Oil prices climb on perceptions of supply shortages

Oil
Benchmark crude futures rose last week by nearly 1.5%, with Brent reaching $86, a level not seen since late October 2014. The price boost from the upcoming US sanctions on Iran’s oil sector next month was still overshadowing the other downward factors. Iran’s current crude production is already falling by around 0.4 mbpd since its peak last March of 3.83 mbpd, as some buyers started to limit their Iranian crude supplies. Prices were also supported by the new economic trade deal between the US, Mexico and Canada called USMCA, replacing the old agreement. However, price gains were limited by a report indicating an informal deal between Saudi Arabia and Russia to lift output by at least 0.5 mbpd, and due to a significant draw of 8mn barrels in US crude stocks in the week to September 28. Profit-taking and US equity weakness also pressured the crude prices.


The oil market is currently shrugging off the bearish factors and keeping focus on the impact of the US sanctions on Iranian oil sector. This situation is leading to an overbought market, as we still do not know: to which extent Iran’s production will fall, or how much the KSA and Russia would compensate for that fall, and the impact on global demand.



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Gas
Asian spot LNG prices declined for a third straight week last week, returning back to the levels of the second half of August. Abundant supply and a perceived well-supplied market are the main reasons of the downward trend, even though the demand is seen as strong with North Asia forecasted to experience a regular winter in the coming six-seven weeks. High oil prices also supported LNG prices but not enough to counter the ample supply effect. 8.9 mtpa Ichthys LNG project in Australia shipped its first products last week, with first LNG to follow before the end of the year. Following Qatar’s gas expansion, LNG Canada project led by Shell received last Monday the final investment decision for two trains of 14 mtpa, with first LNG expected in 2025.


In the US, Henry Hub natural gas futures rose last week by 4.5%, chasing levels not seen since last January. Natural gas stocks rose the week earlier by a higher-than-average level of 98 bcf. However, stocks are still hanging at their lowest level since 2003, which supported the last price increase along with hotter-than-usual weather in some regions. Meanwhile, UK gas futures rallied by near 5% last week erasing most of the decline of the week earlier. High European coal and gas prices prompted the price upside, but power demand is expected to drop next week as temperatures are forecast to be warmer.

Sources and photo-credits: Gulf Times