Analys
SEB Jordbruksprodukter, 17 december 2012
Vi byter rekommendation för vetepriset från ”köp” till ”sälj”. Visst finns chansen / eller risken, att det kommer ytterligare en prisuppgång, men den är i så fall sannolikt den sista innan priset vänder ner. Det kanske inte alls kommer någon prisuppgång, framåt februari, som en del talar om. Vi börjar tycka att det är dags att sluta hoppas på den sista uppgången, och istället positionera oss för den större prisnedgången.
Vi ändrar också rekommendation på maltkornet från neutral till sälj och det betyder att vi har säljrekommendation för alla jordbruksprodukter. Majs ser för närvarande trendlöst ut, men sojabönorna som sakta rekylerat uppåt, ser redo att bryta nedåt ut. Efter den senaste WASDE-rapporten förefaller ”rätt pris” i förhållande till utgående lager, vara ca 200 cent / bushel lägre än dagens pris.
Odlingsväder
Det är fortsatt torrt mitt i USA, men det har regnat i södra USA. Europa är nu helt och hållet snötäckt där det ska vara det. Det är bara i södra Ryssland som det ännu inte finns snö.
Vete
Nedan ser vi mars (2013) kontraktet, där priset föll direkt när WASDE-rapporten blev känd. Priset har ännu inte fallit under oktober månads lägsta noteringar. Skulle priset göra det, får vi en bekräftelse på att en ny baisse-marknad för vete är inledd. Vi tror att det är en tidsfråga innan det sker.
Nedan ser vi kursdiagrammet för kommande skörd, november 2013. Priset bröt den uppåtgående stödlinjen vid strax över 240 euro per ton som en respons på WASDE-rapporten. Därefter har priset fallit ner till stödlinjen vid 235 euro. Där fanns köpare. Det är möjligt att det kommer en rekyl uppåt i veckan. Vi anser att den rekylen uppåt i så fall är ett säljtillfälle, och rekylen bör maximalt, enligt den tekniska analysen, gå upp mot 240 euro, men troligtvis inte över.
USDA’s uppjustering av utgående globala lager i decembers WASDE-rapport fick priset att falla både på Matif och i USA. Nedan ser vi produktionsestimaten i WASDE-rapporten:
Vi ser att USDA höjde skördeprognosen för 2012/13 med 4 mt. Uppjusteringarna gjordes för Kanada, Australien och Kina. Däremot gjorde man inte någon förändring för Argentina. USDA uppskattar Kinas vete produktion 2012/13 till 120.6 mt, vilket är en ökning med 2.6 mt från förra månaden. Den estimerade arealen på 24.14 miljoner hektar har justerats ned något medan estimerad avkastning justeras upp till rekordhöga 5.0 ton per hektar. Revideringarna bygger på de senaste officiella uppgifterna från Kinas National Bureau of Statistics. Enligt rapporter så visar de 11 största vete producerande provinserna högre avkastning 2012, vilket är det nionde året i rad med stabila eller stigande avkastningar. Gynnsamt väder under hela perioden, från sådd till skörd, har varit faktorn som bidragit till en rekordskörd av höstvete 2012.
Även Australiens produktion av vete 2012/13 justeras upp med 1 mt till 22 mt av USDA, medan arealen lämnas oförändrad.
USDA’s estimat för EU-27’s produktion av vete 2012/13 justeras ned marginellt från 131.82 till 131.73 mt. Revideringen beror på en nedjustering av produktionen i Frankrike. Nedan ser vi utgående lager, som väntas bli nästan 3 mt högre än i november månads WASDE-rapport. Till de viktigaste förändringarna hör att utgående lager väntas bli högre i de stora exportländerna USA och EU som helhet. Även i Australien väntas utgående lager bli högre. Detta tolkades av marknaden som negativt och fick priserna på fall. Detta sammanfaller med en förskjutning i sentimentet i marknaden. För många aktörer är frågan om huruvida det kommer (ännu) högre priser, eller om det är slut med haussen nu, mycket viktig och en källa till oro. Om dessa aktörer, stora spannmålshandlare och lantbrukare, börjar tro att det är slut på uppgången, finns sannolikt ett stort latent intresse från dem att sälja på dessa attraktiva priser, som det fortfarande är.
I diagrammet nedan ser vi priserna per stängning på WASDE-rapportdagen förra veckan och för tidigare års december-WASDE. Vi ser att priset ser högt ut, enligt den relation mellan lager och pris som har varit rådande de senaste åren. Priset på Chicagovete, som är det som visas i diagrammet, ser ut att ha ett mer ”rätt” pris, mellan 600 och 700 cent.
Sammanfattningsvis, det ser svagt ut tekniskt och priset ser högt ut i förhållande till väntade utgående lager. Därför byter vi från vår nu gamla köprekommendation från i somras och rekommenderar en såld position i vete. Möjligtvis kan en kortvarig rekyl uppåt komma med några euro per ton. Det är i så fall ett säljtillfälle.
Maltkorn
November 2013-kontraktet har fortsatt att falla i pris för andra veckan. Vi ser i diagrammet nedan att styrkan i marknaden successivt har avtagit sedan slutet av sommaren.
Potatis
Potatispriset för leverans i april har sjunkit något sedan förra veckan och handlas nu under 30 euro per dt. Även i potatismarknaden ser vi att styrkan i uppgången har avtagit de senaste månaderna.
Majs
Majspriset (mars 2013) föll mycket riktigt ner mot stödet, som ligger på 710 cent. I fredags hämtade sig priset och stängde nära dagshögsta. Det är svårt att säga om marknaden kommer att attrahera nya säljare i veckan som kommer, så att stödet testas igen, eller om det kommer en rekyl uppåt i veckan som kommer. I avsaknad av några större nyheter kanske marknaden fortsätter att röra sig ”sidledes” ett tag till.
USDA gjorde en ganska stor uppjustering av skörden 2012/13, som vi ser i nedanstående tabell. Möjligtvis sänkte man skörden för lite i Argentina, där det på grund av regnen är många som kommer att så sojabönor istället. De kan sås senare än majs. Annars skedde den stora uppjusteringen i Kina. Och det betyder att den nog inte är så säker. Man har tagit den officiella prognosen från Kina, rakt av.
Kinas majsproduktion 2012/13 uppskattas till rekordhöga 208 mt av USDA, en rejäl ökning jämfört med förra årets rekordskörd på 192.8 mt. Arealen för majs uppskattas till 34.9 miljoner hektar, en ökning med 1.4 miljoner från förra året. En stor del av ökningen i areal är bland annat på bekostnad av sojabönor, framförallt i Heilongjiang provinsen i nordöstra Kina, där lantbrukarnas intjäning på majs är betydligt högre än på sojabönor.
Avkastningen beräknas till rekordhöga 5.96 ton per hektar, och Kinas majs avkastning har haft en stigande trend under de senaste 10 åren och ökat med mer än 20 procent sedan 2003/2004. Riklig nederbörd har gynnat grödorna i de normalt torra regionerna i nordöstra och norra Kina, och omfattande bevattning har mildrat torkans effekter över den norra kinesiska slätten.
Även Rysslands produktion av majs 2012/13 estimeras till rekordhöga 8.5 mt av USDA, en ökning med 1 mt från förra månaden och upp 27 procent från förra årets rekordskörd på 6.7 mt. Avkastningen beräknas till 4.47 ton per hektar, vilket är 27 procent högre än det 5-åriga genomsnittet. En ökning av skördad areal är en bidragande faktor till den höga produktionen och beror på en kombination av faktorer, bland annat en ökad användning av majs som foder inom fjäderfäsektorn och ovanligt högt bortfall av 2012/13 års vintergrödor i södra Ryssland.
Canadas majs produktion 2012/13 justeras också upp till rekordhöga 13.1 mt av USDA, vilket är en ökning med nästan 1.5 mt från förra månaden. Arealen lämnas oförändrad på 1.42 miljoner hektar, vilket dock är en ökning med 16 procent från förra året, medan avkastningen på 9.20 ton per hektar är en minskning med 2.7 procent från förra året. Rekordhög skördad areal i både Ontario och Quebec, tillsammans med en högre avkastning i Quebec, har bidragit till rekord produktionen som en följd av gynnsamt varmt och torrt väder vid sådd.
Trots att man dragit till med 8 mt högre skörd i Kina, blir utgående lager oförändrade, som vi ser nedan.
Nedan ser vi utgående lager (prognosen) i förhållande till pris. Vi ser att majs aldrig varit så dyrt. Eftersom det inte finns några omkringliggande punkter (pris vs lager) att ta som referens, kan vi inte säga om priset är omotiverat högt eller inte. Bara att det högt.
Vi tror att priset borde komma ner, men det går inte att säga utifrån ovanstående relation om majs är ”felvärderat” idag, enligt förhållandet till utgående lager.
Sojabönor
Sojabönorna har fortsatt att handla högre med stödlinjen uppåt. Priset har kommit upp i motståndsnivåer. Det ”borde” vara slut på uppgången vid den här nivån. Vi rekommenderar därför sälj på sojabönor.
USDA lämnade produktions estimaten i princip oförändrade i förra veckans månatliga uppdatering av World Supply and Demand Estimates, WASDE.
Utgående lager justeras ned ytterst marginellt. Som vi ser är utgående lager i USA väldigt litet och ”borde” kanske ha sänkts mer, men det är ju näst intill omöjligt. Argentina justerades upp och Brasilien likaså.
Nedan ser vi var priset befinner sig i förhållande till utgående lager i termer av dagars konsumtion. Vi ser att priset ser kanske något högt ut i förhållande till relationen de senaste åren. Priset skulle kunna falla ner mot 1200 utan att det skulle vara ”fel” ur ett värderingsperspektiv, när man bara jämför med lager.
Till skillnad från majs, men i likhet med vete, ser priset på sojabönor högt ut i förhållande till väntade utgående lager. Även tekniskt ser det ut som om ett ”brott” nedåt är nära förestående. Vi rekommenderar en kort position i sojabönor.
Raps
Rapspriset (februari 2013) har fallit några euro sedan förra veckan. Det verkar som om rapspriset därmed tagit mer intryck av Matif-vetets fall, än sojabönornas uppgång. Som vi skrev ovan, är det inte uteslutet, utan ganska troligt, att det kommer en kortvarig rekyl uppåt i Matif-vetet, och om rapsen fortsätter att följa den marknaden, kan det komma en rekyl uppåt i majsen också. Sojabönorna tror vi bryter ner, kanske redan den här veckan, så mellan dessa krafter är det kanske ”sidledes” rörelse som blir följden för rapsen.
Gris
Grispriset (Maj 13) följer vi nu, när december 12-kontraktet förfaller. Det finns inte mycket mer att säga. Trenden uppåt är försvagad, liksom för alla jordbruksprodukter.
Mjölk
Priset på mjölkpulver på Eurexbörsen steg något sedan förra veckan.
Nedan ser vi priset på smör, som är lite starkare än marknaden för pulver och som fortsatt att stiga, nu till 3475 euro per ton.
Det börsbaserade priset i svenska kronor beräknas med formeln:
där
BUT = priset på smör i euro per ton
SMP = priset på skummjölkspulver i euro per ton
FX = växelkursen för EURSEK.
Nedan ser vi januari-kontraktet på amerikansk klass 3-mjölk, som föll ytterligare i veckan som gick. Det fanns ett stöd på 18 cent per pund, som marknaden föll rakt igenom. Nästa tekniska stödnivå finns på 17 cent. Priset stängde i fredags på 17.75 cent.
EURSEK
EURSEK har något oväntat brutit uppåt och noterat de högsta kurserna mot kronan sedan juni. Det finns emellertid starka motstånd vid dagens kursnivå, som gör att vi inte tror att priset går högre just nu. Trenden måste vi nog säga är uppåtriktad just nu.
USDSEK
Dollarna fortsätter att handlas ”sidledes”. 6.60 kr per dollar ser ut som ett stöd. Kursen har vänt upp från den nivån två gånger sedan månadsskiftet oktober/november. 6.70 ser likaledes ut som en motståndsnivå. Vid 6.80 ser vi ytterligare en motståndsnivå. Just nu ser det ut som om vi kan förvänta oss ännu mer ”sidledes” rörelse inom detta intervall.
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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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