Contributed By: Robbie Fraser, Commodity Analyst | Schneider Electric Energy & Sustainability Services
The February Markets Watch arrives with four charts and four explanations to illustrate key trends in Henry Hub natural gas prices, Chinese crude demand, global gas benchmark prices and European natural gas storage levels.
Chart #1: Henry Hub Prompt Month Natural Gas Prices
With natural gas production charting record highs throughout 2019, an ongoing mild winter has combined strong supply with unusually weak seasonal demand. As a result, U.S. natural gas prices are near their lowest levels since 2016. If prompt breaks below 2016 levels, that would mean current prices charting 21st century lows (prompt prices haven’t traded below $1.60 since 1999).
Source: NYMEX, Schneider Global Research & Analytics
Chart #2: Chinese Crude Demand by Year
Reason: China is the world’s fastest growing and largest importer of crude. In 2019, the country accounted for nearly 15% of total global demand, and roughly 67% of all new demand growth. In short, it’s difficult to overstate China’s importance to oil markets. Enter the Coronavirus, which has resulted in major barriers to transportation and overall economic activity. For now, estimates suggest Chinese crude demand is down ~3 mmbbl/d (-20%) from pre-Coronavirus levels. That threatens to send the global oil market into extreme oversupply and could create major challenges if conditions persist long-term.
Source: EIA, Bloomberg, Schneider Global Research & Analytics
Chart #3: Global Gas Benchmark Prices
Reason: While US natural gas might be especially cheap amid it’s latest plunge, the US market has long maintained major discounts to comparable European and Asian hub prices. That difference helped push US companies to invest billions into LNG export terminals, allowing them to send cheap US gas to higher-priced destinations around the world. Coupled with some added demand weakness in global markets though, that wave of US LNG supply has pulled global prices lower, creating closer ties between global gas markets and squeezing margins for LNG exporters.
Source: NYMEX, DTN, Bloomberg, Schneider Global Research & Analytics
Chart #4: European Natural Gas Storage Levels
Reason: To see how all that extra LNG supply impacts regional markets, look no further than European gas storage levels. For natural gas, storage levels tell the supply/demand story and typically act as the primary driver of prices. Given that relationship, it’s little surprise that European gas prices have spiraled lower in recent months, as an oversupplied LNG market flooded Europe with cargoes. By the time the winter withdrawal season arrived, Europe’s gas storage was literally full, and a mild winter has done little to pull storage levels anywhere close to normal levels. Until that picture changes, the market has little incentive to push prices higher.
Source: Reuters, Schneider Global Research & Analytics