Oil Continues to Climb, Notching Fourth Monthly Gain on Growing Demand

By the Al-Attiyah Foundation

By the Al-Attiyah Foundation

Oil prices edged higher on Friday, with global benchmark Brent posting a fourth monthly gain, with demand growing faster than supply and vaccinations expected to alleviate the impact of a resurgence in COVID-19 infections across the world. On Friday, Brent crude futures for September rose 0.4%, to settle at $76.33 a barrel. The more active contract for October ended the session up 31 cents at $75.41 per barrel. U.S. West Texas Intermediate (WTI) crude futures rose 0.5%, to end the session at $73.95 a barrel. Both benchmarks notched gains of more than 2% for the week, while Brent rose 1.6% in July, its fourth straight monthly increase. WTI was unchanged for the month.

Even with coronavirus cases rising in the United States, all around Asia, and parts of Europe, analysts said higher vaccination rates would limit the need for the harsh lockdowns that gutted demand during the peak of the pandemic last year. Analysts pointed to a rapid rebound in India's gasoline consumption and industrial production following its COVID-19 surge as a sign that economies are more resilient.

The number of U.S. oil rigs has risen for 11 straight months but fell two to 385 last week, data from Baker Hughes showed. US Oil majors are not ramping up spending in new wells and continue to focus on debt reduction. Resultingly, OPEC+ is not losing any market share to the U.S., which could mean the oil market is still poised to go much higher. A Reuters poll showed that oil prices are expected to trade near $70 per barrel for the rest of the year supported by the global economic recovery and a slower-than-expected return of Iranian supplies, with further gains limited by new coronavirus variants. Top oil exporter Saudi Arabia is expected to raise crude prices for sales to Asia in September for a second straight month, tracking strength in Middle East benchmarks, according to trade sources.

Asian LNG Spot Prices Rally on Summer Demand and Supply Crunch 

Asian spot prices for liquefied natural gas rose last week as buyers sought to secure the fuel used for power generation amid a global supply crunch and high temperatures across the region. The average LNG price for August delivery into Northeast Asia was estimated at about $15.60 per million British thermal units (mmBtu), up $1.15 from the previous week. Except for a price peak in January, this is the highest level since 2014, as a warmer than usual summer drives up demand for electricity to power air-conditioners. Pakistan LNG was among buyers that agreed to pay more than $15/mmBtu for September delivery in a bid to avoid power shortages. The company is also seeking seven cargoes for delivery in October and November. 

Temperatures in Beijing, Seoul, Shanghai, and Tokyo are expected to be higher than average over the next two weeks, weather data from Refinitiv Eikon showed. Natural gas inventories in Europe are also still low, causing Asia and Europe to compete for supply. As a result, the Dutch TTF extended its bullish run for the fourth consecutive session on Friday, closing at $14.09 mmBtu, up over 15% on the previous week. Extant storage concerns, weaker renewable output, stronger gas-fired generation with bullish coal prices, all pushed more gas into the power mix. Carbon also traded higher last week, which lent additional support.

U.S. natural gas futures dropped almost 4% to their lowest in more than a week on Friday on forecasts for cooler weather over the next two weeks and lower air conditioning demand than previously expected. On Friday, the US front-month gas futures fell 14.5 cents, or 3.6%, to settle at $3.91 per mmBtu, their lowest close since July 20. That was also the biggest daily percentage decline for the front month since early April. After closing at its highest level since December 2018 on Monday, the front-month was down over 3% last week, after it rose almost 11% the previous week. For the month, the contract was up about 7%, putting it up for the fourth month in a row for the first time since November 2018.

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