29 January 2020
- The global LNG market remains well supplied. The anticipated tightness for end Jan-early February has so far failed to materialize. We were wrongly guided by the proprietary Selling Pressure Index, which quantifies the selling interest on the physical and financial LNG markets. Furthermore, our Geographical Flow model continues to indicate abundant availability of LNG 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 anticipated demand surge in December was postponed to early January. The price reacted but other more powerful factors suppressed any attempt for a rebound. One such factor was, and still is, the EU gas demand as displayed in Figure 2. It is evident that even LNG price of $4 is unable to spur the EU demand. The key here is the T/A gas arbitrage as discussed earlier.
- The short-term macroeconomic conditions continue to suggest overall negative medium-term demand. The situation improved only marginally in January as both FX and short-term credit improved. We remain cautious as most macro variables in the model are likely to remain suppressed in February. For example, the seasonally adjusted short-term credit flows are weak, which is likely to impact the trade finance conditions. We don’t expect any meaningful pick-up in February because downstream demand for credit is weak