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.
Brent crude oil futures its lowest since 2021 amid banking crisis
The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.
WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.
The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.
“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.
Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.
“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.
Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.
Gold prices will reach $2,075 “in the coming weeks”
Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.
“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.
The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.
This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.
Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.
Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.
Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices
Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.
Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.
The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.
“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.
This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.
After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.
Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.
Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.
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