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SEB Jordbruksprodukter, 6 september 2012

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SEB Veckobrev Jordbruksprodukter - AnalysDet har varit en händelsefattig vecka. Priserna har rört sig ”sidledes” till stor del. Nästa vecka släpper USDA WASDE-rapporten för september och det lär vara en flau marknad till dess. Den 4 september meddelade den tyska terminsbörsen EUREX att man startar handel i vasslepulver. Handeln startar den 28 september. Terminskontrakten avser 5 ton, dvs samma storlek som de tidigare terminskontrakten på smör och skummjölkspulver. Underliggande index, som terminerna avräknas kontant mot, är Tendens på jordbrukspriser den 5 september 2012”European Whey Powder Index”, som publiceras av Agrarmarkt Informations- Gesellschaft GmbH, i Bonn. De befintliga terminskontrakten på smör och skummjölkspulver noterades i maj 2010. Samtidigt ökar nu EUREX antal terminskontrakt som går att handla. Det kommer att finnas terminskontrakt för varje månad de närmaste sex månaderna. Därutöver kommer det att finnas terminskontrakt för varje kvartal med cykeln januari, april, juli och oktober.

Odlingsväder

ENSO fortsätter att surfa på gränsen till ett riktigt El Niño. SOI ligger nu på -4.7, men låg förra veckan på – 9.1. Gränsen för El Niño ligger på -8. Klimatmodeller prognostiserar att ENSO kommer att fortsätta ligga på gränsen fram till slutet av året eller in i början på 2013, för att sedan återgå till normala ENSO-förhållanden.

Diagram över odlingsväder

Kanada är helt utan nederbörd den här veckan och skörden fortskrider snabbt. Europa har också varmare och torrare väder än normalt – utom här i norra Europa. Kina har just fått en tyfon, förra veckan och har fått mer regn än normalt. Monsunen i Indien fortsätter att förbättras. Indien har nu skörd nummer två på gång och den gynnas. Vi skrev förra veckan att den förbättrade monsunen har fått läget att ljusna för grödor som majs, ris och sojabönor. Arealen sådd med ris har ökat till 32.9 miljoner hektar från 30.8 förra året. Förra årets skörd var rekordhöga 91.5 mt, enligt det indiska jordbruksministeriet.

Argentina har god nederbörd över alla väsentliga odlingsområden. Parana i södra Brasilien, där vete odlas, har också fått del av den här nederbörden. Däremot är det torrt i typiska sojaområden i centrala och norra Brasilien. Region Centro-Oeste har fått 50% av normal nederbörd. Nedanför ser vi en ögonblicksbild av vädret där.

Nederbörd i Centro Oeste

Med utsikter om att El Niño blir ganska mild, alltså med ett ENSO som ligger på ”nästan” El Niño, kan nederbörden i Brasilien och Argentina bli mindre än vad vi trodde under våren, när det såg ut att bli en starkare El Niño. Australien har ytterst lite nederbörd – vilket är i enlighet med vad som vanligtvis sker vid ett El Niño.

Vete

Tekniskt har Matif:s novemberkontrakt fortsatt att röra sig ”sidledes” och vi tror fortfarande att nästa större rörelse blir uppåt. Den som vill ta en position redan nu, köper terminen och lägger en stop-lossorder på 258 euro. Den som placerar på lite längre sikt kan lägga stoppen på 253.90. Kursen ligger i skrivande stund på 261.50.

Diagram över utveckling av vetepriset - 5 september 2012

Det börjar ju dra ihop sig till att byta år, och då kan det vara bra att se kursutvecklingen för Matifs november 2013-kontrakt. (Kan kanske också vara ett lämpligt tillfälle att börja handla hos SEB?) Priset för nästa års skörd har som vi ser inte rört sig sidledes som november 2012, utan segat sig uppåt.

Teknisk prognos på vetepris (Matif) den 5 september 2012

Nedan ser vi Chicagovetet med leverans i december. Den tekniska bilden indikerar samma sak här – förestående brott uppåt (förmodligen).

Teknisk prognos på vetepriset i Chicago den 5 september 2012

I diagrammet nedan ser vi terminspriserna framåt i tiden för Chicago och Matif och förändringen från 7 dagar sedan. Vi ser att backwardation har minskat i USA. Priset för leverans nästa november (2013) är nästan 20 euro per ton högre i Chicago än i Paris. Förra veckan var det 20 euro. Nu har skillnaden minskat ett par euro.

Terminspriser på vete, Matif och Chicago, den 5 september 2012

Nedan ser vi medias intresse för nyckelorden Wheat+Export+Ban. Som vi ser lite mindre intresse och också lite lägre priser. Frågan om exportstopp i Ryssland har mycket stor effekt på priset i den oroliga situation som nu råder.

Diagram över vetepris i relation till skriverier om exportförbud

Det ryska jordbruksministeriet har uppdaterat hektarskördeestimaten och de visar att hektarskörden för vete är 32% lägre än förra året. Det innebär en skörd av vete på ca 38 mt. Hektarskörden för spannmål inklusive majs är, enligt det ryska jordbruksministeriet, 27% lägre än förra året. Minns att vi i det här brevet för ca en månad sedan gjorde kalkylen 94 x 0.7 = 66 mt. 94 mt var förra årets skörd. 27% lägre skörd blir 68.6 mt. Detta är lägre än vad ministermötet i fredags resulterade i, en sänkning från 75 mt till 70. Vi har skrivit att vi tror att 70 mt är en allt för optimistisk siffra och att den kommer att följas av ytterligare nedjusteringar vid följande ministermöten. Samtidigt sänks exportpotentialen, tror vi. Det kommer en GASC-tender för novemberleverans. Om de accepterar några erbjudanden på ryskt vete eller inte, kommer att säga en hel del om hur det egentligen står till med rysk export. Sådden av höstvete i Ryssland rapporterades vara avklarad till 15%.

Vi nämnde under ”odlingsväder” att El Niño gör det torrt i Australien. Västra Australien har fått ungefär hälften av normal nederbörd. Vetet sätter ax just nu och börjar skördas i oktober. Så lite regn är naturligtvis inte bra för skördens storlek. Vi har även vad gäller Australien gjort egna El Niño-baserade beräkningar och kommit fram till att skörden ”borde” bli lägre än de 26 mt som USDA förutspådde i senaste WASDE-rapporten. Det ”borde” komma en nedjustering i WASDE-rapporten nästa vecka.

Maltkorn

Novemberkontraktet på maltkorn har funnit stöd och ser ur teknisk synvinkel ut att kunna stiga den närmaste tiden. Det är samma vy som förra veckan. Ingen förändring.

Graf över pris på maltkorn och prognos den 5 september 2012

Potatis

Potatispriset tycks stabilisera sig mellan 20 och 24 euro per deciton. Det återstår att se om det är en konsolidering inför ytterligare prisuppgång över 24 euro, eller en toppformation i väntan på att se vad som händer med konsumtionen.

Potatispriset tycks stabilisera sig - Prognos den 5 september 2012

Majs

Vi skrev förra veckan, att ett brott nedåt inte skulle vara bra och skulle innebära att vi skulle gå ur alla positioner och rentav kanske gå kort. Nu har priset faktiskt i skrivande stund gått under stödlinjen i triangelformationen och det är en klart negativ signal.

Graf över pris på majs - Prognos den 5 september 2012

Nedan ser vi terminskurvan framåt i tiden för majs. Vi ser att de korta kontrakten har fallit. De längre har stigit.

Terminskurva för majspris - 5 september 2012

Måndagens crop ratings för majs var kom in med 22% i good/excellent condition, vilket är på samma nivå som förra veckan. 41% är moget. Förra året så här års var det bara 15% som var moget. 10% är skördat. Förra året var det 3%.

Sojabönor

Priset steg som väntat upp från den lilla konsolideringen i veckan som gått sedan förra veckobrevet. Den teoretiska målkursen enligt skolboken i teknisk analys ligger på 1879 cent / bu. Uppgången verkar förlora kraft och övertygelse, vilket är naturligt när det börjar närma sig målkursen. Trenden uppåt är bruten, men det är möjligt att det kommer in mer säljare vid de här nivåerna på 1800 cent.

Prisutveckling och prognos för sojabönor

Crop conditions var oförändrade från förra veckan. 30% är i good eller very good condition, med 38% är i poor eller very poor condition. 9% har tappat löven; det är långt över genomsnittet för de senaste fem åren, som ligger på 5%.

Brasiliens skörd ligger åtskilliga månader framåt i tiden och när det nu är torrare än normalt i sojadistrikten, framförallt i region Centro-Oeste, kan vädret där få en stor effekt. Det är viktigt att det regnar i september och framförallt i oktober för att det ska bli en god skörd. Världen behöver en rekordskörd från Brasilien efter årets missväxt i USA.

Raps

Ett brott uppåt rycker allt närmare, när trycket ökar i marknaden. Att det finns övertygade säljare på 520- nivån är dock helt klart och det kan också komma ett brott nedåt. Nästa stöd finns då på 490 euro. Man kan fortsätta ligga lång (osäkrad) och behålla en stop-loss-order på en nivå under 55-dagars glidande medelvärde. Det är det medelvärde som är inritat i nedanstående diagram.

Prisutveckling och prognos för raps

Gris

Grispriset befinner sig i en tydlig bear market. Men tycks ha kommit till en konsolideringsfas. 70 cent per pund ser ut att vara golvet på konsolideringsområdet.

Grispriset i tydlig bear market

Mjölk

Priset på mjölkpulver i Nordeuropa ligger på samma prisnivå som förra veckan. Det är den första veckan sedan juli när priset inte har stigit. Priset på smör har däremot gått upp från 3150 euro per ton till 3300 euro per ton.

Prisutveckling på mjölkpulver 2011 och 2012

Nedan ser vi priset på smör, också oktoberkontraktet såsom handlat på EUREX. Priset är angivet i euro per ton.

Prisutveckling på smör handlat på Eurex under 2011 och 2012

På den amerikanska börsen CME i Chicago har priset faktiskt gått ner något för decemberleverans, som vi ser i diagrammet nedan. Priset har ändå gått upp med nästan 30% sedan bottenoteringen i maj månad.

Mjölkpris på CME i Chicago under 2011 och 2012

Vad säger då marknaden just nu om priserna för leverans av mjölk i USA i framtiden? Nedan ser vi terminspriserna som kurva som de ser ut idag och hur de såg ut för 7 dagar sedan.

Framtida mjölkpris i USA

Vi rapporterade även i inledningen av brevet att EUREX noterar terminskontrakt på vasslepulver nu i september. Det händer onekligen mycket på mjölkmarknaden just nu.

Socker

Priset på socker, som handlades ett tag kring 20 cent, började i måndags falla igen. Det ser ut som om bottennoteringen på 18.86 cent som noterades den 4 juni ska testas igen.

Kommande sockerpris - Graf

EURSEK

EURSEK fortsatte som vi trodde förra veckan upp mot 8.50. Prisuppgången har fått mer och mer kraft. Kanske kommer den här uppgången att gå ända till 8.55 kr per euro.

Valutaprognos på EURSEK den 5 september 2012

USDSEK

Dollarn har svarat på supportområdet och hoppat upp från det. Stödet ligger vid 6.60 kr. Priset kan i första hand gå upp till 6.80. Kraften i uppgången tyder på att det kan komma en lite kraftigare uppgångsfas.

Valutaprognos på USDSEK den 5 september 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

How renewable fuels are accelerating the decarbonisation of transport

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WisdomTree

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

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

What are renewable fuels?

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

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

Figure 1: Converting waste into energy

Waste types and refinery output

Why the excitement?

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

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

Figure 2: The Circular Economy

Circular economy
Source: WisdomTree, Ellen MacArthur Foundation, 2023

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

The challenge

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

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

Businesses are acting

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

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

A final word

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

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

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Analys

SEB Metals Weekly: China Covid exit is bullish for metals

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China Covid exit is bullish for metals

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

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

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

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

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

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

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

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SEB - Prognoser på råvaror - Commodity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

US commercial crude and product stocks still below normal

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

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

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

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

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

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

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

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

Source: Blbrg data, SEB graph

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

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