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Analys

SEB – Råvarukommentarer, 5 november 2012

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Sammanfattning av rekommendationer

Veckans råvaruanalyser från SEB

Råolja – Brent

Vi fortsätter rekommendera köp av Bull Olja och Olja S vid nedgång på Brent kring $105/fat. Vi bedömer det som osannolikt att priset på råolja kommer att rasa lägre än så, såvida inte tillväxtprognoserna skrivs ned väsentligt. Vår uppfattning är att oljepriset kommer att fortsätta vara väl understött med tanke på stora geopolitiska risker, strama marknader för oljeprodukter, höga incitamentpriser för att stimulera till tillräckliga investeringar i ny kapacitet och behovet av att producentländer försvarar priser för att balansera budgetar.

Medan balansen på råoljemarknaden förbättrats något är situationen för mellandestillat fortsatt mer ansträngd. Lagren av mellandestillat är historiskt låga och en kallare än normal vinter kan komma försvåra situation ytterligare. Även under normala omständigheter har raffinaderierna problem att producera tillräckligt med mellandestillat under uppvärmningssäsongen. Det gör förråden till en nyckelfaktor för balanseringen av marknaden. Den långsiktiga strukturella balansen för marknaden för mellandestillat är också oroande eftersom det är där vi ser den enda konsumtionstillväxten i Europa.

Det som dominerat nyhetsflödet i veckan är stormen Sandy, vars framfart lett till stor förödelse, både mänskligt och materiellt. Kostnaden för Sandy beräknas nu vara uppe i 50 mdr dollar. Två tredjedelar av raffinaderierna på den amerikanska östkusten, den största oljeledningen, de flesta större hamnar samt vägar och flygplatser stängdes som en följd av Sandy. Efterfrågan minskade därmed på råolja, vilket pressat priset något. Rörelserna har ändå varit begränsade och råoljepriset ganska stabilt mellan 108 och 110 usd. För oljeprodukter, inte minst bensin, har Sandy istället lett till stora uppgångar, eftersom utbudet minskat då raffinaderikapaciteten minskat och människor hamstrat drivmedel.

Iran som är starkt pressat av sanktionerna mot landet har hittills inte gett efter för trycket från omvärlden men Irans försvarsminister uppges nu ha sagt att man inte har några planer på att stänga den vitala farleden genom Hormuzsundet då ”dessa två frågor (stängning av Hormuzsundet och sanktioner mot landet) är helt oberoende och inte relaterade till varandra”.

Analys av råolja (brent), rekommendation att köpa Bull Olja X4 S

Vår rekommendation förblir att köpa BULL OLJA X4 S eller OLJA S om priset faller ned mot 105 dollar. På den nivån ser vi goda möjligheter att tjäna pengar.

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Elektricitet

Förra veckan sänkte vi vår ingångsnivå för longa positioner till €39/MWh för Q1-2013-kontraktet på Nord Pool. Motivet var att marginalkostnaden för kolkraftproduktion fortsatt falla. Vi rekommenderar att handla kontraktet från köpsidan under november om denna utgångsnivå uppnås. Å andra sidan är €43/MWh till €44/MWh bra utgångspunkter för de som tar risken att handla vinterkontraktet NELFQ3 från säljsidan med BEAR EL X2 S eller med BEAR EL X4 S.

Situationen sedan förra veckan är i stort oförändrad. Det totala hydrologiska överskottet är 10-13 TWh över normalt samtidigt som kärnkraften har god tillgänglighet. Vi har därför länge argumenterat för att differensen mellan NELF3Q och vårt MCCP-index (.MCC1Q13) varit alltför stor. Nu har så en korrigering skett och differensen minskat en del. Q1-2013-kontraktet (NELF3Q) har, i takt med lägre marginalkostnad för kolkraft och fortsatt nederbördsrikt väder, pressats lägre och är senast omsatt på €40,50/MWh. Kontraktet har ändå lite ytterligare fallhöjd och ska, i rådande miljö, närma sig €39/MWh nivån innan vi tycker att kontraktet är köpvärt.

Elmarknaden - Prisutveckling tom den 2 november 2012

Ska man sammanfatta elmarknaden, så är det att det stora prisfallet tycks vara över. Marknaden handlar ”sidledes” med 44 euro som övre gräns. Nu har vi sänkt den nedre gränsen till 39 euro från 40 euro. I den här typen av marknaden kan man försöka komma in med BULL EL X2 S nära 39 och försöka sälja nära 44 euro. Vice versa att då försöka köpa BEAR EL X4 S.

Guld och Silver

Ädelmetallerna har det jobbigt i nuvarande miljö. Som noterats de senaste två veckorna är statistiken ”för stark”. Fredagens arbetssiffra med påföljande dollarstyrka satte ordentlig press. Spotguld i London föll kraftigt från $1714 ned till $1678. Den mer volatila systermetallen silver föll procentuellt ungefär dubbelt så mycket. Vi håller oss neutrala på ädelmetaller, men det kan vara värt att börja leta köplägen. Tekniskt sett kan det fortsätta ner de närmsta dagarna, med nästa stora stödnivå för guld kring $1650.

Nedan ser vi kursdiagrammet för guld. Notera stödlinjen på 1630 dollar per uns. Om 1650 inte håller, finns nästa stöd på den nivån.

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Kursdiagram på guld - Stödlinje vid 1630 USD

Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Vi ser att 35 dollar är ett viktigt motstånd och att 30 dollar är ett viktigt stöd. Vi skrev förra veckan att en fortsatt nedgång till 30 dollar skulle vara ett bra köptillfälle. En stopp-loss-order bör då placeras strax under 30 dollar. Detta gäller fortfarande.

Kursdiagram för silver - 35 dollar ett viktigt motstånd och 30 dollar är ett viktigt stöd

Platina

Platina föll ungefär som guldet, dock något mindre strax under 2 %. Situationen i Sydafrika är lugnare, men problemen kvarstår och gruvorna har svårt med lönsamheten. Det allmänna stämningsläget kring både bas- och ädelmetaller är dock inte det bästa just nu. Vi rekommenderar att man försöker komma in på den långa sidan i platina. Risken är dock påtaglig att priset faller ner till 1500 dollar per uns. Det tror vi i så fall är ett bra pris att köpa på.

Platina har fallit i pris

Nedan ser vi priset på guld dividerat med priset på platina. Platina har utvecklats bättre än guld. Det är en tendens vi ”borde” se mer av med tanke på att priset på guld stigit så mycket över den historiska relationen till platina och att platinagruvorna har problem med lönsamheten. Vi anser att detta är ett bra argument för att sälja guld och köpa platina, allt annat lika, eller att köpa platina enbart.

Guldpriset delat med platinapriset

Koppar

Det är lite motsägelsefullt just nu. Fokus ligger på USA där det fortsätter att komma in positiv konjunkturdata, något som naturligtvis borde vara positivt för metallerna. Efterfrågan ökar igen. Problemet är bara att de som investerat i råvaror på basis av fortsatta penningpolitiska åtgärder från centralbanken, blir besvikna (sannolikheten minskar för ytterligare stimulanser i takt med att ekonomin återhämtar sig). Positioner som togs i september likvideras. Förra fredagen redovisades amerikansk BNP-tillväxt starkare än väntat för kvartal 3 på 2 %, jämfört med 1,3 % kvartalet före. Oro för stormen under veckans inledning lade sordin på stämningen och vi fick se ett prisfall på mellan 2 och 3 %. Kina stimulerar via marknadsoperationer vilket fick den korta inhemska räntan att falla kraftigt. Metallpriserna återhämtade i princip hela veckans fall och stod i torsdags oförändrade. På fredagen kom nästa ”kalldusch” med starka siffror. Arbetsmarknadsstatistik kom in mycket bättre än väntat, och på samma tema, d.v.s. minskad sannolikhet för ytterligare stimulanser från FED, så rasade priserna igen. Tendensen varierar mellan basmetallerna. Koppar och nickel tog mest stryk, medan zinken går mot strömmen och är faktiskt upp ett par procent i veckan. Aluminium stänger oförändrad.

Koppar

Efter fredagens statistik tappade kopparn 2 % vilket också blir veckans facit. De starkare amerikanska siffrorna stärker dollarn, vilket traditionellt är negativt för dollarnoterade råvaror. Effekten är särskilt tydlig för ädelmetaller, men koppar har svårt att stå emot när dollarrörelsen blir kraftig (EURUSD föll från 1,2930 till 1,2835 under fredagseftermiddagen). LME-lagret har ökat med nästan 10 % de två senaste veckorna. Det ska inte ses som alltför negativt, då det främst är en effekt av terminskurvan, som en tid har varit i s.k. backwardation (terminspriserna är lägre an spot). Detta ”lockar fram” fysisk vara som inte är ämnad för omedelbar konsumtion. Vad som oroar är börslagret i Shanghai, som också ökade under veckan med 1,5 %. Inte så mycket, men det tyder på att Kinas konsumtion inte riktigt vill komma igång. I nuvarande marknadssituation kan det vara värt att avvakta och hålla sig neutral, men vi kvarstår med bedömningen att koppar har en i grunden stark fundamenta med relativt små globala lagernivåer. Minsta tendens till stimulanspaket från Kina så vänder trenden väldigt snabbt. Den tekniska analysen indikerar fortsatt prispress nästa vecka. Vi har $7600 för LME-koppar i sikte som en första ”jämna” stödnivå. Om den nivån bryter får vi inte räkna bort möjligheten för en tillfällig botten ned till $7400.

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Kopparpriset i backwardation

Som man ser i diagrammet ovan, har mycket handel tidigare skett i ett område kring 7500 dollar. I det området låg handeln mellan maj och början på september. Före det var det ett bottenområde även för perioden september till december. Vi gissar att samma köpintressen som fanns då, nog kommer att finnas kvar även nu i november. Kommer priset ner till 7500 ska man nog anse det vara ett bra köptillfälle. Det man köper då är t ex KOPPAR S.

För spannmål och övriga jordbruksprodukter hänvisas till senaste utgåvan av veckobrevet om jordbruksprodukter.

[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”).

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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.

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

Brent crude inching higher on optimism that US inflationary pressures are fading

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SEB - analysbrev på råvaror
Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Brent crude price inching higher on optimistic that US inflationary pressures are fading. Brent crude closed up 1.1 USD/b ydy to a close of USD 86.39/b which was the highest close since the end of April. This morning it is trading up another half percent to USD 86.9/b along with comparable gains in industrial metals and Asian equities. At 14:30 CET the US will publish its preferred inflation gauge, the PCE figure. Recent data showed softer US personal spending in Q1. Expectations are now high that the PCE inflation number for May will show fading inflationary pressures in the US economy thus lifting the probability for rate cuts later this year which of course is positive for the economy and markets in general and thus positive for oil demand and oil prices. Hopes are high for sure.

Brent crude is trading at the highest since the end of April

Brent crude is trading at the highest since the end of April
Source: Blbrg

The rally in Brent crude since early June is counter to rising US oil inventories and as such a bit puzzling to the market.

US commercial crude and oil product stocks excluding SPR. 

US commercial crude and oil product stocks excluding SPR. 
Source: SEB graph and highlights, Blbrg data feed, US EIA data

Actual US crude oil production data for April will be published later today. Zero growth in April is likely. Later today the US EIA will publish actual production data for US crude and liquids production for April. Estimates based on US DPR and DUC data indicates that there will indeed be zero growth in US crude oil production MoM in April. This will likely driving home the message that there is no growth in US crude oil production despite a Brent crude oil price of USD 83/b over the past 12 mths. The extension of this is of course rising expectations that there will be no growth in US crude oil production for the coming 12 months either as long as Brent crude hoovers around USD 85/b.

US production breaking a pattern since Jan 2014. No growth at USD 83/b. What stands out when graphing crude oil prices versus growth/decline in US crude oil production is that since January 2014 we have not seen a single month that US crude oil production is steady state or declining when the Brent crude oil price has been averaging USD 70.5/b or higher.

US Senate looking into the possibility that US shale oil producers are now colluding by holding back on investments, thus helping to keep prices leveled around USD 85/b.

Brent crude 12mth rolling average price vs 4mth/4mth change in US crude oil production. Scatter plot of data starting Jan 2014. Large red dot is if there is no change in US crude oil production from March to April. Orange dots are data since Jan 2023. The dot with ”-1.3%” is the March data point. 

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Brent crude 12mth rolling average price vs 4mth/4mth change in US crude oil production.
Source:  SEB graph and highlights, Blbrg data feed, US EIA

Brent crude 12mth rolling average price vs 4mth/4mth change in US crude oil production. Data starting Jan 2014. The last data point is if there is no change in US crude oil production from March to April.

Brent crude 12mth rolling average price vs 4mth/4mth change in US crude oil production.
Source:  SEB graph and highlights, Blbrg data feed, US EIA
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Analys

Price forecast update: Weaker green forces in the EU Parliament implies softer EUA prices

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SEB - analysbrev på råvaror
Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

We reduce our forecast for EUA prices to 2030 by 10% to reflect the weakened green political agenda in the EU Parliament following the election for the Parliament on 6-9 June. The upcoming election in France on 7 July is an additional risk to the political stability of EU and thus in part also to the solidity of the blocks green agenda. Environmental targets for 2035 and 2040 are most at risk of being weakened on the margin. EUA prices for the coming years to 2030 relate to post-2030 EUA prices through the bankability mechanism. Lower post-2030 climate ambitions and lower post-2030 EUA prices thus have a bearish impact on EUA prices running up to 2030. Actual softening of post-2030 climate ambitions by the EU Parliament have yet to materialize. But when/if they do, a more specific analysis for the consequences for prices can be carried out.

EUA prices broke with its relationship with nat gas prices following the EU Parliament election. The EUA price has dutifully followed the TTF nat gas price higher since they both bottomed out on 23 Feb this year. The EUA front-month price bottomed out with a closing price of EUR 50.63/ton on 23 Feb. It then reached a recent peak of EUR 74.66/ton on 21 May as nat gas prices spiked. Strong relationship between EUA prices and nat gas prices all the way. Then came the EU Parliament election on 6-9 June. Since then the EUA price and TTF nat gas prices have started to depart. Bullish nat gas prices are no longer a simple predictor for bullish EUA prices.

The front-month EUA price vs the front-year TTF nat gas price. Hand in hand until the latest EU Parliament election. Then departing.

The front-month EUA price vs the front-year TTF nat gas price. Hand in hand until the latest EU Parliament election. Then departing.
Source: SEB graph and highlights, Blbrg data

The EU Parliament election on 6-9 June was a big backlash for the Greens. The Greens experienced an euphoric victory in the 2019 election when they moved from 52 seats to 74 seats in the Parliament. Since then we have had an energy crisis with astronomic power and nat gas prices, rampant inflation and angry consumers being hurt by it all. In the recent election the Greens in the EU Parliament fell back to 53 seats. Close to where they were before 2019.

While green politics and CO2 prices may have gotten a lot of blame for the pain from energy prices over the latest 2-3 years, the explosion in nat gas prices are largely to blame. But German green policies to replace gas and oil heaters with heat pumps and new environmental regulations for EU farmers are also to blame for the recent pullback in green seats in the Parliament.

Green deal is still alive, but it may not be fully kicking any more. Existing Green laws may be hard to undo, but targets for 2035 and 2040 will be decided upon over the coming five years and will likely be weakened.

At heart the EU ETS system is a political system. As such the EUA price is a politically set price. It rests on the political consensus for environmental priorities on aggregate in EU.

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The changes to the EU Parliament will likely weaken post-2030 environmental targets. The changes to the EU Parliament may not change the supply/demand balance for EUAs from now to 2030. But it will likely weaken post-2030 environmental targets and and thus projected EU ETS balances and EUA prices post-2030. And through the bankability mechanism this will necessarily impact EUA prices for the years from now to 2030.

Weaker post-2030 ambitions, targets and prices implies weaker EUA prices to 2030. EUA prices are ”bankable”. You can buy them today and hold on to them and sell them in 2030 or 2035. The value of an EUA today fundamentally rests on expected EUA prices for 2030/35. These again depends on EU green policies for the post 2030 period. Much of these policies will be ironed out and decided over the coming five years. 

Weakening of post-2030 targets have yet to materialize. But just talking about it is a cold shower for EUAs. These likely coming weakenings in post-2030 environmental targets and how they will impact EUA prices post 2030 and thus EUA prices from now to 2030 are hard to quantify. But what is clear to say is that when politicians shift their priorities away from the environment and reduce their ambitions for environmental targets post-2030 it’s like a cold shower for EUA prices already today.

On top of this we now also have snap elections in the UK on 4 July and in France on 7 July with the latter having the potential to ”trigger the next euro crisis” according to Gideon Rachman in a recent article in FT.

What’s to be considered a fair outlook for EUA prices for the coming five years in this new political landscape with fundamentally changed political priorities remains to be settled. But that EUA price outlooks will be lowered versus previous forecasts is almost certain.

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We reduce our EUA price forecast to 2030 by 10% to reflect the new political realities. To start with we reduce our EUA price outlook by 10% from 2025 to 2030 to reflect the weakened Green agenda in the EU parliament.

SEB’s EUA price forecast, BNEF price forecasts and current market prices in EUR/MWh

SEB's EUA price forecast, BNEF price forecasts and current market prices in EUR/MWh
Source: SEB graph and highlights and forecast, BNEF data and forecasts
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Analys

The most important data point in the global oil market will be published on Friday 28 June

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SEB - analysbrev på råvaror
Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

US crude oil production has been booming for more than a decade. Interrupted by two setbacks in response to sharp price declines. The US boom has created large waves in the global oil market and made life very difficult for OPEC(+). Brent crude has not traded below USD 70/b since Dec-2021 and over the past year, it has averaged USD 84/b. US shale oil production would typically boom with such a price level historically. However, there has been zero growth in US crude oil production from Sep-2023 to Mar-2024. This may be partially due to a cold US winter, but something fundamentally seems to have changed. We recently visited a range of US E&P and oil services companies in Houston. The general view was that there would be zero growth in US crude oil production YoY to May 2025. If so and if it also is a general shift to sideways US crude oil production beyond that point, it will be a tremendous shift for the global oil market. It will massively improve the position of OPEC+. It will also sharply change our perception of the forever booming US shale oil supply. But ”the proof is in the pudding” and that is data. More specifically the US monthly, controlled oil production data is to be published on Friday 28 June.

The most important data point in the global oil market will be published on Friday 28 June. The US EIA will then publish its monthly revised and controlled oil production data for April. Following years of booming growth, the US crude oil production has now gone sideways from September 2023 to March 2024. Is this a temporary blip in the growth curve due to a hard and cold US winter or is it the early signs of a huge, fundamental shift where US crude oil production moves from a decade of booming growth to flat-lining horizontal production?

We recently visited a range of E&P and oil services companies in Houston. The general view there was that US crude oil production will be no higher in May 2025 than it is in May 2024. I.e. zero growth.

It may sound undramatic, but if it plays out it is a huge change for the global oil market. It will significantly strengthen the position of OPEC+ and its ability to steer the oil price to a suitable level of its choosing.

The data point on Friday will tell us more about whether the companies we met are correct in their assessment of non-growth in the coming 12 months or whether production growth will accelerate yet again following a slowdown during winter.

The US releases weekly estimates for its crude oil production but these are rough, temporary estimates. The market was fooled by these weekly numbers last year when the weekly numbers pointed to a steady production of around 12.2 m b/d from March to July while actual monthly data, with a substantial lag in publishing, showed that production was rising strongly.

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The real data are the monthly, controlled data. These data will be the ”proof of the pudding” of whether US shale oil production now is about to shift from a decade of booming growth to instead flat-line sideways or whether it will drift gradually higher as projected by the US EIA in its latest Short-Term Energy Outlook.

US crude oil production given by weekly data and monthly data. Note that the monthly, controlled data comes with a significant lag. The market was thus navigating along the weekly data which showed ”sideways at 12.2 m b/d” for a significant period last year until actual data showed otherwise with a time-lag.

US crude oil production given by weekly data and monthly data.
Source: SEB graph and highlights, Blbrg data feed, EIA data

If we add in Natural Gas Liquids and zoom out to include history back to 2001 we see an almost uninterrupted boom in supply since Sep 2011 with a few setbacks. At first glance, this graph gives little support to a belief that US crude oil production now suddenly will go sideways. Simple extrapolation of the graph indicates growth, growth, growth.

US crude and liquids production has boomed since September 2011

US crude and liquids production has boomed since September 2011
Source: SEB graph and highlights, Blbrg data feed, US EIA data

However. The latest actual data point for US crude oil production is for March with a reading of 13.18 m b/d. What stands out is that production then was still below the September level of 13.25 m b/d.

The world has gotten used to forever growing US crude oil production due to the US shale oil revolution, with shorter periods of sharp production declines as a result of sharp price declines.

But the Brent crude oil price hasn’t collapsed. Instead, it is trading solidly in the range of USD 70-80-90/b. The front-month Brent crude oil contract hasn’t closed below USD 70/b since December 2021.

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Experiences from the last 15 years would imply wild production growth and activity in US shale oil production at current crude oil prices. But US crude oil production has now basically gone sideways to lower from September to March.

The big, big question is thus: Are we now witnessing the early innings of a big change in US shale oil production where we shift from booming growth to flat-lining of production?

If we zoom in we can see that US liquids production has flat-lined since September 2023. Is the flat-lining from Sep to Mar due to the cold winter so that we’ll see a revival into spring and summer or are we witnessing the early signs of a huge change in the global oil market where US crude oil production goes from booming growth to flat-line production.

US liquids production has flat-lined since September 2023.
Source: SEB graph and highlights, Blbrg data feed, US EIA data

The message from Houston was that there will be no growth in US crude oil production until May 2025. SEB recently visited oil and gas producers and services providers in Houston to take the pulse of the oil and gas business. Especially so the US shale oil and shale gas business. What we found was an unusually homogeneous view among the companies we met concerning both the state of the situation and the outlook. The sentiment was kind of peculiar. Everybody was making money and was kind of happy about that, but there was no enthusiasm as the growth and boom years were gone. The unanimous view was that US crude oil production would be no higher one year from now than it is today. I.e. flat-lining from here.

The arguments for flat-lining of US crude oil production here onward were many.

1) The shale oil business has ”grown up” and matured with a focus on profits rather than growth for the sake of growth.

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2) Bankruptcies and M&As have consolidated the shale oil companies into larger, fewer public companies now accounting for up to 75% of total production. Investors in these companies have little interest/appetite for growth after having burned their fingers during a decade and a half of capital destruction. These investors may also be skeptical of the longevity of the US shale oil business. Better to fully utilize the current shale oil infrastructure steadily over the coming years and return profits to shareholders than to invest in yet more infrastructure capacity and growth.

3) The remaining 25% of shale oil producers which are in private hands have limited scope for growth as they lack pipeline capacity for bringing more crude oil from field to market. Associated nat gas production is also a problem/bottleneck as flaring is forbidden in many places and pipes to transport nat gas from field to market are limited.

4) The low-hanging fruits of volume productivity have been harvested. Drilling and fracking are now mostly running 24/7 and most new wells today are all ”long wells” of around 3 miles. So hard to shave off yet another day in terms of ”drilling yet faster” and the length of the wells has increasingly reached their natural optimal length.

5) The average ”rock quality” of wells drilled in the US in 2024 will be of slightly lower quality than in 2023 and 2025 will be slightly lower quality than 2024. That is not to say that the US, or more specifically the Permian basin, is quickly running out of shale oil resources. But this will be a slight headwind. There is also an increasing insight into the fact that US shale oil resources are indeed finite and that it is now time to harvest values over the coming 5-10 years. One company we met in Houston argued that US shale oil production would now move sideways for 6-7 years and then overall production decline would set in.

The US shale oil revolution can be divided into three main phases. Each phase is probably equally revolutionary as the other in terms of impact on the global oil market.

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1) The boom phase. It started after 2008 but didn’t accelerate in force before the ”Arab Spring” erupted and drove the oil price to USD 110/b from 2011 to 2014. It was talked down time and time again, but it continued to boom and re-boom to the point that today it is almost impossible to envision that it won’t just continue to boom or at least grow forever.

2) The plateau phase. The low-hanging fruits of productivity growth have been harvested. The highest quality resources have been utilized. The halfway point of resources has been extracted. Consolidation, normalization, and maturity of the business has been reached. Production goes sideways.

3) The decline phase. Eventually, the resources will have been extracted to the point that production unavoidably starts to decline.

Moving from phase one to phase two may be almost as shocking for the oil market as the experience of phase 1. The discussions we had with oil producers and services companies in Houston may indicate that we may now be moving from phase one to phase two. That there will be zero shale oil production growth YoY in 2025 and that production then may go sideways for 6-7 years before phase three sets in.

US EIA June STEO report with EIA’s projection for US crude oil production to Dec-2025. Softer growth, but still growth.

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US EIA June STEO report with EIA's projection for US crude oil production to Dec-2025. Softer growth, but still growth.
Source: SEB graph and highlights, US EIA data

US EIA June STEO report with YoY outlook growth for 2025. Projects that US crude production will grow by 0.47 m b/d YoY in 2025 and that total liquids will grow by 720 k b/d YoY.

US EIA June STEO report with YoY outlook growth for 2025. Projects that US crude production will grow by 0.47 m b/d YoY in 2025 and that total liquids will grow by 720 k b/d YoY.
Source: SEB graph and calculations, US EIA data

US EIA June STEO report with outlook for production growth by country in 2025. This shows how big the US production growth of 0.7 m b/d YoY really is compared to other producers around the world

US EIA June STEO report with outlook for production growth by country in 2025. This shows how big the US production growth of 0.7 m b/d YoY really is compared to other producers around the world
Source: SEB graph and highlights, US EIA data

US EIA June STEO report with projected global growth in supply and demand YoY in 2025. Solid demand growth, but even strong supply growth with little room for OPEC+ to expand. Production growth by non-OPEC+ will basically cover global oil demand growth. 

US EIA June STEO report with projected global growth in supply and demand YoY in 2025. Solid demand growth, but even strong supply growth with little room for OPEC+ to expand. Production growth by non-OPEC+ will basically cover global oil demand growth.
Source: SEB graph and highlights, US EIA data

But if there instead is zero growth in US crude oil production in 2025 and the US liquids production only grows by 0.25 m b/d YoY due to NGLs and biofuels, then suddenly there is room for OPEC+ to put some of its current production cuts back into the market. Thus growth/no-growth in US shale oil production will be of huge importance for OPEC+ in 2025. If there is no growth in US shale oil then  OPEC+ will have a much better position to control the oil price to where it wants it.

US crude production
Source: SEB graph and highlights, US EIA data

US crude oil production and drilling rig count

US crude oil production and drilling rig count
Source: SEB graph, Blbrg data, EIA data
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