By Sofiane Ghezali/www.abhafoundation.org
Benchmark crude oil futures surged last week almost 6%, achieving in the meanwhile, the strongest weekly rise since last July and wiping out losses since late January. The basic argument for this surge is that oil market fundamentals are getting tighter, due to the fact that global inventories are already not lying far from the five-year average, and last week the supporting factors were much stronger than the downside ones. The oil markets also continued to be influenced closely by evolution in equity and currency markets.
The prices were boosted mainly by an unexpected drop in US oil inventories driven by lower imports, and higher refinery runs and demand. Actually, the total US demand is 1mn bpd higher than last year. Adding to the record Opec compliance to the cut agreement in February (138%), Saudi energy minister declared that production cuts will continue in 2019 with a new cooperation platform. Rising tension with Iran also contributed to the upside, while FGE is assessing that new US sanctions on Iran might result in a drop of 0.25-0.50mn bpd in its exports by year-end. However, the positive sentiment in the market was still tempered by the rising trend of the US crude oil production. US oil rig count rose by four to reach 804, the highest in the past three years.
Goldman Sachs considers that continued robust demand growth will likely lead Opec to overshoot in draining global inventories, which may help Brent in reaching $82.50/bbl by mid?year, while Morgan Stanley is predicting that Brent would hit $75 a barrel in the third quarter as seasonal demand picks up.
North Asian LNG spot prices for May delivery continued their decline last week, due to above average temperatures and more nuclear restart in Japan. Moreover, official weather forecaster in Japan expects warmer weather between April and June in the country. Nonetheless, one additional Japanese nuclear reactor (Genkai reactor n°3) was put online last Friday, bringing the total number of online reactors to five. The online nuclear capacity in Japan is now almost 5 GW representing around 13% of total nuclear capacity. Kyushu Electric and Kansai Electric are both planning to restart one nuclear reactor each next May.
In Papua New Guinea (PNG), the several aftershocks are complicating the assessment process of the damage to the natural gas processing facilities in the highlands, making it unclear when LNG exports can resume. In the meantime, Exxon bought an LNG cargo for its PNG plant to prevent the LNG tanks from warming up.
In the US, Henry Hub natural gas front month futures declined last week by 3.6% due mainly to lower forecasts of heating demand over the next two weeks, even though temperatures are cooler than normal. The colder weather triggered withdrawals from underground storage 50% higher than the five-year average. In the UK, NBP gas futures also ended the week with more than 2% losses, for a second week in a row. Stronger imports from continental Europe and removals from storage sites led basically to an oversupplied system. Additionally, LNG deliveries scheduled for Britain this month are picking up, amid a tighter Europe — Asia price spread.
* Sofiane Ghezali is senior energy researcher at Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.
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