Oil Falls on Asian Virus Surge but Loses Capped by Recovery Support
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Oil Falls on Asian Virus Surge but Loses Capped by Recovery Support

By the Al-Attiyah Foundation

Oil Falls on Asian Virus Surge but Loses Capped by Recovery Support

Oil settled higher on Friday, supported by bullish economic data from U.S. and Europe. However, a rise in coronavirus cases in India was still pressuring prices, causing an overall weekly fall in prices. On Friday, Brent crude settled up 1.1%, to $66.11 a barrel, while U.S. West Texas Intermediate (WTI) gained 1.2%, to $62.14 a barrel. For the week, both benchmark crudes fell about 1% due to the resurgence of infections in India and Japan, the world's third and fourth-largest oil importers.

Eurozone Purchasing Managers' Index (PMI) data for April showed a stronger-than-expected recovery as more European states began easing coronavirus lockdowns. France said schools would reopen on Monday. U.S. data added to the upbeat outlook with the number of Americans filing new claims for unemployment benefits falling to a 13-month low last week. U.S. refiner Valero also said demand for gasoline and diesel was at 93% and 100% of pre-pandemic levels.

However, demand concerns in India remain, as the world's third-largest oil user, last week continued to report the world's highest daily increase in COVID-19 cases. India's Prime Minister Narendra Modi urged citizens to take precautions to halt the spread of COVID-19 but stopped short of imposing lockdowns. Restrictions also continue to hamper travel worldwide. Several countries, including Australia, Britain, Canada, and the United Arab Emirates have barred or cut flights from India. 

The week’s underlying bearish sentiment was also stoked by progress on talks between Iran and world powers to resurrect the 2015 nuclear accord. Analysts predict that Iran has the potential to provide about 1-2 million barrels per day (bpd) in additional oil supply if a deal is struck. 

Benchmark Oil Prices

Asian LNG Prices Rise to 3-month High Boosted by Summer Demand 

Asian spot prices for liquefied natural gas (LNG) rose to a three-month high last week, boosted by demand for power generation ahead of summer and as some buyers stockpile ahead of winter. However, the surge in coronavirus infections in India, which threatens gas demand, capped price gains. The average LNG price for June delivery into Northeast Asia was estimated at about $8.65 per million British thermal units (mmBtu), up $1.05 from the previous week, industry sources said.

Firm demand from China, as buyers stockpile ahead of winter, and requirements from South Korea were the two main factors responsible for boosting prices in the week. PetroChina on Thursday sold a cargo to BP for delivery into North Asia June 1-5 at $8.75 per mmBtu, data from price agency S&P Global Platts showed. South Korea's Prism Energy and GS Energy were also seeking cargoes for delivery in June while Guangzhou Gas bought a cargo for May delivery at $8.30 to $8.40 per mmBtu.

Demand was also strong elsewhere, with Argentina's IEASA seeking 10 partial cargoes for delivery over June to August into the Escobar terminal, while Thailand's PTT bought a cargo at $8.50 per mmBtu. India's Bharat Petroleum Corp Ltd (BPCL) bought a cargo for delivery in June, but gas demand from India is taking a slight hit as COVID-19 cases surge in the country. Indian gas-based power demand was already down due to the high spot prices, but now city-gas demand is also reducing.

In the U.S, natural gas futures eased on Friday from a seven-week high in the previous session, on forecasts that the weather will moderate over the next two weeks. That small decline came despite a smaller-than-expected storage build, record exports, and small declines in production. Traders also noted that colder-than-normal weather last week boosted heating demand by so much that utilities could take the unusual step of pulling gas from storage. The last time utilities pulled gas from storage in April was in 2018. Front-month gas futures fell 0.7% on Friday, to settle at $2.73 per mmBtu. On Thursday, the contract closed at its highest since March. For the week, the front month was up 2% after rising 6% the previous week.

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.