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SEB Jordbruksprodukter, 26 november 2012

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SEB - Prognoser på råvaror - CommodityVeckan har varit relativt lugn på marknaden för jordbruksprodukter inför Thanksgiving-helgen i USA, med den amerikanska börsen CBOT stängd under torsdagen och halvdag under fredagen.

SEB - Tendens för commoditiesDe makroekonomiska problemen i Europa, som vi nämnde i förra brevet, blev ännu tydligare efter Moodys beslut att sänka Frankrikes rating från högsta betyg – vilket visar på den ökade oron för Eurozonens näst största ekonomi. Turerna kring utbetalningar till Grekland fortsätter då Eurozonens finansministrar återigen misslyckats med att komma överens, USA brottas med det finanspolitiska stupet (fiscal cliff) och spänningarna i Mellanöstern ökar. SEB fortsätter, att som första bank i världen, erbjuda sina kunder att prissäkra ett börsbaserat mjölkpris i kronor per kilo, i poster om 10,000 kg.

Odlingsväder

Väderförhållandena är fortfarande ett problem i USA och i södra Ryssland som båda lider av underskott vad gäller nederbörd. I Argentina fortsätter sådden att försenas av alltför mycket nederbörd. I Brasilien lider de södra delarna av torka medan andra stora produktionsområden, t.ex Mato Grosso, gynnas av goda väderförhållanden. U.S. Climate Prediction Center uppskattar att torkan i USA, som bl.a påverkar tillståndet för det amerikanska höstvetet nu, kommer att fortsätta långt in i februari.

Karta över odlingsväder i USA - 15 november 2012

Den senaste rapporten från Australia Bureau of Meteorology visar att ENSO ligger kvar på en neutral nivå och att det nuvarande neutrala mönstret sannolikt kommer att bestå åtminstone fram till slutet av året.

Även om temperaturerna i Stilla havet ligger under El Niño nivåer, så är de fortfarande över genomsnittet. Southern Oscillation Index (SOI) har hållit sig inom neutrala värden under de senaste två veckorna, och den senaste noteringen ligger nu på +5.1.

Southern Oscillation Index

Under oktober månad har ihållande regn över Storbritannien och norra Frankrike försenat skörden och hämmat sådden av höstgrödor. Enligt FranceAgrimer var sådden av vete (mjukt) avklarad till 88% per den 12 nov, att jämföra med 98% vid denna tid året innan. Även Spanien och Italien har fått mycket nederbörd, som dels har varit behövligt för att återställa markfuktigheten, men som även har orsakat stora översvämningar – framförallt i norra Italien. Även Sverige har påverkats av regnet, med en minskad höstsådd i framförallt Halland och Mellansverige.

Väderkarta Europa

Vete

Nedan ser vi kursdiagrammet för marskontraktet på Matif. Priset har fortsatt sidledes under veckan. Den tekniska analysen kvarstår från förra veckan. ”Priset har rekylerat ner till ett smalt område mellan 265 och 270 euro per ton – motståndslinje ovanför och stöd precis under.

Kursdiagrammet för marskontraktet på Matif

Vi tror att priset kommer att stiga i mars-kontraktet, snarare än falla. Till stöd för detta tar vi novemberkontraktet 2013, som vi ser i kursdiagrammet nedan. Där finns ingen tydlig motståndsnivå på uppsidan, däremot ett starkt stöd som ligger på 235 euro. Vi ser att rekylen från 250 euro har hejdats av stödet. Efter sedvanlig ”sidledes” rörelse för att ta kraften av rekylen, tror vi det är sannolikt att priset gör ett nytt försök uppåt.”

Vetepriset gör försök uppåt

Måndagens Crop Progress från USDA visar att höstvetets uppkomst i de 18 stater som rapporterar ligger på 84%, vilket i stort sett är i linje med det femåriga genomsnittet på 86% vid denna tid. Det torra vädret kvarstår och tillståndet för USA’s höstvete fortsätter att försämras, där endast 34% är klassat som ”good/excellent” nu, vilket är 2% lägre än förra veckan och betydligt lägre än förra årets 50% vid denna tid. Grödor klassade som ”very poor/poor” har ökat med 2% sedan förra veckan och i South Dakota tillhörde 60% denna kategori. Det dåliga skicket på grödorna gör också att de blir mer sårbara för utvintring och rikligt nederbörd över the Plains kommer att vara avgörande i vår för att förhindrabetydande problem och minskad avkastning.

Status på vintervete

Spannmålsproduktionen i Marocko 2012 uppskattas till 5.3 mt av FAO, en minskning med 38% jämfört med förra årets exceptionella skörd och 23% under det femåriga genomsnittet. Sen sådd av grödor, köldperioder i början av året och därefter torka har bidragit till nedgången i produktionen. Produktionen av vete 2012 förväntas minska från 6.02 mt till 3.87 mt. Importen av spannmål förväntas därmed att öka med 35% under 2012/13 till rekordhöga 8.4 mt, varav 5.2 mt vete. Sådden av höstgrödor (framförallt vete och korn) pågår nu för fullt, och trots att ansenliga mängder nederbörd har saktat ned fältaktiviteten så har markfuktigheten förbättrats avsevärt och därmed gett möjlighet till en tidigare sådd.

Spannmålsimport i Marocko

Det ryska jordbruksministeriet har höjt sin prognos för landets export av spannmål 2012/13 (juli-juni) från 10-11 mt till 15.5 mt, med hänvisning till att 11 mt – inklusive 8.5 mt vete – redan har exporterats, och utan några avsikter att införa restriktioner. Om exporten skulle komma att uppgå till 15.5 mt eller mer uppskattas ingående lager 2013/14 att hamna på kritiska nivåer (6 mt). Prognosen för sådd av höstgrödor justeras ned till 15.9 miljoner hektar från tidigare 16.82 milj/ha på grund av ogynnsamt väder, Rysslands Grain Union uppskattar exporten av vete till 9.5-10 mt, vilket är i linje med USDA’s estimat på 10 mt i senaste WASDE-rapporten.

Frågorna runt ett eventuellt införande av Ukrainas exportstopp på vete kvarstår.

Tidigare i veckan sa Egyptens GASC att de nästa år kommer att ta bort Ukraina från listan över leverantörer av vete, eftersom Ukraina har planer på att stoppa exporten från den 1 december 2012 – något som GASC ska ha fått en officiell bekräftelse på. Från Ukrainas ambassad i Kairo skickades då en formell begäran till GASC om att kvarstå på listan över leverantörer givet att det finns vete tillgängligt för export och från Egyptens sida säger man nu att Ukraina kommer att stå kvar på listan så länge som kontrakterade kvantiteter kommer att levereras även om ett exportförbud införs.

I allt detta så fortsätter Ukraina att säga att ett exportstopp inte är aktuellt. Så här långt har Ukraina exporterat 10.72 mt spannmål, varav 5.17 mt vete. Årets skörd i Ukraina är nu klar, med en veteproduktion på 15.0 mt, vilket är något lägre än USDA’s nuvarande estimat på 15.5 mt. Irak har varit aktiva i marknaden och köpte 350,000 ton vete från Australien (200,000 t), Kanada (100,000 t) och Ryssland (50,000 t). Amerikanskt vete fanns med bland anbuden men ligger fortfarande för högt i pris.

Sverige

Preliminära uppgifter på riksnivå från Jordbruksverket för 2012 visar att Sveriges totalskörd av spannmål beräknas uppgå till 5.1 mt, en ökning med 10% från 2011 och 4% högre än genomsnittet för de senaste fem åren. Totalskörden av höstvete beräknas preliminärt att uppgå till närmare 2 mt (38% av den totala spannmålsskörden) och trots att höstvetearealen minskade jämfört med förra året så är totalskörden i nivå med förra årets skörd eftersom hektarskörden ökade med drygt 20% jämfört med 2011.

Maltkorn

November 2013-kontraktet har testat motståndet vid 270, men föll tillbaka. 270 verkar vara ett starkt motstånd.

270 verkar vara ett starkt motstånd för maltkorn

Potatis

Potatispriset som tidigare fann stöd på 25 euro per deciton, har fortsatt att stiga och noterar nu ett motstånd vid 31 eur.

Potatispriset fortsätter att stiga

Majs

Majspriset (mars 2013) har vid två tillfällen nu hållit stödet 709 cent per ton, och testar nu istället motståndsnivån kring 750. Ett genombrott av den nivån kan innebära ytterligare test för högre nivåer, och om det sker bör man överväga att minska korta exponeringar, och vänta in nya säljlägen.

Majspriset med tekniska linjer

Safras e Mercados senaste rapport visar att sådden av majs i Brasilien nu är avklarad till 81% och produktionen av majs 2012/13 förväntas uppgå till 68.969 mt, jämfört med 2011/12 års produktion på 72.336 mt.

Sådden av majs i Argentina går fortsatt framåt om än långsamt. 55% av sådden är nu avklarad, att jämföra med förra årets 68% vid den här tiden. Cordonnier uppskattar produktionen 2012/13 i Brasilien och Argentina till 72 mt respektive 22.5 mt, jämfört med USDA’s prognos på 70 mt respektive 28 mt.

I Ukraina är skörden av majs avklarad till 89% och den totala skörden beräknas uppgå till ca 20 mt, strax under USDA’s estimat på 21 mt. Majs kommer att bli den stora exportvaran från och med nu, och exporten uppskattas till 12 mt.

Sojabönor

Efter att ha konsoliderat i veckan som gick, slutade veckan med en uppåtrekyl i januarikontraktet. Stängningen signalerar en fortsatt rekyl uppåt som bör möta starkt motstånd vid motståndslinjen (se nedan). Vi fortsätter att rekommendera en kort position (såld) i sojabönor.

Dags att gå kort i sojabönor

Enligt Safras e Mercado är nu sådden av sojabönor i Brasilien avklarad till 66% jämfört med 54% förra veckan. Produktionen för 2012/13 beräknas öka med nästan 22% till 82.47 mt, från 2011/12 års 67.76 mt.

Sådden av sojabönor i Argentina avklarad till 31% jämfört med 18% förra veckan. Produktionen estimeras till 57.42 mt, en ökning från 2011/12 års 41.0 mt.

Den totala produktionen i Sydamerika 2012/13 uppskattas till 152.98 mt, upp från 2011/12 års 117.036 mt, med följande prognoser för övriga länder (med 2011/12 inom parentes):

Paraguay 8.64 mt (4.30 mt), Bolivia 2.56 mt (2.38 mt) och Uruguay 1.9 mt (1.6 mt)

Cordonnier uppskattar produktionen 2012/13 i Brasilien och Argentina till 80 mt respektive 55.0 mt.

Oil World justerar ned sin prognos för produktionen av sojabönor 2013 i Argentina och Brasilien med totalt 3 mt, till följd av ogynnsamt väder som har påverkat sådden i de bägge länderna – torka i delar av Brasilien och alltför mycket regn i delar av Argentina. Estimatet för Argentina uppgår nu till 54 mt, mot det tidigare estimatet för en månad sedan på 56 mt, vilket dock är betydligt högre än de 40.5 mt som landet skördade i början av 2012. Prognosen för Brasiliens produktion uppgår nu till 81 mt, en nedjustering från oktobers 81 mt, men fortfarande en bra bit över skörden i början av 2012 på 66.8 mt.

Raps

Rapspriset (februari 2013) handlas i ett brett intervall 460-490 och befinner sig i mitten. Marknaden strävar mot stödnivån och vi rekommenderar fortfarande en kort position. Får vi ett brott nedåt av 460- nivån, bör man sälja ännu mer.

Teknisk analys på rapspriset - Diagram

AOF (Australian Oilseeds Federation) säger att utsikterna är goda för ytterligare en stor canola skörd under 2012 nu när skörden drar igång, och uppskattar produktionen av canola 2012/13 till 2.697 mt, jämfört med 3.185 mt 2011/12. Men med en prognos på nästan 2.7 mt så kommer det att bli den näst största rapsskörden, endast överträffad av skörden året innan. Storleken på skörden kommer att påverkas mer av hektar än avkastning, som förväntas uppgå till 2.37 miljoner hektar sådd areal, en ökning från det tidigare rekordet med 23%, medan avkastningen estimeras till ett genomsnitt på 1.2 t/ha – vilket är lägre än det femåriga genomsnittet på 1.5 t/ha.

Skörd och produktion av raps

Preliminära uppgifter på riksnivå från Jordbruksverket för 2012 visar att Sveriges totalskörd av raps och rybs uppskattas till 325 400 ton, vilket är en ökning med 30% jämfört med förra året och den högsta totalskörden på 19 år. Hektarskörden beräknas till 3.75 t/ha, vilket är det högsta som hittills redovisats på riksnivå. Odlingen av höstraps ökade med 10% och avkastningen med 22% jämfört med 2011. Arealen för vårraps ökade med 23% medan hektarskörden nästan var i nivå med föregående års skördeutfall per hektar.

Gris

Grispriset (Dec 12) har fortsatt upp under den senaste veckan. Priset ligger på höga nivåer, nästan lika höga som i somras och uppgången bör ta slut på de här nivåerna. Gris terminer har en säsongs tendens att stiga efter Thanksgiving helgen, men den trenden borde vara begränsad nu i och med de redan höga nivåerna.

Pris på griskött - Diagram den 25 november 2012

Mjölk

Från EUREX priser på smör och SMP kan vi utläsa att priset för ett kilo mjölk(råvara) nu ligger på 3.55 kr per kilo. Anledning till att priset har sjunkit sedan förra veckans 3.58 kr, trots att priset på mjölpulver och smör är oförändrade, är att den svenska kronan har stärkts mot euron. Priset på mjölkpulver i Nordeuropa är oförändrat sedan förra veckan (2675 euro per ton ).

Pris på mjölkpulver i Europa under 2011 och 2012

Nedan ser vi priset på smör, som också är oförändrat sedan förra veckans notering på 3450 euro per ton.

Pris på smör under 2011 och 2012

Det börsbaserade priset i svenska kronor beräknas med formeln:

Formel för det svenska börsbaserade priset

där

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

Precis som vi skrev i förra veckans brev så fann priset på Klass 3 mjölk, på den amerikanska börsen CME i Chicago, tekniskt stöd på 19 cent per pund och rekylerade uppåt därifrån. Trenden är dock nedåtriktad och en rekyl uppåt tycker vi ska ses som ett säljtillfälle.

Pris på Klass 3-mjölk - 25 november 2012

Klass 3-mjölk den 18 november 2012

Socker

Priset på socker (mars 2013) befinner sig i en stark baissemarknad. I veckan som gått rekylerade priset upp ännu en gång strax över motståndsnivån och vände sedan ner igen. Det mest sannolika tycker vi är att priset faller och söker en ny bottennotering.

Sockerpriset i fallande trend

Gödsel

Januari kontraktet för Yuzhnyy som fann en stödnivå på 365 $ / ton i förra veckan har fortsatt uppåt denna vecka och noteras nu på 376.50 $ / ton.

Prisdiagram på gödsel, Yuzhnyy

EURSEK

EURSEK föll i veckan som gick, precis som vi förutspådde i förra veckans veckobrev. Vi tror fortsättningsvis på en ”sidledes” eller fallande kurs.

Valutadiagram på EUR SEK den 25 november 2012

USDSEK

Genombrottet av USDSEK som vi skrev i förra veckan fick inte den väntade följdrörelsen. Kronan är stark och när dollarn försvagades i fredags blev fallet stort för usdsek. Stödet kommer nu in kring 6,60.

Valutadiagram på USD SEK den 25 november 2012

[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

[If demand] ”comes around as forecast, Hallelujah, we can produce more”

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SEB - analysbrev på råvaror

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. 

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

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.

Brent crude and ARA diesel refining premiums/margins
Source: SEB graph and calculations, Blbrg data

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 refinary crack margin
Source: SEB graph and calculations, Blbrg data

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.

ARA refinary crack
Source: SEB graph and calculations, Blbrg data

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

US crude and product stocks vs. the 2015-19 average
Source: SEB graph and calculations, Blbrg data

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

Speculators are rolling into long positions
Source: SEB graph and calculations, Blbrg data
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Analys

The ”normal” oil price is USD 97/b

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SEB - analysbrev på råvaror

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.

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

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 

The new normal oil price
Source: SEB graph and calculations, Bloomberg data feed.

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

OECD and non-OECD share of global population
Source: SEB graph and calculations, UN population data

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

Oil demand per capita per year
Source: SEB graph and calculations, BP oil data
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Analys

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

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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.

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

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.

OPEC's implied call-on-OPEC crude oil.
Source: SEB graph and calculations. Call-on-OPEC as calculated by OPEC in its Sep report.

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

Graph of net long speculative positions in Brent crude and WTI.
Source: SEB calculations and graph, Blbrg data

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.

End of month crude and product stocks
Source: SEB table, Argus data

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 oil product refinery margins
Source: SEB graph and calculations

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.

ARA diesel cracks in USD/b.
Source: SEB graph and calculations, Blbrg data

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 average.
Source: SEB graph and calculations, Blbrg data feed

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.

US crude and product stocks vs. 2015-2019 averages.
Source: SEB calculations and graph, Blbrg data feed.

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?

Total commercial US crude and product stocks in million barrels.
Source: SEB graph and calculations, Blbrg data feed, EIA data
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