Analys
Råvarudeskens Årskrönika 2013

”Tailrisk-tapering-flattening”
Året då stimulanserna tog slut
Under 2012 var ”tailrisk” modeordet som sammanfattade alla händelser av låg sannolikhet som skulle få stor inverkan om de inträffade. För råvarumarknaden var den mest uppenbara tailrisken konflikten mellan Israel och Iran. På makroplanet var riskerna kring EMU-zonen och USA:s konjunkturåterhämtning mest alarmerande tillsammans med Kinas inbromsning.
För att tysta Janne Korp* blandade USA, Kina och Europa ihop en trolldryck som hette duga. QE3 och Kinas sista egentliga stimulansinvesteringar kom under sensommaren 2012, medan 2013 har i mångt och mycket präglats av att stimulansfloden torkat upp. För USA:s del har episoden gått under namnet ”tapering” som också blev årets modeord. Bernankes ordlek kring när och hur tapering skulle uppstå har styrt marknadsrörelserna för att slutligen anlända som en vältimad julklapp i december. I Öst har de nytillträdda (inte nyvalda!) kinesiska ledarnas dito kommunikation kring tillväxtmålet som sänktes till 7,5 % och stimulansinvesteringar som nu skulle stabilisera och inte accelerera tillväxten haft minst lika stor påverkan på råvarupriserna.
Inget råvarurally
Fjolårets årskrönika titulerades ”Triskaidekafobia” – en grekisk ordlek med rädslan för den då stundande siffran 13. Otursnumret förde också ner råvarupriserna med besked. Vårt råvaruindex med 15 stycken råvaror tappade 8 % under året. Ingen av råvarusektorerna har stigit i värde. Energikorgen slutar precis under nollan på -1 % medan basmetaller, ädelmetaller och jordbruk föll med 12 %, 25 % och 8 %. Precis som i fjol ligger en jordbruksråvara i topp och på 2 av 3 bottenplatser. En tydlig erinran om vädergudens bidrag till volatiliteten i råvarupriserna. På samma tema finns majs och vete som fallit tillbaka efter fjolårets uppgång efter torkan i USA. Basmetallerna har dämpats efter att mycket av de högt ställda förväntningarna på produktionsökningar kommit till stånd. Ädelmetallerna har dock fallit mest, i egenskap av primär måltavla för årets modenyck – tapering.
Fallande priser har fått investerare att vikta ner råvaror medan våra industriella kunder utnyttjat de låga priserna på metaller för att säkra sina behov långt ut på kurvan. Elintensiva bolag kunde låsa in elpriset på 29,5öre/kWh 5 år framöver, vilket är det lägsta pris vi haft sedan 2005. Många lyckosamma jordbrukare sålde vete i grevens tid i början av året, innan den globala skörden på allvar fick priserna på fall.
* olyckskorpen i Fablernas värld, producerad 1968-1992
Guldet mitt i skottgluggen
Året började med en stark förbättring av konjunkturutsikterna när USA undvek en skarp inbromsning efter det fiskala stupet och riskerna för att Euron skulle brytas upp minskade. I kölvattnet av denna starka start ökade investerares riskaptit och både guld och silver såldes till fördel för aktier. När sedan den oortodoxa penningpolitiken åter skulle börja tvingas in ramen för ortodox politik hamnade guld och silver mitt i skottgluggen. Utflödena ur guld-ETF:er var lavinartade och guld har under 2013 tappat 28 %, det största raset på 30 år. Investerare har allt sedan Fed:s QE1-start 2008 köpt guld och silver som hedge mot det kommande inflationsspöket. Spöket kom visserligen men snarare under namnet deflationsspöke (USA+EMU) och när nu Feds stimulanser avtar finner många guldgrävare det smärtsamma slutet på epoken för ”råvaran som inte kan gå ned”. När 2014 ser ut att bli ett säkrare år för världskonjunkturen, eurozonen fortfarande är intakt och Iran har kommit till förhandlingsbordet tror vi att guldet fortsätter ner och investerare som vill ha en icke centralbanksknuten valuta väljer Bitcoins (!).
Gruvbolagen försöker vända skutan
Även utanför Sverige har gruvindustrin känt på prövningar under året som gått. I de tre stora gruvbolagen listade i London (Rio, BHP och Anglo America) har VD:n fått betala med sitt jobb när kostnadsstrukturen totalt missmatchat Kinas inbromsning och de lägre metallpriserna. Efterträdarna har målat upp bolagsstrategi i klassisk svångremsanda. Trendmässigt kan det vara ett tecken på att de senaste årens produktionsvåg huvudsakligen är över och för 2014 ser marknaden mer balanserad ut. Undantaget är järnmalm och koppar där en ny våg kommer under 2014.
Nedgången för basmetaller kom under första halvåret då Kinas inbromsning verkade ske helt okontrollerat. När Kinas nya ledare började stimulera för att stabilisera ekonomin stabiliserades också basmetallerna. Ett rally under december avslutade året klart över bottenkänningen kring midsommar.
Brent blev årets skidbacke
Under buller och bång har USA:s oljeproduktion stigit till 25 års högsta. På mindre än tre år har världens största oljekonsument vänt 40 år av fallande oljeproduktion till den största överraskningen i oljehistorien. Glädjande för oljepropagandamaskineriets fader, Obama, var också att under 2014 kommer importen för första gången på 20 år att vara lägre än produktionen. Denna utbudschock till trots har Brentoljan handlats i backwardation under hela året. USA:s stigande produktion har ganska precist kompenserats av den sammanlagda exportminskningen ifrån Iran, Libyen, Irak och Nigeria. De eviga produktionsstörningarna i områden med inverkan på Brentpriset (FOB Shetlandsöarna) har lett till en kraftig kurvlutning som gett investerare 12 % trots att Brent bara stigit med 6 %. USA-handlade WTI oljan har med stigande produktion istället legat i contango och givit dyr rullning för råvaruindex med WTI som underliggande oljetillgång.
Råolja och oljeprodukterna bensin och diesel slutar året svagt i dur medan el blev årets besvikelse och föll hämningslöst under årets sista kvartal. En mild början på vintern (trots alla granna rönnbärsträd i oktober), en snabb påfyllning av vattenmagasinen från ett underskott till normalnivå och en sällsynt välfungerande svensk kärnkraft utgjorde mixen bakom prisraset i el.
Torkan över för den här gången
Årets stora rörelse var återhämtningen i produktion av majs efter torkan i USA 2012. Priset föll som en sten och placerade majs i botten av all råvaror 2013. Vinnaren bland livsmedelsråvarorna blev kakao som fortsätter sin långa, efterfrågedrivna trend uppåt. Utsikterna för stigande kakaopriser är fortfarande goda och lämnar en bitter eftersmak för chokladälskare.
Nu börjar hästens år
Hästens år är sjunde året i den kinesiska zodiakens cykel om 12 år. Hästen står för det ädla och eleganta men också för snabbhet och uthållighet. Frågan är om den kinesiska ekonomin likaledes kommer uppvisa snabbhet och uthållighet under 2014? Troligen kommer den kinesiska ekonomin att hålla styrfart (>7 %) men uppsidan begränsas hela tiden av reformbehoven som ständigt aktualiseras när saker och ting ser ljusare ut. USA ska enligt Fed nu klara sig utan stimulanser medan Europa tragglar vidare precis norr om recession (1 %). Budskapet är tydligt; vi tror att ”flattening” kommer bli årets modeord 2014.
Analys
Now it’s up to OPEC+

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics. OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE. The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.
Brent crude fell 4.6% ydy to USD 77.4/b and over the last three trading sessions it has lost USD 5.1/b. This morning it is trading only marginally higher at USD 77.6/b which is no vote of confidence. A good dose of rebound this morning would have been a signal that the sell-off yesterday possibly was exaggerated and solely driven by investors with long positions flocking to the exit. So there’s likely more downside to come.
In general there is a quite good relationship between net long speculative positions in Brent crude and WTI versus the global manufacturing cycle. Oil investors overall typically have an aversion of holding long positions in oil when the global economy is slowing down. As of yet there are few signs that the global economic cycle is about to turn. Rather the opposite seems to be the case. Global manufacturing fell in October and yesterday we saw US industrial production fall 0.6% MoM while continued jobless claims rose more than expected and to the highest level in two years. This matches well with the logic that the strong rise in interest rates since March 2022 is inflicting pain on the economy with more pain ahead as the effect comes with a lag.
Most estimates are that the global oil market is running a solid deficit in Q4-23. The IEA has an implied deficit in the global oil market of 1 m b/d in Q4-23 if we assume that OPEC will produce 28 m b/d vs. a call-on-OPEC at 29 m b/d. But prices in the oil market is telling a different story with weakening crude curves, weakening refining margins and a sharp sell-off in oil prices.
For 2024 the general forecasts are that global economic growth will slow, global oil demand growth will slow and also that the need for oil from OPEC will fall from 28.7 m b/d to 28.4 m b/d (IEA). This is a bearish environment for oil. The average Brent crude oil price so far this year is about USD 83/b. It should essentially be expected to deliver lower in 2024 with the negatives mentioned above.
Two things however will likely counter this and they are interconnected. US shale oil activity has been slowing with falling drilling rig count since early December 2022 and that has been happening at an average WTI price of USD 78/b. The result is that total US liquids production is set to grow by only 0.3 m b/d YoY in Q4-24. This allows OPEC+ to support the oil price at USD 80-90/b through 2024 without fear of loosing a significant market share to US oil production. Thus slowing US liquids production and active price management by OPEC+ goes hand in hand. As such we do expect OPEC+ to step up to the task.
So far it has predominantly been Saudi Arabia with a little help from Russia which together proactively have managed the oil market and the oil price through significant cuts. Saudi Arabia produced 10.5 m b/d in April but then cut production rapidly to only 9.0 m b/d which is what it still produces. Its normal production is about 10 m b/d.
What has made the situation more difficult for Saudi Arabia is the combination of solid growth in non-OPEC supply in 2023 (+2.1 m b/d YoY; IEA) but also a substantial revival in production by Venezuela and Iran. The two produced 660 k b/d more in October than they on average did in 2022. So the need for oil from Saudi Arabia is squeezed from both sides.
All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics.
OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) then it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE.
The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.
Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.
Analys
More from Venezuela and Iran means smaller pie for Saudi

Production in Venezuela and Iran is on the rise and is set to rise further in the coming months and in 2024. Combined their production could grow by 0.8 m b/d YoY to 2024 (average year to average year). The IEA projected in its latest OMR (Oct-2023) that call-on-OPEC will fall to 28.3 m b/d in 2024, a decline of 0.5 m b/d. This combination would drive implied call-on-Saudi from 10.4 m b/d in 2023 to only 9.1 m b/d in 2024 and as low as 8.6 m b/d in Q1-24 if Saudi Arabia has to do all the heavy lifting alone. Wider core OPEC cooperation may be required.

The IEA is out in the news today projecting peak oil demand this decade with global demand standing at no more than 102 m b/d towards the end of this decade. If so it would imply a call-on-Non-OPEC of only 66.4 m b/d in 2028 assuming that OPEC in general will demand a market share of 30 m b/d + NGL of 5.6 m b/d. The IEA (Oct-23) projects non-OPEC production to average 68.8 m b/d in 2024. That’s already 2.4 m b/d more than what would be sustainable over time if global oil demand is set to peak later this decade. Oil producers in general cannot have a production growth strategy in a peak oil demand world.
The US has decided to lift sanctions towards Venezuela for six months (18 April) as a measure to tempt it to move towards more democratic processes. And if it does, then the lifting of sanctions could continue after the 6 months. A primary opposition election took place this weekend with lawmaker Maria Corina Machado currently holding 93% of the vote count. Venezuela will next year hold a presidential election but fair play seems unlikely with Maduro in charge. The lifting of sanctions allows Venezuela’s PdV to resume exports to all destinations. Bans on new, foreign investments in the oil and gas sector are also lifted though Russian entities and JV’s are still barred.
Venezuela produced 0.8 m b/d in September and indicates that it can lift production by 0.2 m b/d by year and with more rigs and wells by 0.5 m b/d to 1.3 m b/d in the medium term.
Oil production in Iran has been on a steady rise since its low-point of 2.0 m b/d in 2020. Last year it produced 2.5 m b/d. In September it produced 3.1 m b/d, but Iran’s oil minister says production now is at 3.3 m b/d. Iran’s rising production and exports is not about the US being more lenient in its enforcement of sanctions towards Iran. It is more about Iran finding better ways to circumvent them but even more importantly that China is importing more and more oil from Iran.
Production by Iran and Venezuela is recovering. YoY production from the two could rise by close to 0.8 m b/d in 2024. This will lead to a decline in call-on-Saudi oil.

The IEA estimated in its latest OMR report that call-on-OPEC will fall from 28.8 m b/d in 2023 to 28.3 m b/d in 2024. If all OPEC members except Saudi Arabia produces the same amount in 2024 as in 2023, then the need for Saudi Arabia’s oil (call-on-Saudi) will fall from a healthy 10.4 m b/d in 2023 to a still acceptable 9.9 m b/d in 2024. Its normal production is roughly 10 m b/d.
If however production by Iran and Venezuela rise by a combined 0.5 m b/d YoY in 2024, then call-on-Saudi will fall to 9.4 m b/d which is not so good but still manageable. But if Iran’s oil minister is correct when he says that its current production now is at 3.3 m b/d, then it is not far fetched to assume that Iran’s oil production may average maybe 3.4-3.5 m b/d in 2024. That would yield a YoY rise of 0.6 m b/d just for Iran. If we also assume that Venezuela manages to lift its production from 0.8 m b/d this year to 1.0 m b/d in 2024, then the combined growth from the two is closer to 0.8 m b/d. That would push call-on-Saudi down to only 9.1 m b/d which is not good at all. It would require Saudi Arabia to produce at its current production of 9.0 m b/d all through 2024.
The IEA further estimates that call-on-OPEC will average 27.7 m b/d in Q1-24. If we assume Iran @ 3.4 m b/d and Venezuela @ 1.0 m b/d then call-on-Saudi in Q1-24 will only be 8.6 m b/d. I.e. Saudi Arabia will have to cut production further to 8.6 m b/d in Q1-24. At that point Saudi Arabia will likely need or like other core OPEC members like Iraq, Kuwait and UAE as well as Russia to join in.
Implied call-on-Saudi. Call-on-OPEC is set to decline from 28.8 m b/d to 28.3 m b/d to 2024. If all OPEC members produced the same in 2024 as in 2023 then call-on-Saudi would fall by 0.5 m b/d to 9.9 m b/d. But if Venezuela and Iran increases their combined production by 0.8 m b/d YoY in 2024 then call-on-Saudi falls to 9.1 m b/d.

If we look a little broader on this topic and also include Libya, Nigeria and Angola we see that this group of OPEC members produced 11.4 m b/d in 2010, 10.1 m b/d in 2017 and only 5.1 m b/d at the low-point in August 2020. The decline by these OPEC members has of course the other OPEC and OPEC+ members to stem the rising flood of US shale oil production. The production from this unfortunate group of OPEC-laggards is however now on the rise reaching 7.5 m b/d in September. With more from Iran and Venezuela it could rise to 8.0 m b/d in 2024. Production from Nigeria and Angola though still looks to be in gradual decline while Libya looks more sideways. So for the time being it is all about the revival of Iran and Venezuela.
The unfortunate OPEC-laggards had a production of 11.4 m b/d in 2010. But production then fell to only 5.1 m b/d in August 2020. It helped the rest of OPEC’s members to manage the huge increase in US shale oil production. Production from these countries are now on the rebound. Though Nigeria and Angola still seems to be in gradual decline.

What everyone needs to be attentive to is that call-on-OPEC and even more importantly call-on-Saudi can only erode to a limit before Saudi/OPEC/Russia will have to take action. Especially if the forecast for needed oil from OPEC/Saudi for the nearest 2-3 years is in significant decline. Then they will have to take action in the sense that they stop defending the price and allows the price to fall sharply along with higher production. And yet again it is US shale oil producers who will have to take the brunt of the pain. They are the only oil producers in the world who can naturally and significantly reduce their production rather quickly. I.e. the US shale oil players will have to be punished into obedience, if possible, yet one more time.
We don’t think that it is any immediate risk for this to happen as US shale oil activity is slowing while global oil demand has rebounded following Covid-lockdowns. But one needs to keep a watch on projections for call-on-OPEC and call-on-Saudi stretching 1-2-3 years forward on a continuous basis.
In its medium term oil market outlook, Oil2023, the IEA projected a fairly healthy development for call-on-OPEC to 2028. First bottoming out at 29.4 m b/d in 2024 before rising gradually to 30.6 m b/d in 2028. The basis for this was a slowing though steady rise in global oil demand to 105.7 m b/d in 2028 together with stagnant non-OPEC production due to muted capex spending over the past decade. But this projection has already been significantly dented and reduced in IEA’s latest OMR from October where call-on-OPEC for 2024 is projected at only 28.3 m b/d.
In a statement today the IEA projects that global oil demand will peak this decade and consume no more than 102 m b/d in the late 2020ies due to (in large part) rapid growth in EV sales. This would imply a call-on-OPEC of only 26.9 m b/d in 2028. It is not a viable path for OPEC to produce only 26.9 m b/d in 2028. Especially if production by Iran and Venezuela is set to revive. I.e. OPEC’s pie is shrinking while at the same time Iran and Venezuela is producing more. In this outlook something will have to give and it is not OPEC.
One should here turn this on its head and assume that OPEC will produce 30 m b/d in 2028. Add OPEC NGLs of 5.6 m b/d and we get 35.6 m b/d. If global oil demand in 2028 stands at only 102 m b/d then call-on-Non-OPEC equates to 66.4 m b/d. That is 3.1 m b/d less than IEA’s non-OPEC production projection for 2028 of 69.5 m b/d but also higher than non-OPEC production projection of 68.8 m b/d (IEA, Oct-23) is already 2.4 m b/d too high versus what is a sustainable level.
What this of course naturally means is that oil producers in general cannot have production growth as a strategy in a peak-oil-demand-world with non-OPEC in 2024 already at 2.4 m b/d above its sustainable level.
The US is set to growth its hydrocarbon liquids by 0.5 m b/d YoY in 2024. But in a zero oil demand growth world that is way, way too much.

Analys
Reloading the US ’oil-gun’ (SPR) will have to wait until next downturn

Brent crude traded down 0.4% earlier this morning to USD 91.8/b but is unchanged at USD 92.2/b at the moment. Early softness was probably mostly about general market weakness than anything specific to oil as copper is down 0.7% while European equities are down 0.3%. No one knows the consequences of what a ground invasion of Gaza by Israel may bring except that it will be very, very bad for Palestinians, for Middle East politics for geopolitics and potentially destabilizing for global oil markets. As of yet the oil market seems to struggle with how to price the situation with fairly little risk premium priced in at the moment as far as we can see. Global financial markets however seems to have a clearer bearish take on this. Though rallying US rates and struggling Chinese property market may be part of that.

The US has drawn down its Strategic Petroleum Reserves (SPR) over the latest years to only 50% of capacity. Crude oil prices would probably have to rally to USD 150-200/b before the US would consider pushing another 100-200 m b from SPR into the commercial market. As such the fire-power of its SPR as a geopolitical oil pricing tool is now somewhat muted. The US would probably happily re-load its SPR but it is very difficult to do so while the global oil market is running a deficit. It will have to wait to the next oil market downturn. But that also implies that the next downturn will likely be fairly short-lived and also fairly shallow. Unless of course the US chooses to forgo the opportunity.
The US has drawn down its Strategic Petroleum Reserves (SPR) to only 50% of capacity over the latest years. Most of the draw-down was in response to the crisis in Ukraine as it was invaded by Russia with loss of oil supply from Russia thereafter.
The US has however no problems with security of supply of crude oil. US refineries have preferences for different kinds of crude slates and as a result it still imports significant volumes of crude of different qualities. But overall it is a net exporter of hydrocarbon liquids. It doesn’t need all that big strategic reserves as a security of supply any more. Following the oil crisis in the early 70ies the OECD countries created the International Energy Agency where all its members aimed to have some 100 days of forward oil import coverage. With US oil production at steady decline since the 70ies the US reached a peak in net imports of 13.4 m b/d in 2006. As such it should have held an SPR of 1340 million barrels. It kept building its SPR which peaked at 727 m b in 2012. But since 2006 its net imports have been in sharp decline and today it has a net export of 2.9 m b/d.
Essentially the US doesn’t need such a sizable SPR any more to secure coverage of its daily consumption. As a result it started to draw down its SPR well before the Russian invasion of Ukraine in February 2022. But then of course it fell fast and is today at 351 m b or about 50% of capacity.
The US is the largest oil consumer in the world. As such it is highly vulnerable to the price level of oil. The US SPR today is much more of a geopolitical tool than a security of supply tool. It’s a tool to intervene in the global oil market. To intervene in the price setting of oil. The US SPR is now drawn down to 50% but it still holds a sizable amount of oil. But it is little in comparison to the firepower of OPEC. Saudi Arabia can lower its production by 1 m b/d for one year and it will have eradicated 365 million barrels in global oil inventories. And then it can the same the year after and then the year after that again.
The US has now fired one big bullet of SPR inventory draws. It really helped to balance the global oil market last year and prevented oil prices from going sky high. With 350 m b left in its SPR it can still do more if needed. But the situation would likely need to be way more critical before the US would consider pushing yet another 100-200 m b of oil from its SPR into the global commercial oil market. An oil price of USD 150-200/b would probably be needed before it would do so.
With new geopolitical realities the US probably will want to rebuild its SPR to higher levels as it is now an important geopolitical tool and an oil price management tool. But rebuilding the SPR now while the global oil market is running a deficit is a no-go as we see it.
An oil market downturn, a global recession, a global oil market surplus where OPEC no longer want to defend the oil price with reduced supply is needed for the US to be able to refill its SPR again unless it wants to drive the oil price significantly higher.
But this also implies that the next oil price downturn will likely be short-lived and shallow as the US will have to use that opportunity to rebuild its SPR. It’s kind off like reloading its geopolitical oil gun. If it instead decides to forgo such an opportunity then it will have to accept that its geopolitical maneuverability in the global oil market stays muted.
Net US oil imports in m b/d and US Strategic Petroleum Reserves (SPR) in million barrels. The US doesn’t need strategic petroleum reserves for the sake of security of supply any more. But it is a great geopolitical energy-tool to intervene in the price setting of oil in the global market place.

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