Analys
SEB – Råvarukommentarer, 10 juni 2013

Rekommendationer
*) Avkastningen avser 1:1 råvarucertifikat där de ingår i rekommendationen. I den aktuella tabellen ovan har jag tagit prisförändringen den senaste veckan sedan det förra veckobrevet publicerades.
Inledning
Bloomberg rapporterar att inte sedan prisfallet började, har så många analytiker varit så positiva till guldpriset som de är nu. Och så bryter såväl silver- som guldpriset sina respektive tekniska stöd! Om så många är positiva och priset plötsligt faller, så måste man tro marknaden – prisfallet fortsätter.
Oljan har under tiden reagerat positivt på högre sysselsättning i USA. Priset ligger strax under 105 dollar per fat. Om 105 dollar bryts – en teknisk motståndsnivå, kan vi få en ny uppgång. Under tiden kommer allt mer signaler från Kina som säger att landets ekonomi bromsar in. Samtidigt i Europa har ordförandelandet Irland lagt fram ett förslag om höjning av energiskatter inom EU, vilket är ett försiktigare förslag än det ursprungliga från år 2011.
USDA publicerar månadens WASDE-rapport för vete, majs och soja på onsdag.
Råolja – Brent
När amerikansk arbetsmarknadsstatistik visade en högre sysselsättning än väntat steg oljepriset i fredags. Tekniskt ser det ut som om uppgången har goda chanser att bryta igenom motståndet på 105 dollar och kanske gå upp mot 107 dollar i det mycket korta perspektivet av den kommande veckan.
Lagren och lagerförändringarna i USA den senaste rapportveckan ser vi nedan, enligt Department of Energy och American Petroleum Institute.
Nedan ser vi amerikanska råoljelager enligt DOE i tusen fat. Den svarta kurvan är 2012 års lagernivåer vecka för vecka och den lilla röda linjen är 2013 års nivå.
Importen fortsätter att hålla sig under förra årets nivå.
Vår vy är neutral till positiv. Det kan i det korta perspektivet komma en uppgång.
Elektricitet
Förra veckan slutade i baisse. Men priset är nere på tidigare bottennivåer och det kan vara läge att börja fundera på att köpa el på de här nivåerna. Man ska nog inte ha någon brådska att köpa, men vi anser att man ska handla från den långa sidan nu.
Hydrologisk balans har fortsatt att stiga, som vi ser i nedanstående diagram.
Priset har kommit ner så pass att det börjar bli intressant att köpa el, men rekommendationen blir än så länge ”neutral”.
Naturgas
Väderleksrapporten för USA är för den närmaste veckan vått och kallt, men därefter väntas en riktig värmebölja komma in över USA. Naturgas används för att producera el i USA och elen används i luftkonditionering. Förra veckan nådde temperaturen i Texas upp till nästan 40 grader. Den senaste veckans lagerstatistik visade en högre lagerökning än vad som var väntat och med kallt väder kan man vänta sig ytterligare lagerökning i veckan som kommer. Detta får priset på fall. Tekniskt är dock 3.80 ett stöd och vi väntar oss att prisfallet finner stöd där.
IEA rapporterar att de två kärnreaktorer som står still vid San Onofre i Kalifornien kommer att ersättas med naturgas. Det är ännu ett tecken på att gasen tar marknadsandelar i USA. Baker Hughes Rig Count data visar att antalet borr-riggar för gas ligger kvar nära 18-årslägsta som noterades den 10 maj. Orsaken till detta ointresse är det låga priset och för att produktionen ökar ändå. EIA räknar med att år 2013 blir det sjätte året på raken med rekordproduktion av naturgas i USA.
Guld & Silver
Guldpriset föll abrupt i fredags, trots att analytikerna inte varit så positiva sedan prisfallet började – enligt en sammanställning av Bloomberg. När så många sägs vara positiva och priset ändå faller, är det en signal om att prisfallet kan få en fortsättning.
Investerare fortsätter att likvidera sina innehav av Gold Spiders, som vi ser nedan.
Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Stödet på 22 dollar bröts i fredags och det signalerar ett pågående prisfall ned mot 20 dollar.
Jag tror att silverpriset kan gå lite lägre från dagens nivå, ner mot 20 dollar.
Vi ligger korta guld och silver. Jag tror att det kommer en till vända ner och ligger självklart kvar med köpt position i BEAR GULD X4 S och BEAR SILVER X4 S.
Platina & Palladium
Platina har stigit upp till ett tekniskt motstånd och vänt ner därifrån med besked. Det ser inte lika svagt ut som för silver, men det är i vart fall inte köpläge i platina just nu.
Palladium har gått bäst av alla fyra ädelmetaller vi följer. Uppgången från botten i april ser nu ut att ha tappat kraft och det skulle inte förvåna om marknaden rekylerar ner till ca 700 dollar i det korta perspektivet.
Vi ligger kvar såld både platina och palladium, dvs med BEAR PLATNA X4 S och BEAR PALLAD X4 S.
Basmetaller
Basmetallerna utvecklades olika under veckan. Koppar och Zink stängde ner runt procenten, medan aluminium och nickel uppvisade imponerande rallyn inledningsvis med ett par procents uppgång, för att stänga veckan upp ca 1 %. Tokyobörsen har åkt jo-jo, vilket påverkat stämningsläget dag från dag. I USA fokuseras på tidramen för QE3. Paradoxalt nog skapar svagare siffror än väntat ökad riskaptit, då stimulanserna antas vara lite längre. Förra veckans månadsskifte innebar inköpschefsstatistik (PMI) världen över. Kina var först ut. Efter den preliminära siffran från HSBC i mitten av månaden (som kom in svagare än väntat under 50-nivån), visade den officiella PMI-siffran 50,8 jämfört med 50,6 förra månaden, och mycket bättre än väntade 50,0. Optimismen från Kina följdes upp med bättre siffror än väntat i Europa, vilket dock grusades av den amerikanska siffran som under måndagseftermiddagen kom in under 50, klart sämre än väntat. Således väldigt blandade signaler. Handeln blev därefter med sidledes prisrörelser utan någon egentlig riktning, till stor del avvaktande inför den viktiga arbetsmarknadsstatisktiken på fredagen. Antalet nya arbetstillfällen ökade med 175 000, något 10-tusental bättre än väntat. Å andra sidan reviderades den förra siffran ner med ungefär lika mycket. Ingen större vägledning således.
Koppar
Som vi skrivit tidigare har vi haft kopparn under bevakning för att gå från neutral till köp. Tekniskt sett har vi bedömt förutsättningarna som goda för kortsiktig uppgång. Trots de senaste veckornas tveksamhet, tar vi fasta på indikationer att det negativa stämningsläget kring koppar håller på att svänga om. Som vi skrivit tidigare tyder mycket på att lagren i Kina har betats av, och att avmattningen av importen är relativt snart övergående.
Tekniskt sett fokuserar vi på ”dubbelbotten” från april och maj, som ger en potentiell uppgång till $7620, där motståndet sätter in. Nästa nivå är $7800. Den omedelbara pressen på koppar verkar vara över och den nedåtgående trenden är bruten.
Vi förväntar oss fortsatt hög volatilitet. Vår kortsiktiga bedömning talar för uppsidan och vi rekommenderar därför köp av BULL KOPPAR X2 S eller X4 S.
Aluminium
Priset har nu ”testat” stödnivåerna vid $1810-20 vid ett flertal tillfällen, och lyckats studsa upp. Det är ett styrketecken. Vi ser fysiska aktörer som går in och täcker in framtida konsumtion via terminsköp vid varje dipp. Tekniskt orienterade fonder har tidigare sålt vid varje uppställ. I förra veckan bröts mönstret. Istället började finansiella aktörer att köpa tillbaka kortpositioner i stora kvantiteter. Förra fredagens stängning över $1900, med ett bekräftat brott ur triangelformationen i kombination med förra helgens starka Kinasiffror, gav förutsättningar för fortsatt uppgång på kort sikt, i första hand upp till $1950-nivån (vilket också materialiserades med råge under veckan som gick). Vi ser mer långsiktiga tecken på att marknaden håller på att bottna ur. Högkostnadsproducenterna, framför allt i Kina, förväntas minska utbudet (ännu mer) om priset långvarigt stannar på nuvarande nivåer. Den största aluminiumproducenten Chalco, annonserade i veckan att de stänger ytterligare produktionskapacitet motsvarande 380 tton.
Långsiktigt är nivån väldigt intressant för kontraktet Aluminium S (utan hävstång). Kortsiktigt är ett kontrakt med hävstång intressant. Bevaka motståndet vid $1950. Ett definitivt brott (på veckobasis) av den nivån ”öppnar upp” för större uppgångspotential.
Zink
Situationen för zink påminner om den för aluminium, både fundamentalt och tekniskt. Vi bedömer zinken som ”billig” ur ett kostnadsperspektiv och nuvarande nivåer är mycket intressanta på lite längre sikt (6-12 månader). I det perspektivet är Zink S (utan hävstång) att föredra.
Nickel
Nickel uppvisade förnyad svaghet förra fredagen. Priset var som hastigast nere och noterade en ny lägsta nivå under $14600, men återhämtade sig väldigt snabbt och stängde veckan lite mer betryggande kring $14800. Veckan som gick inleddes med en kraftig prisuppgång till nivåer kring $15300 (som hastigast handlades $15600 som högst efter att stora ”stop-loss” ordrar utlöstes på uppsidan). Trots väldigt goda efterfrågeutsikter på sikt, där den rostfria- och specialstålproduktionen förväntas öka med fortsatt utbyggnad av olje- och gasproduktion och specialstål till flygindustrin, ”lider” nickelmarknaden av ett överskott. Produktionstekniken av s.k. Nickel Pig Iron i Kina har utvecklats med s.k. Rotary Kiln Electric Furnaces (RKEF) teknik, vilken i genomsnitt sänker hela kostnadskurvan. Samtidigt får högkostnadsproducenterna i gruvledet problem på nuvarande nivåer. Vi har tidigare rapporterat om produktionsneddragningar i Australien, och det förväntas komma mer.
Effekten av RKEF-tekniken riskerar att flytta ner nivån där utbudsminskningarna verkligen får effekt. Priset har brutit viktigastödnivåer, och vi får gå tillbaka till juli 2009 för att hitta lägre priser. I det perspektivet kommer nästa stora stödnivå in kring $14000. Vi är inte så långt därifrån och vi bedömer nivåerna från dagens pris kring $15000 ned mot den nivån, som väldigt attraktiva på 6-12 månaders sikt. I det perspektivet är Nickel S (utan hävstång) att föredra.
Ur ett tekniskt perspektiv är den senaste utvecklingen intressant. Marknaden ”testade” nya låga nivåer, vilket inte lockade fram fler tekniska fonder att sälja. Istället stängde det på dagshögsta förra fredagen. Med Kinas siffror i ryggen inleddes veckan med goda förutsättningar för en kortsiktig uppgång, vilket vi fick se med besked! Som sagt såg vi priset som högst i $15600 under måndagen. Priset föll tillbaka successivt under veckan och stänger relativt neutralt kring $15000.
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Analys
Not below USD 70/b and aiming for USD 80/b

Saudi Arabia again reminded the global oil market who is king. Oil price is ticking carefully upwards today as investors are cautious after having burned their fingers in the production cut induced rally to (almost) USD 90/b which later faltered. We expect more upside price action later today in the US session. The 1 m b/d Saudi cut in July is a good tactic for the OPEC+ meeting on 4-6 July. Unwind if not needed or force all of OPEC+ to formal cut or else….Saudi could unwind in August. The cut will unite Saudi/Russia and open for joint cuts if needed. I.e. it could move Russia from involuntary reductions to deliberate reductions

Adjusting base-lines and formalizing and extending May cuts to end of 2024. OPEC+ this weekend decided to extend and formalize the voluntary agreement of cuts in May. These cuts will now be and overall obligation for the group to produce 40.5 m b/d on average in 2024 (not including natural gas liquids). There were some adjustments to reference production levels where African members got lower references as they have been unable to fill their quotas. UAE on the other hand got a 200 k b/d increase in its reference production level to match actual capacity increases. It was also a discussion of whether to change the baseline for Russia’s production. But these changes in baselines won’t make any immediate changes to production.
Unilateral cut of 1 m b/d by Saudi in July. The big surprise to the market was the unilateral 1 m b/d cut of Saudi Arabia for July. To start with it is for July only though it could be extended. The additional cut will
1) Make sure the oil price won’t fall below 70
2) Prevent inventories from rising
3) Help prevent capex spending in upstream oil and gas globally is not getting yet another trough
4) Make for a great tactical negotiation setup for next OPEC+ meeting on 4-6 July
a) If the 1 m b/d July cut is unnecessary, then it will be un-winded for August
b) If it indeed was needed then Saudi can strong-arm rest of OPEC+ to make a combined cut from August. Else Saudi could revive production by 1 m b/d from August and price will fall.
5) It is roughly aligning actual production by Russia and Saudi Arabia. Actually it is placing Saudi production below Russian production. But basically it is again placing the two core OPEC+ members on equal footing. Thus opening the door for combined Saudi/Russia cuts going forward if needed.
Saudi produced / will produce /Normal production:
April: 10.5
May: 10.0
June: 10.0
July: 9.0
Normal prod: 10.1
Oil price to strengthen further. Especially into the US session today. We expect crude oil prices to strengthen further and especially into the US session today. Price action has been quite careful in response to the surprise 1 m b/d cut by Saudi Arabia so far today. Maybe it is because it is only for one month. But mostly it is probably because the market in recent memory experienced that the surprise cut for May sent the Dated Brent oil price to USD 88.6/b in mid-April before it again trailed down to almost USD 70/b. So those who joined the rally last time got burned. They are much more careful this time around.
USD 80/b is the new USD 60/b and that is probably what Saudi Arabia is aiming for. Not just because that is what Saudi Arabia needs but also because that is what the market needs. We have seen a sharp decline in US oil rig count since early December last year and that has taken place at an average WTI price of USD 76/b and Brent average of USD 81/b. Previously the US oil rig count used to expand strongly with oil prices north of USD 45/b. Now instead it is declining at prices of USD 75-80/b. Big difference. Another aspect is of course inflation. US M2 has expanded by 35% since Dec 2019 and so far US CPI has increased by 17% since Dec 2019. Assume that it will rise altogether by 30% before all the stimulus money has been digested. If the old oil price normal was USD 60/b then the new should be closer to USD 80/b if adjusting for a cumulative inflation increase of 30%. But even if we just look at nominal average prices we still have USD 80/b as a nominal average from 2007-2019. But that is of course partially playing with numbers.
Still lots of concerns for a global recession, weakening oil demand and lower oil prices due to the extremely large and sharp rate hikes over the past year. That is the reason for bearish speculators. But OPEC+ has the upper hand. This is what we wrote recently on that note: ”A recession is no match for OPEC+”
Aligning Saudi production with Russia. Russian production has suffered due to sanctions. With a 1 m b/d cut in July Saudi will be below Russia for the first time since late 2021. Russia and Saudi will again be equal partners. This opens up for common agreements of cuts. Reduced production by Russia since the invasion has been involuntary. Going forward Russia could make deliberate cuts together with Saudi.

Short specs in Brent and WTI at 205 m barrels as of Tuesday last week. They will likely exit shorts and force the oil price higher.

Long vs. Short specs in Brent and WTI at very low level as of Tuesday last week. Will probably bounce back up.

US oil rig count has declined significantly since early Dec-2022 at WTI prices of USD 76/b and Brent of USD 81/b (average since Dec-2022).

Historical oil prices in nominal and CPI adjusted terms. Recent market memory is USD 57.5/b average from 2015-2019. But that was an extremely bearish period with booming US shale oil production.

Analys
A recession is no match for OPEC+

History shows that OPEC cuts work wonderfully. When OPEC acts it changes the market no matter how deep the crisis. Massive 9.7 m b/d in May 2020. Large cuts in Dec 2008. And opposite: No-cuts in 2014 crashed the price. OPEC used to be slow and re-active. Now they are fast and re-active. Latest cut indicates a ”reaction-function” with a floor price of USD 70/b. Price could move lower than that in May, but JMMC meeting on 4 June and full OPEC+ meeting on 5-6 July would then change the course. Fresh cuts now in May will likely drive market into deficit, inventory draws, stronger prices. Sell-offs in May should be a good buying opportunities

Production cuts by OPEC+ do work. They work wonderfully. Deep cuts announced by OPEC in December 2008 made the oil price bottom at USD 33.8/b on Christmas Eve. That is USD 48.3/b adj. for CPI. The oil price then collapsed in 2014 when it became increasingly clear during the autumn that OPEC would NOT defend the oil price with confirmation of no-cuts in December that year. The creation of OPEC+ in the autumn of 2016 then managed to drive the oil price higher despite booming US shale oil production. A massive 9.7 m b/d cut in production in May 2020 onward made the oil price shoot higher after the trough in April 2020.
Historical sequence pattern is first a price-trough, then cuts, then rebound. This history however points to a typical sequence of events. First we have a trough in prices. Then we get cuts by OPEC(+) and then the oil price shoots back up. This probably creates an anticipation by the market of a likewise sequence this time. I.e. that the oil price first is going to head to USD 40/b, then deep cuts by OPEC+ and then the rebound. If we get an ugly recession.
But OPEC+ is faster and much more vigilant today. Historically OPEC met every half year. Assessed the situation and made cuts or no cuts in a very reactive fashion. That always gave the market a long lead-time both in terms of a financial sell-off and a potential physical deterioration before OPEC would react.
But markets are faster today as well with new information spreading to the world almost immediately. Impact of that is both financial and physical. The financial sell-off part is easy to understand. The physical part can be a bit more intricate. Fear itself of a recession can lead to a de-stocking of the oil supply chain where everyone suddenly starts to draw down their local inventories of crude and products with no wish to buy new supplies as demand and prices may be lower down the road. This can then lead to a rapid build-up of crude stocks in the hubs and create a sense of very weak physical demand for oil even if it is still steady.
Deep trough in prices is possible but would not last long. Faster markets and faster OPEC+ action means we could still have a deep trough in prices but they would not last very long. Oil inventories previously had time to build up significantly when OPEC acted slowly. When OPEC then finally made the cuts it would take some time to reverse the inventory build-up. So prices would stay lower for longer. Rapid action by OPEC+ today means that inventories won’t have time to build up to the same degree if everything goes wrong with the economy. Thus leading to much briefer sell-offs and sharper and faster re-bounds.
OPEC+ hasn’t really even started cutting yet. Yes, we have had some cuts announced with 1.5 m b/d reduction starting now in May. But this is only bringing Saudi Arabia’s oil production back to roughly its normal level around 10 m b/d following unusually high production of 11 m b/d in Sep 2022. So OPEC+ has lots of ”dry powder” for further cuts if needed.
OPEC reaction function: ”USD 70/b is the floor”. The most recent announced production cut gave a lot of information. It was announced on 2nd of April and super-fast following the 20th of March when Dated Brent traded to an intraday low of USD 69.27/b.
JMMC on 4 June and OPEC+ meeting on 5-6 July. Will cut if needed. OPEC+ will now spend the month of May to assess the effects of the newest cuts. The Joint Ministerial Monitoring Committee (JMMC) will then meet on 4 June and make a recommendation to the group. If it becomes clear at that time that further cuts are needed then we’ll likely get verbal intervention during June in the run-up to 5-6 July and then fresh cuts if needed.
Oil man Biden wants a price floor of USD 70/b as well. The US wants to rebuild its Strategic Petroleum Reserves (SPR) which now has been drawn down to about 50%. It stated in late 2022 that it wanted to buy if the oil price fell down to USD 67 – 72/b. Reason for this price level is of course that if it falls below that then US shale oil production would/could start to decline with deteriorating energy security for the US. Latest signals from the US administration is that the rebuilding of the SPR could start in Q3-23.
A note on shale oil activity vs. oil price. The US oil rig count has been falling since early December 2022 and has been doing so during a period when the Dated Brent price has been trading around USD 80/b.
IMF estimated social cost-break-even oil price for the different Middle East countries. As long as US shale oil production is not booming there should be lots of support within OPEC+ to cut production in order to maintain the oil price above USD 70/b. Thus the ”OPEC+ reaction-function” of a USD 70/b floor price. But USD 80/b would even satisfy Saudi Arabia.

US implied demand and products delivered is holding up nicely YoY and on par with 2019. So far at least. Seen from an aggregated level.

Total US crude and product stocks including SPR. Ticking lower. Could fall faster from May onward due to fresh cuts by OPEC+ of 1.5 m b/d

An oil price of USD 95/b in 2023 would place cost of oil to the global economy at 3.3% of Global GDP which is equal to the 2000 – 2019 average.

Analys
Mixed signals on demand but world will need more oil from OPEC but the group is cutting

A world where OPEC(+) is in charge is a very different world than we are used to during the ultra-bearish 2015-19 period where US shale AND offshore non-OPEC production both were booming. Brent averaged USD 58/b nominal and USD 70/b in real terms that period. The Brent 5yr contract is trading at USD 66/b nominal or USD 58.6/b in real-terms assuming no market power to OPEC+ in 2028. Could be, but we don’t think so as US Permian shale is projected by major players to peak next 5yrs. When OPEC(+) is in charge the group will cut according to needs. For Saudi that is around USD 85/b but maybe as high as USD 97/b if budget costs rise with inflation

No major revisions to outlook by the IEA last week in its monthly Oil Market Report.
Total demand to rise 2 m b/d, 90% of demand growth from non-OECD and 57% from Jet fuel. Total demand to rise by 2 m b/d YoY to 101.9 m b/d where 90% of the gain is non-OECD. Jet fuel demand to account for 57% of demand growth as global aviation continues to normalize post Covid-19. Demand for 2022 revised down by 0.1 m b/d and as a result so was the 2023 outlook (to 101.9 m b/d). Non-OPEC supply for 2023 was revised up by 0.1 m b/d. Call-on-OPEC 2023 was reduced by 0.2 m b/d as a result to 29.5 m b/d. Call-on-OPEC was 28.8 m b/d in Q4-22. The group produced 28.94 m b/d in Mar (Argus).
World will need more oil from OPEC. Call-on-OPEC to rise 1.6 m b/d from Q4-22 to Q4-23. IEA is forecasting a call-on-OPEC in Q4-23 of 30.4 m b/d. The world will thus need 1.6 m b/d more oil from OPEC YoY in Q4-23 and 0.46 m b/d more than it produced in March. Counter to this though the OPEC group decided to cut production by 1 m b/d from May to the end of the year. So from May onward the group will produce around 28 m b/d while call-on-OPEC will be 29.1 m b/d, 30.3 m b/d and 30.4 m b/d in Q2,3,4-23.
If the IEA is right about demand then the coming OPEC cuts should drive inventories significantly lower and oil prices higher.
But the market doesn’t quite seem to buy into this outlook. If it had then prices would have moved higher. Prices bumped up to USD 87.49/b intraday on 12 April but have since fallen back and Brent is falling back half a percent today to USD 85.9/b.
Market is concerned for declining OECD manufacturing PMI’s. It is of course the darkening clouds on the macro-sky which is making investors concerned about the outlook for oil products demand and thus crude oil demand. Cross-currents in global oil product demand is making the situation difficult to assess. On the one hand there are significant weakening signals in global diesel demand along with falling manufacturing PMIs. The stuff which makes the industrial world go round. Manufacturing, trucking, mining and heavy duty vehicles all need diesel. (Great Blbrg story on diesel here.) Historically recessions implies a cyclical trough in manufacturing activity, softer diesel demand and falling oil prices. So oil investors are naturally cautious about buying into the bull-story based on OPEC cuts alone.
Cross-currents is making demand growth hard to assess. But the circumstances are much more confusing this time around than in normal recession cycles because: 1) Global Jet fuel demand is reviving/recovering post Covid-19 and along with China’s recent reopening. IEA’s assessment is that 57% of global demand growth this year will be from Jet fuel. And 2) Manufacturing PMIs in China and India are rising while OECD PMIs are falling.
These cross-currents in the demand picture is what makes the current oil market so difficult to assess for everyone and why oil prices are not rallying directly to + USD 100/b. Investors are cautious. Though net-long specs have rallied 137 m b to 509 m b since the recent OPEC cuts were announced.
The world will need more oil from OPEC in 2023 but OPEC is cutting. The IEA is projecting that non-OPEC+ supply will grow by 1.9 m b/d YoY and OPEC+ will decline by 0.8 m b/d and in total that global supply will rise 1.2 m b/d in 2023. In comparison global demand will rise by 2.0 m b/d. At the outset this is a very bullish outlook but the global macro-backdrop could of course deteriorate further thus eroding the current projected demand growth of 2 m b/d. But OPEC can cut more if needed since latest cuts have only brought Saudi Arabia’s production down to its normal level.
OPEC has good reasons to cut production if it can. IEA expects global oil demand to rise 2 m b/d YoY in 2023 and that call-on-OPEC will lift 1.6 m b/d from Q4-22 to Q4-23. I.e. the world needs more oil from OPEC in 2023. But OPEC will likely produce closer to 28 m b/d from May to Dec following latest announced production cuts

Market has tightened with stronger backwardation and investors have increased their long positions

Net long specs in Brent + WTI has bounced since OPEC announcement on coming cuts.

Saudi Arabia’s fiscal cost-break-even was USD 85/b in 2021 projected the IMF earlier. Don’t know when it was projected, but looks like it was before 2020 and thus before the strong rise in inflation. If we add 15% US inflation to the 2021 number we get USD 97/b. Inflation should lift budget costs in Saudi Arabia as it is largely a USD based economy. Though Saudi Arabia’s inflation since Q4-19 is reported as 8% to data while Saudi cost-of-living-index is up by 11%. Good reason for Saudi Arabia to cut if it can cut without loosing market share to US shale.

Adjusting for inflation both on a backward and forward basis. The 5yr Brent price is today at USD 66.3/b but if we adjust for US 5yr inflation it is USD 58.6/b in real terms. That is basically equal to the average Brent spot price from 2015-2019 which was very bearish with booming shale and booming offshore non-OPEC. Market is basically currently pricing that Brent oil market in 5yrs time will be just as bearish as the ultra-bearish period from 2015-2019. It won’t take a lot to beat that when it comes to actual delivery in 2028.

Nominal Brent oil prices and 5yr Brent adj. for 5yr forward inflation expectations only

ARA Diesel cracks to Brent were exceptionally low in 2020/21 and exceptionally high in 2022. Now they are normalizing. Large additions to refining capacity through 2023 will increase competition in refining and reduce margins. Cuts by OPEC+ will at the same time make crude oil expensive. But diesel cracks are still significantly higher than normal. So more downside before back to normal is achieved.

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