Analys
SEB – Råvarukommentarer, 21 oktober 2013

Rekommendationer
*) Avkastningen anges för 1:1 certifikaten där både BULL och 1:1 certifikat är angivna.
Inledning
Vi rekommenderar köp av el igen. Elpriset har rekylerat 2% sedan förra veckan. Samtidigt har priset på kol stigit med 5% och priset på utsläppsrätter med 11%. Samtidigt som elmarknaden fått en hälsosam rekyl på vinsthemtagningar, har priset fallit, samtidigt som produktionskostnaden stigit. Det är ett perfekt läge för att gå in och köpa certifikat på igen. EL S eller BULL EL X4 S om man vill ta mer risk.
Guld höll sig över det tekniska stödet och steg med 3% i veckan som gick. Till stor del beror detta på att dollarn försvagades mot andra valutor. Det sägs att ”when life gives you lemons, make lemonade”. Guldmarknaden åsatte åtminstone en liten sannolikhet för default av USA, men när det inte blev av, vändes blickarna mot ännu mer QE3-lemonad, om man får säga så. Därav uppgången. PGM-metallerna platina och palladium hade en ännu starkare vecka med uppgångar på 4 – 5%. Det extra stödet kom från statistik som visade ökad bilförsäljning i Europa. Detta fick även blypriset att stiga med 5%. Zinkprisets uppgång på 2% kan också ha påverkats positivt av bilförsäljningsstatistiken. På basis av detta går vi över till en försiktig kortsiktig köprekommendation av PLATINA S, men behåller ”neutral” på de andra ädelmetallerna.
Kinesisk statistik kom i fredags. BNP för det tredje kvartalet hamnade på +7.8% i tillväxt, vilket var helt enligt förväntningarna, men högre än tidigare under året. Industriproduktionen i september ökade med 10.2% och detaljhandelsförsäljningen med 13.3%. Kina står för en betydande del av råvaruefterfrågan i världen. Att tillväxten nu tycks ha tagit fart även i Kina, är mycket positivt för råvarumarknaden.
Råolja – Brent
Oljepriset backade med 1% i veckan som gick, men det ser inte ut som en trendvändning nedåt, utan som en rekyl innan ett nytt test uppåt.
På grund av den attraktiva rabatten på terminer i oljemarknaden och för att vi inte ser någon omedelbar risk för väsentligt lägre pris på olja rekommenderar vi innehav i OLJA S.
Elektricitet
Första kvartalet 2014:s terminskontrakt som sedan det inte klarade av att gå över motståndet vid 44.55 euro för drygt en vecka sedan befunnit sig i rekyl, stängde i fredags på stödet vid 42.35 euro per MWh. Veckans nedgång blev 2%. Förra veckan rekommenderade vi neutral position i väntan på att rekylen skulle bli färdig och erbjuda ett nytt köptillfälle. Vi anser att vi är där nu och rekommenderar köp av EL S eller BULL EL X4 S för den som vill ta mer risk och få större utväxling om priset stiger. Samtidigt som priset på el har backat, har nämligen priset på kol stigit med 5% och priset på utsläppsrätter stigit med 11%. Det gör att gapet mellan priset på el och kostnaden för att producera elen, återigen blivit attraktivt för att vara köpt el.
Nedan ser vi prisdiagrammet för det första kvartalet 2014:s kontrakt.
Nedan ser vi priset på energikol, den närmaste månadens leveranstermin. Priset har stigit till den högsta nivån sedan i maj.
Även årskontraktet på kol har stigit från 80 dollar till 83.70, som vi ser i diagrammet nedan.
Priset på utsläppsrätter har stigit och sedan rekylerat i vad som ser ut som en flagga. Om det är en flagga, säger den tekniska analysen att prisobjektivet hamnar vid 6 euro per ton.
Vi rekommenderar alltså köp av EL S eller BULL EL X4 S.
Naturgas
Naturgaspriset gick inte igenom 4 dollar och föll därefter. Vi ser dock att det glidande medelvärdet, som mäter trenden, har vänt uppåt och är stigande. Då och då ser man rekyler där det glidande medelvärdet även fungerar som stöd. Det skulle kunna bli så den här gången, vilket i så fall indikerar att priset kan komma att stiga i veckan som kommer.
Vi har neutral rekommendation.
Guld & Silver
Guldpriset (i dollar) steg när dollarn föll efter uppgörelsen i Washington om en höjning av skuldtaket.
Stora investmentbanker som Credit Suisse och Goldmans Sachs har säljrekommendation på guld. Chefen för råvaruanalysen på Goldman Sachs har kallat guld för en ”slam dunk” bear-kandidat för år 2014. I en studie gjord av Bloomberg i fredags, väntar sig de 10 mest träffsäkra analytikerna på de stora bankerna och analyshusen i världen att guldpriset kommer att falla under vart och ett av de kommande fyra åren.
Om man ska drista sig till analysera analytikerna, kan man se att Goldman Sachs har en tendens att extrapolera trender. När oljepriset år 2008 var på väg uppåt sade de t ex att priset skulle nå över 200 dollar per fat. Samma sak innan guldpriset vände ner.
När det gäller guld är analytiker av två slag – sådana som i grunden inte ser någon praktisk anledning att investera i guld på den ena sidan. ”Guld ger ingen avkastning” är ett vanligt argument från dem. Den andra sidans analytiker tillhör den grupp männskor som pekar på att guldpriset speglar en sorts försäkringspremie mot framförallt statlig förstörelse av pengars värde genom konkurs eller inflation och har uppfattningen om att detta kommer att bli värre. Det är sällan personer i grund och botten ändrar uppfattning om guldets föredömen som placering. Den sida som haft mest rätt den senaste tiden är den första halvan av analytikerkåren, men om priserna går upp bli blir det istället den andra halvan. Det är därför inte förvånande att de som haft mest rätt den senaste tiden, enligt Bloombergs survey, också har en negativ inställning till framtiden.
I veckan som gick sköts en amerikansk default på statsskulden upp och ersattes av en fortsättning av QE3 (expansion av penningmängden).
Samtidigt har faktiskt det låga priset fått effekt på produktionen. Barrick Gold Corp, världen största producent meddelade att de ska stänga eller minska produktionen i 12 guldgruvor, från Peru till Papua New Guinea.
Det har varit en trend hos guldbolagen sedan år 2000 att inte prissäkra produktionen, så som andra gruvbolag gör. Aktiemarknaden har uppmuntrat detta. Gruvbolagen har sammantaget köpt upp till 400 ton (årlig global gruvproduktion ca 2500 ton) i terminer för att avskaffa hedgarna under hela 00-talet. Gruvbolagen har alltså själva stått för en betydande ”efterfrågan” på guld. Med det mycket mer negativa sentiment kring guldpriset som råder nu, är det troligt att gruvbolagen kommer att börja prissäkra igen. Detta leder till ett stigande ”utbud” från gruvbolagen. I år väntas hedgingvolymen uppgå till blygsamma 20 ton, men kan redan nästa år ha ökat till 35 ton, enligt Barclays.
Just nu går aktiemarknaden starkt och i valet mellan guld och aktier, tycker antagligen nästan alla att guld drar det kortaste strået. All efterfrågan på guld är dock inte investeringar, utan i grund och botten efterfrågan på smycken. Den efterfrågan har minskat i takt med att priset stigit de senaste tio åren, utom i Kina och andra tillväxtländer. Framförallt kan den kinesiska efterfrågan på smycken ta fart om priset sjunker. Detta kan fungera som ett fundamentalt stöd på nedsidan i priset. En starkare tillväxt kan också leda till högre efterfrågan.
Tekniskt ser vi att priset i dollar fann stöd på 1270-nivån.
Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Det ser ut som om 20 dollar ska testas igen.
Vi fortsätter att vara neutrala guld och silver och skulle inte vilja köpa någon av dem idag.
Platina & Palladium
Platinapriset följde guld och silver, men fick extra skjuts av statistik som visar på högre bilförsäljning i Europa. Platina används för avgasrening i dieseldrivna bilar, och den kategorin har enligt statistiken utvecklats extra starkt.
Nedan ser vi frontmånadskontraketet på palladium. Palladium ligger fortfarande i en slags sidledes rörelse, utan trend.
Vi fortsätter att vara neutrala palladium, men går kortsiktigt över till köp på plantina; PLATINA S.
Koppar
Statistik från Kina visade att importen av koppar steg med 16% i september (jämfört med förra året), till 458 kt. Vi anser att detta är återspeglar en fortsatt stark utveckling och återhämtning i Kinas ekonomi. I veckan publicerades BNP-tillväxten i Kina under det tredje kvartalet, som låg på 7.8%.
Tekniskt har vi ett mycket intressant läge. Det har bildats en så kallad triangelformation, med lägre toppar och högre bottnar, sedan augusti-september. Vi tror att ett utbrott uppåt eller nedåt kommer inom ett par veckor – troligtvis upåt. Man ser ofta den här sortens formationer ”halvvägs” på en rörelse uppåt eller nedåt. Prisobjektivet skulle i så fall, om den har inträffat halvvägs från botten, vara ca 8000 dollar per ton.
Vi rekommenderar köp av KOPPAR S.
Aluminium
Aluminiummarknaden rör sig just nu inte som de andra metallerna. Förrförra veckan steg priset på aluminium, medan de andra metallerna höll sig rätt platta. Förra veckan föll aluminiumpriset samtidigt som de andra steg. Mäklarfirman RJ O’Brien har sammanställt analytikerestimat för aluminium under LME:veckan. Det är den vecka på året då alla publicerar analyser och det är möjligt att analysera analytikerna samtidigt. För 2013 tror mediananalytikern på ett produktionsöverskott på 475 kt, faktiskt mycket mindre än vad man skulle kunna tro. Spännvidden är stor, från ett underskott på 1.2 mt till ett överskott på 1.1 mt. Undersökningen visar också en klar förbättring jämfört med LME-veckan 2012.
Fundamentalt har inget hänt i veckan som gick. Vi tror att marknaden kommer att fortsätta handla inom intervallet 1800 – 1900 dollar.
Den allmänna bilden ser dock ut som en botten som närmar sig sitt slut. Vi ser att 55-dagars glidande medelvärde börjar peka uppåt, dvs åtminstone den trendindikatorn har vänt uppåt.
Vi har neutral rekommendation, men lutar mot en köprekommendation.
Zink
Zink fortsatte att röra sig svagt uppåt inom den bottenformation som etablerats sedan mars månad. Styrkan i den kinesiska ekonomin ger stöd för marknaden. Ett brott av 1,950 dollar skulle signalera att marknaden vill testa även 2000 dollar. Det tekniska motståndet på 1930 – 1935 dollar har emellertid inte brutits än och det är möjligt att köpare vill avvakta ännu en rekyl nedåt, mot 1900 dollar.
Vi fortsätter med en köprekommendation av ZINK S.
Nickel
Handeln var svag hela veckan, men bland basmetallerna stack nickel ut i fredags. Efter en paus, tog sig priset upp genom det tekniska motståndet vid 14,100. Tekniskt finns utrymme upp till septembers högsta notering på 14,400 dollar, där vi tror att säljare fortfarande väntar.
Marknaden diskuterar fortfarande sannolikheten för det eventuella kommande indonesiska exportförbudet. Vi tror att sannolikheten är lägre än andra marknadsbedömare. Om vi får rätt skjuter det upp minskningen i den kinesiska produktionen av nickeljärn till nästa år. Om det blir ett exportförbud får det sannolikt priserna att gå upp temporärt. Men vi ser också att kinesiska bolag importerar så mycket de kan nu. Enligt CRU är Kinas import av nickelmalm upp 8.9% under de åtta första månaderna i år, jämfört med 2012. En del av den ökningen är säkert en lageruppbyggnad. Mot slutet av året tror vi att priset på nickel kommer att stiga till 14,000 – 14,500 dollar per ton, dels på grund av säsongsmässigt högre efterfrågan och på grund av att tiden för ett eventuellt exportförbud rycker allt närmare.
Kaffe
Kaffepriset fortsatte ner med 2% i veckan som gick. Nyhetsflödet har talat om rekordhöga lager det kommande året, när produktionen i länder som drabbats av bladmöglet roya återtar något av sin produktionskapacitet med resistenta sorter. Brasilien väntas bärga en rekordskörd, eftersom den kommande skörden är den högre i 2-års-cykeln av höga och låga skördar. Med det sagt, är priset verkligen lågt och vändningen uppåt i sockermarknaden gör att sockerrör, som konkurrerar om areal med kaffe, kan fortsätta att vinna mark, framförallt i Brasilien.
Vi behåller tills vidare neutral rekommendation, tills vi ser tecken på ett trendbrott.
För fler jordbruksråvaror se SEBs analysbrev från tidigare idag.
[box]SEB Veckobrev Veckans råvarukommentar är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]
Disclaimer
The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).
Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.
About SEB
SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.
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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