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SHB Råvarubrevet 16 augusti 2013

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Handelsbanken - Råvarubrevet inklusive ädelmetallerRåvaror allmänt

Back to School

Efter sköna lata dagar är de flesta tillbaka på arbetsplatsen och fokus ligger åter på ekonomisk data och aktuella teman för hösten. Tre teman kommer dominera prisutvecklingen för industriråvaror under andra halvåret: Eurozonen, Fed och Kina. En glad överraskning efter sommaren var att Eurozonen hoppade upp ur recessionsträsket. 0,3 % tillväxt under Q2 är såklart välkommet som bidrag till globala tillväxten. Visserligen kommer inte positiv tillväxt i Eurozonen, skapad av Tyskland och Frankrike, att lösa de djupt rotade problemen i de perifera länderna i Europa, de kan till och med bli en negativ effekt spunnen ur den starkare eurokursen som kommer av starka kärnländer, men givet rådande låga förväntningar på EMU så tror vi att EMU data har potential att driva prisuppgångar framöver. Sammanfattningsvis är recensionen över medan skuldkrisen lever.

Om Eurozonen är marginellt bättre så kompenseras det av Feds påbörjan av att minska sitt bidrag till marknaden. Antagligen redan i september men i kombination med löften om att hålla räntorna låga mycket längre. Därför tror vi att ”tapering” endast får liten negativ inverkan på råvarupriser. Temat har varit känt sedan maj, övriga centralbanker är fortfarande expansiva och Fed väntas enbart trimma sina stödköp om USA:s ekonomi fortsätter att stärkas.

Om vi antar att dessa båda teman balanserar varandra (om än med övervikt åt positiv EMU effekt) så återstår Kina som det osäkra kortet. Senaste omgången med data var klart bättre än väntat. Handelsdata och råvaruimport var klarast lysande stjärnor. Råvaruimporten av de fyra stora, järnmalm, olja, koppar och sojabönor var den högsta på ett år. Ett sammanträffande som säger något då dessa råvaror används i vitt skilda sektorer. Uppgången har drivits av ökade investeringar och ökad kreditgivning tidigare i år. För råvarornas del tror vi att det handlar om en klassik ”restocking” där lagerkedjan är på mycket låga nivåer efter besvärliga tider och åtstramade krediter i Kina. Vårt argument för att det inte rör sig om en ökad slutkonsumtion är främst industri PMI som hovrar omkring 50-strecket. Icke desto mindre kan lagerrörelsen driva industriråvaror under en månad eller två.

Handelsbankens råvaruindex 16 augusti 2013

Basmetaller

Kina stärker metallerna

Kinas ekonomi har tappat fart under 9 av de 10 senaste kvartalen. Efter en serie av små förändringar från beslutsfattare så har trenden (åtminstone tillfälligt) vänt. Under juli steg industriproduktion, investeringar och bostadsbyggande. De är de viktigaste kategorierna för basmetaller som följaktligen också har stigit i pris. Vårt basmetallindex steg med 6 % under första halvan av augusti där samtliga basmetaller har stärkts med 6-8 %.

Extra bränsle fick brasan av en urstark kinesisk råvaruimport. Denna är visserligen laggad då det tar 6 veckor att skeppa koppar från Chile och järnmalm och sojabönor från Brasilien till Kina men att importen var upp bland vitt skilda råvaror är ett styrketecken. Basmetaller har varit hårt nedtryckta av korta positioner och med en starkare dataström från Kina så ska många korta positioner ut ur LME metallerna. Vi tror på stigande basmetaller med nickel som favorit.

Basmetallindex och prisutveckling på LME-nickel

Nickel är den basmetall som gått ner mest under året och med många gruvor som går med förlust på dagens prisnivåer tror vi på stigande priser. Vi tror på: LONG NICKEL H

Ädelmetaller

Guldet fortsatt starkt

Den 1 juli presenterade vi ett kortsiktigt köpcase på guld, baserat på att priset då rasat väldigt mycket på kort tid, på att kvartalsskiftet orsakade extra stora försäljningar, och på att inflationsförväntningarna börjat stiga igen. Vidare såg guldet rent tekniskt ut att vara översålt. Sedan dess har guldet gått från 1240 dollar per uns till nuvarande 1360 dollar, en uppgång på ca.10 procent. Vi tror att uppgången har lite mer att hämta, även om vi alltjämt håller i vår mer långsiktigt negativa vy.

Den nuvarande drivkraften är primärt den tragiska utvecklingen i Egypten som skapar riskaversion och flykt till mer upplevt säkra tillgångar som guld. Det är dock viktigt att ”dansa nära nödutgången” när man handlar mot sin långsiktiga vy, så vi måste vara påpassliga för plötsliga prisfall orsakade av bättre riskaptit eller fallande inflationsförväntningar. Vi ser fortfarande 1450 som en rimlig nivå att nå i denna uppåtrörelse.

Prisutveckling på guld och silver på Comex

I ett läge där råvaror generellt har viktats ned av institutionella placerare kan guld och silver få en ”omotiverad” uppgång när dessa indexköpare återvänder till råvaror drivit av bättre utsikter för Kina och USA. Vi tror på : LONG GULD H och LONG SILVER H

Energi

Dyrare olja i sommar

Stigande WTI olja och efterföljande Brent har dragit rubriker i sommar. För WTI handlar det mest om att logistiska knutar har lösts upp i USA och ökat utflödet från Cushing som är leveranspunkten för WTI. Lägre lager som sammanföll med stark bensinefterfrågan under driving season stärkte också priset. Brentoljan har också stigit, drivit av högre WTI och oroligheterna i Egypten/ Mellanöstern. Egypten i sig är inget stort oljeland men som stor ekonomi viktig för regionens (in)stabilitet. Presidentbyte i Iran har ännu inte lett till förändrad kommunikation kring sanktionerna. Rouhani är dock mer västvänlig än sin föregångare. I dagsläget är utbudstörningar i Irak mer prisdrivande. Ökat våld och politiskt vakuum har fått produktionsutsikterna på fall. Irak är idag OPEC:s näst största medlem sedan sanktionerna mot Iran infördes. Saudi har redan växlat upp produktionen för att kompensera vilket fått ner Brent något. Saudis roll är alltså inte över trots den boomande oljeproduktionen i USA.

Den korta elpriskurvan stärktes tillfälligt under sommaren med närmare 6 procent vilket främst orsakades av torrt väder och stigande kolpriser. Den hydrologiska balansen försämrades från -6 TWh till -11Twh för att sedan åter falla tillbaka till -6 TWh samtidigt som den negativa trenden på kolmarknaden fortsätter. Såväl gas som utsläppsrätterna handlas i stort sett oförändrat över sommaren samtidigt som spotpriserna i Norden kommer in på stabila nivåer, ca 30 öre per kWh i snitt sedan 1 juni och 33.5 öre i snitt hittills i år. Utsikterna framöver pekar på ett torrare scenario mot normalt vilket i kombination med något starkare kontinentala marknader bör ge fortsatt stöd i en semesterlugn elmarknad.

Oljepris, brent och WTI

Utsikterna framöver pekar på ett torrare scenario mot normalt vilket i kombination med något starkare kontinentala marknader bör ge fortsatt stöd. Vi tror på: LONG EL

Livsmedel

Goda skördar pressar priset

Priserna på de stora jordbruksgrödorna vete, majs och soja har fallit kraftigt under sommaren. I april skrev vi om ett lägre pris på vete framtill hösten på 15-18%, det har sedan dess fallit 15 % och därmed har vi sett det stora fall vi förväntade oss. Det finns fortfarande kvar risk på nedsidan men det kan vara dags att ta hem vinst för korta positioner. Anledningen till prisrasen är främst en generellt sett gynnsam utveckling för grödorna i flera viktiga odlingsområden. Majsen och sojan i USA fick en dålig och sen start men har därefter upplevt en ganska lång period av nära idealiska förhållanden. Förväntningarna på kommande skörd har med tiden skrivits upp flera gånger – det samtidigt som tiden för eventuella bakslag hela tiden minskat. Efter de stora prisfallen har priset på vete, majs och soja neutraliserats men vi ser fortsatt risk på nedsidan – om än mindre än tidigare.

För kakao har uteblivet regn och torka har ökat risken för minskad skörd i Elfenbenskusten, vilket har pressat upp priset till två års högsta. Vi ser också signaler på stigande konsumtion i tillväxtländerna och står därför kvar vid vår vy om fortsatt stigande kakaopris.

I många kaffeproducerande länder däremot, med Brasilien i spetsen, har det regnat i mängder under odlingsperioden och det råder viss oro kring kvalitén på kaffebönorna nu när vi går mot senare delen av skördeperioden. Förseningen har lett till att en del odlare sålt sin skörd till reducerade priser. Förutom nederbörden i Brasilien och fortsatta problem i Centralamerika och Mexico med svampsjukdomar väntas världsproduktionen på kaffe för säsongen 2013/-14 komma att minsta med 3 procent medan en blygsam ökning väntas på konsumtionssidan. Med andra ord så finns det än så länge gott om kaffe på marknaden varför vi tror på terminspris (frontkontrakt) under 1,25 dollar/Ib.

Sammanfattningsvis håller vi en neutral för vårt livsmedelsindex.

Prisutveckling på vete (Matif)

Handelsbankens råvaruindex

SHB Råvaruindex 16 augusti 2013

[box]SHB Råvarubrevet är producerat av Handelsbanken och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Ansvarsbegränsning

Detta material är producerat av Svenska Handelsbanken AB (publ) i fortsättningen kallad Handelsbanken. De som arbetar med innehållet är inte analytiker och materialet är inte oberoende investeringsanalys. Innehållet är uteslutande avsett för kunder i Sverige. Syftet är att ge en allmän information till Handelsbankens kunder och utgör inte ett personligt investeringsråd eller en personlig rekommendation. Informationen ska inte ensamt utgöra underlag för investeringsbeslut. Kunder bör inhämta råd från sina rådgivare och basera sina investeringsbeslut utifrån egen erfarenhet.

Informationen i materialet kan ändras och också avvika från de åsikter som uttrycks i oberoende investeringsanalyser från Handelsbanken. Informationen grundar sig på allmänt tillgänglig information och är hämtad från källor som bedöms som tillförlitliga, men riktigheten kan inte garanteras och informationen kan vara ofullständig eller nedkortad. Ingen del av förslaget får reproduceras eller distribueras till någon annan person utan att Handelsbanken dessförinnan lämnat sitt skriftliga medgivande. Handelsbanken ansvarar inte för att materialet används på ett sätt som strider mot förbudet mot vidarebefordran eller offentliggörs i strid med bankens regler.

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1 kommentar

1 kommentar

  1. Persson

    18 augusti, 2013 vid 03:02

    Kul att analyserna av elpriset börjar trilla in igen. Först Modity och nu Handelsbanken. Antar att SEB är tillbaka på måndag också.

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Analys

Now it’s up to OPEC+

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SEB - analysbrev på råvaror

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics. OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE. The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

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

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d. 

Brent crude fell 4.6% ydy to USD 77.4/b and over the last three trading sessions it has lost USD 5.1/b. This morning it is trading only marginally higher at USD 77.6/b which is no vote of confidence. A good dose of rebound this morning would have been a signal that the sell-off yesterday possibly was exaggerated and solely driven by investors with long positions flocking to the exit. So there’s likely more downside to come.

In general there is a quite good relationship between net long speculative positions in Brent crude and WTI versus the global manufacturing cycle. Oil investors overall typically have an aversion of holding long positions in oil when the global economy is slowing down. As of yet there are few signs that the global economic cycle is about to turn. Rather the opposite seems to be the case. Global manufacturing fell in October and yesterday we saw US industrial production fall 0.6% MoM while continued jobless claims rose more than expected and to the highest level in two years. This matches well with the logic that the strong rise in interest rates since March 2022 is inflicting pain on the economy with more pain ahead as the effect comes with a lag.

Most estimates are that the global oil market is running a solid deficit in Q4-23. The IEA has an implied deficit in the global oil market of 1 m b/d in Q4-23 if we assume that OPEC will produce 28 m b/d vs. a call-on-OPEC at 29 m b/d. But prices in the oil market is telling a different story with weakening crude curves, weakening refining margins and a sharp sell-off in oil prices.

For 2024 the general forecasts are that global economic growth will slow, global oil demand growth will slow and also that the need for oil from OPEC will fall from 28.7 m b/d to 28.4 m b/d (IEA). This is a bearish environment for oil. The average Brent crude oil price so far this year is about USD 83/b. It should essentially be expected to deliver lower in 2024 with the negatives mentioned above.

Two things however will likely counter this and they are interconnected. US shale oil activity has been slowing with falling drilling rig count since early December 2022 and that has been happening at an average WTI price of USD 78/b. The result is that total US liquids production is set to grow by only 0.3 m b/d YoY in Q4-24. This allows OPEC+ to support the oil price at USD 80-90/b through 2024 without fear of loosing a significant market share to US oil production. Thus slowing US liquids production and active price management by OPEC+ goes hand in hand. As such we do expect OPEC+ to step up to the task.

So far it has predominantly been Saudi Arabia with a little help from Russia which together proactively have managed the oil market and the oil price through significant cuts. Saudi Arabia produced 10.5 m b/d in April but then cut production rapidly to only 9.0 m b/d which is what it still produces. Its normal production is about 10 m b/d.

What has made the situation more difficult for Saudi Arabia is the combination of solid growth in non-OPEC supply in 2023 (+2.1 m b/d YoY; IEA) but also a substantial revival in production by Venezuela and Iran. The two produced 660 k b/d more in October than they on average did in 2022. So the need for oil from Saudi Arabia is squeezed from both sides.

All eyes are now back at OPEC+ after the recent fall in oil prices along with weakening crude curve structures and weakening economic statistics.

OPEC+ will have to step up the game and give solid guidance of what it intends to do in 2024. If Saudi Arabia is to carry the burden alone (with only a little help from Russia) then it will likely need to keep its production at around 9.0 m b/d on average for 2024 and drop it down towards 8.5 m b/d in Q1-24. This may be too much to ask from Saudi Arabia and it may demand some of the other OPEC members to step up and join in on the task to regulate the market in 2024. More specifically this means Iraq, Kuwait and UAE.

The oil market will likely be quite nervous until a firm message from Saudi/Russia/OPEC+ is delivered to the market some time in December.

Saudi Arabia may get some help from President Joe Biden though as his energy secretary adviser, Amos Hochstein, has stated that the US will enforce sanctions on Iran on more than 1 m b/d.

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Analys

More from Venezuela and Iran means smaller pie for Saudi

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Production in Venezuela and Iran is on the rise and is set to rise further in the coming months and in 2024. Combined their production could grow by 0.8 m b/d YoY to 2024 (average year to average year). The IEA projected in its latest OMR (Oct-2023) that call-on-OPEC will fall to 28.3 m b/d in 2024, a decline of 0.5 m b/d. This combination would drive implied call-on-Saudi from 10.4 m b/d in 2023 to only 9.1 m b/d in 2024 and as low as 8.6 m b/d in Q1-24 if Saudi Arabia has to do all the heavy lifting alone. Wider core OPEC cooperation may be required.

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

The IEA is out in the news today projecting peak oil demand this decade with global demand standing at no more than 102 m b/d towards the end of this decade. If so it would imply a call-on-Non-OPEC of only 66.4 m b/d in 2028 assuming that OPEC in general will demand a market share of 30 m b/d + NGL of 5.6 m b/d. The IEA (Oct-23) projects non-OPEC production to average 68.8 m b/d in 2024. That’s already 2.4 m b/d more than what would be sustainable over time if global oil demand is set to peak later this decade. Oil producers in general cannot have a production growth strategy in a peak oil demand world.

The US has decided to lift sanctions towards Venezuela for six months (18 April) as a measure to tempt it to move towards more democratic processes. And if it does, then the lifting of sanctions could continue after the 6 months. A primary opposition election took place this weekend with lawmaker Maria Corina Machado currently holding 93% of the vote count. Venezuela will next year hold a presidential election but fair play seems unlikely with Maduro in charge. The lifting of sanctions allows Venezuela’s PdV to resume exports to all destinations. Bans on new, foreign investments in the oil and gas sector are also lifted though Russian entities and JV’s are still barred.

Venezuela produced 0.8 m b/d in September and indicates that it can lift production by 0.2 m b/d by year and with more rigs and wells by 0.5 m b/d to 1.3 m b/d in the medium term.

Oil production in Iran has been on a steady rise since its low-point of 2.0 m b/d in 2020. Last year it produced 2.5 m b/d. In September it produced 3.1 m b/d, but Iran’s oil minister says production now is at 3.3 m b/d. Iran’s rising production and exports is not about the US being more lenient in its enforcement of sanctions towards Iran. It is more about Iran finding better ways to circumvent them but even more importantly that China is importing more and more oil from Iran.

Production by Iran and Venezuela is recovering. YoY production from the two could rise by close to 0.8 m b/d in 2024. This will lead to a decline in call-on-Saudi oil. 

Oil production by Iran and Venezuela
Source: SEB graph and asessments, Blbrg data and news

The IEA estimated in its latest OMR report that call-on-OPEC will fall from 28.8 m b/d in 2023 to 28.3 m b/d in 2024. If all OPEC members except Saudi Arabia produces the same amount in 2024 as in 2023, then the need for Saudi Arabia’s oil (call-on-Saudi) will fall from a healthy 10.4 m b/d in 2023 to a still acceptable 9.9 m b/d in 2024. Its normal production is roughly 10 m b/d.

If however production by Iran and Venezuela rise by a combined 0.5 m b/d YoY in 2024, then call-on-Saudi will fall to 9.4 m b/d which is not so good but still manageable. But if Iran’s oil minister is correct when he says that its current production now is at 3.3 m b/d, then it is not far fetched to assume that Iran’s oil production may average maybe 3.4-3.5 m b/d in 2024. That would yield a YoY rise of 0.6 m b/d just for Iran. If we also assume that Venezuela manages to lift its production from 0.8 m b/d this year to 1.0 m b/d in 2024, then the combined growth from the two is closer to 0.8 m b/d. That would push call-on-Saudi down to only 9.1 m b/d which is not good at all. It would require Saudi Arabia to produce at its current production of 9.0 m b/d all through 2024.

The IEA further estimates that call-on-OPEC will average 27.7 m b/d in Q1-24. If we assume Iran @ 3.4 m b/d and Venezuela @ 1.0 m b/d then call-on-Saudi in Q1-24 will only be 8.6 m b/d. I.e. Saudi Arabia will have to cut production further to 8.6 m b/d in Q1-24. At that point Saudi Arabia will likely need or like other core OPEC members like Iraq, Kuwait and UAE as well as Russia to join in.

Implied call-on-Saudi. Call-on-OPEC is set to decline from 28.8 m b/d to 28.3 m b/d to 2024. If all OPEC members produced the same in 2024 as in 2023 then call-on-Saudi would fall by 0.5 m b/d to 9.9 m b/d. But if Venezuela and Iran increases their combined production by 0.8 m b/d YoY in 2024 then call-on-Saudi falls to 9.1 m b/d.

Implied call-on-Saudi.
Source: SEB graph and calculations, IEA data

If we look a little broader on this topic and also include Libya, Nigeria and Angola we see that this group of OPEC members produced 11.4 m b/d in 2010, 10.1 m b/d in 2017 and only 5.1 m b/d at the low-point in August 2020. The decline by these OPEC members has of course the other OPEC and OPEC+ members to stem the rising flood of US shale oil production. The production from this unfortunate group of OPEC-laggards is however now on the rise reaching 7.5 m b/d in September. With more from Iran and Venezuela it could rise to 8.0 m b/d in 2024. Production from Nigeria and Angola though still looks to be in gradual decline while Libya looks more sideways. So for the time being it is all about the revival of Iran and Venezuela.

The unfortunate OPEC-laggards had a production of 11.4 m b/d in 2010. But production then fell to only 5.1 m b/d in August 2020. It helped the rest of OPEC’s members to manage the huge increase in US shale oil production. Production from these countries are now on the rebound. Though Nigeria and Angola still seems to be in gradual decline.

Oil production of some OPEC countries
Source: SEB graph, Blbrg data

What everyone needs to be attentive to is that call-on-OPEC and even more importantly call-on-Saudi can only erode to a limit before Saudi/OPEC/Russia will have to take action. Especially if the forecast for needed oil from OPEC/Saudi for the nearest 2-3 years is in significant decline. Then they will have to take action in the sense that they stop defending the price and allows the price to fall sharply along with higher production. And yet again it is US shale oil producers who will have to take the brunt of the pain. They are the only oil producers in the world who can naturally and significantly reduce their production rather quickly. I.e. the US shale oil players will have to be punished into obedience, if possible, yet one more time.

We don’t think that it is any immediate risk for this to happen as US shale oil activity is slowing while global oil demand has rebounded following Covid-lockdowns. But one needs to keep a watch on projections for call-on-OPEC and call-on-Saudi stretching 1-2-3 years forward on a continuous basis. 

In its medium term oil market outlook, Oil2023, the IEA projected a fairly healthy development for call-on-OPEC to 2028. First bottoming out at 29.4 m b/d in 2024 before rising gradually to 30.6 m b/d in 2028. The basis for this was a slowing though steady rise in global oil demand to 105.7 m b/d in 2028 together with stagnant non-OPEC production due to muted capex spending over the past decade. But this projection has already been significantly dented and reduced in IEA’s latest OMR from October where call-on-OPEC for 2024 is projected at only 28.3 m b/d.

In a statement today the IEA projects that global oil demand will peak this decade and consume no more than 102 m b/d in the late 2020ies due to (in large part) rapid growth in EV sales. This would imply a call-on-OPEC of only 26.9 m b/d in 2028. It is not a viable path for OPEC to produce only 26.9 m b/d in 2028. Especially if production by Iran and Venezuela is set to revive. I.e. OPEC’s pie is shrinking while at the same time Iran and Venezuela is producing more. In this outlook something will have to give and it is not OPEC. 

One should here turn this on its head and assume that OPEC will produce 30 m b/d in 2028. Add OPEC NGLs of 5.6 m b/d and we get 35.6 m b/d. If global oil demand in 2028 stands at only 102 m b/d then call-on-Non-OPEC equates to 66.4 m b/d. That is 3.1 m b/d less than IEA’s non-OPEC production projection for 2028 of 69.5 m b/d but also higher than non-OPEC production projection of 68.8 m b/d (IEA, Oct-23) is already 2.4 m b/d too high versus what is a sustainable level.

What this of course naturally means is that oil producers in general cannot have production growth as a strategy in a peak-oil-demand-world with non-OPEC in 2024 already at 2.4 m b/d above its sustainable level.

The US is set to growth its hydrocarbon liquids by 0.5 m b/d YoY in 2024. But in a zero oil demand growth world that is way, way too much.

Call-on-OPEC
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Analys

Reloading the US ’oil-gun’ (SPR) will have to wait until next downturn

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Brent crude traded down 0.4% earlier this morning to USD 91.8/b but is unchanged at USD 92.2/b at the moment. Early softness was probably mostly about general market weakness than anything specific to oil as copper is down 0.7% while European equities are down 0.3%. No one knows the consequences of what a ground invasion of Gaza by Israel may bring except that it will be very, very bad for Palestinians, for Middle East politics for geopolitics and potentially destabilizing for global oil markets. As of yet the oil market seems to struggle with how to price the situation with fairly little risk premium priced in at the moment as far as we can see. Global financial markets however seems to have a clearer bearish take on this. Though rallying US rates and struggling Chinese property market may be part of that.

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

The US has drawn down its Strategic Petroleum Reserves (SPR) over the latest years to only 50% of capacity. Crude oil prices would probably have to rally to USD 150-200/b before the US would consider pushing another 100-200 m b from SPR into the commercial market. As such the fire-power of its SPR as a geopolitical oil pricing tool is now somewhat muted. The US would probably happily re-load its SPR but it is very difficult to do so while the global oil market is running a deficit. It will have to wait to the next oil market downturn. But that also implies that the next downturn will likely be fairly short-lived and also fairly shallow. Unless of course the US chooses to forgo the opportunity.  

The US has drawn down its Strategic Petroleum Reserves (SPR) to only 50% of capacity over the latest years. Most of the draw-down was in response to the crisis in Ukraine as it was invaded by Russia with loss of oil supply from Russia thereafter.

The US has however no problems with security of supply of crude oil. US refineries have preferences for different kinds of crude slates and as a result it still imports significant volumes of crude of different qualities. But overall it is a net exporter of hydrocarbon liquids. It doesn’t need all that big strategic reserves as a security of supply any more. Following the oil crisis in the early 70ies the OECD countries created the International Energy Agency where all its members aimed to have some 100 days of forward oil import coverage. With US oil production at steady decline since the 70ies the US reached a peak in net imports of 13.4 m b/d in 2006. As such it should have held an SPR of 1340 million barrels. It kept building its SPR which peaked at 727 m b in 2012. But since 2006 its net imports have been in sharp decline and today it has a net export of 2.9 m b/d.

Essentially the US doesn’t need such a sizable SPR any more to secure coverage of its daily consumption. As a result it started to draw down its SPR well before the Russian invasion of Ukraine in February 2022. But then of course it fell fast and is today at 351 m b or about 50% of capacity.

The US is the largest oil consumer in the world. As such it is highly vulnerable to the price level of oil. The US SPR today is much more of a geopolitical tool than a security of supply tool. It’s a tool to intervene in the global oil market. To intervene in the price setting of oil. The US SPR is now drawn down to 50% but it still holds a sizable amount of oil. But it is little in comparison to the firepower of OPEC. Saudi Arabia can lower its production by 1 m b/d for one year and it will have eradicated 365 million barrels in global oil inventories. And then it can the same the year after and then the year after that again.

The US has now fired one big bullet of SPR inventory draws. It really helped to balance the global oil market last year and prevented oil prices from going sky high. With 350 m b left in its SPR it can still do more if needed. But the situation would likely need to be way more critical before the US would consider pushing yet another 100-200 m b of oil from its SPR into the global commercial oil market. An oil price of USD 150-200/b would probably be needed before it would do so.

With new geopolitical realities the US probably will want to rebuild its SPR to higher levels as it is now an important geopolitical tool and an oil price management tool. But rebuilding the SPR now while the global oil market is running a deficit is a no-go as we see it.

An oil market downturn, a global recession, a global oil market surplus where OPEC no longer want to defend the oil price with reduced supply is needed for the US to be able to refill its SPR again unless it wants to drive the oil price significantly higher.

But this also implies that the next oil price downturn will likely be short-lived and shallow as the US will have to use that opportunity to rebuild its SPR. It’s kind off like reloading its geopolitical oil gun. If it instead decides to forgo such an opportunity then it will have to accept that its geopolitical maneuverability in the global oil market stays muted.

Net US oil imports in m b/d and US Strategic Petroleum Reserves (SPR) in million barrels. The US doesn’t need strategic petroleum reserves for the sake of security of supply any more. But it is a great geopolitical energy-tool to intervene in the price setting of oil in the global market place.

Net US oil imports in m b/d and US Strategic Petroleum Reserves (SPR) in million barrels
Source: SEB graph, EIA data from Blbrg
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