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Our market view - week 50

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Ample supplies and uncertainty about the global economy is putting pressure on oil prices



The Brent price dropped nearly 4% last week as ample supplies of crude and an overall uncertainty about the global economy is putting pressure on prices.

OPEC will meet on Wednesday. The group is expected to stick with an output target of 30 mbd agreed a year ago despite high oil storage levels, slowing demand growth and a fragile world economy. OECD oil stocks rose to 59.6 days of future demand in September according to the IEA, significantly above the 5-year average for the first time this year. Turmoil in the Middle East and lower Iranian export has kept prices above $100 for most of this year.

Demand for OPEC crude will drop next year as the US and other non-OPEC countries expand supplies. OPEC is pumping around 1 mbd above the target. The over-supply next year could justify a cut in OPEC output. However, political factors will prevent OPEC from taking any formal action.


The cold weather drives gas prices to oil-indexed parity. Gas demand in the major European gas markets is expected to be 14% (200 mcm/d) above normal this week.

UK weather-driven gas consumption continues to rise, pushing prices higher. Today’s demand is expected to be 364 mcm, up 9% from Friday’s forecast consumption. The UK day-ahead price closed at its highest level in 10 months on Wednesday last week as increasing amounts had to be sourced from neighboring hubs. Interconnector volumes have set a new record in flows to the UK in 4Q. UK NBP day-ahead traded nearly 5% above Germany’s NCG on Thursday.

Flows from Norway continue at maximum rates, and the long-range storage unit Rough again withdrawing at near full capacity following prolonged maintenance. Given the cold weather, even more supply will be required to keep the system in balance. No LNG cargoes are bound for Britain at present. Traders predict continuing strong use of imports from Europe. Any type of supply glitch will be highly bullish at this time.


UK NBP and Germany NCG day-ahead gas prices in EUR/MWh (EEX/Heren data)