Some oil-linked liquefied natural gas (LNG) prices were poised to increase after a U.S. airstrike in Iraq killed a top Iranian general and sent crude prices higher on Friday.

The globe is awash in natural gas supplies, with buyers more flexible as a result and more willing to buy spot cargoes. Given the shift and global glut, a spike in longer-term oil-linked LNG prices may not make a big difference, but a bump is expected, particularly for contracts tied to Brent crude, which moved up by more than 4% on Friday to near $70.00/bbl at one point. The global benchmark hit its highest point in months.

“There will be a definite impact on Brent based prices,” said ClipperData’s Kaleem Asghar, director of LNG analytics. For example, he said Pakistan recently agreed to take February cargoes at about an 8.59% slope on Brent. A slope is the percentage of the crude price baked into an LNG pricing formula.

“So, any upside on the price, even for a week, will impact the prices” for cargoes and long-term contractual volumes, Asghar told NGI. Moreover, if Iran retaliates and targets shipping in the Strait of Hormuz as it has in the past, LNG spot prices could also be impacted.

NGI’s Patrick Rau, director of strategy and research, agreed that contracts tied to the monthly price of Brent are likely to rise in the near-term. He also noted that other LNG contracts use a basket of crude prices based on rolling three- or six-month averages, which could “mute the impact” of escalating tensions between the United States and Iran.

Brent prices haven’t been this high since Iran was blamed for an attack in September that knocked out the Abqaiq processing facility and Khurais oilfield in Saudi Arabia. Although the gains were short-lived as the kingdom brought the infrastructure back online quickly, pundits noted at the time that there wasn’t enough risk premium baked into global crude prices.

Iran was expected to retaliate, again raising the specter of a prolonged conflict.

“While there is no immediate impact on oil supply, events such as this naturally have the effect of raising the geopolitical risk premium in oil prices,” wrote analysts at Raymond James & Associates Inc.

If crude prices remain high for a sustained period, Rau said new LNG contracts might get signed with a lower slope to compensate. Another consultant told NGI that while all the available LNG spot cargoes are likely to mitigate impacts, if Iran were to target a major natural gas producer and dominant LNG force like Qatar, dynamics could change very quickly.

Unlike oil, the global LNG market is divided, with buyers taking the super-chilled fuel based on different prices. Even as the marketplace has shifted in places like Europe and North America, and increasingly in Asia, to follow major natural gas benchmarks like Henry Hub or the UK National Balancing Point (NBP), LNG pricing has historically been tied to crude oil. Those contracts remain dominant.

About 70% of world LNG trade is priced using a competing fuels index, generally based on crude oil or fuel oil, according to the Energy Information Administration.

Asghar noted Friday that seven LNG cargoes were floating across the globe, in another sign of elevated supplies. The arbitrage window between Europe and Asia is already open, with the Japan Korea Marker (JKM) higher than leading European benchmarks NBP and the Dutch Title Transfer Facility (TTF).

The maximum Gulf Coast LNG netback price for February between the JKM, NBP and TTF on Friday (Jan. 3) was $3.390/MMBtu, or only $1.260 above where Henry Hub futures settled, according to NGI data.

While the broader market suffered losses on Friday after the U.S. airstrikes, top American liquefier Cheniere Energy Inc. saw its stock move higher and even would-be export terminal operators, like Tellurian Inc., which is developing Driftwood LNG in Louisiana, saw a bump. Meanwhile, the shares of major oil producers and LNG portfolio players like BP plc, Royal Dutch Shell plc and Total SA were up too.

Increasing Supplies

Prices have been crushed under the weight of a global supply glut, particularly in Europe which is flooded with natural gas.

Russia on Monday signed a deal allowing it to continue moving gas through Ukraine to Europe.

“To be clear, with the risk of disruption of Russian gas flows to Western Europe averted, the market’s confidence (and ours) in a significantly oversupplied” northwest European “gas balance in 2020 has increased,” said analysts at Goldman Sachs.

Natural gas flowing from Russia into Europe dropped as the New Year got underway and European benchmark prices have plummeted to seasonal levels not seen in the last 10 years, according to Bloomberg.

Supply signals remain strong as well. As December came to a close, Nigeria LNG said it would move forward with a seventh liquefaction train and boost the company’s production by 35%. Meanwhile, the Vietnamese government indicated last month it would move ahead with an LNG-to-power project in Bac Lieu province.

That could prove a boon for Magnolia LNG, which is being developed in Lake Charles, LA. While the 8 million metric tons/year (mmty) facility has not reached a final investment decision, developer LNG Ltd. reached an agreement in September to supply 2 mmty to the 3,200 MW power project.