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SEB Jordbruksprodukter, 14 januari 2013

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SEB - Prognoser på råvaror - CommodityI fredags på den nya tiden 18:00 publicerade det amerikanska jordbruksdepartementet årets första World Agricultural Supply and Demand Estimates (WASDE) och lagerstatistiken per den 1 december samt sådd höstvete-areal. Vi går igenom WASDE-statistiken under respektive råvara längre fram i veckobrevet.

Tendens på råvarupriserLagerstatistiken i miljoner bushels visade att det fanns mindre sojabönor och majs i lager i USA än marknaden hade väntat sig. Viktigast för dessa var majs, eftersom lagersituationen där är mest ansträngd efter sommarens torka i USA. Lagren visade sig vara ännu mindre än vad marknaden hade väntat sig. Det betyder att foderefterfrågan inom USA har varit större än vad marknaden hade väntat sig. Etanolproduktion och export har vi ju god koll på. Vi minns också att USDA i september gjorde en märklig uppjustering av lagren (1 september), som vi skrev att vi inte trodde på (att lagret borde vara lägre). Man hade ökat lagret per 1 september med den del som var skördad tidigt, skörden var ju ovanligt tidig, men inte i motsvarande mån minskat skörden resten av hösten.

Prognos på jordbruksråvaror

Lagren av sojabönor indikerar att priset bör gå upp något för att nå marknadsjämvikten. För vete motiveras något lägre pris, men det är så lite att det nästan är försumbart.

Om vi så går vidare med vetet för att se hur mycket som var sått i miljoner acres, enligt USDA:s statistik, av höstvete, kan vi se att det är väsentligt mindre Hard Red Winter Wheat, den sort som handlas på Kansas City Board of Trade. Det har såtts mindre HRWW än förra året, till och med. HRWW innehåller mer protein än Chicago-sorten, Soft Red Winter Wheat. Det har såtts mer SRWW än väntat och betydligt mer än förra året. Vi kan alltså vänta oss i år att premien för protein ökar i år.

Prognoser på vete

Sammantaget är det en rapport som indikerar högre priser för vete. Möjligtvis kommer detta att locka fram mer sådd av vårvete och i så fall mindre sådd av majs och sojabönor. I vilket fall, sammantaget en rapport som pekar på högre priser på alla dessa grödor.

Vi ändrar nu rekommendationen för vete och majs till neutral från sälj.

Odlingsväder

Torkan i USA håller i sig, som vi ser i den senaste ”Drought Monitor”, som publicerades i torsdags. Sedan förra veckan är det en marginell förbättring i torkan, dvs något lite mindre yta är drabbad av torka.

U.S. drought monitor

Sedan förra veckan har alla kategorier av torka (D0 – D4) minskat, som vi ser i nedanstående tabell.

Torka i USA

I Kina har det varit extremt kallt vilket fått priset på höstvete att nå en rekordnivå. Mer om det nedan. I England har det regnat extremt mycket den senaste veckan. Höstvetet befaras ha tagit skada. Argentina fick tillbaka torrt väder i veckan (majs, sojabönor).

Vete

Nedan ser vi november (2013) kontraktet, där priset föll kraftigt i fredags, men återhämtade sig och stängde på 217.50, nästan oförändrat på dagen.

Vetepriset återhämtade sig

Nedan ser vi decemberkontraktet på CBOT. Chicago stängde upp efter fredagens handel, till skillnad från Matif. GASC, den Egyptiska statens huvudsakliga veteimportör, köpte 115,000 ton amerikanskt och kanadensiskt vete i den senaste tendern, som publicerades i veckan. Till nästa tender GASC franskt vete. Det amerikanska vetet är det billigaste i världen, men frågan är om man lyckas exportera allt eftersom Mississippi-floden har stängts på grund av lågt vattenstånd (orsakat av torkan).

Decembertermin på vete hos CBOT

Vi ser här en bild på terminskurvorna för Matif och Chicago, båda omräknade till euro per ton.

Terminskurvor för vete på CBOT och Matif

Av diagrammet ovan ser man att gammal skörd av Matif-vete är avsevärt mycket dyrare än Chicagovetet. Maj-terminen handlas dessutom lägre än mars-terminen. Det säger att den som väntar med att sälja till maj riskerar att få väsentligt sämre betalt – och dessutom får bära ränte- och lagerkostnader fram till dess. Den som vill ta en position på högre priser och har fysiskt vete i lager gör därför sannolikt bäst i att sälja den fysiska varan och istället köpa terminer.

I Kina har priset på vete stigit till en ny rekordnotering. Det har i våra ”mainstream” media helt missats att Kina drabbats av den värsta kylan på över 30 år och den har skadat höstvetet långt söderut i landet. Priset var efter årsskiftet uppe på över 300 euro per ton för spotleverans i Shanghai. I diagrammet är priset omräknat från Renminbi till euro per ton. Vi ser också spotkontraktet på Matif som jämförelse.

I Kina har priset på vete stigit till en ny rekordnotering

Kina har inte varit någon nettoimportör av vete sedan 2004/05, men risken finns att de måste importera mer framöver. I år räknar USDA med att Kina ska importera 3 mt, som vi ser i diagrammet nedan.

USDA - Vete import Kina

De råvaror som Kina blivit blivit nettoimportör av har rusat iväg i pris.

I fredagens WASDE-rapport sänkte USDA produktionsestimatet för skörden i år med 0.8 mt, fördelat i Argentina och Ryssland/Ukraina.

Världsproduktion av vete

Utgående lager enligt USDA ser vi nedan. Vi ser att det är en liten sänkning. Sänkningar gjordes för USA och Ryssland/Ukraina. Höjningar gjordes däremot för Australien och Kanada på grund av att man antagit lägre export.

Lager av vete

Själva WASDE-rapporten innehöll inget speciellt kursdrivande. Förväntad sådd areal, däremot, som vi gick igenom i inledningen till veckobrevet, indikerade att priset ”bör” kunna gå upp.

Ser vi förhållandet mellan pris och utgående lager i ett historiskt perspektiv, ser vi att priset för spotkontraktet (det med kortast återstående löptid) på CBOT ligger ganska mycket i linje med de senaste årens relation mellan utgående lager och pris.

Vete - USDA och SEB

Slutsatsen efter att ha gått igenom såväl den tekniska bilden, som WASDE-rapporten, lager per 1 december och höstvete-areal, är att marknaden bör etablera en botten på de här nivåerna och stabilisera sig. Vi går därför över till en neutral rekommendation. Ytterligare motiv för detta är att situationen i majsmarknaden är ännu mer ”bullish”.

Maltkorn

November 2013-kontraktet fortsätter att hoppa sig framåt. I veckan steg priset upp nästan till 260 euro per ton, men föll i fredags ner till 252 euro. 240 euro är en tydlig stödnivå strax under. Det förefaller som om de allra ivrigaste maltkornsköparna har den som ”fyndnivå”. Vi kan också se att de lite mindre ivriga maltkornsköparna tycks vara villiga att köpa kring 220 euro per ton. Det finns alltså ganska gott om stödnivåer för priset strax under dagens prisnivå för kommande skörd.

Maltkorn - Diagram den 12 januari 2013

Potatis

Potatispriset för leverans i april nästa år (2014) har sjunkit något sedan förra veckan och handlas på 15.70 euro per deciton. Det är i den nedre delen av det prisintervall som potatisen som skördas i höst har handlats till sedan september.

Diagram öve potatispris

Majs

Majspriset (december 2013) reagerade på fredagens WASDE-rapport med att först stiga och sedan falla. Tekniskt stöd finns på 550 cent i decemberkontraktet, som vi ser i diagrammet nedan. Vi tycker inte att rapporten från USDA motiverar lägre pris.

Diagram på majspriset

WASDE-rapportens produktionsestimat ser vi nedan och det är alltså en höjning från december med 3 mt på global basis. Höjningarna gjordes för USA, Argentina och Brasilien.

Världsproduktion av majs

Utgående lager sänktes på global basis till 116 mt från 117.6 beroende på att man antagit en högre foderefterfrågan och för att lagren per 1 december var lägre än vad USDA tidigare antagit. Att foderefterfrågan var högre under det fjärde kvartalet än vad USDA antagit innebär att den kommer att vara det även under det första och kanske andra kvartalet i år också. Med så pass låga som lagren är, behövs en riktigt stor skörd i år. Och för att det ska ske kan inte priset fortsätta att falla.

Världslager av majs

Nedanμ ser vi förhållandet mellan lager och pris. Vi ser att priset är exceptionellt högt i ett historiskt perspektiv, men lagren är också exceptionellt låga.

Majs - Relation mellan lager och pris

Vi ska titta på lagren i ett historiskt perspektiv nu i termer av dagars konsumtion:

Historiska lager av majs

Sammanfattnignsvis: Det behövs en riktigt ordentlig skörd av majs i USA för att utbudet ska återställas. Lagerrapporten tyder på att foderefterfrågan är större än väntat och globala lager är nära rekordlåga nivåer. Vi går därför över till en neutral rekommendation på majsen.

Sojabönor

Efter lager- och WASDE-rapporten i fredags föll priset på sojabönor. Lagerrapporten indikerade högre priser, men WASDE-rapportens utbuds- och efterfrågebalans (sammanfattad som utgående lager) innehöll inget som skrämde marknaden. Priset i förhållande till utgående lager visar att priset ligger något ”högt” i förhållande till väntad lagernivå.

Tekniskt gjorde prisfallet i fredags ett en stödlinje bröts, vilket signalerar att ytterligare prisfall kan väntas de närmaste dagarna då säljarna verkar vara mer motiverade än köparna. 1225 cent / bushel på novemberkontraktet kan kanske tas som en första målkurs.

Prisfall i sojabönor

USDA justerade upp sojabönsproduktionen 2012/13 i fredagens WASDE-rapport. Brasilien höjdes, vilket är i linje med lokala prognoser. USA höjdes också, men Argentina sänktes. USDA sänkte även Argentinas uppskattade skörd förra året, vilket då slår på utgående lager för 12/13.

Världsproduktion av sojabönor

Nedan ser vi USDA:s uppskattning av utgående lager 2011/12 och prognos för 2012/13. Som vi ser resulterade det i en liten sänkning, främst i USA och Argentina (pga sänkt ingående lager, huvudsakligen).

Uppskattning av världslager på sojabönor

Nedan ser vi förhållandet mellan pris och förväntade utgående lager 2012/13 i termer av dagars konsumtion. På basis av den här bilden ser vi att priset ser ”högt” ut.

Pris och lager av sojabönor

Sammanfattningsvis: Prisfall ner mot 1225 cent på novemberkontraktet ser ut att kunna vara ett riktmärke.

Raps

Rapspriset (november 2013) föll i pris i fredags som en följd av prisfallet i sojabönorna. Tekniskt finns en stödnivå på 415 euro per ton. Det är troligt att den ska testas – och kanske brytas på nedsidan – i veckan som kommer.

Rapspriset

Gris

Grispriset (Maj 13), amerikansk Lean Hogs, har brutit en teknisk stödnivå (röd linje i diagrammet nedan). 94 cent per pund var första stödnivån, men antagligen fortsätter priset ner mot 92 cent i första hand.

Grispriset

Mjölk

I diagrammet nedan ser vi tre kurvor.Den gröna linjen är priset på skummjölkspulver i euro per ton på Eurex-börsen. Den blå är priset på smör på Eurex börsen. Priserna på Eurex anges i euro per ton.

Slutligen så den gröna linjen. Den visar priset på helmjölkspulver (WMP) FOB Västeuropa. Källan är USDA och priserna uppdateras varannan vecka. Vi ser att WMP-priset legat stabilt det fjärde kvartalet förra året, med en liten nedgång mot slutet av året. 2013 har dock börjat med en liten prisuppgång.

Mjölkrelaterade terminspriser

Det börsbaserade priset i svenska kronor beräknas med formeln:

Börsbaserade priset i kr / kg

där

BUT = priset på smör i euro per ton
SMP = priset på skummjölkspulver i euro per ton
FX = växelkursen för EURSEK.

SEB erbjuder, som första bank i världen, sina kunder att prissäkra ovanstående pris (marknad) i kronor per kilo med terminskontrakt.

EURSEK

EURSEK stärktes successivt under veckan som gick och nådde upp till de gamla motståndsnivåerna. Det finns inte mycket ny information som ger anledning till att anta annat än att den ”sidledes” rörelse vi sett de senaste månaderna ska fortsätta.

EURSEK valutaprognos

USDSEK

Dollarn föll mot kronan i veckan som gick. Det är fortsatt instabilt finansiellt och politiskt i USA. Stödnivån från botten i september är bruten och det ser ut som om vi ska vänta oss ytterligare dollarförsvagning i veckan som kommer.

USD SEK valutaprognos

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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Analys

How renewable fuels are accelerating the decarbonisation of transport

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WisdomTree

On 16 November 2022, UK’s Royal Air Force (RAF) Voyager aircraft, the military variant of the Airbus A330, took to the skies for 90 minutes over Oxfordshire. What looked like a routine test flight in its outward appearance was ultimately deemed ground-breaking. Why? It was a world-first military transporter aircraft flight, and the first of any aircraft type in the UK to be completed using 100% sustainable jet fuel.  

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree
Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

What are renewable fuels?

Renewable hydrocarbon biofuels (also called green or drop-in biofuels) are fuels produced from biomass sources through a variety of biological, thermal, and chemical processes. These products are chemically identical to petroleum gasoline, diesel, or jet fuel.

In other words, renewable fuels are sources of energy chemically identical to fossil fuels but produced from domestic, commercial, or agricultural waste (see Figure 1 below).

Figure 1: Converting waste into energy

Waste types and refinery output

Why the excitement?

Renewable fuels, like renewable diesel and sustainable jet fuel, can reduce greenhouse gas emissions by around 80-90% compared to fossil fuels. And because they burn much cleaner, engine filters remain cleaner for longer reducing the need for maintenance. Furthermore, given used cooking oil, vegetable oil, processing waste, and animal fat waste are used as inputs, the production of these fuels reduces biowaste, thereby cutting emissions from landfills.

This makes renewable fuels a key component of the circular economy. Humans have largely operated on the linear model historically when it comes to utilising natural resources. The circular model, in contrast, is much less wasteful and seeks to recycle as much as possible (see Figure 2 below).

Figure 2: The Circular Economy

Circular economy
Source: WisdomTree, Ellen MacArthur Foundation, 2023

The most exciting thing about renewable fuels is the immediacy with which they can make an impact. The reason why they are referred to as drop-in fuels is that they can replace fossil fuels in internal combustion engines with little or no modification required. So, if supply was abundant enough, forms of transport which cannot be electrified easily like heavy duty trucks, ships, and aeroplanes can be switched across to renewable fuels making a significant improvement to the environmental footprint. According to BP, “A return flight between London and San Francisco has a carbon footprint per economy ticket of nearly 1 tonne of CO2 equivalent. With the aviation industry expected to double to over 8 billion passengers by 2050, it is essential that we act to reduce aviation’s carbon emissions.”

The challenge

Renewable fuels or biofuels are still in their infancy. This means the obvious hurdle to overcome is cost competitiveness with fossil fuels. Cost estimates vary, but figures from the International Air Transport Association (IATA) provide a useful sense for the ballpark. In May 2022, IATA stated that the average worldwide price of jet fuel is about $4.15 per gallon compared to the US average price of a gallon of sustainable aviation fuel, which is about $8.67.

So, roughly double the price of the incumbent polluting technology. This is not a bad starting point at all. Considering how rapidly the cost of energy storage in batteries has fallen in the last decade, renewable fuels could become competitive quite soon if sufficient investment is made and economies of scale are achieved. IATA also predicts that renewable fuels could make up 2% of all aviation fuels by 2025, which could become a tipping point in their competitiveness.

Businesses are acting

Businesses pursuing their own net zero targets have already started exploring renewable fuels to minimise their waste. Darling Ingredients Inc, which produces its trademark Diamond Green Diesel from recycled animal fats, inedible corn oil, and used cooking oil, was chosen by fast food chain Chick-fil-A in March 2022 to turn its used cooking oil into clean transportation fuel.

Similarly, McDonald’s entered into a partnership with Neste Corporation in 2020 to convert its used vegetable oil into renewable diesel and fuel the trucks that make deliveries to its restaurants. According to TortoiseEcofin, both Darling Ingredients and Neste have a net negative carbon footprint given emissions produced by these businesses are lower that the emissions avoided because of their renewable fuels.

A final word

Renewable fuels alone will not tackle climate change. No single solution can. But they can help us make meaningful progress. The Intergovernmental Panel on Climate Change (IPCC) emphasises how crucial it is for the world to halve its greenhouse gas emissions this decade to at least have a chance of limiting global warming to 1.5oC. This means that solutions with an immediate effect have an important role to play. Biofuels can cut emissions from waste in landfills and provide much cleaner alternatives to fossil fuels to help accelerate the world’s decarbonisation efforts. They don’t require different engines to be of use. They just need funding to reach scale.

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

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SEB Metals Weekly: China Covid exit is bullish for metals

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China Covid exit is bullish for metals

Softer inflation, slight macro-optimism, and China taking a rapid exit from Covid restrictions. Markets have become more optimistic. Inflation indices have eased and that has created some hopes that central banks won’t lift interest to a level that will kill the economy in 2023. Natural gas prices in Europe have fallen sharply. This has suddenly reduced energy-inflationary pressure and removed the direst downside economic risks for the region. But general market optimism is far from super-strong yet. The S&P 500 index has only gained 1.9% since our previous forecast on 1 Nov 2021, and oil prices are down nearly 10% in a reflection of concerns for global growth. China has however removed all Covid-restrictions almost overnight. It is now set to move out of its three years of Covid-19 isolation and lockdowns at record speed. Industrial metals are up 20% and the Hong Kong equity index is up 40% as a result (since 1 Nov-22). China’s sudden and rapid Covid-19 exit is plain and simply bullish for the Chinese economy to the point that mobility indices are already rebounding quickly. SEB’s general view is that inflation impulses will fade quickly. No need then for central banks across the world to kill the global economy with further extreme rate hikes. These developments have removed much of the downside price risks for metals in 2023 and we have to a large degree shifted our 2024 forecast to 2023.

Lower transparency, more geopolitics, more borders, and higher prices and exponential spikes. The first decade of this century was about emerging markets, the BRICs, the commodity price boom, the commodity investment boom, and free markets with free flow of commodities and labor with China and Russia hand in hand with western countries walking towards the future. High capex spending in the first decade led to plentiful supply and low prices for commodities from 2011 to 2020. A world of plenty, friends everywhere, free flow of everything, and no need to worry. The coming decade will likely be very different. Supply growth will struggle due to mediocre capex spending over the past 10 years. Prices will on average be significantly higher. There will be frequent exponential price spikes whenever demand hits supply barriers. Price transparency will be significantly reduced due to borders, taxes, sanctions, geopolitical alignments, and carbon intensities. Prices will be much less homogenous. Aluminium will no longer be just one price and one quality. Who made it, where was it made, where will it be consumed and what the carbon content will create a range of prices. Same for most other metals.

Copper: Struggling supply and China revival propel copper prices higher. Unrest in Peru is creating significant supply risks for copper as the country accounts for 10% of the global supply. Chile accounts for 27% of global production. Production there is disappointing with Codelco, the Chilean state-owned copper mining company, struggling to hit production targets. The Cobre Panama mine in Panama is at risk of being closed over a tax dispute between Quantum and the government. Cobre Panama is one of the biggest new mines globally over the past 10 years. The rapid exit from Covid restrictions in China is bullish for the Chinese economy and thus for copper demand and it has helped to propel prices higher along with the mentioned supply issues. The Chinese property market will continue to struggle, and it normally accounts for 20% of global copper demand while China accounted for 55% of global copper demand in 2021. While China is no longer prioritizing the housing market it is full speed ahead for solar, wind, EVs, and electrification in general. So, weakening Chinese copper demand from housing will likely be replaced by the new prioritized growth sectors. Global supply growth is likely going to be muted in the decade to come while demand growth will be somewhere between a normal 3% pa. to a strong 4% pa. to a very strong 5% pa. Copper prices will be high, and demand will hit the supply barrier repeatedly with exponential spikes as the world is working hard to accelerate the energy transition. Copper prices could easily spike to USD 15-16,000/ton nearest years.

Nickel: Tight high-quality nickel market but a surplus for a low-quality nickel. Nickel production is growing aggressively in Indonesia. The country is projected to account for 60-70% of global supply in 2030. This will become a huge and extremely concentrated geopolitical risk for the world’s consumers of nickel. Indonesia has an abundance of low-grade C2 nickel. The challenge is to convert low-quality C2 nickel to high-quality C1. We are set for a surplus of C2 nickel but the market for C1 nickel will depend strongly on the conversion capacity for C2 to C1. Low price transparency will also help to send prices flying between USD 20,000/ton and USD 30,000/ton. Strong growth in nickel production in Indonesia should initially call for prices down to USD 20,000/ton. But Indonesia is a price setter. It will account for 50% of global supply in 2023. It doesn’t make sense for Indonesia to kill the nickel price. If the nickel price drops, then Indonesia could quickly regulate supply. There should be a premium to nickel due to this. As a result, we expect the nickel price to average USD 24,000/ton in 2023. C2 to C1 conversion capacity may be strained and there should also be a monopoly premium due to the size of Indonesia. Converting C2 to C1 is however extremely carbon intensive and that could be an increasing issue in the years to come.

Zinc: Super-tight global market. European LME inventories are ZERO and zinc smelters there are still closed. European zinc smelters account for 16% of global zinc smelter capacity. Most of this was closed over the past year due to extremely high energy prices. European LME zinc stockpiles are now down to a stunning zero! The global zinc market is extremely tight. Reopening of European zinc smelting seems unlikely in H1-23 with a continued super-tight market as a result both in Europe and globally.

Aluminium: Price likely to be in the range of USD 2400 – 3200/ton and line with coal prices in China. Aluminium prices have historically been tightly tied to the price of coal. But coal prices have been all over the place since the start of 2021 with huge price differences between Amsterdam, Australia, and domestic Chinese coal prices which are now largely state-controlled. China banning imports of Australian coal, the Chinese energy crisis in 2021, and Russia’s invasion of Ukraine in 2022 are ingredients here. This sent aluminium prices flying high and low. Coal prices in China today imply a price of aluminium between USD 2400/ton and 3150/ton with the LME 3mth aluminium price nicely in between at USD 2590/ton. The global coal market should now become more orderly as China now again is accepting Australian coal. Energy costs have fallen sharply in Europe and some producers in the Netherlands have talked about possible restarts of production. China is likely to reduce its exports of primary aluminium. Energy security of supply is high on the agenda in China, and it makes no sense to emit lots of CO2 in China and indirectly export energy in the form of primary aluminium. Growth in non-China aluminium demand in the years to come will have to be covered by non-China producers which have the potential to force prices higher and away from coal as the price driver. While LME has one price for the 3mth aluminium price we’ll likely get larger and larger price differences across the world in the form of possibly extreme price premiums for example in the EU and the US.

SEB Commodities price outlook
Source: SEB Markets – Commodities. Historical data: Bloomberg 
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Solid demand growth and strained supply to push Brent above USD 100/b

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SEB - Prognoser på råvaror - Commodity

Brent crude had a strong end of the year as it traded at the highest level since 1 December. It is a slow start to the new year due to bank holidays and Dated Brent trades close to USD 85/b. It averaged USD 99.9/b in 2022. We expect it to average more than USD 100/b on average for the coming year amid strained supply and rebounding demand. Chinese oil demand is set to recover strongly along with re-openings while non-OECD will continue to move higher. At the moment oil looks absurdly cheap as it is cheaper than natural gas in both EU and Japan and also cheaper than coal in Australia.

Some price strength at the end of the year. The Dated Brent crude oil price index gained 2.3% on Friday with a close at USD 84.97/b. It was the highest close since 1 December. This morning it is trading slightly lower at USD 84.8/b but the market is basically void of action due to bank holidays.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Gloom and doom but IEA, OPEC and US EIA project global crude oil demand to rise between 1 m b/d and 2.2 m b/d YoY in 2023. They also expect call-on-OPEC to rise between 0.3 m b/d and 1.0 m b/d. The US EIA projects demand to increase 1 m b/d in 2023 on the back of a growth of 1.3 m b/d in non-OECD where demand in India rises by 0.2 m b/d and China by 0.6 m b/d. In China this is of course to a large degree due to re-opening after Covid-19 lock-downs. But it is still a good reminder of the low base of oil demand in non-OECD versus OECD. India last year consumed 5 m b/d which only amounts to 1.3 b/capita/year versus a world average of 4.5  b/capita/year and European demand of 10 b/capita/year. Even China is still below the world average as its demand in 2022 stood at 15.2 m b/d or 4.0 b/capita/yr. Non-OECD oil demand thus still has a long way to go in terms of oil demand and that is probably one of the things we’ll be reminded of in 2023 as Covid-19 lock-downs disappear entirely.

Solid demand growth in the face of strained supply. Important to remember is that the world has lost a huge amount of fossil supply from Russia due to the war in Ukraine. First in terms of natural gas where supply to the EU and thus to the world has declined by some 2.5 m boe/d versus pre-war levels. Secondly in terms of crude and products. The latter is of course a constant guessing game in terms of how much Russian crude and product exports has declined. The US EIA however projects that crude oil production in the Former Soviet Union will be down 2 m b/d in 2023 versus pre-Covid levels and down 1.3 m b/d YoY from 2022 to 2023. We are thus talking up to 4.5 m boe/d of lost supply from Russia/FSU. That is a huge loss. It is the reason why coal prices are still trading at USD 200 – 400/ton versus normal USD 85/ton as coal is an alternative to very expensive natural gas.

Overall for 2023 we are looking at a market where we’ll have huge losses in supply of fossil energy supply from Russia while demand for oil is set to rebound solidly (+1.0 – 2.2 m b/d) along with steady demand growth in non-OECD plus a jump in demand from China due to Covid-19 reopening. Need for oil from OPEC is set to rise by up to 1.0 m b/d YoY while the group’s spare capacity is close to exhausted.

We expect Brent crude to average more than USD 100/b in 2023. Despite all the macro economic gloom and doom due to inflation and rising interest rates we cannot help having a positive view for crude oil prices for the year to come due to the above reasons. The Dated Brent crude oil price index averaged USD 99.9/b in 2022. We think Brent crude will average more than USD 100/b in 2023. Oil is today absurdly cheap at USD 85/b. It is cheaper than both coal in Australia and natural gas both in Japan and the EU. This is something you hardly ever see. The energy market will work hard to consume more what is cheap (oil) and less of what is expensive (nat gas and coal).

Latest forecasts by IEA, OPEC and US EIA for oil demand growth and call-on-OPEC YoY for 2023. Solid demand growth and rising need for oil from OPEC. 

Latest forecasts by IEA, OPEC and US EIA for oil demand growth and call-on-OPEC YoY for 2023.
Source: IEA, EIA, OPEC, SEB graph

Oil demand projections from the main agencies and estimated call-on-OPEC. More demand and higher need for oil from OPEC

Oil demand projections
Source: IEA, EIA, OPEC, SEB table

EIA STEO projected change in oil demand for different countries and regions YoY to 2023

EIA STEO projected change in oil demand for different countries and regions YoY to 2023
Source: US EIA, SEB graph

US EIA Dec STEO forecast for FSU oil production. Solid decline projected for 2023.

US EIA Dec STEO forecast for FSU oil production. Solid decline projected for 2023.
Source: US EIA data and projection. SEB graph

US commercial crude and product stocks still below normal

US commercial crude and product stocks still below normal
Source: US EIA, SEB graph

Total US crude and product stocks including SPR. Declining, declining, declining.

Total US crude and product stocks including SPR. Declining, declining, declining.
Source: US EIA, SEB graph

US crude and product inventories both excluding and including Strategic Petroleum Reserves

US crude and product inventories both excluding and including Strategic Petroleum Reserves

US oil sales from US SPR is now coming to an end. Will make the market feel much tighter as it really is.

US oil sales from US SPR is now coming to an end. Will make the market feel much tighter as it really is.
Source: US EIA, SEB graph

Brent crude oil is absurdly cheap as it today trades below both Australian coal and natural gas in both Japan and the EU. Coal and natural gas prices should trade lower while oil should trade higher.

Source: Blbrg data, SEB graph

EU diesel prices versus natural gas prices. Could start to move towards a more natural price-balance in terms of substitution.

EU diesel prices versus natural gas prices. Could start to move towards a more natural price-balance in terms of substitution.
Source: Blbrg data, SEB graph and calculations
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