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SEB – Råvarukommentarer, 17 december 2012

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Sammanfattning av rekommendationer

Rekommendationer för att köpa och sälja råvaror

Avkastning ovan visar avkastningen på de linjära alternativen och inte på bull och bear-alternativen.

Vi har nu gått över till en säljrekommendation på vete, vilket innebär att vi även på kort sikt rekommenderar sälj på jordbruksprodukter. Med det sagt, är det inte omöjligt att det kommer en rekyl uppåt på vetepriset med några euro per ton i veckan, vilket vi ser som ett säljtillfälle.

Vi köprekommendation på alla basmetaller och de positionerna har utvecklat sig väl.

Ädelmetallerna ser återigen svagare ut och eventuellt brott av tekniska stöd i marknaden bör bevakas noga.

Oljan är fortsatt “sidledes”, utan trend och med ett pris som varken motiverar köp- eller sälj.

Elen rekylerade ner i veckan. Vi tror fortfarande att man bör handla elen från den långa sidan och behåller köprekommendationen.

Råolja – Brent

Förra veckan präglades av stark statistik från Kina och FED:s besked om förnyade stimulanser. Det var mer fokus på ”bull” faktorer jämfört med veckan innan då bl a Fiscal-Cliff och Europaproblem tyngde sentimentet. Dessutom bidrog kallare väder på norra halvklotet bidragit till att lyfta marknaden något.

Prisutveckling för råoljan Brent

OPEC höll möte den 12 december. Inga stora överraskningar levererades. Produktionsmålet är fortsatt 30 mfat per dag. Istället för att kalla kvoten ”tak” benämndes det nu istället nivå, vilket indikerar lite mildare retorik. Kanske är det inte heller så konstigt då verklig produktion under en lång tid (i mer än ett år…) överskridit målet som ju är ett gemensamt mål. Organisationen är uppenbart orolig för hur efterfrågan ska utvecklas nästa år. I realiteten är det sannolikt Saudiarabien som måste minska sin produktion om man på allvar vill nå målet. En vanlig uppfattning i marknaden är att den ökande amerikanska produktionen kommer tvinga Saudiarabien att strypa utbudet för att förhindra en priskollaps. Amerikans råoljeimport är redan kring 5-års lägsta, se graf, och kommer om, produktion ökar enlig förväntan, fortsätta falla.

Amerikansk import av råolja

Vid nuvarande pris är Saudierna nöjda, priset är där man kommunicerat att man vill det ska vara. Samtidigt är man orolig för vad ökande utbud och svagare efterfrågan kan komma att innebära. Man önskar stabilitet och lagom högt pris och landet måste sannolikt stå beredd att kraftigt strypa utbudet i fall ett större prisfall realiseras. Vi förväntar oss också att OPEC (läs Saudi) kommer justera ned oljeproduktionen när vi efter vintern går in i svagare säsongmässig efterfrågan.

Förra veckans DOE oljelagerstatistik visade att råoljelagren ökade med 0.8 mfat. Nedanstående graf visar den nuvarande höga råoljelagernivån i USA i förhållande till 2007-2011 års nivåer. Med förväntat högre amerikansk produktion nästa år, så förstärks problemet för WTI-oljan, vilken handlar med betydlig rabatt mot andra jämförbara kvaliteter och dessutom i contango till skillnad mot t ex brentolja. Produktlagren följde också upp föregående veckas ökningar med ytterligare stora uppgångar, distillates ökade med 3.0 mfat medan bensinlagren ökade med 5.0 mfat.

Amerikanska lager av råolja - 5 år

Washington förbereder ytterligare åtgärder mot banker som deltar vi transaktioner med Irans centralbank vid oljeexportaffärer. Iran är uppenbart pressat, exportvolymerna uppgår f n till drygt 1 mfat per dag, sannolikt också kraftigt rabatterad, vilket påverkar landet negativt ekonomiskt.

I veckan publicerade de stora oljeorganen rapporter. Det innebar inga omvälvande förändringar. IEA justerade upp prognosen för efterfrågan något till 90.5 mfat (+0.1). OPEC å sin sida lämnade efterfrågan oförändrad på 89.6 mfat.

Den geopolitiska risken kvarstår, speciellt som en nu en lite större del av riskpremien, efter prisfallet, försvunnit. Mellandestillaten, speciellt i Europa, utgör också en stödjande faktor för Brent, som lämpar sig väl för produktion av mellandestillat. I Europa är det också fortsatt stort fokus på den ansträngda lagersituationen för just mellandestillat. Vintern förstärker problemet, då efterfrågan på olja för uppvärmning på kontinenten säsongsmässigt ökar

I fredags stängde Brentkontraktet på 108.50 usd/fat. Kring nuvarande nivå håller vi en neutral vy.

Elektricitet

Förra veckan var en återgång till betydligt mildare väder. Så sent som helgen innan, såg det fortsatt kallt och relativt torrt ut. Vi valde därmed att fortsätta rekommendera long position, vilket med facit i hand inte blev lyckosamt. Den underliggande terminen, Q2-13, vände ned och tappade ungefär lika mycket i värde som den ökade veckan innan. Underliggande terminskontrakt för SEB:s BULL, BEAR och linjära EL S-certfikat är nu terminskontraktet för det andra kvartalets genomsnittliga spotpris på NordPool.

Som vi skrev om förra veckan, så krävs att marginalkostnaden för fossileldad kraftproduktion stiger för att ge en varaktig uppgång. Förra veckan innebar fallande marginalkostnad. Kolpriset steg visserligen men priset på både CO2 och dollar i förhållande till euro försvagades. Differensen mellan Q2-13 terminen och marginalkostnaden för koleldad kraftproduktion under samma period är nu rekordstor, se graf. Den försvagade hydrologiska balansen motiverar, visserligen, en del av avvikelsen men differensen är stor.

Differensen mellan Q2-13 terminen och marginalkostnaden för koleldad kraftproduktion

Kontinentala elpriser fortsatte därmed också falla. Trenden för kontinentala elpriser har varit ned sedan slutet av augusti, vilket illustreras nedan i grafen för elterminen för år 2013, Tyskland.

Kontinentala elpriser fortsätter falla

Inför kommande vecka ser det alltså åter ut att kunna bli kallare, men det finns, som alltid, en grad av osäkerhet i prognoserna. Blir prognoserna verklighet så är den hydrologiska balansen redan i svagt underskott i slutet av denna vecka. Samtidigt så går vi mot ett par veckor med låg förbrukning p g a helgfirande. Den fallande förbrukningen gör att det blir svårt att nå lika högt spotpris som det kan bli en vanlig vintervecka. Systemet får så att säga lite andrum.

Vi har under ett antal veckors tid rekommenderat en long position i SEB:s certifikat på el. Med tanke på hur mycket kontraktet fallit trots nuvarande prognoser, så väljer vi att fortsatt rekommendera long.

SEB har följande börshandlade certifikat kopplade till elterminer på Nasdaq OMX.

Long ———— Short
EL S ———— Bear El X2 S
Bull El X2 S —- Bear El X4 S
Bull El X4 S

Guld och Silver

Både guld och silver har med sjunkande toppnoteringar och stigande bottennoteringar sedan början på hösten, bildat så kallade ”triangelformationer”. Just nu ligger priserna an mot stödlinjerna i respektive triangel och testar dessa. Priset på guld och silver ”borde” gå upp när alla viktiga centralbanker trycker mer pengar i hopp om att stimulera igång ekonomin. Men marknaden handlar metallerna underligt svagt mot den bakgrunden. Det gör att vi känner en viss oro för kursutvecklingen framöver.

Hur spotpriset på guld har utvecklats

Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Situationen är identisk med den för guld.

Hur spotpriset på silver har utvecklats

Platina

Platinapriset har klarat rekylen bättre än guld och silver. Platina har varit och är fortfarande vår favorit bland ädelmetallerna.

Platinapriset har klarat rekylen bättre än guld och silver

Basmetaller

Veckan inleddes med starka siffror från Kina i ryggen som presenterades förra helgen. Industriproduktionen steg med 10,1 % i november och detaljhandeln med 14,9 %. Handelsbalansen var något svagare med ett lägre överskott än väntat (ett tecken på svaghet i övriga världen, framför allt Europa). Mer positivt för metallerna var att importen ökade (som väntat) av koppar. FED presenterade på onsdagkvällen nya stimulanserna, vilket i och för sig var väntat och följdes av en rekyl nedåt under torsdagen. HSBC:s inköpsindex kom samtidigt in på 50,9 vilket bekräftade den starkare tendensen i Kina. Den mer positiva bilden i USA bekräftades också under fredagen med en bättre siffra gällande industriproduktionen än väntat. Eurodollarn steg med 2 % i veckan vilket också gav stöd till metallpriserna, som gått starkt hela veckan. Nickel och zink är upp ca 3 %, aluminium 1 % och koppar oförändrad.

Koppar

Det relativt lägre kopparpriset på LME jämfört med Shanghai under november har som tidigare nämnts sannolikt lett till ökad import, vilket visades sig i förra helgens handelsiffror. Importen uppgick till 365 tton jämfört med 321 tton i oktober. Toppmånaderna brukar ligga kring 450 tton, så det är ingen hög siffra men stigande, och är i linje med återhämtningen av kopparkonsumtionen i Kina. Kopparpriset tvekar på uppsidan och är den av basmetallerna som haft sämst utveckling de senaste två veckorna. Orsaken är den allmänna uppfattningen i marknaden att den globala metallbalansen övergår till ett överskott nästa år. Med historiken i bakhuvudet (d.v.s. att utbudet konstant varit en besvikelse de senast åren) finns stor risk att så inte blir fallet. Vi tror på ett stabilt kopparpris framöver, även om andra basmetaller (nickel och zink) enligt vår uppfattning har bättre potential just nu.

Den tekniska bilden är relativt neutral för tillfället. Om LME-noteringen (3 månaders) kommer ned mot $7800 är det ett köp. Alternativet är att avvakta ett brott på uppsidan, vilket skulle vara definitivt över $8400.

Den tekniska prisbilden för koppar är relativt neutral för tillfället

Aluminium

Mycket kretsar kring terminspunkterna mellan december och januari. Det är backwardation (dvs priset i december är högre än i januari). Lagersituationen för aluminium har diskuterats i tidigare marknadsbrev. En stor del av överskottet ligger uppknutet i börstransaktioner, där finansiella aktörer utnyttjat den höga terminspremien, och ”låser upp” material under längre perioder. Detta i kombination med kapacitetsproblem i LME:s börslager, har skapt en tightare fysisk marknad än vad som annars skulle ha varit fallet. Detta speglas nu i stark efterfrågan för spotmaterial. Terminskurvan har gått över i s.k. backwardation, d.v.s. spotpriset är högre än terminspriset. Priset är ca 40 usd/ton högre i december jämfört med januari. Skillnaden mellan cash och3 månader är 16 dollar.Detta stärker hela marknaden och ger en känsla av korthet på material inför årsskiftet. 3 månaderspriset på LME är upp 1,3 % i veckan.

Tekniskt sett ligger priset och balanserar på trendlinjen, och med den ”tighta” terminsmarknaden som stöd finns risk/möjlighet att priset gör ett test upp mot $2200 i närtid.

Aluminiumpriset balanserar på trendlinjen

Zink

Den förväntat starka utvecklingen infriades i veckan med en prisuppgång med 2,8 % för 3-månaders LME. Som vi skrivit tidigare är de största användningsområdena för zink bygg- och transportindustrin. Två områden som nu gynnas av en mer positivt syn på tillväxten i Kina och USA. Zink ligger väl placerad i det scenariot. De kommande årens begränsningar av utbudet talar också för en starkare zinkmarknad. Hotet är, som vi också nämnt tidigare, kortsiktigt överskott p.g.a. ökad gruvproduktion i Kina. Enligt bedömare avtar tillväxten nu av det kinesiska utbudet. Zinkpriset är fortfarande lågt ur ett produktionskostnadsperspektiv. Överskottet har också byggt stora lager som måste betas av. Ett troligt scenario är samma utveckling som för aluminium, d.v.s. att lagret knyts upp i finansieringsupplägg (se tidigare beskrivningar kring aluminiummarknaden) som kommer att undanhålla material från konsumenter, vilket framför allt gynnar de fysiska premierna, men också sannolikt zinkpriset. Omsvängningen av stämningsläget gör att vi nu bedömer att marknaden kommer diskontera starkare fundamental balans, vilket ofta innebär att investerare köper i ”förtid”.

Priset har nu brutit ut i en brantare trendkanal. Den ger motstånd kring $2150 där också toppen från september skapar ett motstånd. För den som köpt på tidigare rekommendation kan det vara en nivå att ta hem vinst på. Vi tror emellertid på en större potential på 2-3 månaders sikt på nivåer upp mot $2400. Se placeringsförslag råvaror för en djupare analys.

Zinkpriset per diagram

Vi rekommenderar köp av ZINK S eller BULL ZINK X2 / X4 S för den som vill ta mer risk. Man bör gå ur positionen om priset faller genom 1930 dollar per ton, som är stödet i den konsolideringsfas som varit rådande sedan prisfallet slutade i slutet av maj. Kortsiktigt bör man ta hem vinst vid motståndsnivån $2150. På lite längre sikt är potentialen större. Nästa motståndsnivå kommer in vid $2200, men målet är $2400 på 2- 3 månaders sikt.

Nickel

Efter rekylen veckan före tog det fart igen med uppgång på hela 3,4 %. Rapporter från den rostfria stålindustrin tyder på en försenad lagerbyggnadscykel. Industrifolk säger fortfarande att det släpar efter något, men det finns ett uppdämt köpbehov ute i industrin. Det är nog till stor del det vi ser nu. Frågan är hur mycket som finns kvar på uppsidan. Vi har tidigare prognostiserat att priset bara av lagercykeln lätt kan komma upp till $19000. Så länge inga stora besvikelser dyker upp på makroscenen kan vi mycket väl få se den nivån redan för årsskiftet. Det är ett tekniskt motstånd kring $18000 som måste röjas ur vägen först. Risken har ökat i och med den snabba uppgången, och det finns risk för rekyler. Precis som med koppar finns en oro i marknaden att utbudet skall komma att öka under nästa år och försätta marknaden i en överskottssituation.

Nickelpriset steg igen

Vi rekommenderar köp av NICKEL S eller BULL NICKEL X2 / X4 S för den som vill ta mer risk. Man bör gå ur positionen om priset faller genom 15,800 dollar per ton, som är stödet i den konsolideringsfas som varit rådande sedan prisfallet slutade i slutet av oktober. Kortsiktigt bör man ta hem vinst vid motståndsnivån $17500. På lite längre sikt är potentialen större. Nästa motståndsnivå kommer in strax under $19000

Kaffe

Kaffepriset (mars 2013) ligger i stadig fallande trend. Det är fortfarande bäst att vara såld kaffe.

Kaffepriset i fallande trend

 

För ytterligare jordbruksråvaror, se SEB Jordbruksprodukter från tidigare idag.

[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

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

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SEB - analysbrev på råvaror

Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp). So Saudi Arabia wants to and will produce more once it is confident that there really is demand for additional crude. Saudi Arabia has good reason to be concerned for global oil demand. It is not the only one struggling to predict global demand amid the haze and turmoil in the global oil market following the Russian invasion of Ukraine and sanctions towards Russian crude and product stocks. Add a shaky Chinese housing market and the highest US rates since 2001. Estimates for global oil demand in Q4-23 are ranging from 100.6 m b/d to 104.7 m b/d with many estimates in between. Current crude and mid-dist inventories are low. Supply/demand is balanced to tight and clearly very tight for mid-dists (diesel, jet fuel, gasoil). But amid current speculative bullishness it is important to note that Saudi Arabia can undo the current upwards price journey just as quickly as it created the current bull-market as it drop in production from 10.5 m b/d in April to only 9.0 m b/d since July. Quickly resolving the current mid-dist crisis is beyond the powers of Saudi Arabia. But China could come to the rescue if increased oil product export quotas as it holds spare refining capacity. 

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

The oil market is well aware that the main reasons for why oil has rallied 25% over the past months is  reduced production by Saudi Arabia and Russia, global oil demand holding up better than feared together with still declining US shale oil activity. US oil drilling rig count fell by 8 rigs last week to 507 rigs which is the lowest since Feb 2022.

The big question is how strong is global oil demand and how will it hold up or even maybe increase in the coming quarters? And here the spread of estimates are still all over the place. For Q4-23 we have the following range of estimates for global oil demand in m b/d: 100.6; 101.8; 103.1; 103.2 and 104.7 from main oil market research providers. This wide spread of estimates is mindbogglingly and head-scratching both for analysts and for oil producers. It leads to a wide spread in estimates for Call-on-OPEC. Some say the current market is in a 2-3 m b/d deficit while others calculate that the global oil market today is nicely balanced.

The sanctions towards Russian crude and oil product exports with a ban on imports to the EU and UK has led to a large reshuffling of the global oil market flows which again has created a haze through which it is hard to gauge the correct state of the global oil market. 

We have previously argued that there may be a significant amount of ”pent-up-demand” following the Covid-years with potential for global oil demand to surprise on the upside versus most demand forecasts. But there are also good reasons to be cautious to demand given Chinese property market woes and the highest US interest rates since 2001!

The uncertainty in global oil demand is clearly at the heart of Saudi Arabia’s production cuts since April this year. Saudi Arabia’s Energy Minister, Prince Abulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp).

So if it turns out that demand is indeed stronger than Saudi Arabia fears, then we should see increased production from Saudi Arabia. Saudi could of course then argue that yes, it is stronger than expected right now, but tomorrow may be worse. Also, the continued decline in US oil drilling rig count is a home-free card for continued low production from Saudi Arabia.

Both crude stocks and mid-dist stocks (diesel, jet fuel, gasoil) are still significantly below normal and the global oil market is somewhere between balanced, mild deficit or large deficit (-2-3 m b/d). The global oil market is as such stressed due to low inventories and potentially in either mild or large deficit on top. The latter though can be undone by higher production from Saudi Arabia whenever it chooses to do so.

What is again getting center stage are the low mid-dist stocks ahead of winter. The war in Ukraine and the sanctions towards Russian crude and product stocks created chaos in the global oil product market. Refining margins went crazy last year. But they are still crazy. The global refining system got reduced maintenance in 2020 and 2021 due to Covid-19 and low staffing. Following decades of mediocre margins and losses, a lot of older refineries finally decided to close down for good during Covid as refining margins collapsed as the world stopped driving and flying. The global refining capacity contracted in 2021 for the first time in 30 years as a result. Then in 2022 refining margins exploded along with reviving global oil demand and the invasion of Ukraine. Refineries globally then ran  as hard as they could, eager to make money, and reduced maintenance to a minimum for a third year in a row. Many refineries are now prone for technical failures following three years of low maintenance. This is part of the reason why mid-dist stocks struggle to rebuild. The refineries which can run however are running as hard as they can. With current refining margins they are pure money machines.

Amid all of this, Russia last week imposed an export ban for gasoline and diesel products to support domestic consumers with lower oil product prices. Russia normally exports 1.1 m b/d of diesel products and 0.2 m b/d of gasoline. The message is that it is temporary and this is also what the market expects. Russia has little oil product export storage capacity. The export ban will likely fill these up within a couple of weeks. Russia will then either have to close down refineries or restart its oil product exports.

The oil market continues in a very bullish state with stress both in crude and mid-dists. Speculators continues to roll into the market with net long positions in Brent crude and WTI increasing by 29 m b over the week to last Tuesday. Since the end of June it has increased from 330 m b to now 637 m b. Net-long speculative positions are now at the highest level in 52 weeks.

The market didn’t believe Saudi Arabia this spring when it warned speculators about being too bearish on oil and that they would burn their fingers. And so they did. After having held production at 9 m b/d since July, the market finally believes in Saudi Arabia. But the market still doesn’t quite listen when Saudi says that its current production is not about driving the oil price to the sky (and beyond). It’s about concerns for global oil demand amid many macro economic challenges. It’s about being preemptive versus weakening demand. The current oil rally can thus be undone by Saudi Arabia just as it was created by Saudi Arabia. The current refinery stress is however beyond the powers of Saudi Arabia. But China could come to the rescue as it holds spare refining capacity. It could increase export quotas for oil products and thus alleviate global mid-dist shortages. The first round effect of this would however be yet stronger Chinese crude oil imports. 

Brent crude and ARA diesel refining premiums/margins. It is easy to see when Russia invaded Ukraine. Diesel margins then exploded. The market is not taking the latest Russian export ban on diesel and gasoline too seriously. Not very big moves last week.

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

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. We are now heading into the heating season, but the summer driving season is fading and so are gasoline margins.

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

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. Here same graph as above but with longer perspective to show how extreme the situation is.

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

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

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

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

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

The ”normal” oil price is USD 97/b

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SEB - analysbrev på råvaror

The Dated Brent crude oil price ydy closed at USD 96/b. Wow, that’s a high price! This sensation however depends on what you think is ”normal”. And normal in the eyes of most market participants today is USD 60/b. But this perception is probably largely based on the recent experience of the market. The average Brent crude oil price from 2015-2019 was USD 58.5/b. But that was a period of booming non-OPEC supply, mostly shale oil. But booming shale oil supply is now increasingly coming towards an end. Looking more broadly at the last 20 years the nominal average price was USD 75/b. But in inflation adjusted terms it was actually USD 97/b.

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

Saudi Arabia’s oil minister, Abdulaziz bin Salman, yesterday stated that its production cuts was not about driving the price up but instead it was preemptive versus the highly uncertain global economic development. In that respect it has a very good point. The US 2yr government bond rate has rallied to 5.06% which is the highest since 2006 and just a fraction away of being the highest since December 2000. The Chinese property market is struggling and global PMIs have been downhill since mid-2021 with many countries now at contractive, sub-50 level. Thus a deep concern for the health of the global economy and thus oil demand going forward is absolutely warranted. And thus the preemptive production cuts by Saudi Arabia. But killing the global economy off while it is wobbling with an oil price of USD 110-120/b or higher is of course not a smart thing to do either.

At the same conference in Canada yesterday the CEO of Aramco, Amin H. Nasser, said that he expected global oil demand to reach 110 m b/d in 2030 and that talk about a near term peak in global oil demand was ”driven by policies, rather than the proven combination of markets, competitive economics and technology” (Reuters).

With a demand outlook of 110 m b/d in 2030 the responsible thing to do is of course to make sure that the oil price stays at a level where investments are sufficient to cover both decline in existing production as well as future demand growth.

In terms of oil prices we tend to think about recent history and also in nominal terms. Most market participants are still mentally thinking of the oil prices we have experienced during the shale oil boom years from 2015-2019. The average nominal Brent crude price during that period was USD 58.5/b. This is today often perceived as ”the normal price”. But it was a very special period with booming non-OPEC supply whenever the WTI price moved above USD 45/b. But that period is increasingly behind us. While we could enjoy fairly low oil prices during this period it also left the world with a legacy: Subdued capex spending in upstream oil and gas all through these years. Then came the Covid-years which led to yet another trough in capex spending. We are soon talking close to 9 years of subdued capex spending.

If Amin H. Nasser is ballpark correct in his prediction that global oil demand will reach 110 m b/d in 2030 then the world should better get capex spending rolling. There is only one way to make that happen: a higher oil price. If the global economy now runs into an economic setback or recession and OPEC allows the oil price to drop to say USD 50/b, then we’d get yet another couple of years with subdued capex spending on top of the close to 9 years with subdued spending we already have behind us. So in the eyes of Saudi Arabia, Amin H. Nasser and Abdulaziz bin Salman, the responsible thing to do is to make sure that the oil price stays up at a sufficient level to ensure that capex spending stays up even during an economic downturn.

This brings us back to the question of what is a high oil price. We remember the shale oil boom years with an average nominal price of USD 58.5/b. We tend to think of it as the per definition ”normal” price. But we should instead think of it as the price depression period. A low-price period during which non-OPEC production boomed. Also, adjusting it for inflation, the real average price during this period was actually USD 72.2/b and not USD 58.5/b. If we however zoom out a little and look at the last 20 years then we get a nominal average of USD 75/b. The real, average inflation adjusted price over the past 20 years is however USD 97/b. The Dated Brent crude oil price yesterday closed at USD 96/b.

Worth noting however is that for such inflation adjustment to make sense then the assumed cost of production should actually rise along with inflation and as such create a ”rising floor price” to oil based on rising real costs. If costs in real terms instead are falling due to productivity improvements, then such inflation adjusted prices will have limited bearing for future prices. What matters more specifically is the development of real production costs for non-OPEC producers and the possibility to ramp up such production. Environmental politics in OECD countries is of course a clear limiting factor for non-OPEC oil production growth and possibly a much more important factor than the production cost it self.  

But one last note on the fact that Saudi Arabia’s energy minister, Abdulaziz bin Salman, is emphasizing that the cuts are preemptive rather then an effort to drive the oil price to the sky while Amin H. Nasser is emphasizing that we need to be responsible. It means that if it turns out that the current cuts have indeed made the global oil market too tight with an oil price spiraling towards USD 110-120/b then we’ll highly likely see added supply from Saudi Arabia in November and December rather than Saudi sticking to 9.0 m b/d. This limits the risk for a continued unchecked price rally to such levels.

Oil price perspectives. We tend to think that the nominal average Brent crude oil price of USD 58.5/b during the shale oil boom years from 2015-19 is per definition the ”normal” price. But that period is now increasingly behind us. Zoom out a little to the real, average, inflation adjusted price of the past 20 years and we get USD 97/b. In mathematical terms it is much more ”normal” than the nominal price during the shale oil boom years 

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

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

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

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

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

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

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Some crude oil grades have already traded above USD 100/b. Tapis last week at USD 101.3/b. Dated Brent is trading at USD 95.1/b. No more than some market noise is needed to drive it above USD 100/b. But a perceived and implied oil market deficit of 1.5 to 2.5 m b/d may be closer to balance than a deficit. And if so the reason is probably that oil product demand is hurting. Refineries are running hard. They are craving for crude and converting it to oil products. Crude stocks in US, EU16 and Japan fell 23 m b in August as a result of this and amid continued restraint production by Saudi/Russia. But oil product stocks rose 20.3 m b with net draws in crude and products of only 2.7 m b for these regions. Thus indicating more of a balanced market than a deficit. Naturally there has been strong support for crude prices while oil product refinery margins have started to come off. Saudi/Russia is in solid control of the market. Both crude and product stocks are low while the market is either in deficit or at best in balance. So there should be limited down side price risk. But oil product demand is likely to hurt more if Brent crude rises to USD 110-120/b and such a price level looks excessive.

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

Crude oil prices have been on a relentless rise since late June when it became clear that Saudi Arabia would keep its production at 9 m b/d not just in July but also in August. Then later extended to September and then lately to the end of the year. On paper this has placed the market into a solid deficit. Total OPEC production was 27.8 m b/d in August and likely more or less the same in September. OPEC estimates that the need for oil from OPEC in Q3-23 is 29.2 m b/d which places the global market in a 1.4 m b/d deficit when OPEC produces 27.8 m b/d.

The proof of the pudding is of course that inventories actually draws down when there is a deficit. A 1.4 m b/d of deficit for 31 days in August implies a global inventory draw of 43.4 m b/d. If we assume that OECD countries accounts for 46% of global oil demand then OECD could/should have had a fair share of inventory rise of say 20 m b in August. Actual inventory data are however usually a lagging set of data so we have to work with sub sets of data being released on a higher frequency. And non-OECD demand and inventory data are hard to come by.

If we look at oil inventory data for US, EU16 and Japan we see that crude stocks fell 23 m b in August while product stocks rose 20.3 m b with a total crude and product draw of only 2.7 m b. I.e. indicating close to a balanced market in August rather than a big deficit. But it matters that crude stocks fell 23 m b. That is a tight crude market where refineries are craving and bidding for crude oil together with speculators who are buying paper-oil. So refineries worked hard to buy crude oil and converting it to oil products in August. But these additional oil products weren’t gobbled up by consumers but instead went into inventories.

Rising oil product inventories is of course  a good thing since these inventories in general are low. And also oil product stocks are low. The point is more that the world did maybe not run a large supply/demand deficit of 1.5 to 2.5 m b/d in August but rather had a more balanced market. A weaker oil product demand than anticipated would then likely be the natural explanation for this. Strong refinery demand for crude oil, crude oil inventory draws amid a situation where crude inventories already are low is of course creating an added sense of bullishness for crude oil.

On the one hand strong refinery demand for crude oil has helped to drive crude oil prices higher amid continued production cuts by Saudi Arabia. Rising oil product stocks have on the other hand eased the pressure on oil products and thus softened the oil product refinery margins.

The overall situation is that Saudi Arabia together with Russia are in solid control of the oil market. Further that the global market is either balanced or in deficit and that both crude and product stocks are still low. Thus we have a tight market both in terms of supplies and inventories. So there should be limited downside in oil prices. We are highly likely to see Dated Brent moving above USD 100/b. It is now less than USD 5/b away from that level and only noise is needed to bring it above. Tupis crude oil in Asia traded at USD 101.3/b last week. So some crude benchmarks are already above the USD 100/b mark.

While Dated Brent looks set to hit USD 100/b in not too long we are skeptical with respect to further price rises to USD 110-120/b as oil product demand likely increasingly would start to hurt. Unless of course if we get some serious supply disruptions. But Saudi Arabia now has several million barrels per day of reserve capacity as it today only produces 9.0 m b/d. Thus disruptions can be countered. Oil product demand, oil product cracks and oil product inventories is a good thing to watch going forward. An oil price of USD 85-95/b is probably much better than USD 110-120/b for a world where economic activity is likely set to slow rather than accelerate following large interest rate hikes over the past 12-18 months.

OPEC’s implied call-on-OPEC crude oil. If OPEC’s production stays at 27.8 m b/d throughout Q3-23 and Q4-23 then OPECs numbers further strong inventory draws to the end of the year.

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

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

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

End of month crude and product stocks in m b in EU16, US and Japan. Solid draw in crude stocks but also solid rise in product stocks. In total very limited inventory draw. Refineries ran hard to convert crude to oil products but these then went straight into inventories alleviating low oil product inventories there.

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

ARA oil product refinery margins have come off their highs for all products as the oil product situation has eased a bit. Especially so for gasoline with now fading summer driving. But also HFO 3.5% cracks have eased back a little bit. But to be clear, diesel cracks and mid-dist cracks are still exceptionally high. And even gasoline crack down to USD 17.6/b is still very high this time of year.

ARA oil product refinery margins
Source: SEB graph and calculations

ARA diesel cracks in USD/b. Very, very high in 2022. Almost normal in Apr and May. Now very high vs. normal though a little softer than last year.

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

US crude and product stocks vs. 2015-2019 average. Still very low mid-dist inventories (diesel) and also low crude stocks but not all that low gasoline inventories.

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

US crude and product stocks vs. 2015-2019 averages. Mid-dist stocks have stayed persistently low while gasoline stocks suddenly have jumped as gasoline demand seems to have started to hurt due to higher prices.

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

Total commercial US crude and product stocks in million barrels. Rising lately. If large, global deficit they should have been falling sharply. Might be a blip?

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