Benchmark crude oil futures decline on global factors

Oil

Benchmark crude oil futures declined last week, with respective drops for Brent & WTI of 1.0% and 4.6%. The drop was prompted by several factors, including signs of slowing global growth, US dollar strength, uncertainty on outcomes of the US-China trade talks, and doubts on the compliance of Opec+ countries to adhere to agreed production cuts. The European Commission slashed its 2019 economic growth estimates for the eurozone area to 1.3%, from a previous estimate of 1.9%. Uncertainty is increasing on the potential outcomes of the US-China trade dispute, with the March 1 deadline approaching and high-level meetings expected this week in Beijing. Opec’s compliance in January only reached 75% according to a Reuters poll, while Russia is also gradually cutting output. However, prices found support in tightening supply from some producers, like Saudi Arabia, who cut output in January further than it had pledged, and with production from Iran, Libya and Venezuela still squeezed.

The expected 2019 global economic slowdown is raising doubts if oil demand this year will be enough to absorb the projected surge in supply. US crude oil production is currently around 11.9mn bpd, while 20% of its fracking fleet is sitting idle. Last week, a US House of Representatives committee approved a bill (No Oil Producing and Exporting Cartels Act — NOpec) to target anti-trust behaviour like Opec+ output cuts.

Gas

Asian spot LNG prices continued their fall for a seventh straight week, with a new weekly drop of about 2.9%, reaching an almost one and a half year low. The Asian spot LNG market was characterised by thin trading volumes, due to the long Chinese New Year holidays amid some new supply tenders. Notwithstanding that some Chinese buyers are reselling their cargoes, PetroChina is selling its equity gas in Russia’s Yamal LNG project to Europe, due to stagnant domestic demand. The price differential between Asian and European prices is narrowing, with European within-day prices rising temporarily on January 30. However, some fresh, but low level, demand from South Asia (India & Pakistan) has emerged.

In the US, Henry Hub natural gas futures continued to slide for a third straight week with a drop of 5.5%. Last week, US gas prices reached an almost two and a half year low, on rising production and a soon to end heating season. Meanwhile, UK gas futures also saw a third straight week of losses with a fall of 2.8%. Last week’s drop was due to healthy supply, some mild weather, and strong wind power output boosted by storm Erik.

This article was supplied by the Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.