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SEB – Råvarukommentarer vecka 34 2012

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Sammanfattning av rekommendationer

Sammanfattning av rekommendationen på guld, vete, platina mfl

Råolja – Brent

Oljan närmar sig slutet av den här uppgångsfasen. Det är en ”tight” balans mellan tillgång och efterfrågan på råolja i Atlanten. Detta återspeglas i ”backwardation” i terminskurvan. Nedan ser vi kursdiagrammet på spotkontraktet på Brent på ICE.

Spotkontrakt på Brent-olja på ICE

SEB:s teknisk analys tyder på en sidledes utveckling, så vi fortsätter att vara neutrala på kort sikt.

Guld

Vår favorit bland ädelmetallerna, platina har utvecklat sig väl. De som följt vårt råd borde vara glada därför att PLATINA S har gått upp med drygt 7% sedan förra veckobrevet. Det börjar pratas om ett nytt QE3. I FOMC-protokollet sägs detta rätt så tydligt. Så här skrev man: MORE STIMULUS SHOULD BE LAUNCHED IF A ”SUBSTANTIAL AND SUSTAINABLE” IMPROVEMENT IN THE RECOVERY IS NOT SEEN ”FAIRLY SOON”. Det talar för ädelmetaller. Vi tycker att man ska äga PLATINA S, GULD S och SILVER S. Möjligen kan man ta hem vinster på PLATINA S nu och byta till GULD S. Vi ser i diagrammet nedan, att guldpriset i dollar har brutit motståndslinjen, vilket är en teknisk köpsignal.

Teknisk prognos på guldpriset den 24 augusti 2012

Platina

Sedan oroligheterna vid Lonmin’s Marikana-gruva i Sydafrika eskalerade i förra veckan har priset stiga ca 10 %., från ca $1400/oz till dagens notering på $1547. Lonmin har finansiella problem vilket förvärrar situationen. Företaget producerar 750 000 oz, ca 16 % av Sydafrikas totala utbud som i sin tur utgör hela 75 % av det globala utbudet (ca 6,4 Milj oz). Risken finns att konflikten sprider sig till andra gruvor i landet. Den senaste strejken vid Impalas gruvor i januari varade i 6 veckor och orsakades av samma orsaker, vilket inkluderar en maktkamp mellan olika fackföreningar. För att ytterligare störa situationen gav Sydafrikas president, Jacob Zuma, gruvarbetarna sitt stöd. Han hotade med att ta Lonmins gruvlicens om bolaget inte gav gruvarbetarna 40% mer i lön, som är vad de kräver. Lonmin tjänar inga pengar, utan redovisade en förlust det första halvåret i år. Det är alltså en ohållbar situation och det torde innebära att priset på platina, allt annat lika, kommer att gå upp. Förutom utbudsrisken får Platina stöd i sig egenskap av ädelmetall, och hänger på guldprisets uppåt (där förhoppningar om ett amerikanskt stimulanspaket är huvudförklaringen). Platina klassas som ädelmetall, men sett till konsumtionen är den en industrimetall. Bilindustrin är den största konsumenten där metallen är en viktig beståndsdel i katalysatorer, vars tillverkning står för ca 35 % av den totala efterfrågan. Med vår syn på basmetaller och guld kombinerat talar det mesta för en fortsatt stark prisbild på sikt. Kortsiktigt finns dock risk för rekyl då uppgången gått lite väl fort i samband med oroligheterna i Sydafrika.

Teknisk prognos för pris på platina den 24 augusti 2012

Mot bakgrund av den senaste veckans kraftiga prisuppgång på platina och att vi har en uppgång på 7% i PLATINA S, gör att vi väljer att kliva av här. Notera också att priset i diagrammet ovan gått upp precis till motståndslinjen. Skulle den brytas gå vi omedelbart in igen!

Silver

Silver har levererat på den tekniska bilden, på ett nästan skolboksmässigt sätt. Priset har gått upp hastigt och det vore inte förvånande om det kom en kortsiktig rekyl, som då är ett köptillfälle, ett tillfälle att köpa SILVER S.

Framtida silverpris på kort sikt - 24 augusti 2012

Koppar

Efter en i övrigt ganska nyhetsfattig vecka blev den stora höjdpunkten onsdagskvällens FEDs protokoll. Marknaden gillade att ett tillräckligt stort antal ledamöter var positiva till ett nytt stimulanspaket. Riskhattarna åkte på. Basmetaller hade redan börjat vända upp i början av veckan. Prisuppgången i veckan ligger mellan 2 och 4 % för de största metallerna. Nickel utmärker sig (som varit den svagaste den senaste tiden) med en uppgång på 4,5 % sen öppningen i måndags. En viktig nyhet under veckan var att BHP meddelade att de lägger tre sedan tidigare planerade projekt på is med ett värde av 68 Mdr dollar.

Man anger låga råvarupriser som huvudsakligt skäl. En förklaring till den svaga tendensen under sommaren har just varit oron för ett ökat utbud. Vi utryckte vår bedömning förra veckan att priserna ligger i startgroparna inför det säsongsmässigt starkare fjärde kvartalet. Frågan är om det vi nu ser är en tjuvstart? Det mesta talar för en början till vändning, men risken är stor att priserna (vid någon besvikelse över någon makrodata) faller tillbaka igen. Tekniskt sett har trenderna definitivt vänt från neråtgående till mer sidledes. Det behövs mer tid för kraftansamling. Koppar visade vid sidan av nickel störst styrka under veckan. Det är för tidigt att tala om en vändning uppåt. Tekniska analytiker bevakar 100dagarssnittet som kommer in på $7724. Dagens högsta nivå är 7720 ! Marknaden står och väger och frågan är om den har kraft nog att bryta uppåt i nuläget. Oron kvarstår för Kina. Helgens nyhet att fastighetspriserna steg i 49 av 70 större städer som regeringen följer i juli jämfört med juni, minskar sannolikheten för ett snart stimulanspaket i Kina. Det finns således anledning att vila lite på hanen. För den tradingbenägne kan det dock erbjudas intressanta möjligheter i intervallet: 7300-7400 på nedsidan och 7600-7700 på uppsidan.

Teknisk prognos på kopparpris den 24 augusti 2012

Vi rekommenderade förra veckan ett köp av KOPPAR S, som sedan dess stigit med 2%. Vi tror att det är lite för tidigt att gå in för lite längre sikt, så vi kliver ur den positionen och har en neutral vy.

Kaffe

Priset på Arabica, har funnit ett stöd på den jämna siffran 160 cent. Möjligen kan detta stöd bli en bas för en ny uppgång såsom skedde i juni – juli.

Prognos på pris för kaffe den 24 augusti 2012 - Diagram

Det är låga priser på kaffe och det är, kanske på grund av El Niño – torrt i Vietnam, världens största producent av Robusta. Det gör att bönorna blir mindre, med mindre skörd som följd. Det finns alltså fundamenta som inte bara pekar på lägre priser.

Socker

Priset på socker har, såsom vi har förutspått, fortsatt att sjunka. Vi skrev för en vecka sedan att 20 cent är en psykologiskt viktig nivå. Marknaden tvekade lite där, men bröt sedan stödet. Det gör att vi tror att priset kommer att fortsätta ner mot 19 cent i första hand.
Brasiliens sockerrörsområden har haft uppehåll i regnen, vilket gör att skörden kan gå framåt snabbare.

Fallande pris på socker - Analys den 22 augusti 2012

Vi rekommenderade köp av certifikatet SHORT SOCKE A S med en hävstång på – 1.2 för två veckor sedan. Första veckan gav den +5% och den senaste veckan +3%.

Vi rekommenderar att man fortsatt är kort socker, men den som vill ta hem vinster nu vid 20 cent kan kanske göra det för att sedan försöka sälja igen om priset rekylerar upp lite.

Kakao

Kakaopriset har fortsatt att backa efter att ha stött på tekniskt motstånd vid 2500. Vi fortsätter att förhålla oss neutrala vad gäller vår uppfattning om priset.

Kakaopriset har fallit - Neutral prognos

Om jordbruksprodukterna

Priserna på jordbruksprodukter har fortsatt upp. Tekniskt ser det ut som om priserna på spannmål och oljeväxter kommer att fortsätta stiga, men gårdagskvällens rapport från StatsCanada, som visar en av de största skördarna av spannmål någonsin och den största skörden av raps någonsin, fick marknaderna att tveka.

Pro Farmer crop tour visar en skörd i bättre skick än USDA har förutspått.

Eurozonen ser ut att gå mot en vecka där man får se sanningen i vitögat och det lär knappast öka konsumtionsviljan.

Vi tror att detta kan vara ett köptillfälle och vi fortsätter att tro på högre priser. Än har ransoneringen av konsumtionen av majs – den mest kritiska marknaden – och drivande för vetemarknaden – inte visat något tecken på att komma igång. Tvärtom, faktiskt. Såväl utfordring av djur i USA, som etanolproduktion i USA ökar enligt de senaste rapporterna.

För spannmål och övriga jordbruksprodukter hänvisas till gårdagens nyhetsbrev.

[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.

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Analys

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

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SEB - analysbrev på råvaror

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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Analys

The self-destructive force of unregulated solar power

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

Solar and wind power production has increased rapidly over the latest years as LCOE costs have fallen sharply while government support schemes have given it an extra boost as well. Solar and wind power production is totally unregulated supply. They produce whenever they produce. Fossil power supply on the other hand is fully dispatchable to the degree that we tend to take it for granted. As such we have naturally tended to underestimate the consequences of not having dispatchability in solar and wind power.

When you start out with a large, fossil-based power system it is fairly easy to add unregulated power supply from solar and wind because it can piggyback on the dispatchability and flexibility of the fossil power system. But as the share of unregulated renewable energy rises to a larger and larger share of production, the flexibility in the fossil part of the system naturally gets smaller and smaller. This problem is accentuated further  by the fact that solar power production has a very high concentration of production where 80% of production in a year is produced in only 20% of the hours in the year. Thus fossil flexibility and dispatchability is eroded much faster during these 20% hours.

Power prices typically collapse to zero or negative when demand is fully met or saturated by unregulated power supply. That again implies that solar power profitability collapse as well. And the result of that of course is that the exponential growth in solar power production which we now take for granted and which we expect will lead us all the way to zero emissions could come to a full stop as well.

This is already a rapidly increasing problem in California where more and more renewable energy is denied access to the grid because there simply isn’t enough demand for it just then or because the grid cannot handle it. But it is also becoming an increasing problem in Germany where the strong growth and high concentration of solar power increasingly is destroying the power prices just when they produce the most.

The need for biiiig, cheeeeap grid batteries are now becoming increasingly critical for the the exponential growth in solar and wind power to continue.

We fear that the self-destructive force on power prices, of exponential growth in unregulated solar power, is some kind of Solar-hara-kiri process with respect to its own profitability. And that it has the potential to develop along a curve of ”first gradually, then suddenly”. And when/if that happens the exponential growth in unregulated solar power production should naturally come to a screeching halt.

The resolution of the problem is of course the eventual arrival of biiiig, cheeeap grid batteries which then again will sett solar power production free to resume its exponential growth. 

Feeding solar and wind power supply into a fossil system is easy to start with. Then very difficult. It is easy to build unregulated solar and wind power supply into a flexible fossil system. It is easy to infuse unregulated power supply (Solar and Wind) into a power system where there is lots and lots of fossil based power. Fossil supply can then back-off and make room for solar and wind power whenever the sun is shining or the wind is blowing and then ramp up again when it suddenly disappear.  But when unregulated, renewable energy supply keeps growing it becomes harder and harder to infuse yet more of it into the system as the fossil flexibility is increasingly eroded. That’s when yet more supply of solar and wind is no longer pushing aside fossil supply but instead is starting to destroy their own prices.

Solar power produces 80% of its production during 20% of the hours in the year. Solar power has however a much more tightly focused production profile than wind. In Germany in 2023 some 80% of all solar power production was concentrated on only 20% of the hours of the year. For wind power the 80% share of production was spread out over 50% of the hours in the year. The reason is of course that the wind can blow both summer and winter and night and day. Solar power is instead focused during the day and during summer. It has a much higher concentration of production.

Power prices tend to collapse when demand is fully covered by unregulated power supply. When solar power production grows rapidly in a given power system then its high production concentration will eventually lead to full saturation during certain hours of the year. Demand during these hours will then be fully supplied and covered by unregulated power like solar, wind, run-of-river hydro and other unregulated supply. That is great as it means that the fossil share in these hours then are close to zero.

The problem is that power markets, more than any other commodity market in the world, are extremely sensitive to imbalances in supply and demand. A little bit too little supply and the power price can spike up to close to infinity. A little bit too much supply and the price crashes to zero or negative.

When unregulated power supply reaches full demand saturation during certain hours then power prices tend to collapse because it is so easy to get a little bit too much supply.

It is not a problem when power prices collapse for just a few hours per year. But the number of hours affected is growing rapidly many places. The US EIA highlighted in October 2023 (”Solar and wind power curtailments are rising in California”) that this is becoming a bigger and bigger problem in California. Since 2019 the power system operator there has been forced to curtail supply of unregulated power more and more. There simply isn’t enough demand in certain hours to meet the spikes in unregulated supply or the grid isn’t up to the task of distributing the unregulated supply in the system.

So when producers of unregulated supply produces the most they increasingly are denied access to sell it into the grid or if they are allowed to sell it into the grid the price is close to zero or even negative.

US EIA: Solar and wind power curtailments are rising in California

US EIA: Solar and wind power curtailments are rising in California
Source: The US EIA in October 2023

Germany is increasingly affected as booming solar production is depressing prices more and more. This is now also a rapidly increasing problem in Germany where rapid growth in supply of solar and wind power together increasingly are forcing power prices lower just when they produce the most.

Average German power prices for hour 1 to 24 for certain periods and years. Highly concentrated supply of solar power during summer and during the day is increasingly forcing power prices towards zero during these periods

Average German power prices for hour 1 to 24 for certain periods and years
Source: SEB calculations and graph, Blbrg data

It is like ”Solar hara-kiri” when increasing supply of solar power is killing its own prices and profits. It was not a big problem economically when only a few hours are affected. But as more and more hours are affected it is becoming an increasing problem. It is like ”Solar hara-kiri” where rapidly rising supply of solar power is increasingly killing its own prices. With that it is killing its profits. And if profits are killed than new-build and growth in supply will typically slow down rapidly as well. 

This is probably not a big problem globally yet as the global power system is still predominantly fueled by fossil fuels which can back off when renewable energy spikes up. But in certain pockets of the world where penetration of unregulated power supply has reached high levels it is becoming an increasing problem. Like in California and in Germany.

The volume weighted solar power price in September 2023 in Germany had a 38% discount to power prices during non-solar power hours. And the discount looks like it is rapidly getting bigger and bigger.

The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile. In Germany in September 2023 solar power producers only achieved 62% of the average price during hours of the day when the sun wasn’t shining.
The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile.
Source:  Source: SEB graph and calculations and graphs. Based on German 15 min solar power prod. extracted from Blbrg

First gradually, then suddenly. There is a clear risk here that this progresses along a process of ”first gradually, then suddenly”. This is already what we have seen over the past couple of years: The discount for what solar power earns when it produces power versus what the power price is when it is not producing is increasing rapidly as more and more unregulated power supply hits right into the ”demand ceiling”. The inflicted pain from this process so far has to a large degree been masked by incredibly high natural gas prices. So even if the profitability for solar power has been eroding, the average power price in the system has been much higher than usual due to high natural gas and CO2 prices.

Graphing all the individual hourly data for solar power and power demand in Germany in 2022 we see that solar power alone is not yet reaching full saturation versus demand.

Germany 2022: Hourly German power demand and solar power supply in 2022. A total of 8760 hours for each in consecutive order. Her showing only Demand and Solar power production
ourly German power demand and solar power supply in 2022
Source: SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply is increasingly hitting the ”demand ceiling”. If we now add all the other sources of unregulated power supply, predominantly offshore and onshore wind and run of river, then we get the following picture where we see that unregulated German power supply increasingly is hitting right up and into the ”demand ceiling”. In those instances there will be no, flexible fossil power supply left to back off and that is typically when power prices collapse or go negative.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours for each in consecutive order.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

High unregulated power supply saturation vs demand implied lower power prices in 2022. Sorting 8760 individual power prices in Germany from Y2022 from lowest to highest shows that power German power prices were strongly related to the penetration of unregulated power supply. In the following graph, we have  sorted the data from the lowest price to the highest price in the year 2022. Prices were ireasingly depressed when unregulated power penetrated up and into the ”demand ceiling”. Natural gas prices were extreme in 2022 and overall power prices were exceptionally high for that reason as well. But the tendency of price destruction in relation to high levels of unregulated power vs demand is clear.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply penetrating vs demand was even deeper in 2023. If we make the same graph for the year 2023 from 1 Jan to 20 Oct, we can see how the unregulated power is penetrating deeper and deeper into the power ”demand ceiling”. As a result the solar power discount vs. non-solar power hours from March to September in 2023 reached an even higher discount in 2023 than in 2022.

2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest. German power demand was down 8.3% YoY in H1-2023 due to the European energy crisis and still very high power prices
2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

Solar power hours and non-solar power hours is not given as a clear cut-off, but a gradual one. In the following graph given as average profiles of the year from hour 1 to hour 24. First calculated explicitly for solar power production and then the inverse is calculated from that one. These solar power profiles can then be calculated for each individual day in the year giving individual inverse-curves on a daily basis.

The daily ”solar power production profiles” and the ”non-solar power production profiles” typically looks like this graph but calculated individually per day as solar power production varies from day to day and through the seasons. The solar power production profile is explicitly given by the actual solar power production that day while the non-solar power profile is derived directly from this and the inverse of it on a daily basis.
The daily "solar power production profiles" and the "non-solar power production profiles
Source: SEB graph and calculations and graphs. German 15 min solar power prod. extracted from Blbrg

The exponential growth in solar and wind power is likely to slow down in the years to come as grid constraints and lack of power cables is holding up growth in renewable energy with waiting times for access of 5-10 years:

Offshore wind auction’s lack of bids must be ‘wake-up call’ for UK, says RWE chief”

FT: ”Gridlock: how a lack of power lines will delay the age of renewables”

FT: ”Will there be enough cables for the clean energy transition?” 

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Analys

Surge in US crude inventories dampens bullish sentiment

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Price action
Brent crude is currently trading at USD 81.4 per barrel, marking a decline from its February peak of USD 83.6 per barrel recorded yesterday (February 14th), representing a notable drop of 2.6% within a short span of time.

Ole R. Hvalbye,
Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

This morning, crude prices continue to slide, following a larger-than-anticipated increase in US crude inventories (+12.0 million barrels) as reported in the US Petroleum Status Report (EIA). This uptick in inventories is attributed to a further decrease in refinery operations and a relatively softer demand for petroleum products.

Yesterday, crude prices flirted with January highs amidst geopolitical tensions in the Middle East and sustained production cuts by OPEC+. However, the surge in crude inventories observed recently, the most significant since November 2023, is tempering bullish sentiment. Notably, inventories at the ”key” Cushing, Oklahoma, exceeded expectations for this time of year (refer to page 2 in attachment).

Adding to the bearish sentiment is the widespread reduction in oil product inventories, primarily influenced by refinery outages rather than a substantial uptick in demand. Notably, US crude oil refinery inputs averaged 14.5 million barrels per day, marking a decrease of 297 thousand barrels per day compared to the previous week, with refineries operating at 80.6% of their capacity.

Recent market expectations suggest the likelihood of prolonged higher US interest rates due to persistent inflationary pressures, resulting in a stronger US dollar. This aspect contributes to weaker oil prices, as the cost of procuring oil in other currencies becomes relatively expensive, thereby impacting short-term demand dynamics.

Oil inventories

Changes in Inventories:
Crude Oil Excluding SPR: Commercial crude oil inventories (excluding SPR) increased notably by 12.0 million barrels, representing a 2.8% rise from the previous week, but still a substantial 6.8% decrease from the same period last year. However, the surge exceeds typical seasonal adjustments, indicating potential reduced crude demand, and a more well-balanced market.

Distillate: Distillate (diesel) fuel oil inventories declined by 1.9 million barrels, showcasing a 1.5% decrease from the prior week but a significant 5.4% increase compared to the same period last year (naturally from very low levels). The weekly drawdown contributed to a further decline compared to normal, and now distillate stocks remain approximately 7% below the five-year average for this time of year – indicating sustained demand or constrained production.

Gasoline: Total motor gasoline inventories witnessed a decrease of 3.7 million barrels, marking a 1.5% decline from the previous week but a modest 2.2% increase from the same period last year. This reduction aligns with seasonal expectations, albeit slightly exceeding typical adjustments.

Jet Fuel: Inventories of kerosene-type jet fuel increased by 0.1 million barrels, representing a minimal change of 0.2% from the prior week. However, compared to the same period last year, jet fuel inventories surged by 12.1%, indicative of potential shifts in air travel for the start of 2024.

Crude & Product Including SPR: Total petroleum stocks, inclusive of SPR, witnessed a modest increase of 5.9 million barrels, indicating a 0.4% rise from the prior week. However, compared to the same period last year, total stocks experienced a notable 2.4% decrease.

Crude & Product Excluding SPR: Excluding SPR holdings, total petroleum stocks increased by 5.2 million barrels, reflecting a 0.4% rise from the previous week but a 2.1% decrease compared to the same period last year. Despite the weekly increase, petroleum stocks remain below historical averages for this time of the year.

Supply and Demand:
Supply remained relatively stable, with domestic crude oil production and imports showing marginal fluctuations. However, net imports witnessed a notable decline, reflecting shifts in trade patterns and production capacities.

Demand for petroleum products witnessed a decline, as evidenced by product supplied figures. The declines in certain product categories suggest nuanced shifts in consumer behavior.

Exports and Imports:
Exports surged by 751 thousand barrels per day, indicating robust international demand for US petroleum products. Conversely, imports witnessed a decline of 437 thousand barrels per day.

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