Weekly Oil Prices Fall 3% on Possible Return of Iranian Supply
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Weekly Oil Prices Fall 3% on Possible Return of Iranian Supply

By the Al-Attiyah Foundation

Weekly Oil Prices Fall 3% on Possible Return of Iranian Supply

Oil prices rose slightly on Friday after three days of losses, driven higher by the looming storm in the Gulf of Mexico. Oil prices were, however, on track for a weekly fall as investors braced for the return of Iranian crude supplies after officials said Iran and world powers made progress on a nuclear deal. Brent crude futures settled at $66.44 a barrel on Friday, while U.S. West Texas Intermediate was at $63.54 a barrel. 

A weather system forming over the western Gulf of Mexico has a 40% chance of becoming a cyclone in the next 48 hours, the U.S. National Hurricane Center (NHC) said on Friday. This early storm prompted traders to buy crude ahead of the weekend in anticipation of potential production shut-ins. However, the gains were limited by the expectation that Iran could add a million or more barrels per day of oil production later this summer. 

The two benchmarks fell almost 3% on the week, after Iran's president, Hassan Rouhani, said the United States was ready to lift sanctions on his country's oil, banking and shipping sectors. Iran and world powers have been in talks since April on reviving the 2015 nuclear deal and the European Union official leading the discussions said on Wednesday, he was confident a deal would be reached.

Still, investors remain upbeat about fuel demand recovery this summer as vaccination programs in Europe and the United States would allow more people to travel, although rising cases of infections across parts of Asia are raising concerns. U.S. energy firms are also showing optimism, adding oil and natural gas rigs for a fourth week in a row, as higher oil prices prompted some drillers to return to the well-pad. The oil and gas rig count, an early indicator of future output, rose by two to 455 last week.

Benchmark Oil Prices

Asian LNG Prices Fall on Surging Coronavirus Outbreak in India

Asian spot prices for liquefied natural gas (LNG) fell last week after India, the world's fourth-largest importer, canceled cargoes as the coronavirus outbreak hit demand. The average LNG price for July delivery into Northeast Asia was estimated at about $9.60 per million British thermal units (mmBtu), down $0.65 from the previous week. Buyers rejecting cargoes offered for more than $10 per mmBtu and an extension of Taiwan's soft lockdown also helped to drag prices down, traders said. India's city gas distribution company, GSPC, has asked suppliers to cancel all cargoes for June delivery. Buyers have been selective as inventories are full and LNG demand for transport, commercial and industrial sectors fell amid rising coronavirus infection rates.

European gas prices were also under bearish pressure last week, tracking softer related fuels, notably coal. A nervous start to the UK Emissions Trading Scheme (ETS) last week, has also likely triggered the offloading of permits in the EU ETS, as UK installations entered the UK carbon market. TTF prices closed at $8.88 per million British thermal units (mmBtu) on Friday, down 6.3% from the previous week. Still, colder than normal weather is expected to persist until the end of June, which will continue to support demand for domestic heating and gas for power demand in Europe. 

U.S. natural gas futures also eased to a fresh three-week low on Friday as production continued to edge higher and exports slipped. The price decline came despite forecasts that warmer weather in coming weeks will boost the number of gas power generators burn to keep air conditioners humming. Front-month gas futures fell 0.4%, to $2.91 per million British thermal units, putting the contract on track for its lowest close since April 29 for the second day in a row. That also put the front-month down for the fourth day in a row for the first time since early March and on track to decline nearly 2% last week, after gaining more than 16% during the prior five weeks.

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 the IndraStra Global.