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Analys

SEB Jordbruksprodukter, 9 augusti 2012

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SEB Veckobrev Jordbruksprodukter - AnalysMarknaden avvaktar fredagens WASDE-rapport. Rörelserna blir säkerligen stora på fredag. Har man positioner i terminer eller i oprissäkrat spannmål att köpa eller att sälja, ska man nog vara beredd på att agera snarast efter att rapporten släpps klockan 14:30 på fredag.

Gårdagens ministermöte i Ryssland med syfte att diskutera ”food security” gav följande resultat: vice statsministern Arkady Dvokovich sade för det första att man håller fast vid sin prognos om en spannmålsskörd på 75 – 80 mt. För det andra sade han att det inte fanns någon anledning att begränsa exporten. Vi tror, på goda grunder, att skörden av spannmål totalt hamnar på högst 66 mt och motiverar detta mer i detalj nedan.

Teknisk analys av framförallt vete och majs indikerar att priset kan bryta upp efter att ha konsoliderats i två veckor. Vi anser att risken alltjämt är på uppsidan i spannmålspriserna och i oljeväxterna. De senaste två veckornas lugn tror vi får ett abrupt slut senast på fredag klockan 14:30.

Förväntningarna på WASDE-rapporten

Nedan ser vi marknadens förväntningar på WASDE-statistiken som publiceras på fredag klockan 14:30 svensk tid. Alla siffror är i miljoner bushels. Marknaden kommer att fokusera på majs och sojabönor och på vilken sida siffrorna hamnar i förhållande till de väntade, kommer att avgöra åt vilket håll priserna på dessa – och vetepriset rör sig.

Förväntningar på WASDE-statistiken

Förväntningar på WASDE-rapporten

Odlingsväder

Southern Oscillation Index har tagit sig upp till neutrala förhållanden igen, men det anses vara temporärt, eftersom de flesta prognosmodeller pekar på att ENSO ska vara nära El Niño-förhållanden, dvs med SOI närmare eller lägre än -8.

Australien - Southern Oscillation Index

Australiensarnas prognos för ENSO pekar som vi ser nedan på att El Niño kan utveckla sig under hösten, men att det än så länge är osäkert. ENSO surfar precis på gränsen till El Niño. Nedan ser vi den allra senaste ensembleprognosen, som just publicerats.

ENSO surfar precis på gränsen till El Niño

Om vi jämför den med förra månadens ser vi att sannolikheten för El Niño har minskat något. Ingenstans framåt i tiden ligger den senaste ensembleprognosen på ”El Niño”-territorium. Det gjorde den för en månad sedan.

Diagram för NINO34

Vete

Ukraina har i princip skördat färdigt. I Ryssland väntas mer nederbörd. Australiens veteodlingsområden har 60%-80% mindre nederbörd än normalt och man oroar sig där för att tendensen till El Niño ska stärkas. Det motsatta gäller i Argentina. Argentina har haft riklig nederbörd, men prognosen är att det ska bli torrare efter helgen.

I Europa har det kommit in torrare väder, utom som bekant i norra Europa. Som berört ovan ledde inte gårdagens ministermöte om ”food security” i Ryssland till ett exportstopp. Men det utesluter inte att det ändå kan komma. En del menar att det är uteslutet att Ryssland inför exportstopp eftersom de nu är medlemmar i WTO. Det finns dock inte något som hindrar att Ryssland ändå inför någon typ av exportbegränsning eftersom dessa är tillåtna under vissa förhållanden och dessa bestäms av landet självt. Den som tvivlar på detta kan läsa själv på WTO:s egen hemsida.

Som nämnt ovan sade vice statsministern Arkady Dvokovich att skörden blir 75 – 80 mt. Det tror vi inte alls på. Vi tror att total spannmålsskörd hamnar på 66 mt. Per den 3 augusti låg hektarskörden 30% under förra årets. Skörden förra året uppgick till 94 mt och 0.7 x 94 = 65.8 mt. Hektarskörden i Volgaregionenväntas bli 50% lägre än förra året. Vartefter skörden flyttar sig norrut, sjunker hektarskörden. Vi kommer osökt att tänka på Winston Churchills beskrivning, som fast ständigt aktuell, passar särskilt bra här: ”I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.”

Vi vet inte, men vi gissar att Ryssland kommer att införa någon slags exportbegränsning för att få det här att gå ihop. Det är den enda logiska slutsatsen. Detta kommer att trycka upp priserna ännu mer. Förra veckans nyhet om att den amerikanske jordbruksattachén i Kina uppskattade att Kinas veteskörd skulle bli 8 mt lägre än USDA estimerade i juli gick spårlöst förbi i marknaden.

Frankrikes jordbruksdepartement höjde skördeestimatet till 36.7 mt (+0.8 mt). Det är 2.7 mt mer än förra året.

Matifvetet med novemberleverans har format en ”bullish” triangel. Triangeln bildas av att topparna sjunker och bottnarna stiger. Efter den här typen av prisuppgångar som har varit brukar en triangelformation vara en konsolideringfas inför en ny våg av prisuppgångar. Mot bakgrund för det första av risken för en dålig rapport från WASDE på fredag och Rysslands av allt att döma falska uppgifter om hur stor skörden väntas bli i landet, pekar det mesta väsentliga fundamentala informationen vi har, i samma riktning som den tekniska analysen. Vi är inte tvärsäkra, och det är bäst att avvakta och se och sedan försöka vara bland de första som agerar, men det mesta tyder på att priset kommer att fortsätta uppåt.

Bullish triangel för Matif-vete

Nedan ser vi Chicagovetet med leverans i december. Vi ser samma triangelformation, som är bullish, i det här diagrammet.

Chicagovetet med leverans i december

Nedan ser vi prisskillnaden mellan Chicagovete med decemberleverans och Matifs novemberkontrakt. Chicagovetet är omräknat till euro per ton. I den nedre delen av diagrammet ser du kvoten mellan Chicago och Matif. Vi ser att Chicago dragit ifrån Matif och att premien just nu är 3.68%. I början på maj var Chicagos decemberkontrakt 10% billigare än Matif. Detta gör att det finns en potential för Matif att gå upp i pris, bara för att komma ikapp. Ett ryskt exportstopp skulle se till att detta hände.

Prisskillnaden mellan Chicagovete med decemberleverans och Matifs novemberkontrakt

Nedan ser vi hur terminspriserna på Matif och Chicago förändrats den senaste veckan. Backwardation är kraftigare på Matif än i Chicago. Allt annat lika, om man vill prissäkra, får man högre pris på Chicagobörsen. Vill man köpa terminskontrakt med leverans 2013 eller 2014 bör man göra det i Matifkontrakten. Eventuellt kan det vara intressant att handla dem mot varandra.

Terminskurvor för vete den 8 augusti 2012

Maltkorn

Novemberkontraktet på maltkorn ligger i en nedgångsfas som har stora likheter med vad som i efterhand ofta identifieras som en rekyl inför en ny, kraftig prisuppgång.

Maltkorn - Priset i nedgångsfas

Potatis

Potatispriset för leverans nästa år har gått upp över 16 euro och tangerar högstanoteringen 17 euro per deciton. Vi skrev förra veckan om intervallet 14 – 16. Att priset nu gått till 17 innebär ändå inte att intervallet är överspelat. Men skulle priset orka gå över 17 euro är intervallet brutet. Det är ett svårt läge nu, när spannmålsmarknaden ser så ”bullish” ut och minst två avgörande besked kan komma inom kort:

WASDE på fredag och när som helst, ett ryskt exportstopp. Om vi inte visste detta, skulle vi tro att priset skulle vända ner på potatis från de här nivåerna.

Diagram över potatispriset år 2012

Majs

Lättare regn förekommer i mellanvästern, men detta är sannolikt för lite och för sent. Det torra vädret väntas bestå kanske så länge som mot slutet av augusti. Nederbörd har ökat över Ukraina och Ryssland. Det kanske gör någon nytta i Ryssland, men i Ukraina är det för sent. Måndagens crop ratings visade att majs i good / excellent condition minskat 1% till 23%. Poor condition till very poor condition ökade med 2% till 25%. Nedan ser vi ett diagram som visar good/excellent condition sedan 1986. För 24 år sedan, år 1988 låg andelen prima majs på 18%. Annars ser vi att det är ovanligt dåligt i år.

Crop condition för majs

USDA väntas sänka sitt estimat för amerikansk skörd. USDA har också en tendens att inte pytsa ut alla dåliga nyheter samtidigt. Dåliga siffror brukar följas av mer av samma sak, fram till den slutliga siffran i januari. Priset på decembermajs har även den senaste veckan rört sig ”sidledes”. Marknaden är helt klart trött. Alla väntar på fredagens WASDE-rapport. När den kommer blir det säkert nytt liv i marknaden. Och då troligen uppåt.

Utveckling av majspriset - Diagram över 2012

Sojabönor

Det är små förändringar avseende vädret i de delar av USA där sojabönor odlas. Lättare regn väntas i delar av mellanvästern, men prognoserna visar att det kommer att vara ganska torrt ända fram till slutet av månaden. I Indien har nederbörden ökat, framförallt i de torkdrabbade nordvästra delstaterna.

Osäkerheten inför fredagens WASDE-rapport är stor. Marknadens uppfattning om avkastning per acre i USA varierar mellan 35.8 och 39.5 bushels per acre. Skördad areal varierar varierar också mellan 74 och 75.5 miljoner acres. USDA har en tendens att (fortsätta) sänka avkastningsestimaten fram till dess de publicerar den slutliga siffran i januari.

Crop condition som publicerades i måndags låg kvar oförändrat på 29% good/excellent från veckan innan. Däremot ökade andelen i poor/very poor condition med 2%. Som vi ser i diagrammet nedan får vi gå tillbaka till 1988 för att hitta en lägre nivå än 29% i good/excellent condition. Då nåddes som lägst 17%.

Pris på sojabönor från 1986 ill 2012

En rekordskörd väntas från Sydamerika nästa år, men fram till dess ska världen hushålla med USA:s skörd. Sydamerikas produktion gynnas av att ENSO, som vi sett ovan ligger nära (eller går helt in i El Niño). Detta innebär riklig nederbörd i Sydamerika. Senaste siffran på hur stor andel som brasilianska bönder redan sålt av kommande skörd är 41%. Den låg på 10% samma tid förra året. Malaysia har höjt exportkvoten för palmolja som kan exporteras skattefritt. Lagren av palmolja har vuxit i landet. Kina har fortsatt att sälja av sina stora lager och har ett importbehov om uppskattningsvis 60 mt av 2012/13 års skörd. Brasilien har exporterat 4.1 mt i juli och bör nu ha endast 4.5 mt kvar att exportera; om man utgår från Abioves estimat om en möjlig export på 31.1 mt. USA har i princip inga gamla sojabönor kvar, så hur Kina tänker lösa det här problemet ska bli intressant att se. Nedan ser vi kursdiagrammet på sojabönor med leverans i november. Den uppåtgående trendlinjen har precis brutits. Stöd finns nu på 1536 cent. Underifrån kommer också 55-dagars glidande medelvärde, som ibland sammanfaller med tekniska stöd. Sojabönor ser ur teknisk synvinkel inte lika ”bullish” ut som vete och majs.

Teknisk prognos för pris på sojabönor

Raps

Priset på novemberterminen befinner sig alltjämt i en obruten uppåtgående trend. 500 som var ett starkt stöd, bröts dock, men 480 euro är ett annat starkt stöd.

Pris på raps enligt novemberterminen den 8 augusti 2012

Nedan ser vi kvoten mellan ICE (Canada) Canola (november) och Matif-rapsen. Canolapriset har räknats om till euro per ton.

Raps - Kvot mellan ICE Canola Matif

Vi ser att Matif-rapsen fallit i pris i relation till canolan. I slutet av förra året var premien över 10% för Matif. Nu ligger Matif på par med Canola och har till och med handlats till rabatt i början av augusti. Med tanke på att rapsen noteras i euro, som är svag, kan man tänka sig högre priser (i euro) framöver.

Gris

Decemberkontraktet på lean hogs har brutit ner och befinner sig nu i sjunkande trend.

Decembertermin på lean hogs - Prisdiagram

Mjölk

Priset på mjölkpulver i Nordeuropa har fortsatt att stiga kraftigt den senaste veckan. Förra veckan låg priset på Eurex i spotkontraktet på 2275 euro per ton. Nu har priset gått upp till 2450, vilket är närmare +8% på en vecka.

Pris på mjölkpulver i Europa

På den amerikanska börsen, där torkan som drabbat foderproduktionen är mycket allvarligare än i Europa, har priset rusat. Nedan ser vi decemberkontraktet. Konsolideringsfasen (en triangel) vid 19 cent per pund, har brutits. Kanske 20 cent kan noteras inom kort?

Terminspris på mjölk i USA

Socker

Priset på socker bröt stödet och föll från 22 ner till 21 i skrivande stund. 20 cent per pund är ett tekniskt stöd. Vi tror att priset ska ner och testa den nivån, kanske rentav bottennoteringen från juni på 18.86 cent.

Priset på socker bröt stödet - Diagram

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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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SEB - analysbrev på råvaror

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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