Analys

Cutting supply of “black crude” will feel like more

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7 år sedan

den

19 december, 2018

The point is that all crudes are not created equal. US supply of ultralight crudes and NGLs is drowning the world with light end products. As a result the gasoline refinery crack has crashed to zero. At the same time however the world is getting starved for medium to heavy molecules leading to abnormally strong refinery mid. dist. margins.

When OPEC+ now is cutting supply of at least 1.2 m bl/d of crude they are primarily cutting supply of medium sour crude or “black crude”. In exchange the market is left to consume more light to ultralight US shale oil crude and NGLs.

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities, SEB

US shale oil typically contains about 60% medium to heavy molecules. But if we also factor in the added supply of US liquids which is NGLs etc. which contains 0% such molecules then the total comes down to only 40%. I.e. average new liquids supply in the US only contains a 40% cut on average of medium to heavy molecules.

“Black crude” (medium sour) in comparison contains close to 80% medium to heavy molecules. I.e. twice as much as the new US liquids supply. So when OPEC+ now cuts 1.2 m bl/d of “black crude” it reduces supply of medium to heavy molecules by 0.93 m bl. To make up for this the US has to lift total liquids supply by 2.3 m bl/d.

You can always break apart longer hydrocarbon molecules to medium length molecules (mid-dist. and lighter). Yes, it is an expensive process but the equipment for splitting longer hydrocarbons is still widespread in the global refining system today. All from splitting VGO (Vacuum Gas Oil) to either Gasoline (by Fluid Catalytic Crackers (FCCs) or to middle distillates (by Hydrocrackers) to breaking apart vacuum residue in Cokers to mid and light products. But merging shorter molecules and converting them to middle distillates is way more difficult and expensive and is in general not done. The exception of this is Shell’s Perl, Gas To Liquids (GTL) plant in Qatar where natural gas is converted to diesel. But that is more one of a kind.

From end 2016 to end 2018 the US has increased its hydrocarbon liquids supply by 4.2 m bl/d consisting of 2.9 m bl/d of crude and 1.3 m bl/d non-crude (typically NGL’s). The later typically contains no medium to heavy molecules while the prior contains 59% such molecules or less. In total the 4.2 m bl/d of new liquids supply in the US has added 1.7 m bl/d of medium to heavy molecules or 0.4 m bl/d per m bl/d of additional US liquids. “Black crude” however typically contains close to 78% medium to heavy molecules.

The huge change in the oil market due to the arrival of booming US shale oil is many faceted and complex. The new molecule composition in US liquids supply growth is one of many. Of this aspect we have probably only seen the start. Most new refineries are in general geared towards Middle East medium sour crude or “black crude” and the new ultralight liquids supply from the US does not match these all that well. The new Chinese INE crude contract is typically defined as medium sour crude if we look at the crude streams going into the physical delivery of this contract. That is to match the Chinese refineries.

Again, when OPEC+ now is cutting 1.2 m bl/d of black crude it is more than meets the eye. The feel of this cut will be deeper than its headline number of 1.2 m bl/d and it may not lead to all that much of a blessing for US ultralight liquids supply as producers there hope for once the cut starts to bite.

Today at 16:30 CET we’ll have the US EIA oil inventory data. They are likely to be quite bearish. Given the US EIA’s drilling productivity report this Monday we are likely going to see that the EIA lifts US crude production by 100 to 200 k bl/d versus last week. The API yesterday indicated stock changes of US crude: +3.5 m bl, Gasoline: +1.8 and Distillates: -3.4 m bl. In total a rise and also bearish for crude if that is the outcome.

Positive note: Dimondback is cutting activity in the Permian basin in 2019 in response to lower crude prices and higher costs.

Ch1: US ultralight crude versus Brent crude and Oman crude. The difference is much larger if one also includes US supply growth in NGLs

Table 1: Ultralight US shale oil contains much less medium to heavy molecules

Ch2: Mid-dist and heavy ends; much more fun than gasoline lately versus what is usually the case. Probably just the beginning.

Ch3: Crude prices falling like a rock

Ch4: US EIA drilling productivity report on Monday. Only bearish reading as of yet: higher drilling, higher DUCs, higher production, higher productivity and a marginal, annualized production rate of 1.6 m bl/d per year. Lower crude oil prices have not yet started to impact activity in December and January. But news above from Dimondback shows that prices are starting to hurt.

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Analys

Brent crude ticks higher on tension, but market structure stays soft

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2 dagar sedan

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16 september, 2025

Redaktionen

Brent crude has climbed roughly USD 1.5-2 per barrel since Friday, yet falling USD 0.3 per barrel this mornig and currently trading near USD 67.25/bbl after yesterday’s climb. While the rally reflects short-term geopolitical tension, price action has been choppy, and crude remains locked in a broader range – caught between supply-side pressure and spot resilience.

Ole R. Hvalbye, Analyst Commodities, SEB

Prices have been supported by renewed Ukrainian drone strikes targeting Russian infrastructure. Over the weekend, falling debris triggered a fire at the 20mtpa Kirishi refinery, following last week’s attack on the key Primorsk terminal.

Argus estimates that these attacks have halted ish 300 kbl/d of Russian refining capacity in August and September. While the market impact is limited for now, the action signals Kyiv’s growing willingness to disrupt oil flows – supporting a soft geopolitical floor under prices.

The political environment is shifting: the EU is reportedly considering sanctions on Indian and Chinese firms facilitating Russian crude flows, while the U.S. has so far held back – despite Bessent warning that any action from Washington depends on broader European participation. Senator Graham has also publicly criticized NATO members like Slovakia and Hungary for continuing Russian oil imports.

It’s worth noting that China and India remain the two largest buyers of Russian barrels since the invasion of Ukraine. While New Delhi has been hit with 50% secondary tariffs, Beijing has been spared so far.

Still, the broader supply/demand balance leans bearish. Futures markets reflect this: Brent’s prompt spread (gauge of near-term tightness) has narrowed to the current USD 0.42/bl, down from USD 0.96/bl two months ago, pointing to weakening backwardation.

This aligns with expectations for a record surplus in 2026, largely driven by the faster-than-anticipated return of OPEC+ barrels to market. OPEC+ is gathering in Vienna this week to begin revising member production capacity estimates – setting the stage for new output baselines from 2027. The group aims to agree on how to define “maximum sustainable capacity,” with a proposal expected by year-end.

While the IEA pegs OPEC+ capacity at 47.9 million barrels per day, actual output in August was only 42.4 million barrels per day. Disagreements over data and quota fairness (especially from Iraq and Nigeria) have already delayed this process. Angola even quit the group last year after being assigned a lower target than expected. It also remains unclear whether Russia and Iraq can regain earlier output levels due to infrastructure constraints.

Also, macro remains another key driver this week. A 25bp Fed rate cut is widely expected tomorrow (Wednesday), and commodities in general could benefit a potential cut.

Summing up: Brent crude continues to drift sideways, finding near-term support from geopolitics and refining strength. But with surplus building and market structure softening, the upside may remain capped.

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Analys

Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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6 dagar sedan

den

12 september, 2025

Redaktionen

Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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1 vecka sedan

den

10 september, 2025

Redaktionen

Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

Bjarne Schieldrop, Chief analyst commodities, SEB

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January