Analys
Upside is the way to go both front end and back end. Go buy Brent Dec-2020 at $58/bl

After hitting a fresh 2015 high of $64.65/bl last week on the back of spiralling geopolitical risk it is not too surprising that the front month Brent crude is taking a small breather. Yesterday it closed at $63.16/bl while it is pulling back another 0.5% to $62.8/bl this morning. The longer dated contracts like the Brent December 2020 have however continued to gain ground with a close yesterday of $58.13/bl. US inflation is currently running at about 2%. Assume simplistically that this is the inflation rate also the next three years to December 2020. The future Brent Dec-2020 contract is a nominal price. This means that in real terms (adjusting for 2% yearly inflation) the current Brent Dec 2020 is currently priced at $54.7/bl in real terms while it is $58.13/bl in nominal terms.
In other words consumers can still purchase forward the Dec-2020 at less than $55/bl in real terms. The frame work reflection around this is that US shale oil players are not making satisfying returns with a crude oil price of $50/bl. So the general assumption is that they need a higher price than that. What we also have seen since the start of the year and accelerating so over the latest months is that the Brent to WTI price has widened out as increasing production has hit pipeline export constraints in the US from Cushing Oklahoma to the US Gulf. It can be mended but it takes time.
A strong US crude oil production growth to 2020 is both needed and probable. But it requires more than $50/bl for US shale oil players. It is also likely to imply a wide Brent to WTI price spread. At the moment the WTI Dec 2020 contract is trading at only $52/bl. It should at least reflate up to $55/bl on the assumption that the global oil market will need a lot of US shale oil production growth to 2020. Currently the Brent to WTI Dec 2020 crude spread is a full $6/bl. This seems fair in a scenario of strongly increasing US shale oil production.
This kind of base assumption thus places Brent Dec-2020 outlook easily at $60/bl as some kind of floor-price assumption in a scenario where the world will need a solid growth in US shale oil production. Of course if we have a global recession in the run-up to 2020 there is no price floor to talk about and the oil price could obviously deliver below the $60/bl in that case.
However if we assume a Brent 2020 “floor price” of $60/bl then there is no geopolitical risk premium included in that price and there is no cyclical investment upside price spike risk included in that (investment cuts since 2014 leading to structural deficit in 2020. So consumers contemplating purchasing crude oil or oil products on the 2020 horizon should act as Brent Dec 2020 at a nominal price of $58/bl (and real price of $54.7/bl) is still a very, very good offer.
Our expectation is that the Brent Dec 2020 contract will reflate yet higher and into the $60is/bl.
We also expect the Brent to WTI price spread to widen out yet further. In its latest forecast the US EIA predicts US crude oil production to increase 15 kbl/day each week from December to May when it will hit 10 mbl/day. Thus US export pipelines and pipeline infrastructure is going to be under more and more pressure every week all the way to May at least. The WTI crude oil benchmark is priced in-land in Cushing Oklahoma and that price has to scream: “NO MORE” to US shale oil players even if the world needs more of it. The WTI price has to say stop becuse of lack of capacity to get it to market. Inventories there are already brimming full and rising as pipes to the US Gulf are already running full.
So again we have a two wheel crude oil world. Declining crude and product inventories in the world in total and especially the World ex-US-Mid-Continent while at the same time rising inventories in the US Mid-Continent with increasing bottlenecks and transportation issues. Thus a tightening Brent crude market on the one side and a weakening WTI crude market on the other side.
One possible hitch in this argument is however that Permian and Eagle Ford producers may not have to ship their crude oil through Cushing Oklahoma as they are further to the west. Is there enough pipline capacity from Permian and Eagle Ford to get their oil directly to the US Gulf circumventing Cushing? If that is the case then Permian and Eagle Ford producers are actually getting US Gulf crude oil prices for their crude oil which is close to Brent prices. That would mean that those two fields are currently experiencing STRONG price stimulus from US Gulf crude prices and not the WEAK Cushing Oklahoma WTI prices.
Our view on geopolitics is that we are now likely going to experience a long period with a continuous stream of uncomfortable and disturbing news coming out of Saudi Arabia specifically and the Middle East in General. Thus what Mohammed bin Salman set in motion a little more than a week ago is probably only the start of it. In the quite after the Saudi event a week ago the Brent price has eased back. Our expectation is that there is going to be more disturbing geopolitical news items in not too long. Inventories are still declining. OPEC and Russia are likely going to maintain cuts to the end of 2018 but no decision at upcoming OPEC meeting in Vienna on 30th November. Investors continue to flock into front end Brent backwardation positive roll yield and the upside is the way to go for Brent. Both for the front end contract as well as for the longer dated Brent Dec-2020.
Adding in geopolitical risks to the whole mix of declining inventories (ex-US-Mid-Continent), increasing Brent to WTI price spread, increasing Brent backwardation, strong global demand growth, positive Brent roll yield in a zero interest rate world sucking in more speculative long positions, well then seeing the Brent front month sniffing close to the $70/bl seems like the likely price action. Not long ago we said that it was likely to see Brent touching up to $65/bl before Christmas, but then we had no strong geopolitical driver in our assumption besides the Kurdistan issue. Now the central bank of oil, Saudi Arabia, is added to the mix of geopolitical concerns.
So upside is the way to go for the time being. Both for front end Brent and the Dec-2020.
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


Analys
Bombs to ”ceasefire” in hours – Brent below $70

A classic case of “buy the rumor, sell the news” played out in oil markets, as Brent crude has dropped sharply – down nearly USD 10 per barrel since yesterday evening – following Iran’s retaliatory strike on a U.S. air base in Qatar. The immediate reaction was: “That was it?” The strike followed a carefully calibrated, non-escalatory playbook, avoiding direct threats to energy infrastructure or disruption of shipping through the Strait of Hormuz – thus calming worst-case fears.

After Monday morning’s sharp spike to USD 81.4 per barrel, triggered by the U.S. bombing of Iranian nuclear facilities, oil prices drifted sideways in anticipation of a potential Iranian response. That response came with advance warning and caused limited physical damage. Early this morning, both the U.S. President and Iranian state media announced a ceasefire, effectively placing a lid on the immediate conflict risk – at least for now.
As a result, Brent crude has now fallen by a total of USD 12 from Monday’s peak, currently trading around USD 69 per barrel.
Looking beyond geopolitics, the market will now shift its focus to the upcoming OPEC+ meeting in early July. Saudi Arabia’s decision to increase output earlier this year – despite falling prices – has drawn renewed attention considering recent developments. Some suggest this was a response to U.S. pressure to offset potential Iranian supply losses.
However, consensus is that the move was driven more by internal OPEC+ dynamics. After years of curbing production to support prices, Riyadh had grown frustrated with quota-busting by several members (notably Kazakhstan). With Saudi Arabia cutting up to 2 million barrels per day – roughly 2% of global supply – returns were diminishing, and the risk of losing market share was rising. The production increase is widely seen as an effort to reassert leadership and restore discipline within the group.
That said, the FT recently stated that, the Saudis remain wary of past missteps. In 2018, Riyadh ramped up output at Trump’s request ahead of Iran sanctions, only to see prices collapse when the U.S. granted broad waivers – triggering oversupply. Officials have reportedly made it clear they don’t intend to repeat that mistake.
The recent visit by President Trump to Saudi Arabia, which included agreements on AI, defense, and nuclear cooperation, suggests a broader strategic alignment. This has fueled speculation about a quiet “pump-for-politics” deal behind recent production moves.
Looking ahead, oil prices have now retraced the entire rally sparked by the June 13 Israel–Iran escalation. This retreat provides more political and policy space for both the U.S. and Saudi Arabia. Specifically, it makes it easier for Riyadh to scale back its three recent production hikes of 411,000 barrels each, potentially returning to more moderate increases of 137,000 barrels for August and September.
In short: with no major loss of Iranian supply to the market, OPEC+ – led by Saudi Arabia – no longer needs to compensate for a disruption that hasn’t materialized, especially not to please the U.S. at the cost of its own market strategy. As the Saudis themselves have signaled, they are unlikely to repeat previous mistakes.
Conclusion: With Brent now in the high USD 60s, buying oil looks fundamentally justified. The geopolitical premium has deflated, but tensions between Israel and Iran remain unresolved – and the risk of missteps and renewed escalation still lingers. In fact, even this morning, reports have emerged of renewed missile fire despite the declared “truce.” The path forward may be calmer – but it is far from stable.
Analys
A muted price reaction. Market looks relaxed, but it is still on edge waiting for what Iran will do

Brent crossed the 80-line this morning but quickly fell back assigning limited probability for Iran choosing to close the Strait of Hormuz. Brent traded in a range of USD 70.56 – 79.04/b last week as the market fluctuated between ”Iran wants a deal” and ”US is about to attack Iran”. At the end of the week though, Donald Trump managed to convince markets (and probably also Iran) that he would make a decision within two weeks. I.e. no imminent attack. Previously when when he has talked about ”making a decision within two weeks” he has often ended up doing nothing in the end. The oil market relaxed as a result and the week ended at USD 77.01/b which is just USD 6/b above the year to date average of USD 71/b.

Brent jumped to USD 81.4/b this morning, the highest since mid-January, but then quickly fell back to a current price of USD 78.2/b which is only up 1.5% versus the close on Friday. As such the market is pricing a fairly low probability that Iran will actually close the Strait of Hormuz. Probably because it will hurt Iranian oil exports as well as the global oil market.
It was however all smoke and mirrors. Deception. The US attacked Iran on Saturday. The attack involved 125 warplanes, submarines and surface warships and 14 bunker buster bombs were dropped on Iranian nuclear sites including Fordow, Natanz and Isfahan. In response the Iranian Parliament voted in support of closing the Strait of Hormuz where some 17 mb of crude and products is transported to the global market every day plus significant volumes of LNG. This is however merely an advise to the Supreme leader Ayatollah Ali Khamenei and the Supreme National Security Council which sits with the final and actual decision.
No supply of oil is lost yet. It is about the risk of Iran closing the Strait of Hormuz or not. So far not a single drop of oil supply has been lost to the global market. The price at the moment is all about the assessed risk of loss of supply. Will Iran choose to choke of the Strait of Hormuz or not? That is the big question. It would be painful for US consumers, for Donald Trump’s voter base, for the global economy but also for Iran and its population which relies on oil exports and income from selling oil out of that Strait as well. As such it is not a no-brainer choice for Iran to close the Strait for oil exports. And looking at the il price this morning it is clear that the oil market doesn’t assign a very high probability of it happening. It is however probably well within the capability of Iran to close the Strait off with rockets, mines, air-drones and possibly sea-drones. Just look at how Ukraine has been able to control and damage the Russian Black Sea fleet.
What to do about the highly enriched uranium which has gone missing? While the US and Israel can celebrate their destruction of Iranian nuclear facilities they are also scratching their heads over what to do with the lost Iranian nuclear material. Iran had 408 kg of highly enriched uranium (IAEA). Almost weapons grade. Enough for some 10 nuclear warheads. It seems to have been transported out of Fordow before the attack this weekend.
The market is still on edge. USD 80-something/b seems sensible while we wait. The oil market reaction to this weekend’s events is very muted so far. The market is still on edge awaiting what Iran will do. Because Iran will do something. But what and when? An oil price of 80-something seems like a sensible level until something do happen.
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