8 January 2020
- The global LNG market remains well supplied, particularly for the supply in the spot-prompt delivery periods. However, our model is starting to identify some tightness for end Jan-early February. For example, the Selling Pressure Index, which quantifies the selling interest on the physical and financial LNG market continues to contract. The anticipated market reaction which should follow on the back of the divergence between LNG price and Selling Pressure Index is self-explanatory. This view is further supported by the geographical flow analysis which indicates tightness of LNG cargoes in the Atlantic basin. This is largely down to the unfavorable T/A arb which is limiting the incentive for the US gas to flow to EU.
- 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. Our model is still picking up stronger buy-side interest which is likely to result in higher prices in 1st half of January 2020. Unfortunately for the bulls’ camp, the intensity of the buying pressure has decreased substantially since our last publication.
- 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 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 as displayed on the chart below. The combination of weak economic environment and high renewable output dictates the trend in the short to medium-term.