17 December 2019
- The global LNG market remains well supplied. The short-term developments we mentioned in our previous note which indicated some tightness for December have so far failed to materialize. For example, our Geographical Flow Spread which maps the flow of LNG across key trading basins retracted to its long-term mean suggesting that the pressure on supply is re-appearing in the Atlantic. The Selling pressure Index, which quantifies the selling interest on the physical and financial LNG market is contracting. The anticipated market reaction which should follow on the back of the divergence between LNG price and selling pressure index is self explanatory.
- Short-term/spot demand for LNG remains weak across the board. As it stands today there is not a single demand-related variable in our quantitative fundamental model contradicting this statement. The expected demand surge in December was postponed to early January as indicated by the proprietary Buying pressure index displayed on the chart below. Our model is picking up stronger buy-side interest which is likely to result in higher prices in 1st half of January 2020. We see this buying interest a most likely generated by a combination of stronger EU and Chinese demand in January. In the case of EU we should see further increase in demand for LNG driven by the winter season de-stocking cycle. Asian demand on the other hand is more driven by genuine energy demand, not replenishing inventories.
- The short-term macroeconomic conditions continue to suggest overall negative medium-term demand. The situation did not improve in December as both credit and Energy Intensity declined. We remain cautious as most macro variables in the model are likely to remain suppressed also in January. For example, short-term credit flows are weak which is likely to impact the trade finance conditions. We don’t expect any meaningful pick-up in January not only because demand for credit is weak, but also because of the early Chinese holiday period. Another example is the Energy intensity in key LNG consuming countries. The combination of weak economic environment and high renewable output dictates the trend in the short to medium-term.