.45 a barrel. Most markets were closed on Friday for the Easter Holiday. For the week, Brent crude rose 0.4%, while WTI rose 0.8%. Prices drew most of their support from an EIA report that showed domestic crude stocks fell unexpectedly last week and after U.S. President Joe Biden outlined a $2.3 trillion spending plan to invest in traditional projects, such as roads and bridges, alongside tackling climate change.

The OPEC+ agreement outlined ease in production curbs of 350,000 barrels per day (bpd) in May, another 350,000 bpd in June, and a further 400,000 bpd or so in July. Under the deal, cuts implemented by OPEC+ would be just above 6.5 million bpd from May. OPEC+ had cut output by nearly 7 million bpd, and Saudi Arabia made an extra 1 million bpd voluntary output cut. Most analysts feel the group are banking on a stronger than normal seasonal improvement in demand, placing emphasis on major vaccine progress in key consuming regions such as the U.S. and Asia. Russian Deputy Prime Minister Novak said in the meeting that he expected global oil demand to grow by 5-5.5 million barrels per day (bpd) this year. Novak also said he hoped global oil inventories would return to their normal level in two to three months. 

However, Saudi Arabia's Energy Minister said the market's recovery was "far from complete“. Additionally, OPEC+ has trimmed its oil demand growth forecast for this year by 300,000 bpd because of renewed lockdowns. Much of Europe is still in lockdown, France has entered its third national lockdown, with schools closed for three weeks to try to contain the third wave of COVID-19 infections.

Asian LNG Spot Prices Rise as China and Europe Boost Demand

Asian spot prices for LNG rose last week as Europe and China sought supply ahead of the summer. The average LNG price for May delivery into Northeast Asia was estimated at about $6.95 per million British thermal units (mmBtu), up 15 cents from the previous week. Cargos for delivery in the first half of June were around $7 mmBtu, after vessel congestion at the Suez Canal, the shortest shipping route between Europe and Asia, delayed cargo deliveries and pushed prices up. 

LNG cargo transit has been slowly normalizing after the Evergreen container ship that had been jammed diagonally across the canal for six days was towed on Monday. As flows normalize in the Canal, 13 vessels with LNG were waiting to pass through on Wednesday, down from 16 cargos on Monday, data intelligence company Kpler said. The Suez Canal Authority (SCA) said on Wednesday that shipping had returned to normal levels, with a total of 81 ships transiting the canal. 

In Asian demand, China's Sinopec Corp has issued a tender seeking five-spot cargoes from June through February next year, with offers due on April 6. Pakistan LNG Limited has received offers from 12 companies for a tender seeking eight LNG cargoes for delivery from late April to June, with prices ranging from $6.70 to $6.92 per mmBtu. In Europe, despite bearish fundamentals in the first half of last week, both NBP and TTF gained value supported by a colder weather outlook and the continent looks to stock up on natural gas over the summer months. Analysts predict that Europe will need to stock up some 65-70 billion cubic meters of gas this summer, as all reserves were depleted during last winter’s freeze. 

In the U.S, the amount of natural gas flowing to LNG export plants was hitting new daily records last week, as low prices in the country compensate for the cost of liquefying and transporting to Europe and Asia. Internal U.S. Gas prices also moved higher last week, despite a larger than expected build in natural gas inventories. Henry Hub gas futures for May rose 3.2% for the week, to settle at $2.64 per mmBtu.

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