JKM LNG-Dated Brent daily crude ratio rises to 15.9% on March 18, highest in 14 months

The daily price spread between the Platts JKM LNG price and the Dated Brent crude price on Wednesday widened to the highest level since January 2019 on persistent oil price weakness.

The ratio of the spot JKM benchmark to the Dated Brent crude price was at 15.9%, which was the highest since January 4, 2019, according to Platts data. The higher ratio also nudged the March monthly average to 9.5%, compared with a February average ratio of only 5.33%.

While the Platts Dated Brent benchmark has more than halved from $51.68/b at the start of the month to $22.99/b at the London close on Wednesday, spot LNG prices have fared better, with the May JKM rising 7% over the same period to be assessed at $3.538/MMBtu at the Asia close Thursday.

Dated Brent prices have since experienced a modest increase, rising to $24.12/b on Thursday London close.

The ratio of spot LNG versus spot Brent crude remains important to the LNG industry as the majority of LNG long-term contracts are still linked to crude oil prices.

However, a significant disconnect of gas market fundamentals from that of oil, as well as how term contracts are structured meant that there has yet to be any upside on spot LNG prices yet, sources said.

"The de-linkage of oil prices from that of LNG prices mean the immediate impact on [the] LNG [market] will be minimal, but if [oil price weakness] continues then term contracts could start finally be a bit more competitive [to spot contracts]," a Singapore-based trader said.

This could offer some relief to Asian buyers being saddled with expensive oil-linked contracts who are also grappling with poor downstream demand in months ahead due to the coronavirus pandemic, he added.

However, sources said that Brent prices need to remain weak for a prolonged period of time for a price decline to be reflected in term LNG portfolios.

A much-used LNG term contract linked to oil is based on previous months' oil prices. For example, the April LNG contract calculation would be the average of the Dated Brent average over the previous three months. Therefore, the plunge in oil prices this month may only be reflected in the April LNG price in a weighted manner.

A second LNG trader said that crude oil prices need to remain at current low levels till May for an impact on the spot market. "Even if that happens, I see only an impact coming in for June deliveries onwards," the trader said.

Furthermore, the low price impact may be delayed for other term contracts linked to the Japan Customs Cleared oil import price or those contracts with an average price consideration of more than three months, according to a third source from a trading house.

While the JKM-Brent price ratio -- or price "slope" as termed by LNG industry participants -- remains a highly watched indicator, market participants were also looking to the spread between Asia LNG and European LNG prices to determine near-term price direction.

The May JKM/MED spread against the USGC to North Asia/South West Europe was the widest since January 15 at 56.9 cents/MMBtu, Tuesday, Platts data showed.