Crude futures strengthen on tightening supplies, trade talks progress

Benchmark crude oil futures strengthened for a second week, with Brent and WTI gaining 1.3% and 3.0% respectively. Prices were lifted by some signs of tightening supplies and progress made in US-China trade talks.Global oil supply is being squeezed by Opec+ production cuts, US sanctions on Iran and Venezuela, unrest in Libya, and outages in countries like Saudi Arabia.  US and Chinese officials met last week for a new round of trade talks, amid some progress being reported by both sides and the US president announcing that a deal is likely soon.  The March 1st deadline could therefore be extended. However, price gains were limited by record US production reaching 12mn bpd, US crude stocks rising for the fifth straight week as refinery utilisation rates kept as low as 86%, and an uncertain economic picture with a synchronised global economic slowdown expected by economists. Oil prices are at their highest levels in three months, and might finish February with a second consecutive monthly gain.  The Saudi energy minister expects the oil market to be balanced by April, as the 83% Opec+ January compliance rate is likely to be higher for later months, KSA further reducing its production as declared, Russia ramping up its output cuts as agreed, and with other countries like Nigeria starting to comply with the agreement.


Asian spot LNG prices fell for the ninth consecutive week, reaching the lowest level since September 2017. According to analysts, the downward price trend is caused by oversupply in the market, and has yet to find a price bottom.  Contributing to oversupply is the weak demand in North Asia, as Chinese traders have just returned from the Chinese New Year holidays, and many Asian sellers divert their cargoes to Europe like KOGAS.LNG spot cargoes into Europe are calculated to trade at around a 3-5% discount to European gas hub benchmarks.  Some 15 missed LNG cargoes, due to outages, failed to revert the oversupply situation. Nonetheless, purchasing tenders were issued in Argentina, Kuwait and Mexico. In the US, Henry Hub natural gas futures gained for a second week in a row with a 3.5% increase. The price upside was caused by a projected cold start into March and a substantial gas storage withdrawal. Last week’s inventory withdrawal brought the storage deficit to 21% below the 5-year average.  Meanwhile, UK gas futures continued to fall for the fifth straight week, with a new drop of 6.4%. UK prices dropped due to mild temperatures, while the weather outlook points to warmer than normal temperatures across Northwest Europe.

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

Sources and photo-credits: Gulf Times