Benchmark crude oil futures continue to rally

Oil

Benchmark crude futures continued to rally last week, closing the month of August positively after losing almost $5 in July. Prices were boosted mainly by the unexpected fall in US oil stocks, a decrease in supply from key producers Iran and Venezuela, and an ease in the trade dispute between the US and Mexico. However, gains were limited by renewed worries of a trade war between the US and China, emerging markets weakness, and record US production.  In August, Iran’s crude and condensate exports are expected to have dropped, faster than expected, below 70mn barrels due to the impact of the escalation of the US sanctions, while Venezuelan production is likely to reduce to 1.4mn bpd, half what it was three years ago, due to persistent issues along the value chain.

Concerns remain high in the coming months on whether the increase in global crude production will offset or even outweigh the losses from Iran, Venezuela, and Angola as well as any resulting loss from unforeseen geopolitical factors or natural disasters.  Nevertheless, the US crude production reached a monthly average record of about 10.7 mbpd in June, with the latest weekly level around 11 mbpd. This compares to a production rate in August of 11.2 and 10.5 mbpd for Russia and Saudi Arabia respectively. US administration sold 11mn barrels of its strategic petroleum reserves to six companies.  Meanwhile, the Libyan production is recovering and Iraq’s southern exports are reaching record highs.

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Gas
Asian spot LNG prices rose modestly last week by 0.1%, but price gains have totalled 20% in the last six weeks. Prices were supported by additional demand needed to replenish stocks ahead of peak winter season, and loading delays at Brunei and Sakhalin-2 LNG. Kyushu and Kansai Electric were seeking cargoes for delivery in October, whereas Saibu Gas was looking for one LNG shipment every quarter from 2019 to early 2022.  A South Korean customer was also found seeking cargoes over 5-10 years, according to Reuters sources. Kyushu Electric restarted a nuclear reactor at its Sendai plant last week, increasing the number of online reactors in Japan to six, with a combined capacity of 6.5GW, or about 17% of Japan’s nuclear capacity. Japan’s July LNG imports slipped by 0.1% compared to last year, reaching 6.8MT. The cumulative LNG imports for the year reached 48.9MT, down by 2.4% compared to 2017. Qatar’s LNG exports to Japan represented 11% of July’s figure and 12% of the yearly 2018 figure.

In the US, Henry Hub natural gas futures remained almost flat while the short-term outlook is quite supportive. In the week to August 24, data from the US EIA showed a higher than normal injection of gas into storage, but inventories are still 19% below the five-year average. Hot weather forecasts and the imminent peak hurricane season are believed to continue to support prices.  In the UK, gas futures rose for another week, gaining more than 18% in the six-week streak. Prices were mainly supported by lower flows from Norway due to field outages. In addition, flows through the Langeled pipeline are expected to increase, as the Troll field returns to service today, and continued disruption is expected at the Asgard field.

Sources and photo-credits: Gulf Times