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James Hyerczyk
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Natural Gas

Natural gas futures are trading nearly flat ahead of Thursday’s U.S. Energy Information Administration’s (EIA) weekly storage report. Going into the report, optimism is waning for steady demand recovery according to a major shipbroker. Throw this on top of the lack of an extended period of hot temperatures over a vast high demand area, and you get a bearish market.

At 03:37 GMT, August natural gas is trading at $1.651, down $0.010 or 0.60%.

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Rising Concerns over LNG Demand

“The chances for a sustained recovery in global natural gas demand are being threatened by economies that have been slow to start back up as countries inch out of lockdown and face a resurgence of Covid-19 cases in some parts of the world,” according to shipbroker Poten & Partners, and reported by Natural Gas Intelligence (NGI).

“Industrial demand remains weak in key markets, particularly those in Asia where some of the world’s leading liquefied natural gas (LNG) importers are located, while early demand recovery has been more ‘unpredictable and volatile’ elsewhere,” said Jason Feer, global head of business intelligence, during a webinar on Wednesday.

“LNG demand in South Korea, Japan and Latin America has been particularly hard hit, he noted. While the World Health Organization (WHO) on Sunday reported the highest daily infection increase yet, with the spikes in North and South America, South Korea and Japan have better managed the outbreak. But Feer said ‘the global economic slowdown has hurt baseload importers in Asia’,” wrote NGI.

“Meanwhile, Chinese demand has rebounded sharply in recent months as lockdown measures largely eased there and pent-up consumer demand drove gains, but those appear to be falling off,” Poten said. In India, where some of the most stringent lockdown measures have been imposed, gas demand increased on strong spot buying for fertilizers, but it’s unclear if such patterns would continue.”

“It’s something to watch out for, is that something that can be sustained,” Feer said of India, “or are we just sort of meeting initial pent-up demand when economies open up?”

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Floating LNG Storage Level Worries

“Demand weakness is perhaps more noticeable that it was a few months ago. Floating LNG storage levels are approaching record highs, as the number of laden vessels worldwide hovers near 30.”

Feer said, “The volume of LNG currently floating represents about 58% of the typical demand in June.”

He added that the highest Poten has ever recorded was roughly 61% of monthly demand, saying that the current elevated inventories are a bearish signal for winter.

Poten expects LNG demand to decline by 5-6 million tons (Mt) this year and growth to return to a level of roughly 376 Mt in 2021, up by about 9-10 Mt year/year. Similar growth levels are expected in 2022, driven primarily by markets in Asia.

For a look at all of today’s economic events, check out our economic calendar.

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