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SEB – Råvarukommentarer, 16 september 2013

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SEB Veckobrev med prognoser på råvaror

Rekommendationer

SEB - rekommendationer på råvaror

*) Avkastningen anges för 1:1 certifikaten där både BULL och 1:1 certifikat är angivna.

Inledning

Elmarknaden går kanske ner i veckan eftersom det ostadiga vädret har anlänt. Eftersom trenden är så tydligt positiv på marknaderna för kol och utsläppsrätter bör man ta ett sådant tillfälle i akt och köpa certifikat på el. Det kan bli en mycket bra affär.

De höga priserna på olja har fått oljeproducenter att sälja sin produkt på termin. Detta gör att avkastningen för dem som investerar i oljemarknaden via terminer erbjuds bra avkastning. Den rekyl nedåt som USA:s inställda angrepp på Syrien föranlett, är ett bra tillfälle att placera i oljemarknaden via certifikatet OLJA S.

USA:s jordbruksdepartement USDA publicerade sin månadsvisa uppdatering av utbud och efterfrågan på världsmarknaden. Den var negativ för priset på vete och majs, men neutral på soja. Sojapriset steg och det tror vi beror på att vissa aktörer lider av en psykologisk anspänning, snarare än något med grund i fakta. Vi upprepar vår säljrekommendation på soja och raps.

Två rapporter kom, i polemik med Czarnikows prognos om ett mindre överskott än väntat i sockermarknaden. Men kontentan var ändå att överskottet blir mindre än tidigare prognostiserats.

Råolja – Brent

Oljepriset föll tillbaka när det gick upp för alla – även de som inte läst det här veckobrevet – att USA inte skulle eskalera konflikten med Syrien. Som vi skrev för redan två veckor sedan var det uppenbart att USA:s president inte skulle fullfölja sitt hot. Syrienkonflikten skulle kunna ha påverkat producerande länder, så att oljepriset påverkats, men det finns även andra faktorer som faktiskt har en påverkan på oljepriset och som fått verka i det tysta. Libyens produktion har haft problem och efterfrågan har fått skjuts av den ekonomiska återhämtningen som sker i hela världen. Oljepriset befinner sig i en positiv trend rent tekniskt. Priset har gott stöd vid 110 dollar per fat, men motstånd vid 118 dollar ungefär. Fortfarande handlas oljepriset inom det prisintervall som varit rådande sedan tre år tillbaka.

Teknisk analys på brentolja

Terminskurvorna för Brent (den översta) och den av lager- och transportkapacitet strypta marknaden för West Texas Intermediate ligger lite lägre.

Terminskurvor på brent- och wti-olja

Tidningen Energy Risk skrev i fredags en artikel om att de höga priserna lockat fram en våg av prissäkring från amerikanska oljebolag. Dessa säljer framtida produktion på termin och lyckas på så sätt minska risken i sin verksamhet. De gör detta trots att terminspriserna är lägre än spotpriserna därför att de vinner i minskad osäkerhet. De är med andra ord villiga att betala försäkringspremien till dem som köper terminerna – och bär risken i deras ställe.

För råvaruinvesterare är den här rabatten nu väldigt attraktiv. Man kan tjäna ca 7 – 10% extra på att äga råoljeterminer.

Råoljelagren fortsätter att minska i USA.

Lager av råolja i USA

Importen år 2013 (röd) minskade i den senaste rapporten från DOE.

USA importerar mindre olja

När nu priset fallit tillbaka och rabatten på terminer är så attraktiv, tycker vi att det är ett bra tillfälle att komma in i den lönsamma oljemarknaden och rekommenderar köp av OLJA S. Det är framförallt rabatten på terminerna vi vill komma åt och därför föredrar vi OLJA S framför t ex BULL OLJA X4 S.

Elektricitet

Nedan ser vi prisdiagrammet på det första kvartalets 2014 kontrakt. Det är det kontrakt som är underliggande för certifikaten sedan början på månaden.

Man har gjort försök att få igång O3:an i veckan, utan att lyckas. Finnarna har inte heller fått igång sin. Kärnkraften går just nu på halva sin installerade kapacitet.

Väderleksprognoserna visar fortsatt blött. Det ostadiga vädret väntas komma nu.

Tekniskt har motståndet vid 41.35 hållit stånd. Det är inte otänkbart att blötare väder och kärnkraftverk som kommer igång, kan få priset att rekylera ner från fredagens stängningspris på 41.90 euro per MWh. En sådan rekyl betraktar vi som ett utmärkt köptillfälle.

Teknisk analys på elpriset (Nordpool) den 13 september

Som nämnt ovan, har den nordiska kärnkraften fortsätta problem. I fredags producerades endast 51% av den installerade kapaciteten. OKG kommer att starta om Oskarshamn 3 klockan 15:00 på tisdag. Reaktorn har varit avstängd sedan den 1 september och tre försök att återstarta den har misslyckats. OKG har skjutit upp starten av Orskarshamn 1 från i torsdags till måndagen. Reaktorn har varit avstängd sedan den 9 juli pga ventilproblem. PVO kommer att återstarta Olkiluoto 2 på tisdag. Reaktorn stängdes i måndags förra veckan pga en överhettad generator. Ringhals 2, Ringhals 3, Orskarshamn 2 och Loviisa 2 var avstängda för det årliga underhållet.

Hydrologisk balans har fortsatt att försämras, särskilt prognosen.

Hydrologisk balans

Marginalkostnaden för att producera el bestäms av priset på kol och priset på utsläppsrätter. Nedan ser vi priset på utsläppsrätter i euro / ton. Notera den fortsatta prisuppgången.

Priset på utsläppsrätter i euro per ton

Nedan ser vi terminspriset för månaden, på energikol i Rotterdam. Vi ser att marknaden har vänt uppåt. Trenden är bruten. Detta har indirekt, men helt säkert, en påverkan på prisnivån på nordisk elektricitet. Vi väntar oss en fortsatt återhämtning i kolpriset åtminstone upp till 95 dollar per ton. Och därmed motsvarande prisuppgång på nordisk elektricitet. Dessutom tror vi på en procentuellt sett väsentligt högre prisuppgång på utsläppsrätter.

Terminspris på energikol i Rotterdam

Vi rekommenderar alltså köp av el, t ex EL S eller BULL EL X4 S.

Naturgas

Naturgaspriset studsade på 3.60 i veckan och stängde i fredags på 3.75. Tekniskt motstånd ligger på 3.80.

Analys ger neutral rekommendation för naturgas

Vi har neutral rekommendation.

Guld & Silver

Guldpriset föll ned till stödet på 1300 dollar per troy uns, efter att ha brutit stödet för uppgången från juni / juli. Vi har tidigare sagt att vi betraktar hela uppgången från juni / juli som en rekyl mot den fallande trenden. Goldman Sachs publicerade en rapport i fredags, där de säger att priset på guld kan falla så långt som till 1000 dollar per troy uns. Goldman Sachs har emellertid en tendens att göra prognoser som påminner om rena extrapoleringar av trender. Det går sällan så långt som Goldman Sachs analytiker har förutspått. Vi delar dock vyn att priset på guld förmodligen kommer att falla vidare. I det riktigt korta perspektivet noterar vi dock att 1300 dollar är ett starkt tekniskt stöd, varifrån marknaden kan samla kraft och göra ett nytt försök uppåt.

Spotpriset på guld analyserat

Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Då och då ser man att handlare hänger upp sig på 55-dagars glidande medelvärde och priset studsade i fredags precis på den nivå som det ligger på, som vi ser i diagrammet nedan. Går priset under den nivån, kan priset gå till 20 dollar, annars kan det gå pp mot 24 dollar. Notera att toppen i slutat av augusti inte lyckades bryta motståndet för den fallande pristrenden. Vi är alltså fortfarande i en bear market för silver.

Teknisk analys på silverpris för trading

Nedan ser vi kvoten mellan guldpriset och silverpriset.

Kvoten mellan guldpriset och silverpriset

Silverpriset har i den allmänna prisnedgången, i vanlig ordning, fallit mer än guld.

Vi fortsätter att vara neutrala guld och silver och skulle inte vilja köpa någon av dem idag.

Platina & Palladium

Förra veckan skrev vi att platina då brutit stödet för uppgången. Resultatet ser vi nu, där priset fallit ordentligt, ned till nivåer som utgjorde stöd under juli – augusti. Det vore inte otänktbart med en rekyl uppåt i det riktigt korta perspektivet, men vi ser inte detta som en trendvändning, utan som en rekyl i en fallande pristrend.

Rekyl i fallane pristrend för platina

Nedan ser i kvoten mellan platina och guld. I slutet av förra veckan steg platina i förhållande till guld, men vi ser detta som en kortsiktig ”blip” och tror att platina kan falla tillbaka.

Platina mot guld-kvot

Palladiumpriset är håller på att bryta ner från den triangel vi skrivit om tidigare. Kursfallet kan bli stort.

Kursfallet kan bli stort i palladium

Vi är för närvarande neutrala platina och palladium, men om palladium skulle falla bara något lite ytterligare, skulle vi vilja haka på och ta en kort position via BEAR PALLAD X4 S. Vi skulle absolut inte vilja köpa någon av dem.

Koppar

Priset på koppar var i princip oförändrat i veckan som gick. Trenden är nedåtriktad, men priset är förhållandevis lågt. Vi fortsätter med neutral vy.

Trend för kopparpriset

Det är en svårtolkad bild och vi rekommenderar neutral position.

Aluminium

Förra veckan noterade en marginell prisnedgång som stannade på 1812 dollar per ton. Stöd finns vid 1800 dollar. Går priset under den nivån skulle vi vilja vara korta, dvs köpta BEAR ALU X4 S.

Neutral rekommendation på aluminium

Vi har neutral rekommendation, tidigare köp.

Zink

Priset på zink har i nästan två års tid legat inom ett intervall mellan 1718.50 dollar per ton och 2200 dollar per ton, som vi ser nedan. Den röda linjen visar lagren av zink vid LME. Vi ser att marknaden börjat komma mer i balans. Detta fortsatte i veckan som gick. De rekordstora lagren har börjat minska. Det finns en förväntan om en stor inleverans till tredje onsdagen i september, den 18 september, eftersom detta skett både i maj och i juli. Analytiker har noterat att detta kan hänga ihop med lagerfinansieringsaffärer utanför LME-systemet.

Den senaste ILZG-rapporten indikerar dock att det finns en starkare efterfrågan och att balansen förbättras, vilket gör ett aluminium-scenario mindre sannolikt. Stöd finns vid 1850 dollar per ton, som vi tror att marknaden håller sig över.

TA-analys på zink

Vi fortsätter med en försiktig köprekommendation, av ZINK S.

Nickel

Nickelpriset följde den generella tendensen under veckan och stängde på veckans lägsta nivå, där priset balanserar på det tekniska stödet 13675 dollar per ton. Marknaden förväntar sig en återhämtning av fysisk efterfrågan under årets sista kvartal, huvudsakligen drivet av Kina. Produktionen av rostfritt stål steg med 11% i Kina under det första halvåret i år, huvudsakligen från 300-serien, som innehåller 8 – 10% nickel, enligt CRU. Efter en långsammare takt under det tredje kvartalet, tror CRU på en återhämtning under det fjärde. Det skulle innebära en ökning av efterfrågan på 13% i årstakt. Med det stora lager som finns skulle detta verkligen behövas för att få marknaden i balans. En faktor som skulle kunna leda till ökad efterfrågan är den premie för nickel i nickel pig iron vi nämnde i förra veckans brev. Att vi ser att cancellerade warrants (lagerbevis) vid LME nu uppgår till 20% av LME:s lager, kan vara ett tecken på ökad efterfrågan på primärnickel. Nya ”cancellations” rapporteras från Malaysia, där allt nickel i lager har levererats in från Kina. Det är nu möjligt att det här lagret går tillbaka till Kina. Det finns alltså några tecken på förbättringar i marknadsläget, men nickel har förmodligen en lång väg att gå innan vi ser en rejäl återhämtning.

Nickelpriset analyserat

[box]SEB Veckobrev Veckans råvarukommentar 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

Now it’s up to OPEC+

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SEB - analysbrev på råvaror

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics. OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE. The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

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

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d. 

Brent crude fell 4.6% ydy to USD 77.4/b and over the last three trading sessions it has lost USD 5.1/b. This morning it is trading only marginally higher at USD 77.6/b which is no vote of confidence. A good dose of rebound this morning would have been a signal that the sell-off yesterday possibly was exaggerated and solely driven by investors with long positions flocking to the exit. So there’s likely more downside to come.

In general there is a quite good relationship between net long speculative positions in Brent crude and WTI versus the global manufacturing cycle. Oil investors overall typically have an aversion of holding long positions in oil when the global economy is slowing down. As of yet there are few signs that the global economic cycle is about to turn. Rather the opposite seems to be the case. Global manufacturing fell in October and yesterday we saw US industrial production fall 0.6% MoM while continued jobless claims rose more than expected and to the highest level in two years. This matches well with the logic that the strong rise in interest rates since March 2022 is inflicting pain on the economy with more pain ahead as the effect comes with a lag.

Most estimates are that the global oil market is running a solid deficit in Q4-23. The IEA has an implied deficit in the global oil market of 1 m b/d in Q4-23 if we assume that OPEC will produce 28 m b/d vs. a call-on-OPEC at 29 m b/d. But prices in the oil market is telling a different story with weakening crude curves, weakening refining margins and a sharp sell-off in oil prices.

For 2024 the general forecasts are that global economic growth will slow, global oil demand growth will slow and also that the need for oil from OPEC will fall from 28.7 m b/d to 28.4 m b/d (IEA). This is a bearish environment for oil. The average Brent crude oil price so far this year is about USD 83/b. It should essentially be expected to deliver lower in 2024 with the negatives mentioned above.

Two things however will likely counter this and they are interconnected. US shale oil activity has been slowing with falling drilling rig count since early December 2022 and that has been happening at an average WTI price of USD 78/b. The result is that total US liquids production is set to grow by only 0.3 m b/d YoY in Q4-24. This allows OPEC+ to support the oil price at USD 80-90/b through 2024 without fear of loosing a significant market share to US oil production. Thus slowing US liquids production and active price management by OPEC+ goes hand in hand. As such we do expect OPEC+ to step up to the task.

So far it has predominantly been Saudi Arabia with a little help from Russia which together proactively have managed the oil market and the oil price through significant cuts. Saudi Arabia produced 10.5 m b/d in April but then cut production rapidly to only 9.0 m b/d which is what it still produces. Its normal production is about 10 m b/d.

What has made the situation more difficult for Saudi Arabia is the combination of solid growth in non-OPEC supply in 2023 (+2.1 m b/d YoY; IEA) but also a substantial revival in production by Venezuela and Iran. The two produced 660 k b/d more in October than they on average did in 2022. So the need for oil from Saudi Arabia is squeezed from both sides.

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics.

OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) then it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE.

The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.

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Analys

More from Venezuela and Iran means smaller pie for Saudi

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SEB - analysbrev på råvaror

Production in Venezuela and Iran is on the rise and is set to rise further in the coming months and in 2024. Combined their production could grow by 0.8 m b/d YoY to 2024 (average year to average year). The IEA projected in its latest OMR (Oct-2023) that call-on-OPEC will fall to 28.3 m b/d in 2024, a decline of 0.5 m b/d. This combination would drive implied call-on-Saudi from 10.4 m b/d in 2023 to only 9.1 m b/d in 2024 and as low as 8.6 m b/d in Q1-24 if Saudi Arabia has to do all the heavy lifting alone. Wider core OPEC cooperation may be required.

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

The IEA is out in the news today projecting peak oil demand this decade with global demand standing at no more than 102 m b/d towards the end of this decade. If so it would imply a call-on-Non-OPEC of only 66.4 m b/d in 2028 assuming that OPEC in general will demand a market share of 30 m b/d + NGL of 5.6 m b/d. The IEA (Oct-23) projects non-OPEC production to average 68.8 m b/d in 2024. That’s already 2.4 m b/d more than what would be sustainable over time if global oil demand is set to peak later this decade. Oil producers in general cannot have a production growth strategy in a peak oil demand world.

The US has decided to lift sanctions towards Venezuela for six months (18 April) as a measure to tempt it to move towards more democratic processes. And if it does, then the lifting of sanctions could continue after the 6 months. A primary opposition election took place this weekend with lawmaker Maria Corina Machado currently holding 93% of the vote count. Venezuela will next year hold a presidential election but fair play seems unlikely with Maduro in charge. The lifting of sanctions allows Venezuela’s PdV to resume exports to all destinations. Bans on new, foreign investments in the oil and gas sector are also lifted though Russian entities and JV’s are still barred.

Venezuela produced 0.8 m b/d in September and indicates that it can lift production by 0.2 m b/d by year and with more rigs and wells by 0.5 m b/d to 1.3 m b/d in the medium term.

Oil production in Iran has been on a steady rise since its low-point of 2.0 m b/d in 2020. Last year it produced 2.5 m b/d. In September it produced 3.1 m b/d, but Iran’s oil minister says production now is at 3.3 m b/d. Iran’s rising production and exports is not about the US being more lenient in its enforcement of sanctions towards Iran. It is more about Iran finding better ways to circumvent them but even more importantly that China is importing more and more oil from Iran.

Production by Iran and Venezuela is recovering. YoY production from the two could rise by close to 0.8 m b/d in 2024. This will lead to a decline in call-on-Saudi oil. 

Oil production by Iran and Venezuela
Source: SEB graph and asessments, Blbrg data and news

The IEA estimated in its latest OMR report that call-on-OPEC will fall from 28.8 m b/d in 2023 to 28.3 m b/d in 2024. If all OPEC members except Saudi Arabia produces the same amount in 2024 as in 2023, then the need for Saudi Arabia’s oil (call-on-Saudi) will fall from a healthy 10.4 m b/d in 2023 to a still acceptable 9.9 m b/d in 2024. Its normal production is roughly 10 m b/d.

If however production by Iran and Venezuela rise by a combined 0.5 m b/d YoY in 2024, then call-on-Saudi will fall to 9.4 m b/d which is not so good but still manageable. But if Iran’s oil minister is correct when he says that its current production now is at 3.3 m b/d, then it is not far fetched to assume that Iran’s oil production may average maybe 3.4-3.5 m b/d in 2024. That would yield a YoY rise of 0.6 m b/d just for Iran. If we also assume that Venezuela manages to lift its production from 0.8 m b/d this year to 1.0 m b/d in 2024, then the combined growth from the two is closer to 0.8 m b/d. That would push call-on-Saudi down to only 9.1 m b/d which is not good at all. It would require Saudi Arabia to produce at its current production of 9.0 m b/d all through 2024.

The IEA further estimates that call-on-OPEC will average 27.7 m b/d in Q1-24. If we assume Iran @ 3.4 m b/d and Venezuela @ 1.0 m b/d then call-on-Saudi in Q1-24 will only be 8.6 m b/d. I.e. Saudi Arabia will have to cut production further to 8.6 m b/d in Q1-24. At that point Saudi Arabia will likely need or like other core OPEC members like Iraq, Kuwait and UAE as well as Russia to join in.

Implied call-on-Saudi. Call-on-OPEC is set to decline from 28.8 m b/d to 28.3 m b/d to 2024. If all OPEC members produced the same in 2024 as in 2023 then call-on-Saudi would fall by 0.5 m b/d to 9.9 m b/d. But if Venezuela and Iran increases their combined production by 0.8 m b/d YoY in 2024 then call-on-Saudi falls to 9.1 m b/d.

Implied call-on-Saudi.
Source: SEB graph and calculations, IEA data

If we look a little broader on this topic and also include Libya, Nigeria and Angola we see that this group of OPEC members produced 11.4 m b/d in 2010, 10.1 m b/d in 2017 and only 5.1 m b/d at the low-point in August 2020. The decline by these OPEC members has of course the other OPEC and OPEC+ members to stem the rising flood of US shale oil production. The production from this unfortunate group of OPEC-laggards is however now on the rise reaching 7.5 m b/d in September. With more from Iran and Venezuela it could rise to 8.0 m b/d in 2024. Production from Nigeria and Angola though still looks to be in gradual decline while Libya looks more sideways. So for the time being it is all about the revival of Iran and Venezuela.

The unfortunate OPEC-laggards had a production of 11.4 m b/d in 2010. But production then fell to only 5.1 m b/d in August 2020. It helped the rest of OPEC’s members to manage the huge increase in US shale oil production. Production from these countries are now on the rebound. Though Nigeria and Angola still seems to be in gradual decline.

Oil production of some OPEC countries
Source: SEB graph, Blbrg data

What everyone needs to be attentive to is that call-on-OPEC and even more importantly call-on-Saudi can only erode to a limit before Saudi/OPEC/Russia will have to take action. Especially if the forecast for needed oil from OPEC/Saudi for the nearest 2-3 years is in significant decline. Then they will have to take action in the sense that they stop defending the price and allows the price to fall sharply along with higher production. And yet again it is US shale oil producers who will have to take the brunt of the pain. They are the only oil producers in the world who can naturally and significantly reduce their production rather quickly. I.e. the US shale oil players will have to be punished into obedience, if possible, yet one more time.

We don’t think that it is any immediate risk for this to happen as US shale oil activity is slowing while global oil demand has rebounded following Covid-lockdowns. But one needs to keep a watch on projections for call-on-OPEC and call-on-Saudi stretching 1-2-3 years forward on a continuous basis. 

In its medium term oil market outlook, Oil2023, the IEA projected a fairly healthy development for call-on-OPEC to 2028. First bottoming out at 29.4 m b/d in 2024 before rising gradually to 30.6 m b/d in 2028. The basis for this was a slowing though steady rise in global oil demand to 105.7 m b/d in 2028 together with stagnant non-OPEC production due to muted capex spending over the past decade. But this projection has already been significantly dented and reduced in IEA’s latest OMR from October where call-on-OPEC for 2024 is projected at only 28.3 m b/d.

In a statement today the IEA projects that global oil demand will peak this decade and consume no more than 102 m b/d in the late 2020ies due to (in large part) rapid growth in EV sales. This would imply a call-on-OPEC of only 26.9 m b/d in 2028. It is not a viable path for OPEC to produce only 26.9 m b/d in 2028. Especially if production by Iran and Venezuela is set to revive. I.e. OPEC’s pie is shrinking while at the same time Iran and Venezuela is producing more. In this outlook something will have to give and it is not OPEC. 

One should here turn this on its head and assume that OPEC will produce 30 m b/d in 2028. Add OPEC NGLs of 5.6 m b/d and we get 35.6 m b/d. If global oil demand in 2028 stands at only 102 m b/d then call-on-Non-OPEC equates to 66.4 m b/d. That is 3.1 m b/d less than IEA’s non-OPEC production projection for 2028 of 69.5 m b/d but also higher than non-OPEC production projection of 68.8 m b/d (IEA, Oct-23) is already 2.4 m b/d too high versus what is a sustainable level.

What this of course naturally means is that oil producers in general cannot have production growth as a strategy in a peak-oil-demand-world with non-OPEC in 2024 already at 2.4 m b/d above its sustainable level.

The US is set to growth its hydrocarbon liquids by 0.5 m b/d YoY in 2024. But in a zero oil demand growth world that is way, way too much.

Call-on-OPEC
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Reloading the US ’oil-gun’ (SPR) will have to wait until next downturn

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Brent crude traded down 0.4% earlier this morning to USD 91.8/b but is unchanged at USD 92.2/b at the moment. Early softness was probably mostly about general market weakness than anything specific to oil as copper is down 0.7% while European equities are down 0.3%. No one knows the consequences of what a ground invasion of Gaza by Israel may bring except that it will be very, very bad for Palestinians, for Middle East politics for geopolitics and potentially destabilizing for global oil markets. As of yet the oil market seems to struggle with how to price the situation with fairly little risk premium priced in at the moment as far as we can see. Global financial markets however seems to have a clearer bearish take on this. Though rallying US rates and struggling Chinese property market may be part of that.

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

The US has drawn down its Strategic Petroleum Reserves (SPR) over the latest years to only 50% of capacity. Crude oil prices would probably have to rally to USD 150-200/b before the US would consider pushing another 100-200 m b from SPR into the commercial market. As such the fire-power of its SPR as a geopolitical oil pricing tool is now somewhat muted. The US would probably happily re-load its SPR but it is very difficult to do so while the global oil market is running a deficit. It will have to wait to the next oil market downturn. But that also implies that the next downturn will likely be fairly short-lived and also fairly shallow. Unless of course the US chooses to forgo the opportunity.  

The US has drawn down its Strategic Petroleum Reserves (SPR) to only 50% of capacity over the latest years. Most of the draw-down was in response to the crisis in Ukraine as it was invaded by Russia with loss of oil supply from Russia thereafter.

The US has however no problems with security of supply of crude oil. US refineries have preferences for different kinds of crude slates and as a result it still imports significant volumes of crude of different qualities. But overall it is a net exporter of hydrocarbon liquids. It doesn’t need all that big strategic reserves as a security of supply any more. Following the oil crisis in the early 70ies the OECD countries created the International Energy Agency where all its members aimed to have some 100 days of forward oil import coverage. With US oil production at steady decline since the 70ies the US reached a peak in net imports of 13.4 m b/d in 2006. As such it should have held an SPR of 1340 million barrels. It kept building its SPR which peaked at 727 m b in 2012. But since 2006 its net imports have been in sharp decline and today it has a net export of 2.9 m b/d.

Essentially the US doesn’t need such a sizable SPR any more to secure coverage of its daily consumption. As a result it started to draw down its SPR well before the Russian invasion of Ukraine in February 2022. But then of course it fell fast and is today at 351 m b or about 50% of capacity.

The US is the largest oil consumer in the world. As such it is highly vulnerable to the price level of oil. The US SPR today is much more of a geopolitical tool than a security of supply tool. It’s a tool to intervene in the global oil market. To intervene in the price setting of oil. The US SPR is now drawn down to 50% but it still holds a sizable amount of oil. But it is little in comparison to the firepower of OPEC. Saudi Arabia can lower its production by 1 m b/d for one year and it will have eradicated 365 million barrels in global oil inventories. And then it can the same the year after and then the year after that again.

The US has now fired one big bullet of SPR inventory draws. It really helped to balance the global oil market last year and prevented oil prices from going sky high. With 350 m b left in its SPR it can still do more if needed. But the situation would likely need to be way more critical before the US would consider pushing yet another 100-200 m b of oil from its SPR into the global commercial oil market. An oil price of USD 150-200/b would probably be needed before it would do so.

With new geopolitical realities the US probably will want to rebuild its SPR to higher levels as it is now an important geopolitical tool and an oil price management tool. But rebuilding the SPR now while the global oil market is running a deficit is a no-go as we see it.

An oil market downturn, a global recession, a global oil market surplus where OPEC no longer want to defend the oil price with reduced supply is needed for the US to be able to refill its SPR again unless it wants to drive the oil price significantly higher.

But this also implies that the next oil price downturn will likely be short-lived and shallow as the US will have to use that opportunity to rebuild its SPR. It’s kind off like reloading its geopolitical oil gun. If it instead decides to forgo such an opportunity then it will have to accept that its geopolitical maneuverability in the global oil market stays muted.

Net US oil imports in m b/d and US Strategic Petroleum Reserves (SPR) in million barrels. The US doesn’t need strategic petroleum reserves for the sake of security of supply any more. But it is a great geopolitical energy-tool to intervene in the price setting of oil in the global market place.

Net US oil imports in m b/d and US Strategic Petroleum Reserves (SPR) in million barrels
Source: SEB graph, EIA data from Blbrg
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