5 September 2018
- As far as we are concerned, there is little LNG supply-based evidence to suggest that the market should stay as firm as it has been for the last couple of months. Our forward (4-6 weeks out) LNG supply model indicates that there is a growing chance for a price contraction based on the divergence between supply and price. Similar conclusions can be drawn from the Implied spot supply model. On the positive side of the argument is our Geographical Trade Spread Indicator, which broadly speaking represents consolidated trade flow distribution data between different regions; this has been on a steady downtrend which is a price-positive development.
- Short-term / spot demand in both Europe and Asia is firm which we identify as the main reason behind the on-going market strength. Gas storage cycle in Europe is well under way but the anticipated demand signal hasn’t propagated to the LNG market so far. It is the pipeline market benefiting the most. We remain of the opinion that the demand for LNG in Europe is weak and it is likely to stay that way throughout the autumn. The result is a weak forward demand.
- Our assessment of the global macroeconomic conditions points towards a moderately bearish stance. Short-term lending activity remains subdued, which is never good news for global trade. In fact, we started to see slowdown in trade flows shortly after that. The latest data is pointing towards an improved lending activity in August and early September. China in particular has been on the fence for the 1H 2018 employing other conventional tools to prop up the industrial activity. We believe that lending in the country will accelerate in 2H 2018.