The benchmark crude oil futures recorded another week of gains with Brent and WTI rising by 3.0% and 1.4% respectively. Both benchmarks settled above $70 per barrel and reached their highest level in 180 weeks. The support to prices was mainly dominated by the withdrawal of the US from the Iran nuclear deal on the May 8. This withdrawal paves the way for restoring US sanctions on Iran that will require six months to take effect completely.
The fall in US oil inventories and low level of Venezuelan production also supported the oil market. However, the US dollar, US crude production and oil rig count increases coupled with the European effort to save the deal with Iran deal limited the upward trend of prices. US oil stocks (crude, gasoline & distillate) fell by more than 8mn barrels in the week to May 4, due mainly to lower crude imports and despite the weekly crude production hitting 10.7 mbpd.
In its latest report, the EIA expects US production to reach 12 mbpd by the end of 2019, becoming the world’s largest ahead of Russia (11 mbpd) and Saudi Arabia (10 mbpd). Meanwhile, US drillers added 10 more oil rigs last week. Iranian crude exports currently average around 2.3 mbpd – of which 1.8 mbpd goes to Asia and 0.5 mbpd to Europe. Analysts expect the European volumes are most likely to be hit by the sanctions. The potential loss in Iranian oil range between 0.2 to 1.0 mbpd according to different sources and might be observed only after the coming summer. In this context, Saudi Arabia and Russia will likely be reactive rather than proactive and wait until a supply disruption is actually recorded or stocks will be heavily impacted to make any new decisions.
Asian spot LNG prices lost some ground last week mostly due to ample supplies. Spot LNG prices were still having some support from strong oil and coal prices. Coal demand in Asia is still considered as firm while Chinese domestic prices have been on the rise due to import restrictions. Despite the usually weak spring gas demand in the northern hemisphere, demand this year is being driven by Asia, Latin America and the Middle East. Multiple sell tenders in Trinidad and Tobago, Angola and Papua New Guinea have been launched and/or awarded. Whereas, purchase LNG tenders in India and Mexico have been awarded and others in Argentina and Kuwait launched. In the US, Henry Hub natural gas futures gained last week 3.5% after losing 2.2% the week earlier.
The low inventory level of about 25% below the five-year average was still the main supporting driver. However, weather forecasts show temperatures are to remain higher than normal in the following two weeks, leading to low demand levels for both heating and cooling. On May 4, US natural gas production hit an all-time high of 79.8 bcfd. In the UK, NBP gas futures also rose by almost 3%, mainly due to some production outages and support from high oil and coal prices. Nonetheless, temperature forecasts are expected to stay above average even though the heatwave over the previous days is retreating.
Sources and photo-credits: Gulf Times along with a senior energy researcher at Abdullah Bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.