First Look - Bullish European LNG prices pose challenges for arbitrage to Asia

• Oil is higher this morning, ahead of the EIA inventory report
  • The API is forecasting a draw of 5.2 MMBbls from total US inventories and a 3.7 MMBbl draw from Cushing
  • Inflation eased for a fourth month, keeping the Federal Reserve on track to cut interest rates in September
• China’s increasing EV adoption stalling gasoline demand (BBG)
  • Travel inside China has been strong, but gasoline sales have not received the usual increase
  • High-speed rail and higher adoption of electric vehicles have led to weaker demand growth for transportation fuels
  • Consultancy JLC said, “The uptick in gasoline demand this year is lagging far behind last year’s level,”
  • Gasoline accounts for about a quarter of China’s oil demand, with weaker demand being a major headwind for global oil demand growth

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• Gas trades modestly higher with eyes on late August heat and lower production
  • Prompt gas was 4.2c higher to $2.19/MMBtu (As of 8:00 AM)
  • Winter ‘24/’25 strip is up 2.8c to $3.220 and the Summer ’25 strip is up 2.0c to $3.178
  • Today's European Ensemble forecast shows a net 6 F drop in Lower 48 temps, driven by significant cooling in the Northeast and Midwest, though overall, temperatures are expected to stay near the 10-year average through late August (Criterion)
• Bullish European LNG prices pose challenges for arbitrage to Asia (S&P Global)
  • Rising TTF prices are making it difficult for sellers to find buyers in Asia, leading to the weakest arbitrage levels for North Asia in two months, with narrow discounts and premiums on key routes
  • Despite rising prices, Europe’s share of US LNG exports fell to 31% in July from 51% last year, while Asia's share grew to 43% from 32% Y-o-Y, reflecting Europe's low demand and nearly full gas storage (87%)
  • TTF prices reached $12.676/MMBtu for September delivery, the highest since December, driven by concerns over winter supply security and geopolitical tensions
  • Meanwhile, Asia remains more attractive for US cargoes due to stronger demand and the ability to hedge full cargo value, unlike in Europe, where exposure to volatile day-ahead pricing adds risk, particularly as winter approaches