Market Insights: Navigating Recent Trends in Energy and Petrochemicals – Week of 1 February 2024
In the dynamic world of energy markets, recent geopolitical shifts and market trends are influencing oil, gas, propane, ethane, and naphtha prices. Let’s delve into the latest updates across these key energy sectors for the week of 1 February 2024.
The heightened tensions in the Middle East, particularly in the Israel-Hamas conflict, have contributed to fluctuations in oil prices. However, relief seems to be on the horizon as market participants anticipate a potential cease-fire agreement.
As of February 1, both NYMEX WTI and Brent crude futures experienced a pullback, settling at $73.82 and $78.70 per barrel, respectively. Despite the geopolitical uncertainties, OPEC+ has opted to maintain the current production policy for the first quarter of the year.
US Crude Production and Demand Outlook
Following an arctic blast, US crude oil production in January is expected to decrease by over 400,000 barrels per day compared to the previous month. However, a swift recovery is underway, with output bouncing back to 13.0 MMb/d. Despite growing slightly, US commercial crude inventory remains at five-year lows, putting upward pressure on exports to compensate for disruptions in the Red Sea.
Encouraging metrics in the US and the Chinese stimulus package have led to a positive revision in the short-term oil demand outlook, with expectations of year-on-year growth of 1.5 MMb/d in 2024 and 1.6 MMb/d in 2025. As a result, the price forecast has been upgraded by $1 this year and $3 next year, projecting Brent to average $82 and $81 in 2024 and 2025, respectively.
In Europe, Title Transfer Facility (TTF) futures have seen a slight increase, settling at $9.214 per MMBtu on February 1. However, high stock levels and subdued demand continue to exert pressure on the market, with prices only half of those seen last year. Asian spot LNG prices have risen, averaging $9.55 per MMBtu on February 1, but above-average inventories in Northeast Asia may lead to a supply overhang in the shoulder season.
US Gas Demand and LNG Project Permits
US gas demand remains subdued for most sectors during the winter withdrawal season, with only a modest uptick in the residential and commercial sector during winter storm Heather. The recent pause in new US LNG project permits, influenced by environmental concerns, could impact future LNG projects, potentially disrupting the global LNG supply and affecting natural gas prices in import-dependent regions.
Propane prices at Mont Belvieu have experienced a notable 6.1% increase, reaching 93.50 cents per gallon on February 1. This rise contrasts with a decrease in crude oil prices.
The propane market is navigating through weakened exports, fluctuating freight rates, healthy but decreasing inventory levels, and increased production during the winter season. The Panama Canal’s limited vessel capacity remains a significant factor in market dynamics.
Ethane prices saw an 8.5% increase, closing at 21.50 cents per gallon on February 1. The discrepancy between ethane and natural gas prices underscores specific challenges facing the ethane market, predominantly due to the existing surplus in ethylene capacity, and is decoupled from the broader natural gas market trends to some extent.
Asian Naphtha Markets
Asian naphtha market prices experienced volatility throughout the week but closed with a week-over-week decrease to 663.00 dollars per metric ton on February 1.
Despite the decline, naphtha crack spreads widened, primarily attributed to ongoing refinery reductions in China and a general softening in the global market.
Vice President, Energy and Feedstocks | NGL & Naphtha
Associate Director, Energy Insights