Analys
SEB – Råvarukommentarer, 18 november 2013

Rekommendationer
*) Avkastningen anges för 1:1 certifikaten där både BULL och 1:1 certifikat är angivna.
Inledning
Energi handlades upp i förra veckan. OLJA S och EL S steg båda med 4%. Basmetallerna inledde veckan med att fortsätta nedåt, men vände upp mot slutet av veckan. Jordbruksprodukterna handlades allmänt sett något svagt under lugn handel. Det kommer inte att komma så mycket ny information om spannmål och oljeväxter förrän i januari och det finns lite information just nu att handla på.
Ädelmetallerna, som prismässigt inte rosat marknaden alls i år, fick tillbaka lite glans i veckan.
Politiska uttalanden efter det tredje kinesiska politiska plenarmötet (under den 18:e kinesiska folkkongressen) var från början en stor besvikelse för marknaden, som omedelbart fick kinesiska aktier och industrimetaller på fall. Marknaden hade hoppats och förväntat starkare signaler om reformer (liberalisering). Politiska uttalanden från sådana plenarsammanträden, är dock alltid mycket generella och tydligare signaler kan komma under de närmaste veckorna. Marknaderna återhämtade återhämtade sig.
Den tillträdande nya chefen för USA:s centralbank, Janet Yellen sade i veckan: ”Jag anser att det är viktigt att vi gör vad vi kan för att främja en mycket stark återhämtning” Hon placerade sig starkt bakom Bernankes penningpolitik med kvantitativa lättnader, och kommer att fortsätta dessa. Billiga pengar kommer alltså att strömma in i Kina och andra tillväxtmarknader. Detta gav globala aktiemarknader understöd de senaste dagarna. Det har också resulterat i att likvideringen av placeringar i guld har stannat av.
Råolja – Brent
Oljepriset fortsatte att återhämta förlorad mark i veckan som gick. EPA (i USA) meddelade i fredags att inblandningen av biobränslen i amerikanska drivmedel ska sänkas. Det var en förlust för den amerikanska jordbrukslobbyn och en vinst för petroleumindustrin. Prisuppgången i USA är nästan uppe vid det tekniska motståndet 110 dollar och vi tycker att man ska avvakta med köp just nu, även om vi generellt sett tycker att man bör vara köpt OLJA S i en diversifierad sparportfölj.
I onsdagens DOE-rapport steg råoljelagren för åttonde veckan på raken. Lagernivåerna ligger nu återigen på rekordnivåer för den här tiden på året, högre än förra året.
Lagerökningen i USA har hänger dock ihop med en något högre import än de senaste veckorna, som vi ser i diagrammet nedan.
Vi tycker att priset är något ”högt” i dag, och även om vi som sagt tycker att OLJA S erbjuder bra avkastning via rabatten på oljeterminerna, tror vi det är bättre att vänta med köp.
Elektricitet
Elpriset, det första kvartalets kontrakt, gick upp till motståndet i diagrammet nedan, vid 42.35 euro och föll sedan tillbaka för att stänga på 41.60 på veckan. Veckans prisuppgång i el och en starkare euro mot kronan ledde till att EL S steg med 4% och BULL EL X4 S med 14%. Om fredagens nedgång fortsätter i veckan, är det troligt att rekylen nedåt åtminstone går till 41 euro, där det finns ett visst stöd.
Nedan ser vi prisdiagrammet för det första kvartalet 2014:s kontrakt, uppdaterat till i fredags.
Nedan ser vi priset på energikol, den närmaste månadens leveranstermin. Priset slutade veckan med att falla ner till 55-dagars glidande medelvärde igen. Prisuppgången lyckades inte ta priset över 83 dollar, som nu är ett motstånd för vidare uppgång.
Prisutvecklingen på utsläppsrätter har blivit allt lugnare. Vi tror att det är ett temporärt lugn. En avtagande volatilitet på svagt sjunkande kurser, kan plötsligt vändas i en snabb uppgångsfas.
Hydrologisk balans ser vi nedan. Vi ser särskilt att 10-veckorsprognosen föll i veckan och indikerar nu ett hydrologiskt underskott på 8 TWh.
Vi rekommenderar köp av EL S eller BULL EL X4 S, men tycker man kan avvakta någon dag in i veckan ifall marknaden öppnar ner på måndag.
Naturgas
Naturgaspriset som för två veckor sedan fann stöd på 3.40 och vände upp till 3.60, har efter en hastig rekyl fortsatt uppåt. Trenden är dock nedåtriktad och man de som väntar på ett tillfälle att köpa BEAR kan snart få det.
Metaller
Metallerna gynnades allmänt av Yellens besked om att fortsätta Bernankes inslagna linje med kvantitativa lättnader och en expansiv penningpolitik.
Koppar
Kopparpriset föll hela vägen ner till 7000 dollar per ton, där marknaden har gott stöd. I fredagskvällens handel på COMEX i New York kom köpare in och handlade upp marknaden.
Vi tycker att prisfallet har gett en möjlighet att komma in på den långa sidan till bra pris och rekommenderar köp av KOPPAR S.
Aluminium
Aluminium, som är den basmetall vi och de flesta bedömare är mest skeptiska till som placering, har den senaste månaden handlats ner till de lägsta nivåerna de senaste åren, sommarens bottennivåer. Med tanke på hur väl etablerad den bottennivån är, tror vi inte att den kommer att brytas den här gången heller. Vi tror att priset kommer att vända upp från den här låga nivån, och kanske gå till 1850 eller till 1900 dollar per ton. Därför gör vi en kortsiktig rekommendation att köpa ALUMINIUM S.
Zink
Det finns inte så mycket att rapportera om zink den här veckan. Priset fortsatte förra veckans rekyl nedåt i början av veckan, men köpare kom sedan in och gav stöd. Den försiktiga uppåtgående trenden är inte bruten och vi tycker att man kan passa på att försiktigt köpa mer ZINK S.
Nickel
Vår grundsyn är att man ska försöka köpa nickel, i synnerhet om priset kommer ner mot 13,500 dollar per ton. Som vi ser i prisdiagrammet nedan, är priset nere vid den bottennivå som började etableras under juli och vi tror att det är ett bra köptillfälle nu.
LME-lagren av nickel ökade med 4.7 kt till 245 kt senaste 7 dagarna med en liten nedgång i Nederländerna och ytterligare lagerbyggnad i Malaysia. Contangot har ökat längre ut på terminskurvan. När lagren ökar, skapar det kö för att få ut nickel från lagren längre fram. Nedanför ser vi en bild på LME-lagren och priset på 3-månaders terminskontrakt.
Metal Bulletin Research förutspår att lagren av nickel kommer att fortsätta öka både under 2014 och 2015. Det har inte kommit några nyheter om stängningar av nickelgruvor. Många rubriker om Talvivaara, som måste omstrukturera skulden och reserverna har sjunkit 66 %. Aktieägarna har inte varit villiga att skjuta till mer pengar. Tyfonen som drabbat sydöstra Asien, verkar inte ha förstört nickel produktionen i Filippinerna. Sumitomo meddelade att deras smältverk i Filippinerna producerat sin första nickel och exporterat metallen till Japan.
Vår grundsyn att man bör försöka köpa nickel och rekommenderar köp av NICKEL S. Priset (cash och 3 månaders termin, som vi alltid avser), går att följa på www.basemetals.com
Guld
Guldpriset (i dollar) gick i veckan ner och testade det tekniska stödet och steg mot slutet av veckan till 1290 dollar. Trenden är nedåtriktad, men volatiliteten har sjunkit, med allt mindre kursrörelser. Det är ett mönster som ibland förebådar en trendvändning uppåt, men det återstår att se.
I termer av kronor, har priset hållit sig stabilt, med endast marginella prisrörelser under veckan. Vi ser kursdiagrammet på priset i kronor för ett troy uns nedan. Notera att vi inte har någon teknisk köpsignal, men vi har ett tekniskt stöd vid 8000 kr. Trenden är fortfarande nedåtriktad.
I diagrammet nedan ser vi antalet uns som innehas av börshandlade fonder det senaste halvåret. Den gula kurvan avser guld och den svarta silver. Utflödet ur guldfonder har minskat i november, medan utflödet ur silverfonder ökat.
World Gold Council rapporterade i veckan att efterfrågan på guld under det tredje kvartalet minskat med 21% sedan förra året till 868.5 ton. Det är framförallt utflöden ur börshandlade fonder som ligger bakom. Investeringsefterfrågan har minskat med 56% sedan förra året. Efterfrågan på fysiskt guld har ökat något till 304 ton, medan börshandlade produkter haft ett utflöde på 119 ton. Utbudet av guld har också minskat, trots att gruvproduktionen ökat något. Det är skrotningen (av smycken) som står för minskningen.
I dessa siffror ligger också en viss nyckel till hur en uppgång skulle kunna börja. Fysiskt investeringsguld säljs sällan, eftersom det inte är lika likvitt som börshandlade produkter. Skulle investeringsflödet i börshandlade produkter vända, t ex motiverat av låga eller ännu lägre räntor och en fortsatt expansiv penningpolitik, kan det ge marknaden stöd.
Trots att det finns vissa positiva tecken, tycker vi dock att det är för tidigt och för spekulativt att köpa guld just nu och föredrar att vänta till dess det skett ett trendbrott.
Silver
Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Priset stängde i fredags på 20.8 dollar per uns, strax över det viktiga tekniska stödet på 20.61. Om det stödet bryts, kan priset gå ner mot 18 dollar i första hand. Om priset å andra sidan går över 22 dollar bryts den långsiktiga nedåtgående trenden. Marknaden står och väger just nu.
Vi fortsätter att vara neutrala guld och silver.
Platina & Palladium
Platinapriset ligger fortfarande under motståndet och kan lika gärna gå ner som upp. Men de lite mer positiva tongångarna från den tillträdande chefen för USA:s centralbank om en fortsatt mjuk penningpolitik, tror vi att det finns mer uppsida. Dessutom är arbetsmarknadskonflikten i Sydafrika snarare på väg att eskalera än att gå mot en snar lösning.
Enligt Johnson Matthey kommer efterfrågan på platina att överstiga utbudet av med den största skillnaden sedan år 1999. Sammanlagt blir underskottet 605 000 ozt, vilket är en ökning av underskottet med 78 % sedan förra året. Johnson Matthey förväntar sig en ingen lösning på problemen i Sydafrika. Impala Platinum har erbjudit en löneökning till sina anställda på 0.5%. Amplats mining skjöt med gummikulor för att skingra demonstranter vid gruvan i veckan. AMCU, den andra fackföreningen som ännu inte gått i strejk, har fått tillstånd av myndigheterna att gå i strejk om det inte sker några framsteg i löneförhandlingarna. Fackföreningen kommer att ha möten de närmaste veckorna för att besluta hur de ska göra. AMCU är den största fackföreningen vid det största platinaföretaget, Anglo American Platinum Ltd.
PwC, den välkända revisionsfirman varnade i veckan att Sydafrikas gruvindustri kan falla i ruiner på grund av höga löner och lagstadgade kostnader.
Strejken vid Northam Platinums gruva i Sydafrika fortsätter. Det är svårt att säga hur mycket platina som fallit bort från utbudet.
Priset på palladium har backat den senaste veckan, efter att ha kommit för högt upp i det prisintervall som varit rådande det senaste året. Det verkar finnas gott om material på pris över 760 dollar per uns.
Enligt Johnson Matthey blir det ett underskott på 740 000 uns palladium i år, men det är 36 % lägre än underskottet var 2012.
Antalet sålda bilar i Kina i september och oktober låg på en årlig försäljningstakt på 23 miljoner bilar, vilket var mer än väntat. Den årliga ökningstakten är 20 %. Detta har dock ändå inte hindrat att priset på palladium sjunkit med 3% den senaste veckan.
Situationen i Sydafrika tycker vi är så alarmerande att vi väljer att gå över till köprekommendation igen. Däremot behåller vi neutral på palladium.
Kaffe
Kaffepriset handlade hela veckan över den tidigare bottennivån strax över 100 cent och stängde veckan på 109 cent. 110 cent har rekylen dock ännu inte lyckats ta sig över.
På en konferens i lördags (16 nov) i Costa Rica, sade BNP Paribas kaffeanalytiker att produktionsöverskottet i år 2013/14, som började den 1 oktober sjunker till 3 miljoner säckar (à 60 Kg) från 4 miljoner säckar under 2012/13. Nästan hela överskottet utgörs av arabica. Konsumtionen av den billigare och enklare och mer lättodlade robustan ökar i tillväxtländerna så att den relativt stora produktionsökningen framförallt i Vietnam sväljs.
I fredags sänkte dock USDA estimatet för Brasiliens skörd av kaffe (huvudsakligen arabica) från 53.7 miljoner säckar till 53.1 miljoner för 2013/14, vilket är 3 miljoner säckar mindre än under 2012/13. Det står i rapporten på USDA:s hemsida att kvaliteten är sämre än förra året.
Kostnaderna väntas stiga från en nivå 2012/13 på 122 cent per pund till 134 cent per pund. Det innebär att priset ligger under en nivå där 50% av kaffeproducenterna i Brasilien gör förlust. Det är naturligtvis en ohållbart låg prisnivå. Den som vill läsa rapporten kan göra det här.
Vi behåller tills vidare neutral rekommendation, tills vi ser tecken på ett trendbrott.
För analyser på övriga jordbruksråvaror se SEB Jordbruksprodukter.
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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
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Analys
[If demand] ”comes around as forecast, Hallelujah, we can produce more”

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.

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.

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 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.

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

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

Analys
The ”normal” oil price is USD 97/b

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.

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

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

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

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

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.

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.

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

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.

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 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.

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 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.

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?

Source: SEB graph and calculations, Blbrg data feed, EIA data
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