Analys

The 2017 crude oil market is starting bullishly but is likely to end modestly as US shale production revives

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8 år sedan

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2 januari, 2017

The year 2016 started on a very bearish note but ended very bullishly. It was a dramatic oil year with desperation and pain for oil producers as Brent bottomed out at $27.1/b in January before trading to a high of $57.89/b in December. The mood was on the positive side in H2-16 as Brent crude averaged $49/b which helped to lift the US oil rig count by 209 rigs to 525. OPEC then ignited further bullishness by deciding to cut production which helped to propel speculative WTI positions to a new record high of 502646 contracts net long (502 million barrels) at the end of 2016. The year 2016 was definitely the year when the global oil market moved from a large, running surplus to close to balance as the strong growth in oil inventories seen all through 2014 and 2015 came to a halt.

We expect 2017 to be much less dramatic than 2016 unless the supply side is hit by major unforeseen outages. The variations between despair and euphoria should be much less extreme and thus so should the variations in oil prices. While 2016 started bearishly and ended bullishly we expect 2017 to be the opposite but not as extreme. Oil inventories are likely to draw down in H1-17 as OPEC cuts production and crude oil curves are likely to move from deep contango in 2016 to instead backwardation in 2017. While falling in 2016 US shale oil production is going to rise in 2017.

We expect a Brent crude oil price of $55/b in Q1-17, $57.5/b in Q2-17, Q3-17: $55/b, Q4-17: $52.5/b. As a consequence we expect US shale oil rigs to rise by 30 rigs per month in H1-17 (versus 27/mth in H2-16 when Brent crude averaged $49/b) leading total US shale oil rig count to stand at 624 rigs at the start of July 2017. Thereafter there will be no need for additional oil rigs into the US shale oil space before we get to the second half of 2018. Thus by mid-2017 the oil price needs to move to a level which halts further inflow and activation of oil rigs in the US. As such the 12 to 24 month Brent crude oil price probably needs to move down to somewhere between $45-50/b. With crude oil curves having shifted into backwardation with a $5/b spot premium to longer dated contracts it implies a 1 mth Brent crude price of $50-55/b in H2-17.

OPEC has now started to reduce output according to its decision on November 30th to curb output from 34.2 mb/d in November to a planned production of 32.5 mb/d in H2-17. Libya’s crude oil production is however increasing and stood at 685 kb/d this weekend versus an average production of 360 kb/d in 2016. Thus cutting overall OPEC production according to plan is not all without problems. However, Saudi Arabia’s determination as well as its willingness to cut even more than its pledge lends confidence that cuts to overall production will be successful nonetheless. In the face of a further strong rise in US oil rigs during H1-17 we think it will be difficult for OPEC to agree to role forward their production cuts into H2-17. In our view OPEC’s main objective for cutting production in H1-17 is to draw down current elevated global oil inventories thus shifting crude oil prices from a spot discount of $12/b in 2016 to instead a crude oil spot premium of $5/b versus longer dated contracts. We think they will be successful in achieving this with no need to role cuts into H2-17.

The crude oil market is heading into 2017 on a very bullish note with net long non-commercial WTI positions (i.e. speculative positions) at a record high. The 1mth Brent crude oil price closed the year at $56.82/b which was the highest close since July 2015. US oil producers activated 51 oil rigs in December which was the highest monthly addition since March 2014. With record net long speculative WTI positions and US shale oil rigs on a strongly rising path there is clearly a risk for price set backs ahead even though we have an overall positive view for oil prices in H1-17.

Selected graphs

Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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Analys

Stronger inventory build than consensus, diesel demand notable

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1 dag sedan

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21 februari, 2025

Redaktionen

Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

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Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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3 dagar sedan

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19 februari, 2025

Redaktionen

Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

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Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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5 dagar sedan

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17 februari, 2025

Redaktionen

Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.