Oil Prices Fall For The Week on Supply Concerns and Rising COVID Cases
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Oil Prices Fall For The Week on Supply Concerns and Rising COVID Cases

By the Al-Attiyah Foundation

Oil Prices Fall For The Week on Supply Concerns and Rising COVID Cases

Oil prices were little changed on Friday and ended the week lower, sapped in volatile trade by expectations of growing supplies just when a rise in coronavirus cases could lead to lockdown restrictions and depressed demand. On Friday, Brent futures rose 0.2%, to settle at $73.59 a barrel, while U.S. West Texas Intermediate (WTI) crude also rose 0.2%, to settle at $71.81. Earlier in the volatile session, both benchmarks were down over $1 a barrel.

Despite the small gains on Friday, Brent fell almost 3% for the week, marking a decline for the third week in a row for the first time since April 2020. WTI fell almost 4% last week, which would be its biggest weekly percentage decline since March. Subsequently, even with oil prices mostly rising over the last several months, the U.S. oil rig count continued its slow increase, gaining just two rigs last week to 380 active units, according to energy services firm Baker Hughes. 

Saudi Arabia and the UAE finally reached a compromise earlier last week, paving the way for OPEC+ producers to finalize a deal to increase production. OPEC+ had earlier failed to agree after the UAE sought a higher baseline for measuring its output cuts. OPEC justified the planned supply increase, announcing on Thursday that it expected world oil demand to increase next year to around levels seen before the pandemic, about 100 million bpd, led by demand growth in the United States, China, and India.

However, the rise in coronavirus cases related to the highly contagious Delta variant could trigger new lockdowns that would likely reduce recent bullish oil demand forecasts. In the United States, Los Angeles County will reimpose its mask mandate this weekend while Britain reported its highest number of new COVID-19 cases in more than six months on Friday.

Benchmark Crude Prices

Asian Liquefied Natural Gas Prices Rise as Summer Demand Heats Up

Spot prices for liquefied natural gas (LNG) in Asia rose last week as high temperatures drove up demand for the fuel used in power generation for cooling. The average LNG price for September delivery into Northeast Asia was estimated at around $13.30 per million British thermal units (mmBtu), 55 cents higher than the previous week. 

Temperatures in Beijing, Seoul, Shanghai, and Tokyo, some of the world's top LNG consuming countries, are expected to stay above the historical average over the next two weeks, weather data from Refinitiv Eikon showed, which will continue to support gas demand for cooling. Despite the increase in the weekly comparison, some buyers in Asia curbed the LNG surge by rejecting higher prices. JKM, an additional benchmark price for spot LNG in Northeast Asia assessed by S&P Global Platts, traded as high as $14.31/MMBtu this month, the highest seasonal level in more than seven years.

In Europe, gas storage inventories are below normal levels and carbon prices were elevated, underscoring the short-term global demand for the less-polluting carbon fuel. Europe also recently proposed climate policy plans that include financial incentives to reduce emissions for heating buildings. Both the UK NBP and Dutch TTF prices were slightly down on the week but were still sitting at record seasonal highs. Recent price volatility in Europe is expected to continue next week with gas markets watching closely the August capacity auction scheduled on 19 July. 

U.S. natural gas futures rose almost 2% on Friday as soaring global gas prices boost exports. That U.S. price increase came despite forecasts for less hot weather in the U.S. and lower air conditioning demand over the next two weeks than previously expected. For the week, the front-month was flat after sliding a little under 1% during the week. However, with European and Asian gas trading above $12 per mmBtu, analysts expect buyers around the world will keep purchasing all the LNG the U.S. can produce, which in turn will keep internal natural gas prices bullish.

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.