Oil Falls as China Enters Into Large LNG Supply Deals
Oil prices fell on Wednesday after the Chinese government entered into large LNG supply deals in an effort to tame record high coal prices. Market data shows that Brent printed lower and WTI also retraced while the price of OPEC basket of thirteen crudes stood at $83.48 a barrel on Tuesday, compared with $84.04 the previous day, according to OPEC Secretariat calculations.
Energy Price Rally Comes to End on Supply, Demand Concerns
The energy price rally has stalled for now amid growing concern that demand could be affected by the high prices, Commerzbank said in a Wednesday note. Brent has dropped back to $84 per barrel, while European natural gas is rising only to a limited extent despite price-supportive news, the bank said.
Factors that could have contributed to these moves include China’s plans to take action on controlling coal prices, which could reverse the switch to oil, according to Commerzbank.
The America Petroleum Institute (API) also reported an unexpected boost in US crude oil stocks by 3.3 million barrels, and another similar build announcement this afternoon would mean crude stocks will have risen sharply for the fourth week in a row, Commerzbank said.
This may somewhat ease concerns about a tight oil market, the bank noted. Meanwhile, uncertainty surrounding Russian gas supplies grew as sources said Russia will only provide more supplies to Europe if it receives something in return, which is likely approval for the Nord Stream 2 pipeline to begin operations, Commerzbank said.
The response of European natural gas price to the news was subdued, the bank said. However, milder weather and an increase in wind power could have also played a role, but these factors are likely to just be in the short term and the risk of high natural gas prices has not been averted, according to Commerzbank
China has struck three agreements to secure liquefied natural gas supplies from US exporter Venture Global LNG, Reuters reported Wednesday, citing documents posted on the US Department of Energy website.
The agreements with China Petroleum & Chemical Corp. (SNP), or Sinopec, include two 20-year deals for a combined 4 million tonnes of LNG per year, according to the report.
The deals represent the single largest LNG trade agreement for China in terms of volumes without an equity stake and double the volumes China imports from the US, Reuters said, citing a senior Beijing-based gas industry source. This comes amid soaring gas prices and power shortages in the country.
Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day. China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crackdown on any irregularities that disturb market order or malicious speculation on thermal coal futures.
Oil markets, in general, remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.
But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources. # Oil Falls as China Enters Into Large LNG Supply Deals.
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