Analys
Saudi: ”Cut or be doomed”

This is basically the message that Saudi Arabia is sending to OPEC+ ahead of today’s OPEC meeting and tomorrow’s OPEC+ meeting. According to an unnamed OPEC delegate Saudi Arabia produced 11.1 m bl/d in November but supplied a total of 11.3 m bl/d to the market including supplies drawn from inventories (Blmbrg).
If all members in OPEC+ want to produce at 100% then Saudi Arabia can follow suite and produce at max capacity as well is what Saudi Arabia is saying with its November production data now available to the market. Full throttle production from both Saudi Arabia, the US and Russia will clearly be more than the market can swallow.
American Petroleum Institute yesterday indicated that US crude stocks rose 5.4 m bl, gasoline stocks rose 3.6 m bl and also distillate stocks rose 4.3 m bl last week and in total 13.3 m bl. That would be the biggest weekly total (crude, gasoline, distillates) US inventory rise since early 2017 if that is indeed the data we’ll see today at 17.00 CET. So today’s US oil inventory data are likely to underpin the message that OPEC/OPEC+ needs to agree on production cuts today and tomorrow. We believe that Saudi Arabia’s actual production strategy will be highly persuasive versus the rest of OPEC+ and as such we still strongly believe that OPEC+ will decide to cut production when they meet in Friday in Vienna.
It is a regular OPEC meeting today with agenda: Open session 10:00 CET, closed session 11:00, press conference 13:00. It is the same agenda again tomorrow when there will be a similar meeting for the total OPEC+. The final message and decision will not be fully communicated before Friday at 13:00 CET.
OPEC’s own advisory committee has recommended a cut of 1.3 m bl/d for 2019 to balance the market. Yesterday the Joint Ministerial Monitoring Committee (JMMC, a body of OPEC+) concluded to recommend a production cut as well though no number was communicated.
Important to the JMMC’s communication is that production cuts will be measured from a baseline of the maximum of Sep and Oct production. This is highly important. For Saudi Arabia this baseline is 10.7 m bl/d. So if OPEC+ agrees to cut and Saudi Arabia cuts 200 k bl/d then Saudi’s production target will be 10.5 m bl/d and thus down a full 0.8 m bl/d versus what it actually supplied in November (11.3 m bl/d). On a ytd average Saudi Arabia produced 10.2 m bl/d ytd. So a 10.5 m bl/d target would be a decrease vs. November but it would be an increase versus its 2018 average production. An average production of 10.5 m bl/d from Saudi Arabia would also be the highest production Saudi Arabia ever has produced in a year ever in history. So at 10.5 m bl/d Saudi is not really losing out at all.
There are clear concerns for over-tightening. Visibility on Iran, Venezuela, Libya, Nigeria, Angola and more makes it impossible to really forecast the magnitude of needed cuts. “We don’t even know if there will be a need for cuts in 2019” was the statement from Aleksander Novak and we totally agree. As such OPEC+ is likely to agree for 6 months during the first half of 2019 and then the situation will be reviewed again at the next meeting in May/June 2019. Very sensible in our view.
But for now Saudi is saying to the rest of OPEC+: “Cut or be doomed. We can produce at 100% as well if that is what all of you want to do”. We think that Saudi’s argumentation will be irresistible for both OPEC and OPEC+ and that an agreement on cuts will be reached today and tomorrow. The message at today’s press conference is likely going to be that OPEC is ready to cut if OPEC+ follows suite on Friday.
Ch1: Saudi Arabia’s crude oil production. “Cut or be doomed” is Saudi’s message to OPEC+
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


Analys
Bombs to ”ceasefire” in hours – Brent below $70

A classic case of “buy the rumor, sell the news” played out in oil markets, as Brent crude has dropped sharply – down nearly USD 10 per barrel since yesterday evening – following Iran’s retaliatory strike on a U.S. air base in Qatar. The immediate reaction was: “That was it?” The strike followed a carefully calibrated, non-escalatory playbook, avoiding direct threats to energy infrastructure or disruption of shipping through the Strait of Hormuz – thus calming worst-case fears.

After Monday morning’s sharp spike to USD 81.4 per barrel, triggered by the U.S. bombing of Iranian nuclear facilities, oil prices drifted sideways in anticipation of a potential Iranian response. That response came with advance warning and caused limited physical damage. Early this morning, both the U.S. President and Iranian state media announced a ceasefire, effectively placing a lid on the immediate conflict risk – at least for now.
As a result, Brent crude has now fallen by a total of USD 12 from Monday’s peak, currently trading around USD 69 per barrel.
Looking beyond geopolitics, the market will now shift its focus to the upcoming OPEC+ meeting in early July. Saudi Arabia’s decision to increase output earlier this year – despite falling prices – has drawn renewed attention considering recent developments. Some suggest this was a response to U.S. pressure to offset potential Iranian supply losses.
However, consensus is that the move was driven more by internal OPEC+ dynamics. After years of curbing production to support prices, Riyadh had grown frustrated with quota-busting by several members (notably Kazakhstan). With Saudi Arabia cutting up to 2 million barrels per day – roughly 2% of global supply – returns were diminishing, and the risk of losing market share was rising. The production increase is widely seen as an effort to reassert leadership and restore discipline within the group.
That said, the FT recently stated that, the Saudis remain wary of past missteps. In 2018, Riyadh ramped up output at Trump’s request ahead of Iran sanctions, only to see prices collapse when the U.S. granted broad waivers – triggering oversupply. Officials have reportedly made it clear they don’t intend to repeat that mistake.
The recent visit by President Trump to Saudi Arabia, which included agreements on AI, defense, and nuclear cooperation, suggests a broader strategic alignment. This has fueled speculation about a quiet “pump-for-politics” deal behind recent production moves.
Looking ahead, oil prices have now retraced the entire rally sparked by the June 13 Israel–Iran escalation. This retreat provides more political and policy space for both the U.S. and Saudi Arabia. Specifically, it makes it easier for Riyadh to scale back its three recent production hikes of 411,000 barrels each, potentially returning to more moderate increases of 137,000 barrels for August and September.
In short: with no major loss of Iranian supply to the market, OPEC+ – led by Saudi Arabia – no longer needs to compensate for a disruption that hasn’t materialized, especially not to please the U.S. at the cost of its own market strategy. As the Saudis themselves have signaled, they are unlikely to repeat previous mistakes.
Conclusion: With Brent now in the high USD 60s, buying oil looks fundamentally justified. The geopolitical premium has deflated, but tensions between Israel and Iran remain unresolved – and the risk of missteps and renewed escalation still lingers. In fact, even this morning, reports have emerged of renewed missile fire despite the declared “truce.” The path forward may be calmer – but it is far from stable.
Analys
A muted price reaction. Market looks relaxed, but it is still on edge waiting for what Iran will do

Brent crossed the 80-line this morning but quickly fell back assigning limited probability for Iran choosing to close the Strait of Hormuz. Brent traded in a range of USD 70.56 – 79.04/b last week as the market fluctuated between ”Iran wants a deal” and ”US is about to attack Iran”. At the end of the week though, Donald Trump managed to convince markets (and probably also Iran) that he would make a decision within two weeks. I.e. no imminent attack. Previously when when he has talked about ”making a decision within two weeks” he has often ended up doing nothing in the end. The oil market relaxed as a result and the week ended at USD 77.01/b which is just USD 6/b above the year to date average of USD 71/b.

Brent jumped to USD 81.4/b this morning, the highest since mid-January, but then quickly fell back to a current price of USD 78.2/b which is only up 1.5% versus the close on Friday. As such the market is pricing a fairly low probability that Iran will actually close the Strait of Hormuz. Probably because it will hurt Iranian oil exports as well as the global oil market.
It was however all smoke and mirrors. Deception. The US attacked Iran on Saturday. The attack involved 125 warplanes, submarines and surface warships and 14 bunker buster bombs were dropped on Iranian nuclear sites including Fordow, Natanz and Isfahan. In response the Iranian Parliament voted in support of closing the Strait of Hormuz where some 17 mb of crude and products is transported to the global market every day plus significant volumes of LNG. This is however merely an advise to the Supreme leader Ayatollah Ali Khamenei and the Supreme National Security Council which sits with the final and actual decision.
No supply of oil is lost yet. It is about the risk of Iran closing the Strait of Hormuz or not. So far not a single drop of oil supply has been lost to the global market. The price at the moment is all about the assessed risk of loss of supply. Will Iran choose to choke of the Strait of Hormuz or not? That is the big question. It would be painful for US consumers, for Donald Trump’s voter base, for the global economy but also for Iran and its population which relies on oil exports and income from selling oil out of that Strait as well. As such it is not a no-brainer choice for Iran to close the Strait for oil exports. And looking at the il price this morning it is clear that the oil market doesn’t assign a very high probability of it happening. It is however probably well within the capability of Iran to close the Strait off with rockets, mines, air-drones and possibly sea-drones. Just look at how Ukraine has been able to control and damage the Russian Black Sea fleet.
What to do about the highly enriched uranium which has gone missing? While the US and Israel can celebrate their destruction of Iranian nuclear facilities they are also scratching their heads over what to do with the lost Iranian nuclear material. Iran had 408 kg of highly enriched uranium (IAEA). Almost weapons grade. Enough for some 10 nuclear warheads. It seems to have been transported out of Fordow before the attack this weekend.
The market is still on edge. USD 80-something/b seems sensible while we wait. The oil market reaction to this weekend’s events is very muted so far. The market is still on edge awaiting what Iran will do. Because Iran will do something. But what and when? An oil price of 80-something seems like a sensible level until something do happen.
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