Asia spot LNG at four-month low as Hormuz flows restart, upside risk remains
- Iran will waive Hormuz transit fees for 60 days during U.S. negotiations
- Normal Gulf supply recovery could take months despite easing shipping restrictions
- Europe needs about one extra LNG cargo daily this summer
Asia's spot liquefied natural gas price fell to its lowest in four months this week as flows restarted through the Strait of Hormuz, but the market is monitoring the fading truce prospects after Friday's U.S.-Iran talks were called off.
The average LNG price for August delivery into northeast Asia LNG-AS was estimated at $15.30 per million British thermal units (MMBtu), its lowest since late February and down from $19.15/MMBtu last week.
"The market is pricing in a resolution and pricing has dropped significantly to reflect that, however, there are still issues that will keep the bottleneck in place," Toby Copson, managing partner at Davenport Energy, said.
"Upside risk is still there, we need to see if demand will be there in China to absorb any new moving volume," he added.
Iran said it would waive Hormuz transit fees during a 60-day negotiation period with the United States, while requiring ships to request passage 48 hours in advance.
"The market is seeing positive signs now of a restart of flows from the Gulf. However, traders remain cautious that the volatile political situation could change again," said Alex Froley, senior LNG analyst at ICIS.
Even if peace efforts continue, a full return to normal flows may take months as the supply chain ramps up, Froley added.
Asian companies may still take term cargoes from the Atlantic basin to their import terminals due to supply concerns, as Qatari production is yet to flow through Hormuz to anywhere near pre-war levels, said Martin Senior, head of LNG pricing at Argus.
Asian demand is expected to hold firm in the third quarter, to refill stocks and meet peak cooling demand, he added.
In Europe, market fundamentals continued to reflect a relatively tight supply, as most cargoes had already been committed to Asia during the period of stronger Asia premiums, constraining prompt availability into the continent, said Aly Blakeway, head of Atlantic LNG at S&P Global Energy.
Europe needs around one more cargo every day over the summer to get its storage back on track, ICIS's Froley said.
S&P Global Energy assessed its daily northwest Europe LNG price benchmark for cargoes delivered in August on an ex-ship (DES) basis at $13.477/MMBtu on Thursday, a $0.28/MMBtu discount to the price at the TTF hub.
Spark Commodities assessed the price at $13.461/MMBtu, a discount of $0.18/MMBtu, while Argus assessed it at $13.570/MMBtu, a 0.22 cent discount.
Investment funds accelerated their selloff of TTF futures last week. They still hold a sizeable legacy net long position, but momentum and sentiment have moved decisively in the opposite direction, said Seb Kennedy, independent analyst at Energy Flux News.
"This creates headroom to add more length when fundamentals support a move higher. With winter risk now severely underpriced, funds may target Q4 for a bullish re-entry," Kennedy said.
In LNG freight, Atlantic rates fell to $93,000/day and Pacific rates were at $80,750/day, Spark Commodities analyst Qasim Afghan said.
The U.S. front-month arbitrage to northeast Asia via the Cape of Good Hope is pointing to Europe, while the arbitrage via Panama is firmly pointing to Asia.
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