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Our market view - week 21

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Oil prices continued to slump last week on concerns over weak economic data from the EU and China and growing crude inventories


Concerns over the global economy and heavy losses in equities have been the main factors behind the recent slide in crude prices – a 16% decline from over 128 USD/bbl in early March to 107 USD/bbl on Friday. At the same time, underlying fundamentals are not as tight as they were. The large build in global inventories have given a more comfortable supply-demand balance. Supply is now expected to outpace demand in the second half of 2012. The impact of sanctions on Iranian oil exports is still a wild card, but could equal the losses of last year when around 1.6 mbd of Libyan crude was taken out of the market during the civil war.

The embargo continues to tighten on Iran. Revived talks between Iran and the world powers have produced some optimism, but it will be a while before we know how the situation will play out. The next round of talks will take place this week. G8 leaders raised the pressure on Iran on Saturday, signaling their readiness to tap into emergency oil stockpiles quickly this summer if tougher sanctions threaten to strain supplies.

OECD stocks forward demand cover is around 60 days, but will fall during the second half. US crude stocks are at the highest level since 1990 due to rising domestic production, while European and Asian stocks are below last year’s level.


UK gas prices continue to fall on economic concerns

Uncertainty from the worsening eurozone crisis weighs on gas prices. The sharp declines of oil prices are also reflected in long-dated gas prices. NBP contracts lost ground every session of last week.
The market is well supplied. Norwegian flows were boosted after the Ormen Lange maintenance outage, removing the risk premium from prompt prices. Predictions of warmer weather also contributed to the price decline of short-dated contracts.
Total revealed that it had successfully stopped the leak at the Elgin/Franklin field, giving hopes of an eventual return of the field which has been off line for two months.
The weak trend is likely to continue in the coming weeks, with few bullish factors available to support prices.


NBP Winter-12 price, p/th (Source: Reuters)