Brent prices started trending back last week with an $8.5 tumble over three days as the euphoria over bond buying in the US, Europe and Japan was overtaken by concerns over weak economic growth in key consumer nations.
A clear Saudi position is also having an impact on oil prices. The Saudis are producing about 10 mbd and say they will produce more if customers demand it. Saudi Arabia has become more proactive in recent months in its aim to keep a lid on prices. Recent statements suggest a Saudi strategy to cap oil prices in order to prevent economic harm, as well as preempt a US SPR draw. Its stance has been consistent in wanting to see oil prices closer to $100/bbl and will keep the market in balance by supplying whatever customers require.
Escalating tensions in the Middle East support oil prices. Iran yesterday hinted at the possibility of a pre-emptive strike on Israel. Israel appears to have backed away from threatening imminent action against Iran's nuclear program following pressure from the US and Europe, but continues to argue for decisive action within 6-7 months.
The drop in spot gas prices is expected to continue this week as Norwegian maintenance is coming to an end while demand is still weak. The economic outlook continues to be under pressure due to a worsening situation in southern Europe. Gas demand in September is down from last year despite the signs earlier in the third quarter that demand losses were bottoming out. UK coal use in the power sector remains at a 5-year high in September.
The reliance on LNG is becoming less of a concern as global LNG supply is growing while Spain and France are underlifting on LNG contracts. The second phase of Nord Stream is set to begin in two weeks, potentially creating incremental Russian supply.
The US DOE has delayed release of a commissioned report on the potential economic impact of LNG exports until after the November election.