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SEB – Råvarukommentarer, 20 maj 2013

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SEB Veckobrev med prognoser på råvaror

Rekommendationer

Råvarupriser från SEB den 20 maj 2013

*) Avkastningen avser 1:1 råvarucertifikat där de ingår i rekommendationen. I den aktuella tabellen ovan har jag tagit prisförändringen den senaste veckan sedan det förra veckobrevet publicerades.

Inledning

Råvarumarknaden har fortsatt att vara svag i veckan som gick. WASDE-rapporten börjar sjunka in hos “ags” marknaden. Sådden av majs väntas ha tagit ett rekordstort kliv framåt, vilket kommer att visa sig på måndagskvällen, när USDA publicerar siffrorna. Guldmarknaden följer ett klassist mönster för en kraschande marknad. Jag tror inte att prisfallet är över än.

Råolja – Brent

Oljan var upp vid tidigare stödet (nu motståndet) vid 105 dollar. Priset orkade inte igenom och då brukar prisfall följa. Stöd finns vid 100 dollar, men trenden är nedåtriktad i det korta perspektivet. I det långa perspektivet saknas trend för råoljan.

Analys av brent-olja

Lagren och lagerförändringarna i USA den senaste rapportveckan (som slutade den 10 maj) ser vi nedan, enligt Department of Energy och American Petroleum Institute.

Oljelager i USA

Nedan ser vi amerikanska råoljelager enligt DOE i tusen fat. Den svarta kurvan är 2012 års lagernivåer vecka för vecka och den lilla röda linjen är 2013 års nivå.

Amerikanska råoljelager

Importen fortsätter att hålla sig under förra årets nivå. Veckans notering var nästan oförändrad från veckan innan.

Import av olja - USA 2012 - 2013

Vi fortsätter att ligga neutralt för att förhoppningsvis kunna komma in billigare i OLJA S om priset går ner till 100 dollar eller lägre igen.

Elektricitet

Terminen gick i veckan upp och ”stängde gapet”, det hopp nedåt i priserna som inträffade för en dryg vecka sedan. När sådant är avklarat brukar prisfallet fortsätta i den ursprungliga riktningen, i det här fallet alltså nedåt.

Analys av elpriset för investerare

Hydrologisk balans har fortsatt att stiga.

Hydrologisk balans har fortsatt att stiga

Eftersom priset trots allt kommit ner ganska långt, väljer vi att fortsätta med neutral position.

Naturgas

Tekniskt är läget osäkert, mitt emellan den övre delen och den undre delen av den senaste tidens kursintervall. Vi väljer att gå över till neutral position.

Naturgaspris-analys för investerare

Guld & Silver

Guldpriset följer ett välkänt mönster för en kraschande marknad. Först ett kraftigt fall (i april), fyndköpare, och så säljläge igen och ett nytt prisfall som börjar lite försiktigt och sedan blir allt mer panikartat. Vi är nu nästan framme vid den punkt då paniken ska börja gripa de som har för mycket guld i sina portföljer. Sannolikheten är väldigt stor att det initiala prisfallets botten i april på 1322 dollar / ozt ska nås. Om paniken infinner sig i veckan kan prisfallet bli ännu större.

Fallande guldpris - Spot-börspriset

17 analytiker som tillfrågats av Bloomberg tror att priset faller i veckan som kommer. Endast 8 tror att priset stiger.

April månads fyndköpare av mynt som gjorde att the US Mint, med flera nådde försäljningsrekord, har tömt ut sina resurser. Maj ser ut att endast nå 65% av april månads försäljning enligt the US Mint. Samtidigt fortsätter ETP-innehavare dumpa sina innehav. Nedan ser vi guldpriset och antal utestående GLD-depåbevis (röd kurva).

Guldpriset och antal utestående GLD-depåbevis

Vad som kan ha utlöst försäljningarna var ”hacket” i kurvan på penningmängden i USA. Samtidigt började FED tala om ett slut på QE. Men som vi ser i grafen nedan, har M1 fortsatt att öka i USA. Man fick kalla fötter hos FED och fortsatte trycka pengar. Det gör att det byggs upp ett latent stöd för guldpriset, bara kursfallet tar slut.

Mängden pengar i M1 för USA och guldpriset i dollar

Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Stödet på 22 dollar håller än så länge. Bryts den nivån finns inget förrän vid 20 dollar, 10% längre ner.

Silverpris-analys för att investera

Jag tror att silverpriset kan gå lite lägre från dagens nivå, ner mot 22 eller 20 dollar.

Vi ligger korta guld och silver. Jag tror att det kommer en till vända ner och ligger självklart kvar med köpt position i BEAR GULD X4 S och BEAR SILVER X4 S.

Platina & Palladium

Platinapriset föll i fredags ner till den övre delen av konsolideringen efter prisfallet i april, till 1450. Det är en nivå där det kan finnas tillräckligt stöd för att hejda prisfallet, men dynamiken är ändå på nedsidan.

Platinapris-prognos i diagram den 17 maj 2013

Palladium fortsätter att sega sig upp från förra veckans 710 dollar till 735 dollar. 750 dollar är en nivå där många nog tycker att det är allt för frestande för att inte sälja.

Tradinganalys på palladium-priset

Vi ligger kvar såld både platina och palladium, dvs med BEAR PLATNA X4 S och BEAR PALLAD X4 S.

Basmetaller

Den internationella konjunkturen står och tvekar, och så även de industriella råvarorna. Råvarumarknaderna har under våren präglats av frågetecken kring Kina, där ekonomin inte riktigt tar den fart som väntats under de säsongsmässigt starka 2:a kvartalet. Den andra stora råvarukonsumenten, USA visar positiva tecken, men även där har tveksamhet kring konjunkturen smugit sig på marknaden. Veckans statistikskörd spädde på osäkerheten: 1. antalet personer med arbetslöshetsunderstöd steg rejält, 2. husmarknaden var svagare än väntat, 3. inflationstrycket (KPI) är svagt och 4. industriaktiviteten tvekar (Philly Fed). Samtidigt har marknaden svårt för fotnedsättning: ska Fed påbörja exitpolitiken under hösten och fasa ut värdepappersköpen på $ 85 mdr/mån? Flera Fedtal tolkas som att exitplaner övervägs – vilket ger dollarstöd, en faktor som verkar hämmande på de dollarnoterade råvarorna. Våra makroekonomer räknar dock med att Fed fortsätter året ut.

Basmetallerna låg i startgroparna för en uppgång inför veckan. Men riskaptiten infann sig inte. Kortsiktiga aktörer som positionerat sig för uppgång fick kalla fötter och sålde istället. Veckan slutar med en nedgång på 1-2 % för de stora metallerna. Nickel sticker ut med ett prisfall på 4 %.

Koppar

Som vi skrivit tidigare har vi haft kopparn under bevakning för att gå från neutral till köp. Tekniskt sett bedömde vi förutsättningarna som goda för en kortsiktig uppgång. Trots veckans tillbakagång (1,4 %), ser vi tecken på att det negativa stämningsläget kring koppar håller på att svänga om.

I förra veckan redovisade vi Kinas kopparimport som kom in fortsatt svagt i april. I nedanstående diagram ser vi förändringen på årsbasis. Den negativa förändringen avtar och enligt det cykliska mönstret förväntar vi oss en positiv utveckling under de närmsta månaderna.

Procentuell förändring av kopparimporten (årsbasis)

Procentuell förändring av kopparimporten (årsbasis)

Ett annat tecken är förändringen av LME-lagret. Vi ser både lagerminskningar och en ökning av ”cancelled warrants”. Det senare är statistik på mängden material som är på väg att plockas ur lager. Uttagen sker i Sydkorea och tyder på ökad efterfrågan – sannolikt med destination Kina. Detta stämmer överens med den förväntade ökningen av importen till Kina. Kineserna brukar utnyttja prisskillnaden mellan LME och Shanghai, som nu efter prisnedgången är till LME:s fördel.

Cancelled warrants and LME stocks

Tekniskt sett fokuserar vi på ”dubbelbotten” från april och maj, som ger en potentiell uppgång till $7620, där motståndet sätter in. Nästa nivå är $7800. Den omedelbara pressen på koppar verkar vara över och den nedåtgående trenden är bruten. Den generella trenden får betraktas som mer sidledes för koppar.

Analys på kopparpris om att investera

Vi förväntar oss fortsatt hög volatilitet. Vår kortsiktiga bedömning talar för uppsidan och vi rekommenderar därför köp av BULL KOPPAR X2 S eller X4 S.

Aluminium

Priset har nu ”testat” stödnivåerna vid $1810-20 vid tre tillfällen, och lyckats studsa upp. Det är ett styrketecken. Vi ser fysiska aktörer som går in och täcker in framtida konsumtion via terminsköp vid varje dipp. Tekniskt orienterade fonder säljer vid varje uppställ. Trenden blir därefter, det rör sig sidledes. Vi ser tecken på att marknaden håller på att bottna ur. Högkostnadsproducenterna, framför allt i Kina, förväntas minska utbudet (ännu mer) om priset långvarigt stannar på nuvarande nivåer.

Långsiktigt är nivån väldigt intressant för kontraktet Aluminium S (utan hävstång).

Aluminium - Analys på pris för investerare

Zink

Situationen för zink påminner om den för aluminium, både fundamentalt och tekniskt. Vi bedömer zinken som ”billig” ur ett kostnadsperspektiv och nuvarande nivåer är mycket intressanta på lite längre sikt (6-12 månader). I det perspektivet är Zink S (utan hävstång) att föredra.

Zinkpriset analyserat för investerare

Nickel

Nickel uppvisade förnyad svaghet i veckan och faller med 4 %. Trots väldigt goda efterfrågeutsikter på sikt, där den rostfria- och specialstålproduktionen förväntas öka med fortsatt utbyggnad av olje- och gasproduktion och specialstål till flygindustrin, ”lider” nickelmarknaden av ett överskott. Produktionstekniken av s.k. Nickel Pig Iron i Kina har utvecklats med s.k. Rotary Kiln Electric Furnaces (RKEF) teknik, vilken i genomsnitt sänker hela kostnadskurvan. Samtidigt får högkostnadsproducenterna i gruvledet problem på nuvarande nivåer. Vi har tidigare rapporterat om produktionsneddragningar i Australien, och det förväntas komma mer.

Effekten av RKEF-tekniken riskerar att flytta ner nivån där utbudsminskningarna verkligen får effekt. Priset har brutit viktiga stödnivåer, och vi får gå tillbaka till juli 2009 för att hitta lägre priser. I det perspektivet kommer nästa stora stödnivå in kring $14000. Vi är inte så långt därifrån och vi bedömer nivåerna från dagens pris kring $14800 ned mot nivån som väldigt attraktiva på 6-12 månaders sikt. I det perspektivet är Nickel S (utan hävstång) att föredra.

Nickel 2009-2013

Nickelpriset 2009 - 2013

Nickel på kort sikt

För veckan, och ur ett tekniskt perspektiv, gäller det att nivån från i början av månaden $14600 håller, för att undvika en test av lägre nivåer. Det finansiella kollektivet är väldigt ”korta” och frågan är hur mycket mer kraft det finns för att pressa priset ytterligare. Det byggs upp ett stort behov av att köpa tillbaka kortpositioner, vilket i sig kan skapa kraftiga rekyler på uppsidan.

Nickel på kort sikt

Kaffe

Årets skörd i år i Brasilien är en mellanårsskörd för arabica. Conab i Brasilien publicerade en rapport den 14 maj på 48.59 miljoner säckar (à 60 kg). Enligt Conabs statistikserie blir det den största skörden någonsin för Brasilien. Om man jämför med det amerikanska jordbruksdepartementets tidsserie är skörden något lägre än 2011/12.

Nedan ser vi Brasiliens produktion i 1000 säckar. Den sista noteringen, för 2013/14, är hämtad från Conabs prognos. Resten är USDA:s data.

Produktion av kaffe i Brasilien

Brasilien är världens största producent av kaffe och har hållit den positionen de senaste 53 åren. Under militärdiktaturens tidsjönk landets andel från 50% ner till 20%, men den hämtade sig stadigt från mitten av 1990-talet och har legat stabilt de senaste 13 åren. Vietnam producerar uteslutande den sämre kaffesorten robusta. Den odlas också i delstaten Espirito-Santo i nordöstra Brasilien. Just den delen av Brasilien har varit ovanligt torrt, vilket kan ge lite mindre skörd av robusta.

Produktion av kaffe per land i världen

The International Coffee Organisation har nyligen publicerat en rapport om kaffeblads rosten (roya). De väntar sig att den ska ha långvarig negativ effekt på produktionen. Däri ligger kanske fröet för nästa uppgång, men just nu är trenden nedåt. Marknadens försök att handla upp priset misslyckades.

Analys av kaffepriset för investerare

Sedan mars månad har däremot inte priset fallit som tidigare. Vi har först sett lägre bottnar, men uppgångarna har varit lika högre som föregående eller högre. Kanske håller något på att hända i kaffemarknaden.

Vi tror man kan försöka sig på att köpa kaffe för lite längre sikt, t ex KAFFE S. En stopp-loss på 132 (basis juli-kontraktet) bör man dock ha.

Socker

Marknadsföringsårets 2013/14 skörd av sockerrör har börjat i Centro-Sud i Brasilien. Hittills i maj har vädret varit gynnsamt för skördearbetet. Cepea rapporterar att köpare är avvaktande, eftersom det finns en förväntan om lägre priser när ”crushen” kommit längre.

Analys av sockerpris med neutral rekommendation

Vi fortsätter med neutral rekommendation.

[box]SEB Veckobrev Veckans råvarukommentar är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

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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.

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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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