(MENAFN- Gulf Times) Oil
Benchmark oil futures made a partial recovery last week after earlier declines. Brent and WTI gained around 3% and 4% respectively over the week.
The partial recovery was due mainly to a rally in global equity markets, which recorded their best weekly gains for more than two years.
A weaker US dollar also contributed, as prevailing currency trends are currently influencing oil price movements more than the market fundamentals. A rise in short future positions after a second week of net-long position liquidation also supported the oil price increase. The Saudi energy minister's statement, highlighting his commitment to stick to the Opec+ oil supply-cut deal throughout 2018 helped to stem concerns of any early exit from the accord due to surging US shale oil production and the recent weakness in oil prices.
The oil price recovery was capped by several downward factors. According to the latest oil market reports from the IEA and Opec, the rise in US crude oil production, which reached a record 10.27mn bpd last week, is threatening the expectation that the market will rebalance by year end.
The US oil rig count continued to rise for a fourth week in a row to reach almost 800. Moreover, President Trump signed into a law a US budget that includes a substantial increased tax credits for US crude oil producers who inject CO2 for enhanced oil recovery.
Whether the weak recovery in oil prices will be sustained is open to question. Although the Opec+ related uncertainties have been clarified, several uncertainties continue to cloud the issues. The strength of global economic growth and linkage to increased global oil demand, multiple oil supply disruptions, and the continued growth in the non-Opec crude oil supply, especially in the US, all suggest a bumpy ride to come.
Gas
North Asian LNG spot prices for March delivery flattened due to falling US Sabine Pass output, low inventory levels in South Korea and delayed buying. Feed-gas supply to the only US liquefaction plant engaged in exports declined from 3.3 bcfd to 3.2 bcfd in the latest week, after federal safety regulators ordered the operator to shut down two out of five LNG tanks that were found to be leaking. The remaining storage tanks are also being investigated.
LNG spot prices are in backwardation, meaning LNG prices for April delivery are lower than those for March. This has prompted LNG buyers to push gas purchases from March into April where contracts allow.
The Chinese Lunar New Year holiday also contributed to reduced spot market activity.
In the UK, NPB wholesale gas prices rose at the end of the week due to forecasts of colder weather. Despite the price increase, and forecasts of lower UK temperatures next week, the UK gas system remained slightly oversupplied. In the US, natural gas prices continued to decline as domestic gas production increased to levels very close to past record highs. US weather forecasts remain around the seasonal average for the remainder of the winter. The strong gas production data has encouraged speculators in major gas futures markets to hedge their long positions due to their reduced price expectations, as evidenced by the latest available data.
* Sofiane Ghezali is senior energy researcher at Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.
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