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Oil-indexed contracts to go up again in forthcoming period

Oil&Gas Materials 7 October 2019 16:25 (UTC +04:00)

Baku, Azerbaijan, Oct.7

By Leman Zeynalova – Trend:

Oil-indexed contracts to go up again in the forthcoming period, Trend reports with reference to the European Commission’s gas market report.

“The price of Brent crude oil, after the recovery in the first quarter of 2019, showed a great degree of volatility over Q2 2019. At the end of March 2019 the crude oil price reached 68 USD/bbl (61 €/bbl), and at the end of June it stood at 66 USD/bbl (58 €/bbl), ending the quarter at similar price as it began, however, in the second half of May the crude price rose to 75 USD/bbl (67 €/bbl),” said the report.

The European Commission said that main factors resulting in price swings across Q2 2019 were mainly related to geopolitics, namely at the Middle East, which resulted in increasing market tensions and concerns on security of supply.

On the other hand, tense trade relations, principally between the US and China, have casted a shadow over global economic perspectives, implying lower economic growth and less demand for crude oil, reads the report.

“Although crude oil prices in Q2 2019 did not show big difference at the beginning and the end of the period, the price decrease at the end of 2018, with the usual time lag of 6-9 month, started to filter in the oil-indexed gas contracts.”

However, bearing in mind the recovery of crude oil prices in the first half of 2019, it is likely that oil-indexed contracts will go up again in the forthcoming period, according to the European Commission.

In Q2 2019 Platt's North West Europe Gas Contract Indicator (GCI), a theoretical index showing what a gas price, linked 100 percent to oil would be, averaged 26.7 €/MWh, being twice as high as the TTF (13 €/MWh), reflecting that amid such low spot gas prices oil-indexed contracts completely lost their competitiveness vis-à-vis market based pricing, reads the report.

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Follow the author on Twitter: @Lyaman_Zeyn

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