Oil and gas prices remain low due to high inventories

Both benchmarks logged weekly declines of about 8 percent, their first after six weeks of gains that have lifted prices off the April lows, according to Weekly Energy Market Review by Al Attiyah International Foundation.

With about half a dozen US states reporting spikes in new infections, fears that the coronavirus pandemic may be far from over has brought the rally to a halt. The rally in global stocks also came crashing down over worries of a pandemic resurgence. The last time the S&P 500 and Dow fell as much in one day was in March, when US coronavirus cases began surging. At the same time, US crude oil inventories have risen to a record 538.1 million barrels, as cheap imports from Saudi Arabia flowed into the country.

Although the number of US crude oil drilling rigs, an indicator of future supply, continued to fall last week, according to oil services firm Baker Hughes. Active rigs fell seven to 199, their lowest since June 2009.

The build happened despite producers from the United States and Opec cutting supply. Opec, Russia and allies has agreed to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10 percent of global supplies from the market. Asian spot LNG prices remained steady last week, but were still hovering near record lows in response to oversupply and high inventories in the region. Demand is starting to slow down once more as Chinese storage fills up and European inventory is already at pre-winter storage levels.

The average LNG price for July delivery into northeast Asia was estimated to be $2.10 per million British thermal units, similar to the previous week. South Korea’s Korea Gas Corp (KOGAS) has deferred several cargoes to the later part of the year as it grapples with high inventory. The exact number of cargoes deferred could not immediately be confirmed, but one source said it was likely to be at least 16 and possibly as many as 30 cargoes. In Japan, demand is also still down due to the coronavirus outbreak and inventory remaining high.

There was some demand from India last week, with Bharat Petroleum Corp seeking a cargo for delivery in September, while Gujarat State Petroleum Corp (GSPC) bought a cargo for delivery in early July.

Several cargoes were offered from Russia, Brunei, Indonesia, Angola and Papua New Guinea, showing that supplies are plentiful. In the US, natural gas futures fell to a two-week low on forecasts for milder weather, leading to weaker cooling demand than previously expected, and declining LNG exports. US LNG exports dropped in recent months as buyers cancelled dozens of cargoes for the summer with US gas prices trading mostly higher than in Europe. Those higher US prices prompted some energy firms to send LNG to the United States for storage.