Commodities
Global gas market outlook – lurking danger: China could turn the gas market upside down
The global gas market outlook is bleak. The temporary decline in demand for LNG in China hides a great danger for the global gas market.
The main surprise of the current situation on the global gas market is the strange behavior of Beijing. While everyone is scrambling around looking for liquefied natural gas (LNG) carriers, there is a strange calm in the Middle Kingdom, which was the world’s main LNG importer last year. The “Chinese anomaly,” however, has a simple explanation.
Global gas market overview – the actions of Chinese traders
Gas market analysts cannot give any precise forecasts. Chinese traders have decided to take a risk and not buy LNG at astronomically high prices. They expect Beijing to continue its zero-tolerance policy towards Covid-19, which significantly restrains the growth of fuel and energy demand in the country. Naturally, traders don’t want to buy LNG at very high prices in advance, which Chinese refineries don’t really need right now.
“This means,” Bloomberg quotes Toby Copson of Trident LNG as explaining, “that China’s (gas) supply is fine and that they have enough pipeline gas and their own coal, at least for now.
In the first six months of 2022, China’s LNG imports were down by about 20%. This is certain to cause China to lose its status as the planet’s top LNG importer this year.
Of course, Chinese traders are taking a big risk by not buying LNG now. If temperatures drop sharply in the fall or winter, or if the Chinese economy returns to its normal growth rate when the pandemic is over and restrictions are relaxed, they will be in a tight spot. In that case, they will have to return to the market urgently, with all the consequences that entails. The main thing for the market and its participants is that the return of Chinese buyers will further exacerbate the LNG shortage and increase LNG prices.
You don’t have to look far for examples. In January 2021, abnormally cold temperatures prevailed over much of China. Chinese traders then rushed to the spot market to buy LNG, causing the price to skyrocket.
The current sluggishness of Chinese traders on the gas spot market gives buyers from other Asian and European countries the opportunity to fill their storage tanks with gas. It has gotten to the point where Chinese companies are now reselling surplus LNG to Europeans.
The Chinese government will of course try to avoid buying LNG at the current very high prices. First, Chinese miners have been ordered from above to sharply increase coal production. In the first half of the year, it passed the 2.2 billion ton mark, according to China’s National Energy Administration, an 11% increase over the first six months of 2021.
Second, Beijing is increasing imports of cheap pipeline gas, mostly from Russia, and increasing production of its own “blue fuel.
China’s energy demand has now declined, mainly due to the coronavirus pandemic, which has not let the Middle Kingdom out of its clinging embrace this year. Lockdowns, which are causing huge damage to the economy, nearly caused a downturn in the Chinese economy in the second quarter.
How long will the “Chinese anomaly” last?
Against the backdrop of what is happening, analyzing and predicting global gas market growth is difficult. No one is willing to predict how long the “Chinese anomaly” will last. President Xi Jinping has repeatedly stated Beijing’s commitment to zero tolerance for coronavirus. This means that lockdowns and restrictions will not go away. The latest major city to begin imposing restrictions this week is Shenzhen, the largest economic center in the south of the country, dubbed China’s Silicon Valley.
Despite the ongoing fight against the pandemic, China’s economy showed clear signs of recovery in July. Goldman Sachs analysts predict a surge in business activity in China in the coming months, which will undoubtedly be felt by the entire planet and, above all, by gas markets.
The return of Chinese gas importers to the spot market means a sharp increase in competition between Asian buyers for LNG carriers and Europeans. Europe will have to further reduce gas consumption to be better prepared for the coming winter and pump as much gas as possible into underground storage facilities.
Investing.com– Gold prices edged higher on Tuesday, extending their tepid performance as investors still remained cautious with the rising dollar following the U.S. Federal Reserve’s hawkish tilt.
Traders also refrained from placing large bets ahead of a shortened trading week due to the Christmas holiday.
inched up 0.2% to $2,616.95 per ounce, while expiring in February ticked up 0.2% to $2,633.89 an ounce.
The yellow metal had inched up 0.3% on Monday, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook.
Bullion under pressure on Fed rate outlook
Gold prices had hit a one-month low on Wednesday, as the Fed meeting indicated that rates will remain higher for a longer period after Wednesday’s cut.
Prices have failed to fully recover from it and have seen subdued moves as investors still assessed the implications of the Fed’s rate outlook.
Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds.
Traders are now expecting only two quarter-point reductions in 2025 amid continued economic resilience and still-elevated inflation. This compares to expectations of four rate cuts before the Fed meeting.
Strong dollar creates downward pressure on gold, other metals
The Fed’s hawkish shift provided renewed strength to the U.S. dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.
The rose 0.1% in Asia hours on Tuesday and hovered near a two-year high it reached last week.
A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.
Other precious metals were largely muted. inched up 1.2% to $960.15 an ounce, while gained 0.3% to $30.265 an ounce.
Copper subdued on strong dollar, seasonal factors
Among industrial metals, copper prices were subdued and moved within tight ranges on Tuesday as a strong greenback weighed on the red metal.
Analysts attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.
Benchmark on the London Metal Exchange were largely unchanged at $8,954.50 a ton, while one-month were 0.5% higher at $4.1045 a pound.
Investing.com– Oil prices continued their uptrend in Asian Trade on Thursday after the Christmas holiday, bolstered by new stimulus measures in China and a drop in inventories.
At 06:01 ET (05:01 GMT), traded 0.5% higher to $73.97 a barrel, and also gained 0.5% to $70.01 a barrel.
Volumes were expected to be thin for the remainder of the holiday-shortened week.
Oil had risen more than 1% on Tuesday, and extended gains on Thursday after reports emerged around fresh stimulus measures from China.
China’s fresh stimulus measures support oil prices
Chinese authorities have decided to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy, Reuters reported on Tuesday.
Moreover, China is allowing local officials to broaden investments with key government bonds and simplifying approvals, permitting projects unless restricted by a cabinet-published list, to better utilize public funding for economic growth, a government document showed on Wednesday.
China’s economic growth is a key factor influencing global oil prices due to its status as the largest oil importer. When China’s economy thrives, its demand for crude oil rises to fuel industries, transportation, and other energy-intensive activities, often driving up oil prices.
China’s economic recovery post-COVID-19 has faced significant hurdles, including weakening consumer confidence, faltering export demand, and a beleaguered property sector.
To counter the slowdown, Beijing has implemented several stimulus measures aimed at reviving growth.
Satoru Yoshida, a commodity analyst at Rakuten Securities, noted that oil prices are also being supported by anticipation of higher fossil fuel production and demand once U.S. President-elect Donald Trump assumes office next month.
US crude inventories shrink- API
US oil inventories fell by 3.2 million barrels during the week ended Dec. 20, media reports showed on Wednesday, citing the (API) data.
Gasoline inventories rose by 3.9 million barrels last week, while distillate inventories—which include diesel and heating oil—fell by about 2.5 million barrels.
The figures come ahead of data from the Energy Information Administration, the statistical arm of the US Department of Energy, due on Friday.
A Reuters poll on Tuesday projected that crude oil inventories likely declined by approximately 1.9 million barrels in the week ending December 20, with gasoline stocks expected to drop by 1.1 million barrels and distillate inventories by 0.3 million barrels.
Ayushman Ojha contributed to this report.
Investing.com– Gold prices were higher in premarket trade on Thursday due to a slightly weaker dollar as markets returned to trading after the Christmas holiday, while gains were limited as investors remained cautious following the U.S. Federal Reserve’s hawkish tilt.
Traders also refrained from placing large bets in a holiday-shortened week, resulting in thin trade volumes.
rose around 0.4% to $2,626.53 per ounce, while expiring in February ticked up 0.2% to $2,641.6 an ounce by 07:55 am ET (12:55 GMT).
Geopolitical tensions in the Middle East also contributed to bullion’s gains.
The Palestinian militant group Hamas and Israel accused each other on Wednesday of hindering a ceasefire deal, with Hamas blaming Israel for imposing additional conditions and Israeli Prime Minister Benjamin Netanyahu alleging Hamas reneged on prior understandings.
Gold is seen as a safe haven asset amid uncertainties in the market.
US dollar weakens but remains nears 2-yr high
The has edged higher on Thursday but hovered near a two-year high it touched last week.
The Fed’s hawkish shift last week provided renewed strength to the dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.
A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.
Gold prices fell sharply last week after the Fed policy meeting indicated that rates will remain higher for a longer period.
Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds
The yellow metal has seen marginal moves this week, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook
Other precious were mixed on Thursday. declined 0.3% to $957.70 an ounce, while rose by 0.1% to $30.31 an ounce.
Copper edges up on China stimulus, strong dollar caps gains
Among industrial metals, prices gained after a Reuters report showed that Chinese authorities plan to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy.
The red metal failed to fully capitalize on this news, as a strong dollar weighed.
Analysts also attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.
The most-traded January copper contract on the Shanghai Futures Exchange (SHFE) rose 0.2% to 74,220 yuan a ton.
Benchmark copper contracts on the London Metal Exchange were closed on Thursday for the holiday.
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