Benchmark crude oil futures rallied for a second week, with gains of more than $3 for both Brent & WTI. Prices were supported by the expected Opec+ cuts and optimism that surrounded the US-China trade talks last week. Russia has already reduced its production in January to 11.38mn bpd, while KSA is producing 10.2 mbpd, below its commitment of 10.3 mbpd. Meanwhile, Iran’s crude exports are still stuck just below 1 mbpd ever since November. However, the weekly gains were limited by fears about a global economic slowdown and record US crude production. China revised its 2019 economic growth prediction to 6-6.5% due to its trade spat with the US and a soft domestic demand. Whereas, the US crude production is believed by some consultants to be above 12 mbpd this month.
Several investment banks lowered their 2019 crude oil price forecasts in the beginning of this year, including Goldman Sachs, Société Générale, Barclays and Morgan Stanley. They view the Brent price averaging just above the $60 in 2019, while the WTI average is around $55. They agree that the first half of 2019 will record excess supply and thus inventory builds, before the market will rebalance in the second half, helped by the Opec+ cuts. However, it is still too early to find out who will be the winner in the battle this year between the potential supply tightening and the weakening demand.
Asian spot LNG prices fell for a third straight week with a drop of 2.9%, due to weak demand growth amid a mild winter in most regions. Moreover, inventory levels in China are estimated still high, as Chinese utilities bought ahead of winter to avoid any shortages, but finally ended up with a not so cold winter just few weeks before the Chinese New Year. However, Indian buyers were more active last week with several utilities issuing tenders for delivery mainly in January and February, but no demand spikes were expected. On the supply front, offers were available from Australia and Angola, with one cargo from Wheatstone believed to be awarded in the $7 per mmbtu range.
In the US, Henry Hub natural gas futures increased last week by 1.8% amid still volatile trading. In the beginning of last week, US gas prices fell to a 3-month low due to less heating demand, but later forecasts of colder weather until the end of January kept prices high. Meanwhile, UK gas futures fell by almost 3% on ample supply and mild weather. However, long term forecasts released end of last week expect a colder weather going through the first half of February.
This article was supplied by the Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.
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