Issue 5
Posted by ERCE on Thu, 05/07/2020 - 15:28

Oil prices plunged in March 2020 due to a combination of decreased demand and increased supply. Demand was severely impacted by the outbreak and spread of the global COVID19 pandemic. Lockdowns in Asia, Europe and North America have driven down economic activity and reduced consumption. This coincided with the collapse of the OPEC+ agreement and moves by Saudi Arabia and Russia to increase oil production to capture market share.

The net effect was a fall in Brent and West Texas Intermediate (WTI) below US$20/bbl, prices that have not been seen since the 1990’s. The price of WTI for delivery in May 2020 briefly traded at a historically unprecedented negative price. Subsequent meetings by the OPEC+ group and the G20 nations resulted in reduction agreements of 10 MMbbl/d and 5 MMbbl/d, respectively. However, the rate drop has not been high enough to offset declining demand and rising stocks with prices remaining around US$30/bbl and below US$30/bbl for Brent and WTI, respectively.

Source: ERCE Energy Review

Global gas prices have similarly suffered heavy declines due to a demand reduction linked to lower economic activity associated with the COVID19 pandemic. Countries with gas-intensive industrial output have been particularly susceptible to gas price reductions. 

Gas demand has shrunk in the five largest importers; China, Japan, South Korea, Taiwan and India. Large customers across Asia have deferred and cancelled LNG cargoes causing spot prices to plummet. Japanese spot prices reached their lowest ever recorded price in March of $3.40/MMbtu.

Henry Hub prices declined below US$2/MMbtu as mild spring temperatures in North America drove increasing injection volumes into storage. However, European prices have dropped to levels where LNG imports from North America may no longer be profitable. Europe has been accepting a large number of cargoes deferred from Asia, the majority of which originated in Qatar.

Source: ERCE Energy Review

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Source: ERCE Website