Benchmark crude oil futures increased sharply last week to reach their highest level in 2019, with Brent & WTI gaining respectively by 6.7% and 5.4%. Prices were supported by Opec production data indicating tightening supplies and optimism about new rounds of trade talks between the US and China.
The data showed that January Opec production fell by 0.8mn bpd (m-o-m) to around 30.8 mbpd, reaching the 86% compliance to the Opec+ output cut deal. Whereas, Saudi Arabia announced that it will cut its production next month by another 0.5 mbpd.
Global oil supply was also squeezed by outages and production losses in countries like Venezuela, Libya, Iran, and Saudi Arabia. Moreover, last week’s US-China trade talks in Beijing brought confidence and optimism that a trade deal might be within reach. However, oil market challenges still persist like weak US economic data (retail activity and unemployment), and swelling US supply, with production increasing this year by around 1.5 mbpd to average of 12.4 mbpd, and continuing to increase in 2020.
The International Energy Agency & Opec expect 2019 Non-Opec supply to increase by 1.8 & 2.2 mbpd respectively — well above the global demand growth estimates of about 1.4-1.2 mbpd. Therefore, the Opec+ production cuts are essential to balance the oil market this year. January’s production figures show that Opec is on the right track to achieve market stability in 2019, as its current production level is close to its crude estimate this year at around 30.6 mbpd.
Asian spot LNG prices continued to slip for the eighth straight week, reaching a 17-month low and cumulating in a 34% decline since the end of 2018. Last week’s drop of 4.4% was caused by weak demand and ample supply, despite outages in some LNG export plants. The weak demand was especially perceptible in China, with Chinese New Year celebrations that should last all of this week, and forecasts that temperatures will rise in coming weeks. The weak demand is generating high inventories, especially as there is only one month until the end of the winter demand season.
Furthermore, some unplanned outages in Malaysia and Australia were not significant enough to reverse the loose market balance.
In the US, Henry Hub natural gas futures rose by 1.6% last week after three consecutive weeks of decline. US gas prices strengthened on forecasts of lower temperatures and a higher heating demand over the coming weeks. Meanwhile, UK gas futures continued to fall for the fourth straight week, with a new drop of 2.1% amid choppy trading activity. UK prices were still pulled down by forecasts of mild weather until the end of February, and a strong wind power output.
This article was supplied by the Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.
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