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SHB Råvarubrevet 23 december 2011

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Handelsbanken - RåvarubrevetRåvarorna har återhämtat något av förra veckans fall med stöd från amerikansk statistik, positiva kinesiska importsiffror och en svagare dollar. Handelsbankens Råvaruindex är nu ned 5.33 procent på året (+2 procent sedan förra fredagen) och det är främst oljan som dragit index. Ekonomiska data i USA fortsätter att vara uppmuntrande. Tillväxten reviderades visserligen ned till 1.8 procent för Q3, mest på grund av lager, men ansökningar om arbetslöshetsunderstöd har minskat till tre års lägsta. Vidare signalerar ledande indikatorer att den ekonomiska tillväxten accelererar. Detta är positivt för oljemarknaden eftersom USA förbrukar lite drygt en fjärdedel av alla oljeprodukter, men vi förväntar oss dock att marknaden kommer att agera fortsatt nervöst om man ser till Europa och dess spridningseffekter till exportberoende länder. Riskerna för det finansiella systemet i Europa är oroväckande och det kommer ta tid att återställa marknadens förtroende. Detta gör att vi nog får se sidledes rörelser en bit in på nästa år. Det som ger gott stöd åt hela segmentet är att råvaror överlag dras med en svag balans som ett resultat av höga produktionskostnader, långa ledtider och vikande halter. Prospekteringstakten måste upprätthållas på en hög nivå för att möta efterfrågan från den växande medelklassen i tillväxtländerna. Detta gör att industrier som maskinell utrustning till gruvindustrin och prospektering exempelvis ser väldigt positivt på framtiden. Komatsu som är världens näst största leverantör av gruvutrustning har haft en tillväxt på närmare 23 procent under 2011 och räknar med 10 procents tillväxt under 2012. Ser vi till Livsmedel så har väder och produktion varit gynnsamt den senaste tiden vilket stärkt lager och utsikterna för att möta efterfrågan. Uppgången den senaste veckan får väl därför betecknas som en short-covering inför årsslutet vilket ofta brukar ge goda möjligheter att positionera sig kort när lugnet lagt sig.

Energi

Oljemarknaden stöds utöver positiv amerikansk statistik och lägre lager även av fortsatt politisk anspänning i Mellanöstern. Första stora attacken på länge i mot Iraks huvudstad sedan en kris mellan den shiamuslimsk ledda regeringen och sunni-rivaler brutit ut efter ett tillbakadragande av amerikanska trupper förra helgen. Dessutom finns det risk för gnistbildning och att oljeleveranser från viktiga exportmarknader störs av Irans flotta som manövrerar öster om Hormuzsundet.

Lagernivåerna i USA sjönk med 10.6 miljoner fat under veckan vilket är den största fallet på tio år och lagren ligger nu på tre års lägsta. Spreaden mellan WTI och Brent har som ett resultat av detta krupit ihop till 9 dollar. Det spekuleras i om de låga siffrorna är ett resultat av ett något större skatteupplägg än tidigare år, dvs raffinaderiers ”gömda” lager inför årsskifte för att undgå skatt. Detta är tydligt eftersom hela 70 procent av lagerfallet är vid mexikanska golfen där råoljan enkelt kan föras tillbaka till oljetankar. Vi kan mao räkna med att dessa siffror som nu ser bullish ut stiger till något mer neutrala efter årsskiftet. I övrigt noteras även i Nordöstra i USA milda temperaturer och en något lägre efterfrågan på heating oil. Vi trodde att Brent oljan successivt skulle tappa mot slutet av året men nere på 103 dollar (se bilden nedan) fanns det tillräckligt med stöd och intressen vilket innebär att vi nu räknar med neutral till positiv utveckling på kort sikt.

Pris på brentolja - Graf

Den Nordiska elmarknaden karaktäriseras fortsatt av milt och blött väder där energibalansen stärkts rejält den senaste månaden. De flesta faktorer pekar nedåt där såväl kontinentala priser, energikol, utsläppsrätter, väder och last gör att vi får räkna med låga priser en tid framöver. Ser vi till prognoserna räknar Shepherd Energy med att vi går mot ett energiöverskott i Norden om hela 8.3 TWh i slutet av vecka 52. Den goda balansen har även pressat den längre kurvan vilket innebär att det om inte annat är ett helt klart intressant läge att låsa in längre elavtal.

Livsmedel

Vetet har stigit kraftigt i pris i både Chicago och Paris under den gångna veckan, påverkat inte minst av stigande priser på majs och flera andra råvaror. Det amerikanska vetet har stigit något mer som följd av en försvagad amerikansk dollar. Vädret är klart bättre i Australien, endast längst ner i söder fortsätter regnet att falla. I Argentina råder fortsatt bra skördeväder och skörden väntas kunna gå mot sitt slut under nästa vecka, med goda volymer och goda kvaliteter som resultat. Temperaturerna har fallit i USA och höstvetet har gått in i vintervila. Enda oron direkt kopplat till vete just nu är väderutvecklingen den närmaste tiden i Ukraina – bristande eller inget snötäcke alls gör grödan mycket känslig mot lägre temperaturer. Trots den styrka priserna visat denna vecka, i en handel som visserligen varit låg volymmässigt, är det svårt att se att priserna ska fortsätta stiga. Faktum kvarstår att vi har en god tillgång på vete, med lagernivåer vi inte sett på över tio år. Fortsatt torrt väder i Sydamerika kan pressa upp majspriserna ytterligare något och eventuellt dra med sig vetepriserna lite till, men marknaden bör nu bli lite mer avvaktande och först se om USDA-rapporten den 12 januari innehåller något överraskande.

Majsen har stigit kraftigt i pris sedan förra veckan, påverkat av fortsatt torrt väder i främst Argentina, en försvagad amerikansk dollar samt stigande priser på råolja. Endast små regnskurar väntas under de kommande 10-14 dagarna, vilket inte lär lindra situationen nämnvärt. Grödan är redan eller är på väg in i ett mycket känsligt utvecklingsstadium. Vad som också gett stöd åt priserna är att siffrorna för den amerikanska veckoproduktionen av etanol rapporterades som de näst högsta någonsin – alltså fortsatt stark inhemsk efterfrågan. Men efterfrågan på amerikansk majs globalt är dock fortsatt ovanligt låg som följd av hård konkurrens. Handeln fram tills USDA:s WASDE-rapport den 12 januari väntas bli ganska avvaktande men om inte läget förbättras i Sydamerika kan priserna stiga lite ytterligare. Analytikerföretaget Informa uppskattar den amerikanska majsarealen 2012 till hela 94,39 miljoner acres, den största arealen sedan 1944! Vissa rykten har dock börjat spridas om att det kommer råda brist på utsäde till våren, vilket om det stämmer givetvis försämrar USA:s chanser att kunna återuppbygga låga lagervolymer.

Sojabönorna har stigit i pris under den gångna veckan, till stor del som följd av fortsatt torrt väder i Argentina, södra Brasilien och även i Paraguay. Viss nederbörd väntas falla i helgen men långt ifrån tillräckligt. Totalt för december månad har nederbörden i flera områden varit mindre än hälften av vad som är normalt. Prisuppgången har även fått hjälp av en försvagad amerikansk dollar och stigande priser på råolja. Sojabönorna lär få stöd av torr väderlek i Sydamerika ett tag framöver men vi får nog vänta lite till innan vi ser någon större uppgång. Vi ska även komma ihåg att läget ännu inte är lika kritiskt för sojabönorna som för majsen, på grund av ett senare utvecklingsstadium.

Kakao handlas ner på spekulation om att avgiftstvisten som stört frakten av bönor från Ghana nu närmar sig sitt slut. Transporterna har inte återupptagits men såväl myndigheter som marknad är positiv till att man löser tvisten med fraktföretagen inom kort. Ghanas export har endast varit 33,000 ton per månad sedan oktober vilket är 63 procent lägre än normalt.

Även Kaffemarknaden ser ut att gå mot balans nästa år efter en längre period av underskott. Kaffe har handlats ned under nio av de senaste tolv handelsdagarna och tappat 8 procent sedan månadsskiftet efter att lågkostnadsproducenter i Centralamerika och Östra Asien dominerat exportmarknaden. Förnyad oro kring produktionen i Colombia efter allt regn har dämpat fallet. I dagsläget osäkert hur mycket stryk plantagen tagit men på flertalet ställen rapporteras om ”Roya” vilket är en svampliknande bildning på bladet som stryper näringen till bönan och minskar avkastningen från trädet. Sett till det stora hela kompenseras ett eventuellt bortfall av goda volymer från Brasilien som förväntas producera 52 miljoner säckar från den kommande skörden vilket är en ökning om 18 procent.

Kaffe-termin, graf över pris

Basmetaller

Kopparpriset har under veckan gått upp från drygt 7 300 USD till dagens nivå på drygt 7 600. Anledningen till uppgången är ett dramatiskt fall i lagernivåerna i framförallt Shanghai, vilket indikerar styrka i den kinesiska ekonomin. Dagens lagernivåer är det lägsta sedan oktober 2009. Vi tror framöver på en försiktig uppgång för kopparpriset, framförallt stött av höga produktionskostnader och fortsatt god efterfrågan från USA och Kina. Det som grumlar bilden något är en mycket svag efterfrågan från Europa, den tredje största förbrukaren i världen.

Kopparpriset sedan december 2010

Kopparprisets utveckling - Prisgraf

Aluminium har lyckats kravla sig upp över 2 000 USD/ton och handlar just nu på 2 020 USD/ton. Det verkar finnas ett stöd för ett pris runt 1 950 USD/ton, där priset studsat ett par gånger. Priset fick en skjuts uppåt i slutet förra veckan då det gjordes rekordstora uttaget i lagret i Vlissingen, Nederländerna. Vi ser fortsatt positivt på metallen, då halterna i gruvorna blir allt sämre samtidigt som kostnaden för produktionen är svagt stigande. Vid dessa nivåer drar gruvbolagen ned på produktionen vilket gör att det är svårt för priset att falla ytterligare.

Aluminiumpriset sedan december 2010

Prisutveckling på aluminium - Graf

Ädelmetaller

Efter att ädelmetallerna fallit kraftigt under mitten av december har prisbilden stabiliserats under den gångna veckan. Euron har stärkts något i relation till dollarn samtidigt som ädelmetallerna överlag handlat sidledes. Guldet har stärkts marginellt (0,5 %), silverpriset är oförändrat och platinapriset har stigit med 0,4 %. Palladium sticker dock ut genom en veckouppgång på 4,1 %.

Vi anser att guldpriset för tillfället står inför ett vägskäl. Om priset bryter igenom den tekniskt viktiga nivån på 1500 USD/oz , samtidigt som problematiken i eurozonen ökar, finns det risk för ytterligare prisfall framöver. Om guldpriset istället lyckas hålla sig över 1500 USD/oz, samtidigt som nästa år istället inleds med stigande börser och en starkare euro, finns möjlighet att priset istället stiger.

Prisutveckling på guld - Graf

Som vi tidigare tagit upp i råvarubrevet har guldpriset för första gången på 26 år blivit dyrare än platina. Denna trend håller fortsättningsvis i sig. I skrivande stund handlas guldpriset på 1611,54 USD/oz (se ovan) och platina på 1439,75 USD/oz.

Handelsbankens Råvaruindex

Handelsbankens råvaruindex den 23 december 2011

[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.

Finansiellt instruments historiska avkastning är inte en garanti för framtida avkastning. Värdet på finansiella instrument kan både öka och minska och det är inte säkert att du får tillbaka hela det investerade kapitalet.

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Analys

[If demand] ”comes around as forecast, Hallelujah, we can produce more”

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SEB - analysbrev på råvaror

Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp). So Saudi Arabia wants to and will produce more once it is confident that there really is demand for additional crude. Saudi Arabia has good reason to be concerned for global oil demand. It is not the only one struggling to predict global demand amid the haze and turmoil in the global oil market following the Russian invasion of Ukraine and sanctions towards Russian crude and product stocks. Add a shaky Chinese housing market and the highest US rates since 2001. Estimates for global oil demand in Q4-23 are ranging from 100.6 m b/d to 104.7 m b/d with many estimates in between. Current crude and mid-dist inventories are low. Supply/demand is balanced to tight and clearly very tight for mid-dists (diesel, jet fuel, gasoil). But amid current speculative bullishness it is important to note that Saudi Arabia can undo the current upwards price journey just as quickly as it created the current bull-market as it drop in production from 10.5 m b/d in April to only 9.0 m b/d since July. Quickly resolving the current mid-dist crisis is beyond the powers of Saudi Arabia. But China could come to the rescue if increased oil product export quotas as it holds spare refining capacity. 

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

The oil market is well aware that the main reasons for why oil has rallied 25% over the past months is  reduced production by Saudi Arabia and Russia, global oil demand holding up better than feared together with still declining US shale oil activity. US oil drilling rig count fell by 8 rigs last week to 507 rigs which is the lowest since Feb 2022.

The big question is how strong is global oil demand and how will it hold up or even maybe increase in the coming quarters? And here the spread of estimates are still all over the place. For Q4-23 we have the following range of estimates for global oil demand in m b/d: 100.6; 101.8; 103.1; 103.2 and 104.7 from main oil market research providers. This wide spread of estimates is mindbogglingly and head-scratching both for analysts and for oil producers. It leads to a wide spread in estimates for Call-on-OPEC. Some say the current market is in a 2-3 m b/d deficit while others calculate that the global oil market today is nicely balanced.

The sanctions towards Russian crude and oil product exports with a ban on imports to the EU and UK has led to a large reshuffling of the global oil market flows which again has created a haze through which it is hard to gauge the correct state of the global oil market. 

We have previously argued that there may be a significant amount of ”pent-up-demand” following the Covid-years with potential for global oil demand to surprise on the upside versus most demand forecasts. But there are also good reasons to be cautious to demand given Chinese property market woes and the highest US interest rates since 2001!

The uncertainty in global oil demand is clearly at the heart of Saudi Arabia’s production cuts since April this year. Saudi Arabia’s Energy Minister, Prince Abulaziz bin Salman, last week stated at a conference in Calgary: ”I believe it when I see it. When reality comes around as it’s been forecast, Hallelujah, we can produce more” (Reuters, John Kemp).

So if it turns out that demand is indeed stronger than Saudi Arabia fears, then we should see increased production from Saudi Arabia. Saudi could of course then argue that yes, it is stronger than expected right now, but tomorrow may be worse. Also, the continued decline in US oil drilling rig count is a home-free card for continued low production from Saudi Arabia.

Both crude stocks and mid-dist stocks (diesel, jet fuel, gasoil) are still significantly below normal and the global oil market is somewhere between balanced, mild deficit or large deficit (-2-3 m b/d). The global oil market is as such stressed due to low inventories and potentially in either mild or large deficit on top. The latter though can be undone by higher production from Saudi Arabia whenever it chooses to do so.

What is again getting center stage are the low mid-dist stocks ahead of winter. The war in Ukraine and the sanctions towards Russian crude and product stocks created chaos in the global oil product market. Refining margins went crazy last year. But they are still crazy. The global refining system got reduced maintenance in 2020 and 2021 due to Covid-19 and low staffing. Following decades of mediocre margins and losses, a lot of older refineries finally decided to close down for good during Covid as refining margins collapsed as the world stopped driving and flying. The global refining capacity contracted in 2021 for the first time in 30 years as a result. Then in 2022 refining margins exploded along with reviving global oil demand and the invasion of Ukraine. Refineries globally then ran  as hard as they could, eager to make money, and reduced maintenance to a minimum for a third year in a row. Many refineries are now prone for technical failures following three years of low maintenance. This is part of the reason why mid-dist stocks struggle to rebuild. The refineries which can run however are running as hard as they can. With current refining margins they are pure money machines.

Amid all of this, Russia last week imposed an export ban for gasoline and diesel products to support domestic consumers with lower oil product prices. Russia normally exports 1.1 m b/d of diesel products and 0.2 m b/d of gasoline. The message is that it is temporary and this is also what the market expects. Russia has little oil product export storage capacity. The export ban will likely fill these up within a couple of weeks. Russia will then either have to close down refineries or restart its oil product exports.

The oil market continues in a very bullish state with stress both in crude and mid-dists. Speculators continues to roll into the market with net long positions in Brent crude and WTI increasing by 29 m b over the week to last Tuesday. Since the end of June it has increased from 330 m b to now 637 m b. Net-long speculative positions are now at the highest level in 52 weeks.

The market didn’t believe Saudi Arabia this spring when it warned speculators about being too bearish on oil and that they would burn their fingers. And so they did. After having held production at 9 m b/d since July, the market finally believes in Saudi Arabia. But the market still doesn’t quite listen when Saudi says that its current production is not about driving the oil price to the sky (and beyond). It’s about concerns for global oil demand amid many macro economic challenges. It’s about being preemptive versus weakening demand. The current oil rally can thus be undone by Saudi Arabia just as it was created by Saudi Arabia. The current refinery stress is however beyond the powers of Saudi Arabia. But China could come to the rescue as it holds spare refining capacity. It could increase export quotas for oil products and thus alleviate global mid-dist shortages. The first round effect of this would however be yet stronger Chinese crude oil imports. 

Brent crude and ARA diesel refining premiums/margins. It is easy to see when Russia invaded Ukraine. Diesel margins then exploded. The market is not taking the latest Russian export ban on diesel and gasoline too seriously. Not very big moves last week.

Brent crude and ARA diesel refining premiums/margins
Source: SEB graph and calculations, Blbrg data

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. We are now heading into the heating season, but the summer driving season is fading and so are gasoline margins.

ARA refinary crack margin
Source: SEB graph and calculations, Blbrg data

ARA mid-dist margins still exceptionally high at USD 35-40/b versus a more normal USD 12-15/b. Here same graph as above but with longer perspective to show how extreme the situation is.

ARA refinary crack
Source: SEB graph and calculations, Blbrg data

US crude and product stocks vs. the 2015-19 average. Very low mid-dist stocks.

US crude and product stocks vs. the 2015-19 average
Source: SEB graph and calculations, Blbrg data

Speculators are rolling into long positions. Now highest net long spec in 52 weeks.

Speculators are rolling into long positions
Source: SEB graph and calculations, Blbrg data
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Analys

The ”normal” oil price is USD 97/b

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SEB - analysbrev på råvaror

The Dated Brent crude oil price ydy closed at USD 96/b. Wow, that’s a high price! This sensation however depends on what you think is ”normal”. And normal in the eyes of most market participants today is USD 60/b. But this perception is probably largely based on the recent experience of the market. The average Brent crude oil price from 2015-2019 was USD 58.5/b. But that was a period of booming non-OPEC supply, mostly shale oil. But booming shale oil supply is now increasingly coming towards an end. Looking more broadly at the last 20 years the nominal average price was USD 75/b. But in inflation adjusted terms it was actually USD 97/b.

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

Saudi Arabia’s oil minister, Abdulaziz bin Salman, yesterday stated that its production cuts was not about driving the price up but instead it was preemptive versus the highly uncertain global economic development. In that respect it has a very good point. The US 2yr government bond rate has rallied to 5.06% which is the highest since 2006 and just a fraction away of being the highest since December 2000. The Chinese property market is struggling and global PMIs have been downhill since mid-2021 with many countries now at contractive, sub-50 level. Thus a deep concern for the health of the global economy and thus oil demand going forward is absolutely warranted. And thus the preemptive production cuts by Saudi Arabia. But killing the global economy off while it is wobbling with an oil price of USD 110-120/b or higher is of course not a smart thing to do either.

At the same conference in Canada yesterday the CEO of Aramco, Amin H. Nasser, said that he expected global oil demand to reach 110 m b/d in 2030 and that talk about a near term peak in global oil demand was ”driven by policies, rather than the proven combination of markets, competitive economics and technology” (Reuters).

With a demand outlook of 110 m b/d in 2030 the responsible thing to do is of course to make sure that the oil price stays at a level where investments are sufficient to cover both decline in existing production as well as future demand growth.

In terms of oil prices we tend to think about recent history and also in nominal terms. Most market participants are still mentally thinking of the oil prices we have experienced during the shale oil boom years from 2015-2019. The average nominal Brent crude price during that period was USD 58.5/b. This is today often perceived as ”the normal price”. But it was a very special period with booming non-OPEC supply whenever the WTI price moved above USD 45/b. But that period is increasingly behind us. While we could enjoy fairly low oil prices during this period it also left the world with a legacy: Subdued capex spending in upstream oil and gas all through these years. Then came the Covid-years which led to yet another trough in capex spending. We are soon talking close to 9 years of subdued capex spending.

If Amin H. Nasser is ballpark correct in his prediction that global oil demand will reach 110 m b/d in 2030 then the world should better get capex spending rolling. There is only one way to make that happen: a higher oil price. If the global economy now runs into an economic setback or recession and OPEC allows the oil price to drop to say USD 50/b, then we’d get yet another couple of years with subdued capex spending on top of the close to 9 years with subdued spending we already have behind us. So in the eyes of Saudi Arabia, Amin H. Nasser and Abdulaziz bin Salman, the responsible thing to do is to make sure that the oil price stays up at a sufficient level to ensure that capex spending stays up even during an economic downturn.

This brings us back to the question of what is a high oil price. We remember the shale oil boom years with an average nominal price of USD 58.5/b. We tend to think of it as the per definition ”normal” price. But we should instead think of it as the price depression period. A low-price period during which non-OPEC production boomed. Also, adjusting it for inflation, the real average price during this period was actually USD 72.2/b and not USD 58.5/b. If we however zoom out a little and look at the last 20 years then we get a nominal average of USD 75/b. The real, average inflation adjusted price over the past 20 years is however USD 97/b. The Dated Brent crude oil price yesterday closed at USD 96/b.

Worth noting however is that for such inflation adjustment to make sense then the assumed cost of production should actually rise along with inflation and as such create a ”rising floor price” to oil based on rising real costs. If costs in real terms instead are falling due to productivity improvements, then such inflation adjusted prices will have limited bearing for future prices. What matters more specifically is the development of real production costs for non-OPEC producers and the possibility to ramp up such production. Environmental politics in OECD countries is of course a clear limiting factor for non-OPEC oil production growth and possibly a much more important factor than the production cost it self.  

But one last note on the fact that Saudi Arabia’s energy minister, Abdulaziz bin Salman, is emphasizing that the cuts are preemptive rather then an effort to drive the oil price to the sky while Amin H. Nasser is emphasizing that we need to be responsible. It means that if it turns out that the current cuts have indeed made the global oil market too tight with an oil price spiraling towards USD 110-120/b then we’ll highly likely see added supply from Saudi Arabia in November and December rather than Saudi sticking to 9.0 m b/d. This limits the risk for a continued unchecked price rally to such levels.

Oil price perspectives. We tend to think that the nominal average Brent crude oil price of USD 58.5/b during the shale oil boom years from 2015-19 is per definition the ”normal” price. But that period is now increasingly behind us. Zoom out a little to the real, average, inflation adjusted price of the past 20 years and we get USD 97/b. In mathematical terms it is much more ”normal” than the nominal price during the shale oil boom years 

The new normal oil price
Source: SEB graph and calculations, Bloomberg data feed.

Is global oil demand about to peak 1: OECD and non-OECD share of global population

OECD and non-OECD share of global population
Source: SEB graph and calculations, UN population data

Is global oil demand about to peak 2: Oil demand per capita per year

Oil demand per capita per year
Source: SEB graph and calculations, BP oil data
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Analys

USD 100/b in sight but oil product demand may start to hurt

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SEB - analysbrev på råvaror

Some crude oil grades have already traded above USD 100/b. Tapis last week at USD 101.3/b. Dated Brent is trading at USD 95.1/b. No more than some market noise is needed to drive it above USD 100/b. But a perceived and implied oil market deficit of 1.5 to 2.5 m b/d may be closer to balance than a deficit. And if so the reason is probably that oil product demand is hurting. Refineries are running hard. They are craving for crude and converting it to oil products. Crude stocks in US, EU16 and Japan fell 23 m b in August as a result of this and amid continued restraint production by Saudi/Russia. But oil product stocks rose 20.3 m b with net draws in crude and products of only 2.7 m b for these regions. Thus indicating more of a balanced market than a deficit. Naturally there has been strong support for crude prices while oil product refinery margins have started to come off. Saudi/Russia is in solid control of the market. Both crude and product stocks are low while the market is either in deficit or at best in balance. So there should be limited down side price risk. But oil product demand is likely to hurt more if Brent crude rises to USD 110-120/b and such a price level looks excessive.

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

Crude oil prices have been on a relentless rise since late June when it became clear that Saudi Arabia would keep its production at 9 m b/d not just in July but also in August. Then later extended to September and then lately to the end of the year. On paper this has placed the market into a solid deficit. Total OPEC production was 27.8 m b/d in August and likely more or less the same in September. OPEC estimates that the need for oil from OPEC in Q3-23 is 29.2 m b/d which places the global market in a 1.4 m b/d deficit when OPEC produces 27.8 m b/d.

The proof of the pudding is of course that inventories actually draws down when there is a deficit. A 1.4 m b/d of deficit for 31 days in August implies a global inventory draw of 43.4 m b/d. If we assume that OECD countries accounts for 46% of global oil demand then OECD could/should have had a fair share of inventory rise of say 20 m b in August. Actual inventory data are however usually a lagging set of data so we have to work with sub sets of data being released on a higher frequency. And non-OECD demand and inventory data are hard to come by.

If we look at oil inventory data for US, EU16 and Japan we see that crude stocks fell 23 m b in August while product stocks rose 20.3 m b with a total crude and product draw of only 2.7 m b. I.e. indicating close to a balanced market in August rather than a big deficit. But it matters that crude stocks fell 23 m b. That is a tight crude market where refineries are craving and bidding for crude oil together with speculators who are buying paper-oil. So refineries worked hard to buy crude oil and converting it to oil products in August. But these additional oil products weren’t gobbled up by consumers but instead went into inventories.

Rising oil product inventories is of course  a good thing since these inventories in general are low. And also oil product stocks are low. The point is more that the world did maybe not run a large supply/demand deficit of 1.5 to 2.5 m b/d in August but rather had a more balanced market. A weaker oil product demand than anticipated would then likely be the natural explanation for this. Strong refinery demand for crude oil, crude oil inventory draws amid a situation where crude inventories already are low is of course creating an added sense of bullishness for crude oil.

On the one hand strong refinery demand for crude oil has helped to drive crude oil prices higher amid continued production cuts by Saudi Arabia. Rising oil product stocks have on the other hand eased the pressure on oil products and thus softened the oil product refinery margins.

The overall situation is that Saudi Arabia together with Russia are in solid control of the oil market. Further that the global market is either balanced or in deficit and that both crude and product stocks are still low. Thus we have a tight market both in terms of supplies and inventories. So there should be limited downside in oil prices. We are highly likely to see Dated Brent moving above USD 100/b. It is now less than USD 5/b away from that level and only noise is needed to bring it above. Tupis crude oil in Asia traded at USD 101.3/b last week. So some crude benchmarks are already above the USD 100/b mark.

While Dated Brent looks set to hit USD 100/b in not too long we are skeptical with respect to further price rises to USD 110-120/b as oil product demand likely increasingly would start to hurt. Unless of course if we get some serious supply disruptions. But Saudi Arabia now has several million barrels per day of reserve capacity as it today only produces 9.0 m b/d. Thus disruptions can be countered. Oil product demand, oil product cracks and oil product inventories is a good thing to watch going forward. An oil price of USD 85-95/b is probably much better than USD 110-120/b for a world where economic activity is likely set to slow rather than accelerate following large interest rate hikes over the past 12-18 months.

OPEC’s implied call-on-OPEC crude oil. If OPEC’s production stays at 27.8 m b/d throughout Q3-23 and Q4-23 then OPECs numbers further strong inventory draws to the end of the year.

OPEC's implied call-on-OPEC crude oil.
Source: SEB graph and calculations. Call-on-OPEC as calculated by OPEC in its Sep report.

Net long speculative positions in Brent crude and WTI. Speculators have joined the price rally since end of June.

Graph of net long speculative positions in Brent crude and WTI.
Source: SEB calculations and graph, Blbrg data

End of month crude and product stocks in m b in EU16, US and Japan. Solid draw in crude stocks but also solid rise in product stocks. In total very limited inventory draw. Refineries ran hard to convert crude to oil products but these then went straight into inventories alleviating low oil product inventories there.

End of month crude and product stocks
Source: SEB table, Argus data

ARA oil product refinery margins have come off their highs for all products as the oil product situation has eased a bit. Especially so for gasoline with now fading summer driving. But also HFO 3.5% cracks have eased back a little bit. But to be clear, diesel cracks and mid-dist cracks are still exceptionally high. And even gasoline crack down to USD 17.6/b is still very high this time of year.

ARA oil product refinery margins
Source: SEB graph and calculations

ARA diesel cracks in USD/b. Very, very high in 2022. Almost normal in Apr and May. Now very high vs. normal though a little softer than last year.

ARA diesel cracks in USD/b.
Source: SEB graph and calculations, Blbrg data

US crude and product stocks vs. 2015-2019 average. Still very low mid-dist inventories (diesel) and also low crude stocks but not all that low gasoline inventories.

US crude and product stocks vs. 2015-2019 average.
Source: SEB graph and calculations, Blbrg data feed

US crude and product stocks vs. 2015-2019 averages. Mid-dist stocks have stayed persistently low while gasoline stocks suddenly have jumped as gasoline demand seems to have started to hurt due to higher prices.

US crude and product stocks vs. 2015-2019 averages.
Source: SEB calculations and graph, Blbrg data feed.

Total commercial US crude and product stocks in million barrels. Rising lately. If large, global deficit they should have been falling sharply. Might be a blip?

Total commercial US crude and product stocks in million barrels.
Source: SEB graph and calculations, Blbrg data feed, EIA data
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