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SEB – Råvarukommentarer vecka 24 2012

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SEB Banken - Veckans råvarukommentarer - Prognoser

Sammanfattning: Denna vecka

  • Brett råvaruindex: +0,02 %
    UBS Bloomberg CMCI TR Index
  • Energi: +0,45 %
    UBS Bloomberg CMCI Energy TR Index
  • Ädelmetaller:+ 2,06 %
    UBS Bloomberg CMCI Precious Metals TR Index
  • Industrimetaller: +1,23 %
    UBS Bloomberg CMCI Industrial Metals TR Index
  • Jordbruk: -1,67 %
    UBS Bloomberg CMCI Agriculture TR Index

Kortsiktig marknadsvy:

  • Guld: Neutral/köp
  • Olja: Neutral/köp
  • Koppar: Sälj
  • Majs: Sälj
  • Vete: Neutral
  • Sojabönor: Sälj

Guld

Prisutveckling på guld under 1,5 år

Vi tycker att man ska vara köpt guld. Förra helgen fick Spanien det lån marknaden länge fruktat men samtidigt hoppats på för att stötta landets krisande banksektor. Lånet uppgick till 100 mdr euro. Guldet reagerade positivt på stimulanspaketet och har stigit två procent under veckan.

Kreditvärderingsinstitutet Fitch sänkte betyget för 18 spanska banker och Moody´s sänkte landets långfristiga kreditbetyg till Baa3 från A3. Igår handlade landets räntor på de högsta nivåerna under euro-tiden. Tioårsräntan steg till 6,99 procent. Stigande räntor i Spanien ökar farhågan att Spanien måste söka ett mer omfattande stöd. Guldet steg åter något på torsdagen då både räntan på tysklands Bund (10-åriga statsobligation) och tyska CDS:er (säkerheter mot en statskonkurs) steg. Brist på förtroende för tyska statspapper är mycket oroande för marknaden.

Oroade blickar riktas även mot Italien som också tyngs att höga räntor. Italiens premiärminister deklarerade dock tydligt i veckan att Italien inte kommer att behöva något räddningspaket eftersom stimulans av tillväxten och ett minskat underskott finns på den italienska agendan.

Råvarubörsen CME minskade marginalkraven för guldterminer med 10 procent i slutet av maj. Sänkningen gav ett visst stöd åt guldpriset men var samtidigt förväntad eftersom marginalkraven är proportionella mot volatilitet och prisnivå. Ökar eller minskar de faktorerna ökar eller minska kraven.

Världens största fysiska guld ETF, SPDR, har sett utflöden för första gången på tre veckor och fonden innehåller nu 1 274,37 ton. Efterfrågan på US Mint coin är fortsatt svag med 53000 ozt i maj (1 troy ounce = ca 31 gram) mot 107 000 ozt i maj 2011.

”Ödesvalet” i Grekland på söndag är en stor osäkerhetsfaktor och vinner den koalition som önskar riva upp besparingskrav kan landet tvingas att lämna euron och osäkerheten om guldet kommer att regera med övriga risktillgångar eller snarare som en säker hamn i orostider är stor.

Teknisk analys: Stadigt högre, igen. Efter en lika oväntad som stor sättning från toppen den sjätte juni har marknaden så sakteliga envist arbetat sig tillbaka upp till de tidigare toppnivåerna. Detta visar med all tydlighet, tycker vi, att nedgången ska etiketteras korrektiv. Det underliggande vågmönstret är också fortsatt positivt varför vi räknar med ytterligare uppgång den närmaste tiden.

Prognos på guldpris den 15 juni 2012

Olja

Prisutveckling på olja tom den 15 juni 2012

Opec´s 12 medlemsländer höll möte igår i Wien. Saudiarabien har inför mötet begärt en ökning av kartellens produktionsmål som i dagsläget motsvarar 30 miljoner fat per dag., något som går stick i stäv med Opec´s irakiske ordförandes önskningar. Saudiarabien har genom en rekordhög produktion (högsta sedan 1980-talet), verbala påtryckningar fått ner oljepriset till önskvärda100 dollar. Inför mötet har man emellertid taktiskt minskat oljeproduktionen för att undgå kritik för att man producerar mer än tilldelade kvoter. Fortsätter produktionen på aktuell nivå kommer marknaden ha ett överskott på olja under det tredje och fjärde kvartalet i år.

Oförändrade produktionskvoter ger stöd åt oljepriset vilket gynnar de mindre oljeproducerande länderna som haft inkomstbortfall p.g.a. det prisfall vi sett nyligen. Brentpriset föll i veckan till 97,14 dollar, den lägsta nivån sedan januari 2011.

Iran, Venezuela och Angola önskar se ett lägre tak för produktionskvoter. Många länder behöver ett pris på 100 dollar för att kunna balansera sina statsbudgetar.

Saudiarabien är mån om att undvika ett stigande oljepris från en högre säsongsrelaterad efterfrågan och ett från EU:s sida Iranskt embargo som träder ikraft den 1:a juli. Saudiarabien är mycket oroligt för Irans kärnvapenenergiprogram och man vill indirekt inte gynna landet med ett högre oljepris.

Opec behöll emellertid produktionstaket på 30 miljoner fat per dag

Spekulativa positioner i Brent har sjunkit till de lägsta nivåerna sedan november 2011. Efter gårdagen Opec möte är vi neutrala till svagt positiva till ett högre pris men helgens val i Grekland utgör även här en stor osäkerhet. Den tekniska bilden ser emellertid negativ ut.

Teknisk analys: Pass upp för falluckan! Efter en mindre korrektiv uppgång är vi nu redan på väg ner igen. Området runt 96 är av stor vikt och ett brott riskerar att utlösa ytterligare ett ras ned mot 80/85.

Prognos för pris på olja den 15 juni 2012

Koppar

Prisutveckling på koppar under 1,5 år

Kopparpriset fann i bättre än förväntad japansk statistik där maskinordrar, d.v.s. beställningar av maskiner inom industrin, långt överträffade analytikers förväntningar. Kopparn fann även stöd i en ökad kinesisk kopparimport och Shanghaibörsens lager nu är på de lägsta nivåerna sedan januari.

Vi har sett bra statistik från Kina. Exporten för maj växte med 15,3 procent i årstakt vilket var mer än en fördubbling av analytikers förväntan och mer än tre gånger ökningstakten i april.

Kinesiskt konsumentprisindex (inflation) föll något mer än förväntat vilket öppnar upp för möjligheter till ytterligare stimulanser från kinesiska myndigheter vilket ger stöd åt kopparn. Fed ledamöter i USA inleder den 19:e juni ett tvådagarsmöte och skulle man ge marknaden förhoppningar om ytterligare stimulanser kommer detta att påverka kopparn positivt. USA är världens andra största kopparkonsument.

Efter att förra veckan ha varit nära sexmånaderslägsta har kopparpriset nu stigit med 2,6 procent. Framförallt har den positiva statistiken från Kina bidragit.

Valet i Grekland på söndag är en stor osäkerhetsfaktor även för kopparn och en eskalering av krisen i Europa med ett Grekiskt euroutträde kan avsevärt minska riskapptiten. Oron växer även kring Cypern vars ekonomi är tätt sammankopplad med den grekiska. Aktiviteten i marknaden är generellt låg inför valet.

Teknisk analys: På väg mot trend nacklinjen. Inte mycket har hänt sedan förra veckan. En viss stabilisering har dock inträtt men denna bör ses som temporär, en paus i nedåttrenden. Väl avklarad tar vi nästa steg ned emot nacklinjen (av den potentiella huvud skuldra toppformationen).

Prognos för pris på koppar - 15 juni 2012

Majs

Prisutveckling på majs under 1,5 år

Priset på decembermajs fortsätter sin negativa trend som marknaden haft sedan september förra året. Vi fortsätter at räkna med lägre priser och tror att priset kommer att bryta 500 cent för att sedan fortsätta ner.

USDA höjde produktionsestimatet för 2012/13. Rapporten räknar även med att utgående majslager ökar. Efterfrågan från Kina och andra tillväxtländer samt efterfrågan på majs till etanoltillverkning har hållit lagren pressade. När det gäller etanol är ökningen i efterfrågan med största sannolikhet över.

USDA reviderar upp sin prognos för Rysslands majsproduktion 2012/13 och den beräknade produktionen slår därmed det tidigare produktionsrekordet från 2008/09 som även matchades 2011/12.

Majsproduktionen i Kina 2012/13 beräknas vara oförändrad jämfört med förra året. Lantbrukarna i landet förväntas öka majsarealen p.g.a. lägre vinstmarginaler för andra grödor.

Teknisk analys: Upp inom kanalen. Den övergripande bilden är fortfarande rätt svårtydd. Dock kan vi noterar att det falska brottet på nedsidan vid månadsskiftet har lett till ett normalt utfall, ett återtest av golvet med på följande uppgång. Troligtvis kommer kraften i studsen att räcka till ungefär 630. Faller vi under 575 ½ så är studsen redan över och ett nytt bottentest på väg.

Prognos på prisutveckling för majs - 15 juni 2012

Vete

Prisutveckling på vete tom 15 juni 2012

Det USDA har publicerat juni månads WASDE (World Agricultural Supply and Demand Estimates) rapport för produktion, konsumtion och utgående lager. Prognosen för den globala veteproduktionen 2012/13 visar en nedjustering från förra säsongen till 680 ton, vilket dock är fem ton högre än tidigare prognos och fortfarande en bra bit över genomsnittet de senaste fem åren.

Det europeiska Matifvetet föll tillbaka efter Wasde-rapporten. Vi har en negativ grundsyn på prisutvecklingen.

Skicket (crop condition) på amerikanskt vintervete som rapporterade i måndags ligger på 53 % /good/excellent, vilket är en procent högre än förra veckan.

Globala vetelager är på en relativt låg nivå och förväntas inte stiga 2012/13. Nedsiderisken är alltså begränsad.

Ryssland som är en viktig veteproducent har haft problem med ihållande torka och varma temperaturer under april och större delen av maj vilket har hämmat grödornas utveckling.

Dessutom har ogynnsamma väderförhållanden i Centraleuropa gör att USDA reviderat ned produktionsestimat.

Vi fortsätter att ha en neutral syn på veteprisets utveckling på kort sikt.

Teknisk analys: Tillbaka i 55dagars bandet. Tanken om en fortsatt uppgång har, givet de senaste dagarnas nedgång, skjutits på framtiden. Återigen ligger fokus på huruvida köparna kommer, att som vanligt, återkomma i 55dagars bandet eller inte? Om vi följer det tidigare mönstret bör vi snart försöka högre igen.

Prognos för pris på vete - Köp och sälj - 15 juni 2012

Sojabönor

Nedan ser vi WASDE-rapportens produktionsestimat i miljoner ton, som publicerades i onsdags. Det är inga större förändringar för innevarande år, dock en liten uppjustering av Brasiliens skörd och en lika stor nedjustering av Argentinas. För 2012/13 justerades endast Kinas produktion nedåt.

Sojabönor - Sammanställning av produktion

Utgående lager ser vi nedan. Det är otroligt låga utgående lagerestimat för USA. Globalt är dock lagren på en hyggligt bra nivå.

Lager av sojabönor

Nedan ser vi nuvarande utgående lager i historiskt perspektiv. Lager som räcker i 59 dagar är en relativt hög nivå, trots allt.

Sojabönor - Utveckling av lagernivåer

Lägre ekonomisk tillväxt runtom i världen tynger sojabönorna. Vi ser ett lite längre prisdiagram på novemberkontraktet nedan. Så länge det inte blir någon störning av höstens sådd i Sydamerika bör priset kunna hålla sig under 1400 cent. Vi tycker att man ska vara såld sojabönor nu, med stop-loss på drygt 1400 cent. Det finns goda möjligheter till lägre priser framöver.

Analys av pris på sojabönor den 15 juni 2012

[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.

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Analys

Bearish momentum may return but strategic buying is starting to kick in

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SEB - analysbrev på råvaror

EUA price action: The seeds of the rally may have come from Red Sea troubles, higher freight rates and higher ARA coal prices. Add in record short positioning in EUAs, nat gas being cheap relative to oil in Asia, participants in the EU ETS purchasing EUAs strategically, rising temperature adj. nat gas demand in Europe (though absolute demand still very, very weak due to warm weather) and lastly a weather forecast pointing to more normal temperatures in North West Europe. And ”Bob’s your uncle”, the EUA Dec-24 price rallied 10.8% from EUR 52.2/ton on Feb 26 to EUR 57.84/ton ydy.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

It is normal with short-covering rallies in bear markets. What puzzled us a little was the involvement of coal prices in the rally together with nat gas and EUAs. Did the upturn in coal prices come from the Chinese market with participants there maybe sniffing out some kind of imminent, large government stimulus package and front-running the market?  No. There has been no rally in iron ore and the upturn in coal prices in Asia have been lagging the upturn in ARA coal prices.

Did the rally come from the Utility side in Europe where Utilities jumped in and bought Coal, Gas and EUAs and selling power against it? Probably not because forward fossil power margins are still very negative.

The most plausible explanation for the upturn in coal prices is thus Red Sea troubles, higher dry freight rates and higher ARA coal prices as a result. ARA coal prices bottomed out on 14 Feb and then started to move higher. The Baltic dry index started to rally already in mid-January. This may have been the seeds which a little later helped to ignite the short-covering rally in nat gas and EUAs. Add in a) Record short positioning in EUA contracts by investment funds with need for short-covering as EUA prices headed higher, b) Japanese LNG trading at only 58% versus Brent crude vs. a 2015-19 average of 73% thus nat gas was cheap vs. oil, c) Participants in the EU ETS starting to buy EUAs strategically because the price was close to EUR 50/ton, d) Gradually improving nat gas demand in Europe in temperature adjusted terms though actual.

Mixed price action this morning. Bearish momentum may return but strategic buying is kicking in. Today the EUA price is falling back a little (-0.3%) along with mixed direction in nat gas prices. The coal-to-gas differential (C-t-G diff) for the front-year 2025 still looks like it is residing at around EUR 47/ton and lower for 2026 and 2027. We expect C-t-G diffs to work as attractors to the EUA price from the power market dynamics side of the equation. Thus if nat gas prices now stabilizes at current levels we should still see bearish pressure on EUAs return towards these C-t-G diff levels. The forward hedging incentive index for power utilities in Germany is still deeply negative with no incentive to lock in forward margins as these largely are negative. Thus no normal purchasing of EUAs for hedging of power margin purposes.

That said however. We do see increasing interest from corporate clients to pick up EUAs for longer-term use and strategic positioning and that will likely be a counter to current bearish power market drivers. Even utilities will likely step in a make strategic purchases of EUAs. Especially those with coal assets. Irrespective of current forward power margins. An EUA price below EUR 60/ton is cheap in our view versus a medium-term outlook 2026/27 north of EUR 100/ton and we are not alone holding the view.

The Baltic dry index (blue) bottomed in mid-Jan and rallied on Red Sea issues. European coal, ARA 1mth coal price (white) bottomed on 14 Feb and then rallied. 

The Baltic dry index (blue) bottomed in mid-Jan and rallied on Red Sea issues. European coal, ARA 1mth coal price (white) bottomed on 14 Feb and then rallied.
Source: Blbrg graph and data

ARA 1mth coal price in orange starting to move higher from 14 Feb. EUA Dec-24 price bottomed for now on 26 Feb

ARA 1mth coal price in orange starting to move higher from 14 Feb. EUA Dec-24 price bottomed for now on 26 Feb
Source: Blbrg graph, SEB highlights

Net speculative positioning in EUAs by financial players. Record short

Net speculative positioning in EUAs by financial players. Record short
Source: Blbrg graph and data

Price of Japanese LNG vs price of TTF nat gas as a spread in EUR/MWh. Rising price of Japanese LNG vs. TTF. But this could be coming from changes in LNG freight rates

Price of Japanese LNG vs price of TTF
Source: SEB graph and calculations

Price of Japanese LNG vs. Brent crude traded all the way down to 58% making it cheap in relative terms to oil.

Price of Japanese LNG vs. Brent crude
Source: SEB graph and calculations, Blbrg data

The German forward hedging incentive index just getting more and more negative

The German forward hedging incentive index just getting more and more negative
Source: SEB calculations and graph

Forward EUA prices in green (today’s prices) and the EUA balancing price for Coal power vs Gas power in lilac. The latter is calculated with today’s nat gas prices and closing prices for ARA coal from ydy. In a medium-tight EUA market the Coal-to-Gas differential in lilac will typically be an ”attractor” for the EUA price in terms of power market dynamics.

Forward EUA prices in green (today's prices) and the EUA balancing price for Coal power vs Gas power in lilac.
Source: SEB graph and calculations, Blbrg data
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Analys

A ”Game of Chicken”: How long do you dare to wait before buying?

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SEB - analysbrev på råvaror

The EUA market rallied 3.4% ydy and is adding another 0.5% this afternoon with EUA Dec-24 at EUR 54.2/ton. Despite the current bounce in prices we think that the ongoing sell-off in EUA prices still has another EUR 10/ton downside from here which will place the low-point of EUA Dec-24 and Dec-25 at around around EUR 45/ton. Rapidly rising natural gas inventory surplus versus normal and nat gas demand in Europe at 23% below normal will likely continue to depress nat gas prices in Europe and along with that EUA prices. The EUA price will likely struggle to break below the EUR 50/ton level, but we think it will break.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

That said, our strong view is still that the deal of the year is to build strategic long positions in EUA contracts. These certificates are ”licence to operate” for all companies who are participants in the EU ETS irrespective whether it is industry, shipping, aviation or utilities. We have argued this strongly towards our corporate clients. The feedback we are getting is that many of them indeed are planning to do just that with board approvals pending. Issuance of EUAs is set to fall sharply from 2026 onward. The Market Stability Reserve (MSR) mechanism will clean out any surplus EUAs above 833 m t by 2025/26. Medium-term market outlook 2026/27 is unchanged and not impacted by current bearish market fundamentals with fair EUA price north of EUR 100/ton by then. Building strategic long position in EUAs in 2024 is not about pinpointing the low point which we think will be around EUR 45/ton, but instead all about implementing a solid strategic purchasing plan for EUAs for 2024.

The ingredients in the bottoming process will be: 1) Re-start of European industry as energy prices come down to normal, 2) Revival in nat gas demand as this happens, 3) Nat gas prices finding a floor and possibly rebounding a bit as this happens, 4) Asian nat gas demand reviving as nat gas now normally priced versus oil, 5) Strategic purchasing of EUA by market participants in the EU ETS, 6) Speculative buying of EUAs, 7) Bullish political intervention in H2-24 and 2025 as EU economies revive on cheap energy and politicians have 2024-elections behind them.

On #1 we now see calculations that aluminium smelters in Europe now are in-the-money but not restarted yet. On #2 we see that demand destruction (temp. adj.) in Europe is starting to fade a bit. On #3 we have not seen that yet. On #4 we see stronger flows of LNG to Asia. On #5 we see lots of our corporate clients planning to purchase strategically and finding current EUA prices attractive.  On #6 it may be a bit early and so as well for #7.  

For EU ETS participants it may be a ”Game of Chicken”: How long do you dare to wait before buying? Those who wait too long may find the carbon constrained future hard to handle. 

Ydy’s short-covering rally lost some steam this morning before regaining some legs in the afternoon. The EUA Dec-24 ydy rallied 3.4% to EUR 53.97/ton in what looks like a short-covering-rally in both coal, nat gas, power and EUAs. This morning it gave almost all of the gains back again before regaining some strength in the afternoon to the point where it is now up at EUR 54.7/ton which is +1.4% vs. ydy. A weather forecast promising more seasonally normal temperatures and below normal winds could be part of the explanation.

The power market is currently the main driver and nat gas prices the most active agent. The main driver in the EUA market is the power market. When the EUA market is medium-tigh (not too loose and not too tight), then the EUA price will naturally converge towards the balancing point where the cost of coal fired electricity equals the cost of gas fired electricity. I.e. the EUA price which solves the equation: a*Coal_price + b*EUA_price = c*Gas_price + d*EUA_price where a, b, c and d are coefficients given by energy efficiency levels, emission factors and EURUSD fex forward rates. As highlighted earlier, this is not one unique EUA balancing price but a range of crosses between different efficiencies for coal power and gas power versus each other.

Coal-to-gas dynamics will eventually fade as price driver for EUAs but right now they are fully active. Eventually these dynamics will come to a halt as a price driver for the EUA price and that is when the carbon market (EU ETS) becomes so tight that all the dynamical flexibility to flex out of coal and into gas has been exhausted. At that point in time the marginal abatement cost setting the price of an EUA will move to other parts of the economy where the carbon abatement cost typically is EUR 100/ton or higher. We expect this to happen in 2026/27.

But for now it is all about the power market and the converging point where the EUA price is balancing the cost of Coal + CO2 equal to Gas + CO2 as described above. And here again it is mostly about the price of natural gas which has moved most dramatically of the pair Coal vs Gas.

Nat gas demand in Europe is running 23% below normal and inventories are way above normal. And natural gas prices have fallen lower and lower as proper demand recovery keeps lagging the price declines. Yes, demand will eventually revive due low nat gas prices, and we can see emerging signs of that happening both in Europe and in Asia, but nat gas in Europe is still very, very weak vs. normal. But reviving demand is typically lagging in time vs price declines. Nat gas in Europe over the 15 days to 25. Feb was roughly 23% below normal this time of year in a combination of warm weather and still depressed demand. Inventories are falling much slower than normal as a result and now stand at 63.9% vs. a normal 44.4% which is 262 TWh more than normal inventories.

Bearish pressure in nat gas prices looks set to continue in the short term. Natural gas prices will naturally be under pressure to move yet lower as long as European nat gas demand revival is lagging and surplus inventory of nat gas keeps rising rapidly. And falling front-end nat gas prices typically have a guiding effect on forward nat gas prices as well.

Yet lower nat gas prices and yet lower EUA prices in the near term most likely. Nat gas prices in Europe will move yet lower regarding both spot and forwards and the effect on EUA will be continued bearish pressure on prices.

EUA’s may struggle a bit to break below the EUR 50/ton line but most likely they will. EUA prices will typically struggle a bit to cross below EUR 50/ton just because it is a significant number. But it is difficult to see that this price level won’t be broken properly as the bearish pressure continues from the nat gas side of the equation. Even if nat gas prices comes to a halt at current prices we should still see the EUA price break below the EUR 50/ton level and down towards EUR 45/ton for Dec-24 and Dec-25.

The front-year nat gas price is the most important but EUA price should move yet lower even if it TTF-2025 stays unchanged at EUR 27.7/ton. The front-year is the most important for the EUA price as that is where there is most turnover and hedging. The following attractors for the EUA forward prices is with today’s TTF forward price curve (TTF Cal-2025 = EUR 27.7/ton) and today’s forward EURUSD FX curve and with ydy’s ARA coal closing prices. What it shows is that the forward EUA attractors are down at EUR 45/ton and lower.

The front-year Coal-to-Gas differential is the most important ”attractor” for the EUA price (Cal-2025 = average of Dec-24 and Dec-25) and that is down to around EUR 45/ton with a TTF Cal-2025 price of EUR 27.7/ton. The bearish pressure on EUA prices will continue as long as the forward nat gas prices are at these price levels or lower.

The front-year Coal-to-Gas differential is the most important "attractor" for the EUA price
Source: SEB graph and calculations, Blbrg data

And if we take the EUA attractors from all the different energy efficiency crosses between coal and gas then we get an average attractor of EUR 44.2/ton for EUA Cal-2025 (= average of Dec-24 and Dec-25) versus a market price today of EUR 53.9/ton.

Calculating all the energy efficiency crosses between coal and gas power plants with current prices for coal and nat gas for 2025 we get an average of EUR 44.2/ton vs an EUA market price of EUR 53.9/ton. Bearish pressure on EUAs will continue as long as this is the case.

Calculating all the energy efficiency crosses between coal and gas power plants with current prices for coal and nat gas
Source: SEB graph and calculations, Blgrg data

Utility hedging incentive index still deeply negative: Utilities have no incentive currently to buy coal, gas and EUAs forward and sell power forward against it as these forward margins are currently negative => very weak purchasing of EUAs from utilities for the time being. 

Utility hedging incentive index
Source: SEB calculations and graph, Blbrg data

Natural gas in Europe for different periods with diff between actual and normal decomposed into ”price effect” and ”weather effect”. Demand last 15 days were 23% below normal!

Natural gas demand in Europe
Source: SEB calculations and graph, Blbrg data

Natural gas inventories in Europe vs the 2014-2023 average. Surplus vs. normal is rising rapidly.

Natural gas inventories in Europe vs the 2014-2023 average. Surplus vs. normal is rising rapidly.
Source: SEB graph and calculations, Blbrg data

Nat gas inventories in Europe at record high for the time of year. Depressing spot prices more and more. Nat gas prices are basically shouting: ”Demand, demand, where are you?? Come and eat me!”

Nat gas inventories in Europe at record high for the time of year
Source: SEB graph and calculations, Blbrg data
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Analys

Comfort zone for OPEC+ in 2024 as fundamentals gradually improve in its favor

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Back to its sideways trade range and inching almost unnoticeable higher as the year progresses. Brent crude is up 0.2% this morning to USD 82.7/b along with copper (+0.3%) and Shanghai equities (+1.0%). Brent crude saw some bearish action at the end of last week but it recovered a good portion of that ydy (+1.1%) and then a little more again this morning. With this it has mostly returned back to its sideways trading pattern.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Brent crude averaged USD 79.1/b in January. So far in February it has averaged USD 81.5/b and at the moment it trades at USD 82.7/b. Typical market comments these days are along the theme ”looking for direction” or ”waiting for new signals on supply or demand”. But other comments are more attuned to a view that the direction is indeed sideways this year. Argus last week describe the outlook for the supply/demand balance for 2024 as ”almost perfectly aligned” and Goldman adds to this view in a note yesterday with ”oil set to extend its tight trading range”.

Cease-fire in Gaza on Monday 4 March may create a buying opportunity. News this morning is Biden expressing hopes that a cease-fire in Gaza may start as soon as Monday next week. In our view there is basically zero risk premium in the current oil price due to Middle East tensions. So if the oil price sells off on firm news of a cease-fire, then it is probably a good buying opportunity in our view.

We maintain our strong view of an average Brent crude oil price of USD 85/b in 2024. Total US crude and product stocks including SPR has gone flat sideways since the end of 2022, all through 2023 and has continued to do so in 2023. US oil inventories are below where they were one year ago both when SPR is included and excluded. This is a reflection of a global oil market in balance though OPEC+ has indeed been the balancing agent.

For the year to come, total US hydrocarbon liquids production is forecast by the US EIA to go flat sideways until October this year and in Q4-24 US production is forecast to be only 0.1 m b/d above Q4-23. So no damaging super-growth from the US to kill the oil party this year. In its last monthly report the US EIA actually reduced its forecast for US production by 100 k b/d to 22.3 m b/d (all liquids included). Russia’s energy minister, Nikolay Shulginov, stated in Tass news agency recently that he expects Russian oil production to decline to 530 mn ton in 2024 from 523 mn ton in 2023. That’s a decline of 1.3% YoY and would equate to a decline of 120-130 k b/d decline YoY. So neither of these oil producing giants are set to unsettle the global oil market this year with too much supply.

Demand growth looks set to be a normal 1.3 m b/d in 2024. The most bearish on oil demand growth is probably the IEA which predicts demand to grow on by 1.2 m b/d YoY in 2024. The US EIA expects demand to grow by 1.4 m b/d. But if we look closer at the numbers from the IEA it expects demand to rise by 1.6 m b/d YoY from Q4-23 to Q4-24. Together with muted supply from both the US and Russia this year this all sums up to a gradually rising need for oil from OPEC through 2024. This made us write the headline ”Better and better every day” in a crude oil comment in late January. Demand for oil from OPEC doesn’t look stellar. But it looks set to be better and better through the year and that is most definitely a great comfort zone for OPEC+.

Sideways, yes, but normal trade range around the mean is still usually +/- USD 20/b. Amid all the current calmness, let us still not forget that Brent crude usually trades in a range through the year of +/- USD 20/b around the mean as there are always some surprises along the way. We don’t think that the situation in the Middle East will spiral out of control into an all-out regional war involving Iran and resulting in large losses of oil supply to the market. And we don’t think there are much risk premium in current oil prices related to this either. But at times in 2024 it may look like it might happen. And that’s probably when you would see the high price point of the year. Maybe as high as USD 105/b. On the bearish we do not think that we’ll have a major economic slowdown or a recession in 2024. But at times in 2024 it may look like we are about to tip into a major slowdown and that would probably be when you’d see the low price point of the year. Maybe as low as USD 65/b.

Total US crude and product stocks incl. SPR has gone sideways since end of 2022, all through 2023 and so far in 2024. Currently it is only 13 m b above the low-point in late 2022!

Total US crude and product stocks incl. SPR
Source: SEB graph, Blbrg data

Commercial US crude and product stocks are below normal and below last year.

Commercial US crude and product stocks are below normal and below last year.
Source: SEB graph and calculations, Blbrg data

US Commercial oil inventories vs. the 2015-19 average. Still struggling with a significant deficit of middle distillates.

US Commercial oil inventories vs. the 2015-19 average.
Source: SEB graph and calculations, Blbrg and EIA data

US refinery utilization at very low level vs. normal. Extensive maintenance this spring is expected. Result will be low production of oil products, falling inventories of oil products, higher refining margins but also rising crude stocks.

US refinery utilization at very low level vs. normal.
Source: SEB graph and calculations, Blbrg data

US EIA forecast for total US liquids production. To go sideways in 2024 to Oct-2024.

US EIA forecast for total US liquids production
Source: SEB graph and calculations, US EIA data STEO

Strong growth in US supply in 2022 and 2023. But 2024 is only set to grow 0.5 m b/d YoY on average. The growth in 2024 is in part a result of production in 2023 starting low and ending high. But from Jan to Oct 2024 US production will go sideways and only rise by 0.1 m b/d YoY from Q4-23 to Q4-24.

YoY change in total US hydrocarbon liquids production
Source: SEB calculations and graph, US EIA data STEO

Global floating crude stocks at 66 m b and not too far above the more normal 50 m b level.

Global floating crude stocks
Source: SEB graph, Blbrg data

IEA Feb-2024 OMR: Call-on-OPEC is rising gradually through 2024. Better and better for OPEC every quarter to Q3-24

Source: SEB graph, IEA data
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