Analys

SEB – Råvarukommentarer, 17 februari 2014

Publicerat

10 år sedan

den

18 februari, 2014

Redaktionen

Rekommendationer

Råolja – Brent

Oljepriset fick styrka i veckan av att El Sharara-fältet i Libyen fick stängas igen. Marknaden har till viss del räknat in att Iran och Libyen ökar sin produktion i år. Gör de det, så faller priset. Gör de inte det, så stiger priset. Stängningen av El Sharara var alltså inte positiv ur den aspekten.

Kinas import av råolja var på rekordnivå i januari (liksom importstatistiken var för en rad råvaror).

Tekniskt är det möjligt att den konsolidering av priset vi sett efter uppgången från 106 dollar till 109 är en så kallad ”vimpel”. Om det är det, ska vi vänta oss ett utbrott på uppsidan, som har potential att ta priset till 111 dollar.

Fundamentalt genomgår oljemarknaden ett paradigmskifte där fracking radikalt ökar utbudet av råolja och minskar OPEC:s monopolställning. På längre sikt är det svårt att se något annat än ett stort prisfall på olja och vi vill handla oljemarknaden från den korta sidan. Tekniskt och i det mycket korta perspektivet av en vecka är det dock inte uteslutet, rentav troligt, att priset bryter upp och testar den övre delen av det ”gamla” prisintervallet. Med den reservationen behåller vi säljrekommendation, men rekommenderar inte att man går in i nya korta positioner på den här nivån, utan avvaktar bättre säljtillfällen.

Elektricitet

Elpriset bröt bröt stödet på 28.50 i fredags, vilket innebär att marknaden säger att skyddet mot ytterligare nedgångar har brutits. Det innebär att marknaden med hög sannolikhet kommer att handla ner priset ytterligare. Samtidigt är priset på en mycket låg nivå, som vi ser nedan.

Det är omöjligt att säga var botten är. Det lägsta priset på Q2-kontraktet år 2007 var 25.8 euro per MWh, som vi ser i nedanstående diagram över det vid var tid kortaste Q2-kontraktets pris.

I diagrammet nedan ser vi prisutvecklingen på Q2-kontrakten under det första kvartalet varje år sedan 2006. Det andra kvartalets kontrakt är på den lägsta nivån sedan åtminstone 2006. I diagrammet nedan ser vi prisutvecklingen på Q2 2014 som den vita kurvan och Q2 2007 som den blå kurvan. Som vi ser, ser prisutvecklingen i år ut att röra sig snarlikt prisutvecklingen under 2007 sedan början av året. Om detta fortsätter kommer prisnedgången att fortsätta.

Prognosen för hydrologisk balans är enligt Markedskraft mer eller mindre oförändrad från förra veckan. Vädret i Norden är dock milt och nederbördsrikt just nu.

Terminspriset för leverans av kol nästa år har fallit från 87 dollar till 82.30. Priset är alltså tillbaka på bottennivåerna från oktober. Priset ligger under produktionskostnaden för gruvorna i Australien, Sydamerika och Kanada. Den australiensiska dollar har under samma period fallit med 8% mot US-dollarn, så där är en av förklaringarna till varför kolpriset inte har stigit i US-dollartermer. Som vi ser handlade kolpriset upp i fredags. Kanske är det en vändning?

Risken är stor att de stora kollagren (”kolhögar överallt”) i Europa och det milda vädret i Norden fortsätter att påverka elpriset nedåt resten av vårvintern. Tekniskt är stödet vid 28.50 brutet, vilket är en signal att ta stoppar. Rekommendationen kan inte bli annat än neutral som högst just nu. Man ska dock vara observant på om priset går tillbaka över 28.50 euro per MWh, med tanke på att priset är på absoluta bottennivåer i ett historiskt perspektiv.

Naturgas

Det har fortsatt att vara kallt i USA, men nu börjar man se en omsvängning. Naturgaspriset har faktiskt backat lite från förra veckans 4.60 till 4.52 i fredags.

Basmetaller

Vi har en mer eller mindre positiv pristrend i basmetallerna som helhet, men med svag tendens sedan början av året. Den nedgången ”borde” vara nära sitt slut (eller inte). Den väntade optimismen efter det kinesiska nyåret har inte infunnit sig. Marknadens aktörer väntar fortfarande på ny information om tillståndet i den kinesiska efterfrågan. En pusselbit delades ut den här veckan. Januari månads importstatistik visade ovanligt hög import (+10%) och export (+10.6%). Importen intresserar naturligtvis råvarumarknaden mest. Importen av koppar och järnmalm nådde rekordnivåer. Marknaden blev dock inte fullt så imponerad, eftersom den höga importen hänger ihop med årsskifteseffekter. Som vanligt byggs det lager innan året och en del tyder på att varor har bokats och registrerats tidigare, men levereras på det nya året. Det finns en klar risk att februari-statistiken inte kommer att vara lika imponerande. Marknaden behöver se februaristatstiken för att få ökat förtroende.

Från ett tradingperspektiv, föredrar vi fortfarande att handla nickel som om den var inom ett prisintervall, och inte i en trend, även om vi favoriserar den långa sidan mer än den korta.

Koppar

Som du kunnat läsa i inledningen till basmetallsegmentet här ovan, är vi lite oroade för kopparmarknaden. Risken för ökat utbud i kombination med skuldproblemen i Kina och risken för bankrutter inom den svarta banksektorn där, utgör en klar risk för nedsidan i kopparpriset. Just nu ser det dock inte ut att ske, i närtid i alla fall. Marknaden visar stark efterfrågan med backwardation i terminskurvan. Kinas import är extremt stark. Dessutom är vi just nu i de säsongsmässigt starka första och andra kvartalen. Vi skulle inte bli förvånade om kopparpriset testar de senaste toppnoteringarna någon gång de kommande månaderna.

Ur ett tradingperspektiv, gör osäkerheterna att vi inte vill ta någon position i metallen just nu. I vår fundamentala prognos för det genomsnittliga priset för året (7450), väntar vi oss en stark marknad under det första halvåret, sedan att priset handlar svagare i Q3 och med en möjlig återhämtning under Q4.

Vi rekommenderar neutral position i koppar.

Aluminium

Aluminium har handlat starkare sedan priset noterade femårslägsta den 3 februari vid 1671 dollar. Det är alltid riskabelt att vara kort råvaror som handlar så långt ner i förhållande till produktionskostnaden. Den fundamentala balansen visar äntligen på konstruktiva tendenser. Som väntat har blankarna börjat köpa tillbaka positioner.

Konsumenter har varit på köpsidan. De tar tillvara varje prisnedgång för att köpa ytterligare hedgar. Sammantaget har detta tagit tillbaka priset till den ”gamla” tekniska stödnivån vid ca 1750 dollar. Premierna i den amerikanska marknaden har planat ut vid de extrema nivåer kring 440 dollar per ton. Enligt våra källor i den fysiska marknaden skeppas nu aluminium från Mellanöstern till USA för att dra fördel av de höga premierna. CME har startat ett nytt terminskontrakt på den fysiska premien och det visar redan snabbt ökande öppen balans. LME planerar fortfarande att introducera ett kontrakt. De nya LME-reglerna för lagerhanteringen kommer på lite längre sikt att dämpa premierna. En annan effekt av den höga premien är att finansieringsaffärer inte rullas framåt, när contangot mellan cash + premium till termin (utan premium) på LME inte ger tillräckligt avans. Risken för högre räntor i och med att FED har inlett tapering och att klockan tickar för nästa räntehöjningscykel påverkar sannolikt också.

I vilket fall, finns ett behov för ytterligare minskning i produktionen av aluminium. Så länge detta inte materialiseras, finns risken att aluminiummarknaden går in i överskott igen, om vi inte får se starkare efterfrågan än förväntat.

Vi fortsätter med neutral rekommendation på aluminium.

Zink

Zink har gjort imponerande vinster de senaste veckorna. Samtidigt, som vi noterade för ett par veckor sedan, har styrkan mattats av oron i tillväxtländerna. Terminsmarknaden handlar fortfarande cash till 3-månaders på samma nivå och längre kontrakt med ett litet contango. Givet att balanserna på längre sikt förbättras från 2015 och framåt, tycker vi att kurvan är ganska billig.

Vi rekommenderar köp av ZINK S eller BULL ZINK X4 S.

Nickel

Nickel handlar mitt i prisintervallet, vid 14,200 dollar. Det återspeglar osäkerheten kring det indonesiska exportförbudet. Marknadens aktörer drar sig för att ta positioner i avvaktan på nyheter från den indonesiska regeringen. Värt att notera är att priset på nickelmalm från Malaysia, som delvis är ett alternativ för NPI-producenter, har gått upp i pris. Malm inom Kina blir också dyrare. Scenariot vi beskrivit tidigare för nickel är i stort sett fortfarande relevant och innebär att det finns en begränsad nedsida i nickelpriset. Risken är på uppsidan för resten av året.

Guld

Det är nu tydligt att guld verkligen noterade en botten vid 1200 dollar per uns. Fredagens handel var haussartad. Det är dock vanligt att det sista man ser av en prisuppgång i guld är en ”spik” av det slaget. Det känns inte rätt att så här sent i en uppgång som pågått i två månader, gå in och köpa. Vi tycker det är bättre att avvakta den rekyl som brukar följa.

ETF-statistiken visar infllöden i silver-ETF:er (svart kurva) men inte lika tydligt i ETF-er på guld (gul kurva).

Vi fortsätter tills vidare med neutral vy på guld.

Silver

Silver bröt motståndet i fredags och steg kraftigt. Prisrörelsen var mycket snabb och priset är nu nästan uppe vid nästa motstånd, vilket gör att det är för sent att rekommendera köp.

Vi fortsätter med neutral vy på silver.

Platina & Palladium

Platina, trots sin mycket lugnare utveckling än både guld och silver, har ett marknadsbeteende som i början av en trendvändning uppåt. Rekylen nedåt efter uppgången i början på året stannade på en högre nivå än botten i december. Det är ett positivt tecken. Trendlinjen för den fallande pristrenden bröts i början av januari. Även om det skulle komma en liten rekyl nedåt nu, skulle det inte förändra bilden av att en större trendvändning är på gång.

Palladium, där prisuppgången varit snabb seden botten för ett par veckor sedan, mötte säljare i fredags, vilket fick priset att stänga långt under dagens högsta notering. Palladium är alltså fortsatt ”cappad” på uppsidan och eftersom priset redan är ”högt” inom intervallet, rekommenderar vi neutral position.

Vi rekommenderar alltså köp av både platina och neutral i palladium.

Kaffe

Det har varit skyfall i Sao Paulo de senaste dagarna. Regnvädret rör sig norrut mot kaffeodlingarna i Minas Gerais. Prisuppgången stannade vid en nivå kring 140 cent per pund när väderleksprognoserna visade att regnvädret faktiskt var på väg norrut. Tekniskt har priset bildat en ”vimpel” vid 140 cent och en sådan formation brukar följas av antingen ett brott uppåt (mot 160 cent) eller ett fall tillbaka. Marknaden försöker nu som bäst få grepp om vad den långsiktiga effekten av torkan är på kaffeskörden i Brasilien. Det är möjligt att man kommer fram till att minskningen i skörd de kommande åren är så stor att priset borde gå upp. Vi ska komma ihåg att USDA genom en survey under hösten räknat ut att den genomsnittliga produktionskostnaden i Brasilien är 147 cent. Priset på 140 cent idag är alltså inte så högt att det skulle locka så många kaffeodlare att expandera. Bortfallen produktion kanske inte ersätts. Det talar för en fortsatt prisuppgång.

Vietnam rapporterade att exporten i januari var 36% lägre än förra året.

Vi fortsätter med köprekommendation.

Det finns nu också mini futures på kaffe, som erbjuder högre hävstång. Se SEB-bankens utbud.

[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

SEB Metals price forecast update

Publicerat

19 timmar sedan

den

30 november, 2023

Redaktionen

Softer economic growth in 2024 calls for somewhat softer metals prices in 2024. Industrial metals prices as well as other commodity prices exploded during Covid-19 as governments around the world unleashed stimuli in the magnitude of 10x of what was done during the global financial crisis in 2008/09. Consumers shifting spending from services to consumer goods added to the boom. Bloomberg’s industrial metals price index was up 91% in March 2022 versus January 2020 because of this. Global manufacturing PMI peaked in May 2021 and has been fading since and below the 50-line from September 2022 with latest reading at 48.8. Industrial metals prices have faded since their peak in March 2022 but are still 30% higher than they were in January 2020. Even zinc, the worst performing metal, is still 9% above where it was in January 2020. As such one could possibly argue that industrial metals have not yet fully faded from their Covid-19 stimulus boom. One possible explanation could be inflation where US inflation is up 19% over the period. But this still leaves industrial metals up 11% in real terms. Another possible explanation is the big jump in energy prices over the period. While coal and gas prices have fallen back a lot, they are still quite high. The coal price in western Europe is 110% above where it was at the start 2020 and 50% above its 2010-2019 average. Most industrial metals are highly energy intensive to produce with digging and crushing of rocks, smelting, and refining of ore. The current aluminium price of USD 2215/ton is for example well aligned with coal prices. In addition to this there has also been significant closures of zinc and aluminium smelting capacity in Europe which probably have supported prices for these metals.

Global economic growth is forecasted to slow from 3.5% in 2022, to 3.0% in 2023 and then again to 2.9% in 2024 as the big jump in interest rates induce economic pain with a lag. Aligned with this we expect lower industrial metals prices in 2024 than in 2023 though only marginally lower for most of the metals. But the field of metals is wide, and the price action is thus adverse. Copper is likely the metal with the most strained supply and with huge needs in the global energy transition.

Aluminium: Prices will likely be depressed versus marginal costs in 2024. Aluminium from Russia is flowing unhindered to the market. Most is going to China for reprocessing and potentially re-exported while some is going to Turkey and Italy. It is all flowing into the global pool of aluminium and as such impacting the global market balance. The LME 3mth aluminium price is currently well aligned with coal prices and both have traded mostly sideways since June this year. Aluminium premiums in the EU have however fallen 30-40% since mid-June in a sign of weakness there. The global market will likely run a surplus in 2024 with depressed prices versus the marginal cost of production.

Copper: Softer fundamentals in 2024 but with accelerating tightness on the horizon. Copper is currently trading at USD 8470/ton and close to 37% above its early Jan 2020 level. The market is expected to run a slight surplus in 2024 followed by accelerating tightness the following years. Downside price risk for 2024 is thus warranted along with softer global growth. The power of Unions is however getting stronger in Latin America with demands for higher salaries. Strikes have broken out in Peru with production at the Las Bambas copper mine at only 20%. Further strikes and disruptions could quickly put the market into deficit also in 2024.

Nickel: Indonesia pursuing market share over price pushing the price down the cost curve. Indonesia’s nickel production is growing rapidly. Its production reached 1.6 million ton in 2022 (+54% YoY) and accounted for close to 50% of total global supply in 2022. Its share looks set to reach 70% by 2030. Lower prices will stimulate demand and will also force higher cost producers to shut down thus making room for the wave of new supply from Indonesia. Prices will be sluggis the nearest years as Indonesia aims for market share over price.

Zinc: Price has stabilized around USD 2500/t. Weakness in global construction will drive prices lower at times in 2024. The 3mth LME zinc price has fallen from a peak of USD 4499/ton in April 2022 to only USD 2248/ton in May 2023. Since then, it has recovered steadily to USD 2500/ton. Demand could struggle in 2024 as construction globally will likely struggle with high interest rates. But mine closures is a natural counter effect of low prices and will put a floor under prices.

Price outlook

Bjarne Schieldrop
Cheif Commodities Analyst
SEB Commodity Research

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Analys

Now it’s up to OPEC+

Publicerat

2 veckor sedan

den

20 november, 2023

Redaktionen

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

Publicerat

1 månad sedan

den

24 oktober, 2023

Redaktionen

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.

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.

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.