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May 17, 2016

Goldman sachs baffle markets with its new supply forecasts

Goldman sachs baffle markets with its new supply forecasts

Brent crude price climbed to $ 49 per barrel on Monday, for the first time since November 5 last year.
ICE Futures Exchange benchmark for July delivery hit a new high of this year at $ 49.03 a barrel, or 3.01% at 13:54 GMT on Monday.
WTI futures rose to $ 47.70 a barrel or 3.22 percent.
Experts say the main reason for the growth of prices is the publication of Goldman Sachs report, which said that the oil market is experiencing a shortage of supply amid supply disruptions from Nigeria and Canada and strong demand in China and India.

The prospect of exports of liquefied natural gas (LNG) from the United States to Asia and Europe, coupled with oversupply in the market will help to bring the price of natural gas in the world’s major hubs and weaken the binding gas prices to oil prices, according to a survey by the international rating agency Fitch.
The first shipment of LNG from the United States to Europe has been made by Cheniere Energy Sabine Pass factory in Portugal at the end of April.

“It is not clear how much more gas to Europe will be delivered soon. But in any case, the gas export from the United States should increase liquidity in the global market for LNG, including the fact that contracts generally allow for a flexible approach to the geography of deliveries. As a result, substantial and lasting differences between price levels in different hubs must be reduced, especially in markets where LNG would be an alternative to the gas pipeline, “, the statement said.
Narrowing spread between prices will reduce the possibility of regional suppliers affect pricing, so it’ll become harder for them to bind the gas prices to oil prices. This process is already well under way in Europe, where consumer pressure has forced companies such as Statoil (OL: STL) and Gazprom, to increase the share of gas sales, sold on the spot or by hybrid contracts regarding contracts with binding to oil prices, say analysts of the Agency.
However, this process is unlikely to lead to the single global market due to infrastructure constraints and the high cost of transporting LNG compared to oil.

“The Lowest gas prices in Europe will put pressure on the profitability of exporters, however, in comparison to other options, delivery in Europe can help suppliers already contracted volumes to minimize their losses,” reported in a Fitch review.
The company, purchasing gas from Chenierefor further reselling to the end-users, paying 115% of the LNG producer price Henry Hub, plus a fee for liquefaction of up to $ 1 million for 3.5 British thermal units (BTU).
However, the fee for liquefaction is a contractual obligation of the buyer, and the need for the exemption does not depend on the amount of the selected Strip. So American supplies of gas to Europe may be economically justified, while the cost of this gas in the United States, as well as costs for transportation and regasification will be lower than European spot prices.
“According to our estimations, such margin costs now account for about $ 4 per 1 million BTUS compared with spot prices in the UK (National Balancing Point) $ 4.3 per 1 million BTU,” the statement said.
Europe is a more attractive market for LNG from the United States than Asia, as the costs of transporting to Asia from the United States is much higher.

The impact of these trends on gas producers will be different. For the Qatari RasGas and Qatargas new supplies from the United States, is unlikely to be a significant threat because of their competitive positions and long-term contracts for their production
Lowest gas prices in Europe will continue to put pressure on earnings of Gazprom , especially if it decides to protect its market share, but the possible negative effect of this will be partly offset by the low cost of gas production and significant untapped capacity.

Statoil’s business in the field of natural gas are highly dependent on spot prices in Europe, however, the Group’s consolidated companies increasingly dependent on oil prices.
“We believe that the natural gas market in the United States is too large and well-supplied that LNG exports led to a substantial increase in the price of natural gasin the United States”, said in the Fitch report

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