Markets Look Forward to News of US LNG Cargo Cancellations

LNG carrier

Credit: ncrob1 / CC BY-SA 2.0

Energy company S&P Global Platts recently launched a new benchmark for US crude oil -Platts American GulfCoast Select, or AGS. The assessment reveals sweet crude supplied direct from the Permian Basin on specified pipelines. Further, Platts AGS reflects the value of the crude loading FOB US Gulf Coast, 15 to 45 days ahead.

For crude, the Brent/WTI reached its lowest level since 2017 in June. The spread had averaged around $2.30/b recently, which highlighted that US crude export loading could see a dip in late July and August.

With the US to UK Aframax rate falling to as low as $1.31/b earlier this month, export economics will get some help from the reduced freight costs. Moreover, according to rig data provider Enverus, the US oil drilling rig count had its first week-on-week increase since late February. The increase could signal that the rig count had hit bottom, and the downturn from the pandemic may be in the rearview mirror. Even though experts say that new drilling would not begin to recover until 2021.

In LNG, experts highlight that US liquefaction terminal utilization could face new pressure, with customers cancelling nearly 45 cargoes that were scheduled to be loaded during July. With fewer loadings, it would spell less feedgas delivered, and that seeps down to interstate pipeline operators, tanker owners, and shale drillers. Terminal utilization recently observed low levels in over a year due to the COVID-19 effects.

President Donald Trump is considering whether to reimpose Section 232 aluminium tariffs (first implemented in 2018) on Canada, on July 1 when the USMCA trade agreement was set to start. The attempt has drawn criticism from many industry leaders, including the Aluminium Association.

The grid operator of the largest US wholesale power market has been making a lot of changes to power price formation that will impact its markets. PJM Interconnection has been working toward using forward power and natural gas prices to calculate a significant metric that is used in some of its largest markets. Approval from federal regulators will be critical in getting its delayed annual capacity auction schedule back on track.

Further, rain forecasts across many of the US crop-growing states would continue to weigh on prices, with corn and soybeans receiving mid-growing season moisture. Lower demand that’s driven by the COVID-19 pandemic continues to push corn stock levels higher, which leaves exporters trying to attract business before September’s harvest in the US. For now, rising US ethanol production stays on to offer an outlet for corn supply, though imprecise demand for biofuels in the third quarter has sidelined some buyers.

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