Crude To Lose Pricing Power Over LNG

摘要

Traditionally, there has been a high correlation between the price of global crude benchmark Brent and the Asian spot LNG benchmark the JKM. The main transmission mechanism has been through the widespread use of oil indexation in LNG term contracts in Asia. When oil has strengthened, term contract prices have risen; as contract prices rise above spot prices, buyers reduce their contract nominations and increase their purchases on the spot market. This increase in spot demand then drives up the price of the JKM, towards the price of oil. When oil has fallen, the reverse dynamic has been true.