Explainer: Asia oil and LNG markets are both swamped, so why are prices poles apart?

SINGAPORE (Reuters) by Jessica Jaganathan and Henning Gloystein – Asian markets for liquefied natural gas (LNG) and oil are closely related, and both now awash in oversupply. But while data shows forward oil prices rising, LNG prices for future delivery are veering in the opposite direction. This makes it unprofitable for the LNG market to store excess gas, as the forward curve for Asian LNG shows prices for February are 40 cents below January’s $9.67 per million British thermal units (mmBtu). That means the market is in what’s called ‘backwardation’ – where prices for future delivery are lower than those for immediate dispatch. That has baffled many traders. Because crude oil has a price curve pointing the other way – into what markets call ‘contango’, when immediate prices are higher than those in the future, traders can store unwanted oil profitably for later sale. HOW WELL SUPPLIED ARE MARKETS? Oil markets moved from backwardation in October into contango from November due to an emerging glut. LNG markets are also clotted, with several tankers storing the fuel sitting off the region’s energy trading hub of Singapore. WHY IS LNG DIFFERENT TO OIL? Although oil and gas markets are usually closely related to… continue reading

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