Oil Prices Recover Some of the Weekly Loses as US Inventories Decline

By the Al Attiyah Foundation

By the Al Attiyah Foundation

Oil prices rose for a second day on Friday as the market reacted to falling U.S. inventories, and signs of strong Asian demand from both China and India added support. Brent crude oil futures were up $1.43 at $75.55 on Friday, while U.S. West Texas Intermediate futures were up $1.62 at $74.56. Still, both benchmarks were down slightly on the week, as the market comes to grips with the historic drop in U.S. oil inventories and dimmed prospects of Iranian oil returning to the market.

Prices on both sides of the Atlantic ended the week little changed, despite the significant daily fluctuations. Prices were weighed down early in the week by the collapse of output talks between the OPEC+ group before the U.S. inventories decline provided bullish sentiment. The U.S. Energy Information Administration (EIA) reported on Thursday that crude inventories fell by 6.9 million barrels in the week to July 2, the lowest since February 2020. US gasoline stocks also fell, as gasoline demand reached its highest since 2019, signaling increasing strength in the US economy.

However, the gains in oil prices were capped by the continued worries that members of the OPEC+ group could be tempted to abandon output limits that they have followed during the COVID-19 pandemic, with talks breaking down because of an impasse between major producers Saudi Arabia and the UAE. The two Gulf OPEC allies are at odds over a proposed deal that would have brought more oil to the market. Russia was trying to mediate in an effort to strike a deal to raise output, OPEC+ sources said on Wednesday. The US also had high-level conversations with officials in Saudi Arabia and the UAE, to help resolve the disagreement, the White House said on Tuesday. 

Asian Liquefied Natural Gas Prices Drop as Buyers Pull Back

Spot prices for Liquefied Natural Gas (LNG) in Asia fell last week, as demand from end-users was hampered and suppliers offered more cargoes. The average LNG price for August delivery into northeast Asia was estimated at about $12.55 per metric million British thermal units (mmBtu), down $1.45 from the previous week. The price for a cargo delivered in September is estimated to be about $12.75 per mmBtu. 

Buying appeared to have slowed from China, the world's second-largest LNG importer, though some spot purchases were seen from Japan and South Korea. Japan's Tohoku Electric bought a cargo for delivery in the second half of August at about $14.40 per mmBtu, while South Korea's Prism Energy bought a cargo for September delivery at $14.50 per mmBtu. Temperatures in Tokyo, Seoul, and Beijing are expected to be warmer than usual over the next two weeks, Refinitiv Eikon weather data showed, which also prevented prices from falling further. 

In the US, natural gas futures declined along with global energy commodities over the past two sessions, though a shift in the weather outlook may have added to the downward trend for gas. Still, Henry Hub closed the week at $3.67 per mmBtu, over 100% higher than the price this time last year. A Short-Term Energy Outlook (STEO) released by the U.S. Energy Information Administration (EIA) on Wednesday predicts U.S. natural gas production will increase in 2021, although demand may fall. 

European gas prices continued to vault to record highs, driven by factors ranging from low inventories and outages to an Asian buying spree, and signaling further rises in coming months that could mean high prices for the winter period also. The front-month contract at the Dutch TTF hub, a key European benchmark, closed at $12.75 per mmBtu, it's highest since Refinitiv Eikon records began. Data from the IEA published last week showed European gas consumption rose by an estimated 25% in the second quarter of 2021, its largest year-on-year quarterly increase since at least 1985. 

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