Commodities
LNG shortages will lead to very high volatility on gas markets in 2023
Extremely high volatility in global liquefied natural gas (LNG) markets in 2023 will encourage U.S. LNG terminals to continue operating at full capacity, according to S&P Global Commodity Insights’ annual energy study. Still, analysts are predicting natural gas futures prices will rise.
At the same time, prices at the main U.S. gas hub – Henry Hub – are likely to fall because liquefaction capacity will remain at the same level. Despite very high natural gas futures prices, the shortage of new liquefaction capacity will prevent production from rising as much as buyers in Europe and Asia would certainly like.
As a result, gas markets (especially in Europe) will try to balance lower demand with existing reserves instead of increasing LNG production. For Europe, we do not rule out a growing deficit in the gas and electricity markets in FY23. The main reason for such dangerous dynamics is, the authors of the study of S & P Global emphasize, that next year will be the first year for Europe without significant amounts of Russian piped gas.
S&P Global expects a sharp growth in the European LNG infrastructure next year, which will significantly improve the situation with the reception of delivered gas. So we should be prepared for a decrease in natural gas futures prices on the back of this news. By the end of the year 10 LNG terminals will be operational or under construction.
In global gas markets, the most important fundamental determinant of global demand in 2023 will be, according to Dan Klein of S&P Global, Beijing’s coronavirus policy. Numerous lockdowns this year have reduced energy demand in the PRC, which has stabilized the gas, oil and coal markets in Europe, which after Feb. 24 has struggled all year to abandon and find substitutes for Russian energy.
Analysts and economists at S&P Global believe that after virtually no growth in energy demand in China this year in 2023, it will grow to 3.3 million barrels per day regarding oil. Growth in energy demand in the Celestial Empire is expected to account for almost half (47%) of all global growth next year.
Most gas producers agree with analysts’ and economists’ forecasts of extremely high volatility in gas markets in 2023.
Earlier, we reported that record production declines in key U.S. gas basins exacerbated the energy crisis.
Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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