5 July 2018
- Supply of LNG on the physical spot market continues to increase. This is in line with our view published on 6th June. Back then we wrote: “We continue to see increasing supply later in June and July which may put some downward pressure on prices.” This is clearly displayed by the diagram below. Our Geographical trade spread indicator, which is nothing more than consolidated trade flow distribution data, has been on a steady but admittedly weak downtrend. This means that the share of Asian LNG flows have been rising. Historically, this has proved to be a price-negative development.
- Short-term / spot demand in both Europe and Asia remains firm. This is partially due to the start of the re-stocking cycle where storage remains problematic and partly on the back of unseasonably low renewable output which continues to support the demand for natural gas in the markets we monitor. We expected the demand in Europe to drop sharply at the end of June/early July. This process is already underway but with a weaker conviction than initially thought.
- Our assessment of global macroeconomic conditions reveals a mixed picture. Short-term lending activity was weaker in the 2H of June and early July which is never good news for global trade. Recent USD strength may have proved detrimental for additional USA supply which partially explains the supply tightness discussed earlier. The LNG market looks overstretched if the global macro environment is considered. Since we do not expect any meaningful uptick in macroeconomic data in July and August, the price has to re-adjust.