Crude oil futures staged a recovery on Wednesday – after a fortnight of falling prices that saw the Brent November contract tumble by 15% – as hurricane Francine made landfall in the US state of Louisiana.
European natural gas prices also rallied, after falling by close to 6% in the previous trading session, partly because of concerns that Francine could impact US LNG exports but also because of a sharp drop in temperatures in north-west Europe.
Brent crude was back above USD 70/barrel, with a rise of 2.1%, from USD 69.19/barrel on Tuesday – its lowest close in years – to USD 70.16/barrel.
WTI, the US benchmark, rose by 2.4%, from USD 65.75/barrel to USD 67.31/barrel.
However, the reprieve may be short-lived, according to the head of the International Energy Agency (IEA), Fatih Birol, because global production continues to exceed weakening global demand.
Speaking today as the IEA published its monthly oil market report, Birol said: “Given the current weak demand and lots of oil coming from non-OPEC countries, mainly from America and others, we may well see downward pressure on the price.”
The primary bearish factors behind oil’s recent volatility – after an extended period of range-bound trading – are the now-familiar ones: growing signs of economic weakness in the world’s two biggest economies by far, the United States and China, especially China.
“Global oil demand growth continues to decelerate, with reported 1H24 gains of 800 kb/d year-on-year the lowest since 2020,” says the IEA report. “The chief driver of this downturn is a rapidly slowing China, where consumption contracted year-on-year for a fourth straight month in July, by 280 kb/d.”
It is not just a matter of economic slowdown but also of structural evolution of China’s energy sector.
“Surging EV sales are reducing road fuel demand while the development of a vast national high-speed rail network is restricting growth in domestic air travel,” says the IEA.
Natural gas prices were up in Europe and the US but down in Asia, where the JKM LNG benchmark fell by 0.4%, from USD 13.79/MMBtu to USD 13.74/MMBtu.
In continental Europe, the October TTF natural gas contract was up 2.4%, from USD 11.39/MMBtu to USD 11.66/MMBtu, but the underlying trend over recent weeks remains firmly downwards.
In the UK, NBP rose by 2.9%, from USD 11.06/MMBtu to USD 11.39/MMBtu.
In the US, Henry Hub rose by 1.7% to close at USD 2.27/MMBtu, amid perceptions that Francine’s power to impact production would more than offset its impact on demand.
The rally in European gas prices helped to lift European carbon prices, with EU carbon dioxide emissions allowances up 2.3%, from EUR 64.37/tonne on Tuesday, the lowest close since July, to EUR 65.85/tonne.
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WTI, NBP, TTF and EU CO2 data from ICE. Henry Hub, JKM and API2 data from CME. Prices in USD/MMBtu based on exchange rates at last market close. All monetary values rounded to nearest whole cent/penny. Text and graphic copyright © Gas Strategies, all rights.
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