Analys
SEB Jordbruksprodukter, 15 april 2013

Två tunga USDA-rapporter har kommit med tätt mellanrum. Lagerstatistiken fick vete, majs och sojabönor på fall. April månads WASDE-rapport fick däremot inte några stora effekter på marknaden. Marknaden tyckte nog att de förändringar som analytikerna på USDA gjorde låg inom felmarginalen. De största förändringarna gjordes för Kina.
Det riktiga vilda västern hittar vi dock på den tidigare stillsamma mjölk-marknaden. Fonterras pris på skummjölkspulver har gått upp med nästan 100% sedan årsskiftet. Oroliga kinesiska föräldrar dammsuger världsmarknaden på mjölkersättningspulver. Till och med the Financial Times berättar om smugglingen av burkar till Kina. Livsmedelskedjor i Storbritannien har startat ransonering av den det åtråvärda pulvret. En kylig vy på detta vore kanske att sälja terminer på SMP för att säkra ett högt pris under det kommande året.
Odlingsväder
Det har regnat kring Mississippi-floden och temperaturen har varit kall. Det har bland annat förekommit rapporter om frostskador från USA. Vädret i Europa har slagit om till både varmare och fuktigare, vilket vi märkte av i helgen här i Sverige. Nedan ser vi senaste Drought Monitor för USA:
Vi ser att torkan har försvunnit nästan helt från östra halvan av USA. För USA som helhet är fortfarande 66% torrare än normalt eller torkdrabbat. Andelen av USA som är drabbat av de två mest extrema formerna av torka ligger kvar på strax under 20%.
Vete
Priset på november (2013) föll omedelbart från 220 euro ner till under 210 euro när lagerstatistiken publicerades av USDA för två veckor sedan. Efter att marknaden hade stirrat sig blind på lagerstatistiken hade man inte tänkt på att crop condition skulle rapporteras igen efter vinteruppehållet på annandag Påsk.
Sista mätningen före vintervilan låg på usla 33% och siffran kom därför föga förvånande in på 34%, uselt alltså. Det fick priset att stiga upp mot 215 igen. Förra veckan siffra var återigen en ökning av ”good/excellent” condition och det gav marknaden en anledning att sälja vetet. Så kom WASDE-rapporten i onsdags som marknaden inte gillade heller. Lagernivåerna ligger betydligt högre än förra månaden. Men med detta ur världen är det nu mer fråga om hur vädret ska utveckla sig de närmaste två-tre månaderna än något annat.
Decemberkontraktet på CBOT var nere och rörde vid 700 cent, som i all fall för närvarande kan betraktas som en bottennivå. Vi har i princip haft sidledes prisrörelse sedan början av mars och det finns ännu inte något som får mig att tro något annat.
Onsdagens WASDE-rapport är i princip oförändrad vad gäller produktionsestimaten. USDA sänkte inte Argentinas skörd, utan höll den kvar på 11 mt. På Argentinas Bolsa de Cereales hemsida kan man läsa att de tror på 9.8 mt och så har det varit ett tag. Man får väl anta att man har bättre koll på läget i Buenos Aires än i Washington, så vi ska nog räkna med lite lägre global produktion än vad USDA gör.
Om vi så ser till utgående lager nedan, höjdes de med 4 mt. Det beror dels på en höjning av EU:s utgående lager med drygt 1 mt, dels på lägre foderefterfrågan i USA och en uppskrivning av lagren i Kina med 3 mt. Det kan förstås hända att man har goda skäl till detta, men frågan är om ens kineserna har stenkoll på lagernivåerna i sitt stora land.
Siffran för utgående lager ligger 4 mt högre i aprilrapporten jämfört med förra månaden. Efter ett initialt prisfall fattade dock marknaden att USDA:s höjningar vilar på ganska osäker grund. En höjning av Kinas lager måste anses hugget som stucket och att man inte sänkte skörden minst 1 mt i Argentina talar egentligen mot bättre vetande (i Argentina). Det initiala prisfallet återhämtades alltså ganska omgående. Nedan ser vi lagernivåerna för varje april bakåt årsvis bakåt i tiden och priset i cent / bushel på Chicagovete. Vi ser att priset nu ser ut att ligga i linje med de senaste årens förhållande mellan lager och pris. Ju lägre lager desto högre pris, och vice versa. Rapporten gav alltså ingen riktning att handla på. Det talar fortsatt för ”sidledes” prisrörelse. Marknaden får ta input från väderutvecklingen för att hitta en riktning att handla på.
Terminskurvorna visar högre priser för gammal skörd den senaste veckan (fredag till fredag). De längre terminskontrakten har inte förändrats prismässigt alls.
Crop progress är en statistik att följa nu när lagerstatistiken och WASDE:n är avklarade. Måndagens Crop Progress från USDA visar på små förändringar gällande tillståndet för det amerikanska höstvetet, men det finns vissa tecken på en viss förbättring – även om de är små. 30% av grödorna klassas fortfarande som ”poor/very poor”, precis som i förra veckan, men 36% av grödorna klassas nu som ”good/excellent” jämfört med 34% veckan innan. Vid denna tid förra året var dock 61% klassat som ”good/excellent” och bara 10% klassat som ”poor/very poor”.
Grödornas tillstånd varierar kraftigt mellan olika regioner och stater. I Kalifornien klassas 95% som ”good/excellent” och andra stater med en hög andel höstvete klassat som ”good/excellent” är bl.a Illinois, Indiana, Missouri, North Carolina och Washington. Förutsättningarna är dock mindre gynnsamma i flera av de viktiga veteproducerande staterna. I Kansas klassas 31% av grödorna som ”good/excellent” medan 31% av dem klassas som ”poor/very poor”. I Oklahoma är fördelningen 28% / 33% medan endast 17% av grödorna i Texas klassas som ”good/excellent” medan 51% klassas som ”poor/very poor”.
Crop progress-rapporten som kommer på kvällen den 15 april förväntas även innehålla sådd av majs för första gången i år. Vi fortsätter tro på sidledes prisrörelse tills vidare. Vi har sett de högsta priserna för året – om det inte blir en rejäl torka i år igen. Allt annat lika bör man passa på att sälja på uppgångar tycker jag.
Maltkorn
Priset på maltkorn med leverans i november visade mer styrka än vetet för en månad sedan, men har planat ut och går nu som vetet, men avslutade veckan med att stiga med 4 euro samtidigt som vetet bara steg med 1.25 euro.
Majs
Majspriset (december 2013) har rekylerat ner mot 530 cent, där priset hittat stöd. Den senaste veckan har priset stigit till 550 cent och det gick fort. Lite som en studs på botten.
WASDE-rapporten från USDA visade 2 mt högre global produktion. Det beror på en höjning av Brasiliens skörd, till 74 mt från 72.5. Detta är dock fortfarande lägre än CONAB:s estimat som ligger 3.5 mt högre än USDA:s. Safrinha:n (andra skörden) har utvecklar sig enligt andra rapporter bra i Brasilien.
Globala utgående lager höjdes 8 mt från 117.48 mt av USDA. Av det ligger 3 i USA och 3 i Kina. I USA är det lägre foderefterfrågan men högre etanolefterfrågan. I Kina har vi ingen aning om vad det är som ligger bakom, egentligen. Vi kan notera att av ökningen i vete+majs-lager står Kina för en betydande del. Det är möjligt att detta är rimligt, med tanke på vilka effekter som fågelinfluensan kan få i framtiden för foderefterfrågan, men lager i Kina lär i vart fall inte komma ut på världsmarknaden om de skulle behövas.
Marknaden tog den här höjningen med en nypa salt, och handlade upp priset. Men från den här punkten är det vädret i USA (och på andra håll) som avgör. Vädret i Brasilien är bra och jag tror att CONAB:s prognos är mer rätt än USDA:s. Nedan ser vi lager och pris. Både lager och pris är som vi ser praktiskt taget på samma nivå som förra året.
Råoljepriset har fallit en tid och Brent-oljepriset har fallit ner till 103 dollar (från ca 110 – 115 för en månad sedan. Etanolpriset har däremot hållit sig, som vi ser i diagrammet nedan. Men det borde finnas en viss press på det – nedåt – från oljan.
Vi gör samma tolkning som i förra veckobrevet för två veckor sedan. Att vi har sett de högsta priserna och om vädret fortsätter att förbättras är det nedsida som gäller.
Sojabönor
Sojabönorna (november 2013) har fallit ner till 1231, strax ovanför ”nästa” tekniska stöd efter att den långvariga stödnivån på 1270-nivån bröts. Tekniskt ser det väldigt ”bearish” ut. 1150 ser ut att kunna vara nästa anhalt på vägen ner.
USDA justerade upp global skörd med drygt 1.5 mt – i Paraguay och Uruguay. Man lämnade skörden oförändrad i Argentina och Brasilien. Brasilien kan vi kommentera här: Conab (det nationella bolaget för matförsörjning) estimerar en skörd på 81.5 mt. Noticias Agricolas (ledande jordbrukstidning kopplad till jordbruksdepartementet) skrev den 8 april att skörden blir 82.5, 20% mer än förra året. Just nu är skörden till 80% klar enligt lokala tidningar.
Estimatet för utgående lager höjdes med drygt 2 mt. Höjningarna väntas ske i Argentina och Brasilien, vilket är rimligt att anta givet de mycket större skördarna där och köerna för lastning vid hamnarna (och lägre priser för lantbrukarna inne i landet pga detta). Kinas lager väntas minska och det beror på att man antagit att Kinas import minskar med 3 mt.
Nedan ser vi pris I förhållande till lager. Mot bakgrund av de senaste årens relation mellan pris och lager, ser priset ”högt” ut. Vid den här lagernivån ser ett pris på 1200 eller strax under det motiverat ut.
Vi tror att priset kommer att fortsätta falla och rekommenderar en såld position i sojabönor.
Raps
Rapspriset (november 2013) har rekylerat uppåt, vilket vi tror är ett säljtillfälle. I synnerhet om priset på sojabönor fortsätter att sjunka.
Gris
Grispriset (September 13) som tagit en paus i prisnedgången i drygt en månad, ser ut att kunna fortsätta sin nedgång i veckan som kommer.
Mjölk
Mjölkmarknaden befinner sig i mega-hausse. Fonterra-priset på SMP har fördubblats i år från 2500 till 4807 euro per ton. The Financial Times skrev i måndags förra veckan om hur flera engelska livsmedelskedjor endast tillåter kunder att köpa två burkar med mjölkersättning för spädbarn. Anledningen är att det uppstått brist därför att vissa personer köper burkar och skickar till Kina. Tidningen skriver att en vanlig burk som kanske kostar 60 – 90 kr i Sverige kan kosta tre gånger så mycket i Kina. Det sägs till och med att resorna till Australien från Kina har blivit fullbokade pga inköpen av mjölkersättning. Melaminskandalen häromåret och andra incidenter har fått kinesiska föräldrar att undvika inhemskt producerade produkter. Med ettbarnspolitiken finns tas inga risker av försiktiga föräldrar, tydligen.
I kursdiagrammet nedan ser vi priserna på Fonterras SMP, USDA:s prisnotering på SMP i Europa och Eurexbörsens pris, samt Eurex pris på smör. Alla priser är angivna i euro per ton.
Nedan ser vi terminskurvorna för smör och skummjölkspulver på Eurex.
USDA publicerar även statistik på mjölk och mjölkprodukter. I diagrammet nedan ser vi global produktion av
SMP sedan 1965 och estimerade utgående lager i termer av antal dagars konsumtion. Vi ser att globala lager av SMP är på riktigt låga nivåer i ett historiskt perspektiv. Lagren väntas räcka i 27 dagar. År 2006 var det 22 dagar och den lägsta lagernivån på 49 år. Detta är långt från de 81 dagars lager som fanns för 11 år sedan.
SEB Commodities erbjuder ett litet ”prova-på” kontrakt som består av 0.5 ton Eurex-smör och 0.9 ton Eurex SMP. Ett paket som motsvarar 10 ton flytande mjölkråvara. Just nu är det underliggande värdet på ett sådant kontrakt drygt 33 000 kronor.
Den som vill följa priset på SMP på Eurex gör det via länken:
www.eurexchange.com/exchange-en/products/com/agr/14016/
[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]
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Analys
[If demand] ”comes around as forecast, Hallelujah, we can produce more”

Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp). So Saudi Arabia wants to and will produce more once it is confident that there really is demand for additional crude. Saudi Arabia has good reason to be concerned for global oil demand. It is not the only one struggling to predict global demand amid the haze and turmoil in the global oil market following the Russian invasion of Ukraine and sanctions towards Russian crude and product stocks. Add a shaky Chinese housing market and the highest US rates since 2001. Estimates for global oil demand in Q4-23 are ranging from 100.6 m b/d to 104.7 m b/d with many estimates in between. Current crude and mid-dist inventories are low. Supply/demand is balanced to tight and clearly very tight for mid-dists (diesel, jet fuel, gasoil). But amid current speculative bullishness it is important to note that Saudi Arabia can undo the current upwards price journey just as quickly as it created the current bull-market as it drop in production from 10.5 m b/d in April to only 9.0 m b/d since July. Quickly resolving the current mid-dist crisis is beyond the powers of Saudi Arabia. But China could come to the rescue if increased oil product export quotas as it holds spare refining capacity.

The oil market is well aware that the main reasons for why oil has rallied 25% over the past months is reduced production by Saudi Arabia and Russia, global oil demand holding up better than feared together with still declining US shale oil activity. US oil drilling rig count fell by 8 rigs last week to 507 rigs which is the lowest since Feb 2022.
The big question is how strong is global oil demand and how will it hold up or even maybe increase in the coming quarters? And here the spread of estimates are still all over the place. For Q4-23 we have the following range of estimates for global oil demand in m b/d: 100.6; 101.8; 103.1; 103.2 and 104.7 from main oil market research providers. This wide spread of estimates is mindbogglingly and head-scratching both for analysts and for oil producers. It leads to a wide spread in estimates for Call-on-OPEC. Some say the current market is in a 2-3 m b/d deficit while others calculate that the global oil market today is nicely balanced.
The sanctions towards Russian crude and oil product exports with a ban on imports to the EU and UK has led to a large reshuffling of the global oil market flows which again has created a haze through which it is hard to gauge the correct state of the global oil market.
We have previously argued that there may be a significant amount of ”pent-up-demand” following the Covid-years with potential for global oil demand to surprise on the upside versus most demand forecasts. But there are also good reasons to be cautious to demand given Chinese property market woes and the highest US interest rates since 2001!
The uncertainty in global oil demand is clearly at the heart of Saudi Arabia’s production cuts since April this year. Saudi Arabia’s Energy Minister, Prince Abulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp).
So if it turns out that demand is indeed stronger than Saudi Arabia fears, then we should see increased production from Saudi Arabia. Saudi could of course then argue that yes, it is stronger than expected right now, but tomorrow may be worse. Also, the continued decline in US oil drilling rig count is a home-free card for continued low production from Saudi Arabia.
Both crude stocks and mid-dist stocks (diesel, jet fuel, gasoil) are still significantly below normal and the global oil market is somewhere between balanced, mild deficit or large deficit (-2-3 m b/d). The global oil market is as such stressed due to low inventories and potentially in either mild or large deficit on top. The latter though can be undone by higher production from Saudi Arabia whenever it chooses to do so.
What is again getting center stage are the low mid-dist stocks ahead of winter. The war in Ukraine and the sanctions towards Russian crude and product stocks created chaos in the global oil product market. Refining margins went crazy last year. But they are still crazy. The global refining system got reduced maintenance in 2020 and 2021 due to Covid-19 and low staffing. Following decades of mediocre margins and losses, a lot of older refineries finally decided to close down for good during Covid as refining margins collapsed as the world stopped driving and flying. The global refining capacity contracted in 2021 for the first time in 30 years as a result. Then in 2022 refining margins exploded along with reviving global oil demand and the invasion of Ukraine. Refineries globally then ran as hard as they could, eager to make money, and reduced maintenance to a minimum for a third year in a row. Many refineries are now prone for technical failures following three years of low maintenance. This is part of the reason why mid-dist stocks struggle to rebuild. The refineries which can run however are running as hard as they can. With current refining margins they are pure money machines.
Amid all of this, Russia last week imposed an export ban for gasoline and diesel products to support domestic consumers with lower oil product prices. Russia normally exports 1.1 m b/d of diesel products and 0.2 m b/d of gasoline. The message is that it is temporary and this is also what the market expects. Russia has little oil product export storage capacity. The export ban will likely fill these up within a couple of weeks. Russia will then either have to close down refineries or restart its oil product exports.
The oil market continues in a very bullish state with stress both in crude and mid-dists. Speculators continues to roll into the market with net long positions in Brent crude and WTI increasing by 29 m b over the week to last Tuesday. Since the end of June it has increased from 330 m b to now 637 m b. Net-long speculative positions are now at the highest level in 52 weeks.
The market didn’t believe Saudi Arabia this spring when it warned speculators about being too bearish on oil and that they would burn their fingers. And so they did. After having held production at 9 m b/d since July, the market finally believes in Saudi Arabia. But the market still doesn’t quite listen when Saudi says that its current production is not about driving the oil price to the sky (and beyond). It’s about concerns for global oil demand amid many macro economic challenges. It’s about being preemptive versus weakening demand. The current oil rally can thus be undone by Saudi Arabia just as it was created by Saudi Arabia. The current refinery stress is however beyond the powers of Saudi Arabia. But China could come to the rescue as it holds spare refining capacity. It could increase export quotas for oil products and thus alleviate global mid-dist shortages. The first round effect of this would however be yet stronger Chinese crude oil imports.
Brent crude and ARA diesel refining premiums/margins. It is easy to see when Russia invaded Ukraine. Diesel margins then exploded. The market is not taking the latest Russian export ban on diesel and gasoline too seriously. Not very big moves last week.

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. We are now heading into the heating season, but the summer driving season is fading and so are gasoline margins.

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. Here same graph as above but with longer perspective to show how extreme the situation is.

US crude and product stocks vs. the 2015-19 average. Very low mid-dist stocks.

Speculators are rolling into long positions. Now highest net long spec in 52 weeks.

Analys
The ”normal” oil price is USD 97/b

The Dated Brent crude oil price ydy closed at USD 96/b. Wow, that’s a high price! This sensation however depends on what you think is ”normal”. And normal in the eyes of most market participants today is USD 60/b. But this perception is probably largely based on the recent experience of the market. The average Brent crude oil price from 2015-2019 was USD 58.5/b. But that was a period of booming non-OPEC supply, mostly shale oil. But booming shale oil supply is now increasingly coming towards an end. Looking more broadly at the last 20 years the nominal average price was USD 75/b. But in inflation adjusted terms it was actually USD 97/b.

Saudi Arabia’s oil minister, Abdulaziz bin Salman, yesterday stated that its production cuts was not about driving the price up but instead it was preemptive versus the highly uncertain global economic development. In that respect it has a very good point. The US 2yr government bond rate has rallied to 5.06% which is the highest since 2006 and just a fraction away of being the highest since December 2000. The Chinese property market is struggling and global PMIs have been downhill since mid-2021 with many countries now at contractive, sub-50 level. Thus a deep concern for the health of the global economy and thus oil demand going forward is absolutely warranted. And thus the preemptive production cuts by Saudi Arabia. But killing the global economy off while it is wobbling with an oil price of USD 110-120/b or higher is of course not a smart thing to do either.
At the same conference in Canada yesterday the CEO of Aramco, Amin H. Nasser, said that he expected global oil demand to reach 110 m b/d in 2030 and that talk about a near term peak in global oil demand was ”driven by policies, rather than the proven combination of markets, competitive economics and technology” (Reuters).
With a demand outlook of 110 m b/d in 2030 the responsible thing to do is of course to make sure that the oil price stays at a level where investments are sufficient to cover both decline in existing production as well as future demand growth.
In terms of oil prices we tend to think about recent history and also in nominal terms. Most market participants are still mentally thinking of the oil prices we have experienced during the shale oil boom years from 2015-2019. The average nominal Brent crude price during that period was USD 58.5/b. This is today often perceived as ”the normal price”. But it was a very special period with booming non-OPEC supply whenever the WTI price moved above USD 45/b. But that period is increasingly behind us. While we could enjoy fairly low oil prices during this period it also left the world with a legacy: Subdued capex spending in upstream oil and gas all through these years. Then came the Covid-years which led to yet another trough in capex spending. We are soon talking close to 9 years of subdued capex spending.
If Amin H. Nasser is ballpark correct in his prediction that global oil demand will reach 110 m b/d in 2030 then the world should better get capex spending rolling. There is only one way to make that happen: a higher oil price. If the global economy now runs into an economic setback or recession and OPEC allows the oil price to drop to say USD 50/b, then we’d get yet another couple of years with subdued capex spending on top of the close to 9 years with subdued spending we already have behind us. So in the eyes of Saudi Arabia, Amin H. Nasser and Abdulaziz bin Salman, the responsible thing to do is to make sure that the oil price stays up at a sufficient level to ensure that capex spending stays up even during an economic downturn.
This brings us back to the question of what is a high oil price. We remember the shale oil boom years with an average nominal price of USD 58.5/b. We tend to think of it as the per definition ”normal” price. But we should instead think of it as the price depression period. A low-price period during which non-OPEC production boomed. Also, adjusting it for inflation, the real average price during this period was actually USD 72.2/b and not USD 58.5/b. If we however zoom out a little and look at the last 20 years then we get a nominal average of USD 75/b. The real, average inflation adjusted price over the past 20 years is however USD 97/b. The Dated Brent crude oil price yesterday closed at USD 96/b.
Worth noting however is that for such inflation adjustment to make sense then the assumed cost of production should actually rise along with inflation and as such create a ”rising floor price” to oil based on rising real costs. If costs in real terms instead are falling due to productivity improvements, then such inflation adjusted prices will have limited bearing for future prices. What matters more specifically is the development of real production costs for non-OPEC producers and the possibility to ramp up such production. Environmental politics in OECD countries is of course a clear limiting factor for non-OPEC oil production growth and possibly a much more important factor than the production cost it self.
But one last note on the fact that Saudi Arabia’s energy minister, Abdulaziz bin Salman, is emphasizing that the cuts are preemptive rather then an effort to drive the oil price to the sky while Amin H. Nasser is emphasizing that we need to be responsible. It means that if it turns out that the current cuts have indeed made the global oil market too tight with an oil price spiraling towards USD 110-120/b then we’ll highly likely see added supply from Saudi Arabia in November and December rather than Saudi sticking to 9.0 m b/d. This limits the risk for a continued unchecked price rally to such levels.
Oil price perspectives. We tend to think that the nominal average Brent crude oil price of USD 58.5/b during the shale oil boom years from 2015-19 is per definition the ”normal” price. But that period is now increasingly behind us. Zoom out a little to the real, average, inflation adjusted price of the past 20 years and we get USD 97/b. In mathematical terms it is much more ”normal” than the nominal price during the shale oil boom years

Is global oil demand about to peak 1: OECD and non-OECD share of global population

Is global oil demand about to peak 2: Oil demand per capita per year

Analys
USD 100/b in sight but oil product demand may start to hurt

Some crude oil grades have already traded above USD 100/b. Tapis last week at USD 101.3/b. Dated Brent is trading at USD 95.1/b. No more than some market noise is needed to drive it above USD 100/b. But a perceived and implied oil market deficit of 1.5 to 2.5 m b/d may be closer to balance than a deficit. And if so the reason is probably that oil product demand is hurting. Refineries are running hard. They are craving for crude and converting it to oil products. Crude stocks in US, EU16 and Japan fell 23 m b in August as a result of this and amid continued restraint production by Saudi/Russia. But oil product stocks rose 20.3 m b with net draws in crude and products of only 2.7 m b for these regions. Thus indicating more of a balanced market than a deficit. Naturally there has been strong support for crude prices while oil product refinery margins have started to come off. Saudi/Russia is in solid control of the market. Both crude and product stocks are low while the market is either in deficit or at best in balance. So there should be limited down side price risk. But oil product demand is likely to hurt more if Brent crude rises to USD 110-120/b and such a price level looks excessive.

Crude oil prices have been on a relentless rise since late June when it became clear that Saudi Arabia would keep its production at 9 m b/d not just in July but also in August. Then later extended to September and then lately to the end of the year. On paper this has placed the market into a solid deficit. Total OPEC production was 27.8 m b/d in August and likely more or less the same in September. OPEC estimates that the need for oil from OPEC in Q3-23 is 29.2 m b/d which places the global market in a 1.4 m b/d deficit when OPEC produces 27.8 m b/d.
The proof of the pudding is of course that inventories actually draws down when there is a deficit. A 1.4 m b/d of deficit for 31 days in August implies a global inventory draw of 43.4 m b/d. If we assume that OECD countries accounts for 46% of global oil demand then OECD could/should have had a fair share of inventory rise of say 20 m b in August. Actual inventory data are however usually a lagging set of data so we have to work with sub sets of data being released on a higher frequency. And non-OECD demand and inventory data are hard to come by.
If we look at oil inventory data for US, EU16 and Japan we see that crude stocks fell 23 m b in August while product stocks rose 20.3 m b with a total crude and product draw of only 2.7 m b. I.e. indicating close to a balanced market in August rather than a big deficit. But it matters that crude stocks fell 23 m b. That is a tight crude market where refineries are craving and bidding for crude oil together with speculators who are buying paper-oil. So refineries worked hard to buy crude oil and converting it to oil products in August. But these additional oil products weren’t gobbled up by consumers but instead went into inventories.
Rising oil product inventories is of course a good thing since these inventories in general are low. And also oil product stocks are low. The point is more that the world did maybe not run a large supply/demand deficit of 1.5 to 2.5 m b/d in August but rather had a more balanced market. A weaker oil product demand than anticipated would then likely be the natural explanation for this. Strong refinery demand for crude oil, crude oil inventory draws amid a situation where crude inventories already are low is of course creating an added sense of bullishness for crude oil.
On the one hand strong refinery demand for crude oil has helped to drive crude oil prices higher amid continued production cuts by Saudi Arabia. Rising oil product stocks have on the other hand eased the pressure on oil products and thus softened the oil product refinery margins.
The overall situation is that Saudi Arabia together with Russia are in solid control of the oil market. Further that the global market is either balanced or in deficit and that both crude and product stocks are still low. Thus we have a tight market both in terms of supplies and inventories. So there should be limited downside in oil prices. We are highly likely to see Dated Brent moving above USD 100/b. It is now less than USD 5/b away from that level and only noise is needed to bring it above. Tupis crude oil in Asia traded at USD 101.3/b last week. So some crude benchmarks are already above the USD 100/b mark.
While Dated Brent looks set to hit USD 100/b in not too long we are skeptical with respect to further price rises to USD 110-120/b as oil product demand likely increasingly would start to hurt. Unless of course if we get some serious supply disruptions. But Saudi Arabia now has several million barrels per day of reserve capacity as it today only produces 9.0 m b/d. Thus disruptions can be countered. Oil product demand, oil product cracks and oil product inventories is a good thing to watch going forward. An oil price of USD 85-95/b is probably much better than USD 110-120/b for a world where economic activity is likely set to slow rather than accelerate following large interest rate hikes over the past 12-18 months.
OPEC’s implied call-on-OPEC crude oil. If OPEC’s production stays at 27.8 m b/d throughout Q3-23 and Q4-23 then OPECs numbers further strong inventory draws to the end of the year.

Net long speculative positions in Brent crude and WTI. Speculators have joined the price rally since end of June.

End of month crude and product stocks in m b in EU16, US and Japan. Solid draw in crude stocks but also solid rise in product stocks. In total very limited inventory draw. Refineries ran hard to convert crude to oil products but these then went straight into inventories alleviating low oil product inventories there.

ARA oil product refinery margins have come off their highs for all products as the oil product situation has eased a bit. Especially so for gasoline with now fading summer driving. But also HFO 3.5% cracks have eased back a little bit. But to be clear, diesel cracks and mid-dist cracks are still exceptionally high. And even gasoline crack down to USD 17.6/b is still very high this time of year.

ARA diesel cracks in USD/b. Very, very high in 2022. Almost normal in Apr and May. Now very high vs. normal though a little softer than last year.

US crude and product stocks vs. 2015-2019 average. Still very low mid-dist inventories (diesel) and also low crude stocks but not all that low gasoline inventories.

US crude and product stocks vs. 2015-2019 averages. Mid-dist stocks have stayed persistently low while gasoline stocks suddenly have jumped as gasoline demand seems to have started to hurt due to higher prices.

Total commercial US crude and product stocks in million barrels. Rising lately. If large, global deficit they should have been falling sharply. Might be a blip?

Source: SEB graph and calculations, Blbrg data feed, EIA data
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