Crude oil futures drop on demand growth concerns

Oil
Benchmark crude oil futures dropped last week, with Brent & WTI both losing about 3.0%. However, crude prices still ended in February with a second consecutive monthly gain of more than 6%, and an overall increase of 20% since the beginning of the year. Prices were pressured by renewed concerns on global demand growth, as economic data from the US, China & South Korea pointed to weak factory activity in February. Prices were also weighed down by surging US crude production reaching 12.1 mbpd in the latest week, and by the US President’s new calls on Opec to refrain from hiking prices. Meanwhile, prices were still receiving support from the Opec+ production cuts and US sanctions on Venezuela. Production in Iran & Libya have recovered slightly in February, while in Venezuela production dropped to just above 1 mbpd. US oil stock saw a decline of more than 10 mbpd in the week to February 22, after several weeks of buildup, which also helped to lift prices. According to preliminary Reuters estimates, Opec crude production dropped by a further 0.3 mbpd m-o-m in February to reach 30.7 mbpd, the lowest in four years. The 11 Opec members involved in the international cut deal reduced their production by 0.82 mbpd, compared to October’s level (cut reference), ensuring the Opec compliance rate reached 101% in February. The Opec compliance improvement was driven in part by over cuts from KSA, UAE, Kuwait, and Angola, while Iraq delivered only half of its pledge, and Nigeria, Congo, and Gabon instead increased their production.



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Gas
Asian spot LNG prices fell for the tenth consecutive week, losing more than one third of their value since the beginning of the year. The price slump was still driven by a weak appetite across Asia as well as resumed production in several LNG plants. February’s LNG shipments to Japan, China, South Korea & Taiwan reached close to 15.9 MT, down 19% from January, according to Refinitiv data. Some LNG trains in Australia, Nigeria and Malaysia were restarted last week after short periods of disruption.Asian LNG and European gas prices are tracking each other this winter, with a differential of around $0.3, compared to over $2.0 a year ago.Some traders expect this price spread to remain tight in 2019. In the US, Henry Hub natural gas futures strengthened for the third straight week with a 5.2% increase. Prices rose to their highest since end of January on expectations of rising heating demand ahead of extreme cold coming this week. In the meantime, UK gas futures continued to decline with a new drop of 3.5%. Mirroring the Asian market, and under the same circumstances, UK prices also dropped. Britain is expected to receive seven LNG cargoes by mid-March.

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

Sources and photo-credits: Gulf Times