Analys
2024 looks to be a very good year for OPEC+

2024 looks to be a very good year for OPEC+. IEA’s crystal ball projects a marginal 0.2 m b/d decline in the need for oil from OPEC to 28.2 m b/d. But that is easy for OPEC handle as it holds out waiting for the re-acceleration in global manufacturing some time in the future. What really catches our attention is the US EIA’s projection of US liquids falling 0.4 m b/d QoQ to Q1-24 and then going close to sideways the rest of 2024 with production down YoY in both H2-24 and Q4-24. This is the best Christmas present ever to OPEC(+) if it plays out like this. Icing on the cake for OPEC+ is that the US now has started to think like an oil exporter who doesn’t like the oil price to drop as it would hurt oil-jobs, production and oil exports. ”Mine at USD 79/b” says the US Office of Petroleum Reserves as it aims to rebuild its SPR.

IEA depicts a slightly lower Call-on-OPEC in 2024 but nothing OPEC(+) can’t handle. Yes, there are concerns for global oil demand both now and next year. In its monthly report today the IEA adjusted Q4-23 demand down by 0.6 m b/d and demand for 2024 down by 0.1 m b/d to 102.8 m b/d. It also adjusted its projection for non-OPEC supply 2024 up by 0.1 m b/d to 69 m b/d. The implication is that Call-on-OPEC falls to 28.2 m b/d in 2024 as non-OPEC supply is projected to grow slightly faster than global demand. Call-on-OPEC was 28.4 m b/d in 2021, 2022 and 2023. Equal for all three years. It is of course bad news for OPEC that the need for its oil declines by 0.2 m b/d in 2024 in IEA’s projection. But that is totally within the capacity of OPEC(+) to adapt to. If IEA’s scenario plays out, then there is no sweat at all for OPEC+. It will then be easy sailing for the group to control the oil market as it wish with just a small, marginal adjustment of supply.
US EIA depicts an OPEC dream scenario for 2024. What stands out the most in our view is the monthly STEO report from the US EIA on Tuesday this week. It projects that US production of hydrocarbon liquids will shift abruptly from booming supply growth in 2023 (+1.4 m b/d YoY) to instead a QoQ decline of 0.4 m b/d in Q1-24 and then basically flat-lining the rest of 2024. US production is set to be down YoY in both H2-24 and Q4-24 the EIA projects.
This is a dream scenario for OPEC+. It is really the best Christmas gift it could get from the US. The fundamental challenge for OPEC+ is booming non-OPEC+ supply. And US shale oil supply is the dominating element in that respect. OPEC+ has very little to worry about in 2024 if US liquids production plays out as the US EIA now projects.
What was special in Q4-23 was that US liquids production rose 0.6 m b/d QoQ while global oil demand contracted 0.6 m b/d QoQ at the same time with declining oil prices as a result.
The US SPR office joins in: ”Mine at USD 79/b” (”Mine at USD 79/b”). From Jan 2022 to Nov 2023 the US poured 242 million barrels of oil from its Strategic Petroleum Reserves (SPR) into the commercial market. This prevented oil prices from rallying out of control. But it has also drawn US SPR inventories down to only 50% capacity. The US wants to rebuild its SPR. A while back it said it would be a buyer if the WTI price fell down to USD 67-72/b. Recently however it stated that it would buy if the price is USD 79/b or lower. The volumes aren’t enormous but the are noticeable and they could be larger if Congress allocates more money to rebuild the SPR.
The US is starting to think like an oil exporter. It doesn’t want the oil price to drop. Rebuilding the US SPR is a win-win for the US. 1) It gets to rebuild its SPR for later strategic use and 2) It ensures that the oil price doesn’t drop hard to low levels which would lead to a sharp decline in US oil production, shedding of employees in the US oil sector and a sharp reduction in US oil exports. The US is starting to think like an oil exporter. Just like OPEC+ it doesn’t like the oil price to drop.
US liquids production with projection to 2024 in m b/d. Projected to flat-line in 2024

US liquids production with projection to 2024 in m b/d. A sharp decline into Q1-24

Total US liquids production grew very strongly in 2023. Especially in Q4-23 vs Q3-24. Projected to contract by 0.4 m b/d into Q1-24 almost reversing the gain in Q4-23

Source: Source: SEB graph, Data from US EIA STEO December report.
Analys
A sharp weakening at the core of the oil market: The Dubai curve

Down to the lowest since early May. Brent crude has fallen sharply the latest four days. It closed at USD 64.11/b yesterday which is the lowest since early May. It is staging a 1.3% rebound this morning along with gains in both equities and industrial metals with an added touch of support from a softer USD on top.

What stands out the most to us this week is the collapse in the Dubai one to three months time-spread.
Dubai is medium sour crude. OPEC+ is in general medium sour crude production. Asian refineries are predominantly designed to process medium sour crude. So Dubai is the real measure of the balance between OPEC+ holding back or not versus Asian oil demand for consumption and stock building.
A sharp weakening of the front-end of the Dubai curve. The front-end of the Dubai crude curve has been holding out very solidly throughout this summer while the front-end of the Brent and WTI curves have been steadily softening. But the strength in the Dubai curve in our view was carrying the crude oil market in general. A source of strength in the crude oil market. The core of the strength.
The now finally sharp decline of the front-end of the Dubai crude curve is thus a strong shift. Weakness in the Dubai crude marker is weakness in the core of the oil market. The core which has helped to hold the oil market elevated.
Facts supports the weakening. Add in facts of Iraq lifting production from Kurdistan through Turkey. Saudi Arabia lifting production to 10 mb/d in September (normal production level) and lifting exports as well as domestic demand for oil for power for air con is fading along with summer heat. Add also in counter seasonal rise in US crude and product stocks last week. US oil stocks usually decline by 1.3 mb/week this time of year. Last week they instead rose 6.4 mb/week (+7.2 mb if including SPR). Total US commercial oil stocks are now only 2.1 mb below the 2015-19 seasonal average. US oil stocks normally decline from now to Christmas. If they instead continue to rise, then it will be strongly counter seasonal rise and will create a very strong bearish pressure on oil prices.
Will OPEC+ lift its voluntary quotas by zero, 137 kb/d, 500 kb/d or 1.5 mb/d? On Sunday of course OPEC+ will decide on how much to unwind of the remaining 1.5 mb/d of voluntary quotas for November. Will it be 137 kb/d yet again as for October? Will it be 500 kb/d as was talked about earlier this week? Or will it be a full unwind in one go of 1.5 mb/d? We think most likely now it will be at least 500 kb/d and possibly a full unwind. We discussed this in a not earlier this week: ”500 kb/d of voluntary quotas in October. But a full unwind of 1.5 mb/d”
The strength in the front-end of the Dubai curve held out through summer while Brent and WTI curve structures weakened steadily. That core strength helped to keep flat crude oil prices elevated close to the 70-line. Now also the Dubai curve has given in.

Brent crude oil forward curves

Total US commercial stocks now close to normal. Counter seasonal rise last week. Rest of year?

Total US crude and product stocks on a steady trend higher.

Analys
OPEC+ will likely unwind 500 kb/d of voluntary quotas in October. But a full unwind of 1.5 mb/d in one go could be in the cards

Down to mid-60ies as Iraq lifts production while Saudi may be tired of voluntary cut frugality. The Brent December contract dropped 1.6% yesterday to USD 66.03/b. This morning it is down another 0.3% to USD 65.8/b. The drop in the price came on the back of the combined news that Iraq has resumed 190 kb/d of production in Kurdistan with exports through Turkey while OPEC+ delegates send signals that the group will unwind the remaining 1.65 mb/d (less the 137 kb/d in October) of voluntary cuts at a pace of 500 kb/d per month pace.

Signals of accelerated unwind and Iraqi increase may be connected. Russia, Kazakhstan and Iraq were main offenders versus the voluntary quotas they had agreed to follow. Russia had a production ’debt’ (cumulative overproduction versus quota) of close to 90 mb in March this year while Kazakhstan had a ’debt’ of about 60 mb and the same for Iraq. This apparently made Saudi Arabia angry this spring. Why should Saudi Arabia hold back if the other voluntary cutters were just freeriding? Thus the sudden rapid unwinding of voluntary cuts. That is at least one angle of explanations for the accelerated unwinding.
If the offenders with production debts then refrained from lifting production as the voluntary cuts were rapidly unwinded, then they could ’pay back’ their ’debts’ as they would under-produce versus the new and steadily higher quotas.
Forget about Kazakhstan. Its production was just too far above the quotas with no hope that the country would hold back production due to cross-ownership of oil assets by international oil companies. But Russia and Iraq should be able to do it.
Iraqi cumulative overproduction versus quotas could reach 85-90 mb in October. Iraq has however steadily continued to overproduce by 3-5 mb per month. In July its new and gradually higher quota came close to equal with a cumulative overproduction of only 0.6 mb that month. In August again however its production had an overshoot of 100 kb/d or 3.1 mb for the month. Its cumulative production debt had then risen to close to 80 mb. We don’t know for September yet. But looking at October we now know that its production will likely average close to 4.5 mb/d due to the revival of 190 kb/d of production in Kurdistan. Its quota however will only be 4.24 mb/d. Its overproduction in October will thus likely be around 250 kb/d above its quota with its production debt rising another 7-8 mb to a total of close to 90 mb.
Again, why should Saudi Arabia be frugal while Iraq is freeriding. Better to get rid of the voluntary quotas as quickly as possible and then start all over with clean sheets.
Unwinding the remaining 1.513 mb/d in one go in October? If OPEC+ unwinds the remaining 1.513 mb/d of voluntary cuts in one big go in October, then Iraq’s quota will be around 4.4 mb/d for October versus its likely production of close to 4.5 mb/d for the coming month..
OPEC+ should thus unwind the remaining 1.513 mb/d (1.65 – 0.137 mb/d) in one go for October in order for the quota of Iraq to be able to keep track with Iraq’s actual production increase.
October 5 will show how it plays out. But a quota unwind of at least 500 kb/d for Oct seems likely. An overall increase of at least 500 kb/d in the voluntary quota for October looks likely. But it could be the whole 1.513 mb/d in one go. If the increase in the quota is ’only’ 500 kb/d then Iraqi cumulative production will still rise by 5.7 mb to a total of 85 mb in October.
Iraqi production debt versus quotas will likely rise by 5.7 mb in October if OPEC+ only lifts the overall quota by 500 kb/d in October. Here assuming historical production debt did not rise in September. That Iraq lifts its production by 190 kb/d in October to 4.47 mb/d (August level + 190 kb/d) and that OPEC+ unwinds 500 kb/d of the remining quotas in October when they decide on this on 5 October.

Analys
Modest draws, flat demand, and diesel back in focus

U.S. commercial crude inventories posted a marginal draw last week, falling by 0.6 million barrels to 414.8 million barrels. Inventories remain 4% below the five-year seasonal average, but the draw is far smaller than last week’s massive 9.3-million-barrel decline. Higher crude imports (+803,000 bl d WoW) and steady refinery runs (93% utilization) helped keep the crude balance relatively neutral.

Yet another drawdown indicates commercial crude inventories continue to trend below the 2015–2022 seasonal norm (~440 million barrels), though at 414.8 million barrels, levels are now almost exactly in line with both the 2023 and 2024 trajectory, suggesting stable YoY conditions (see page 3 attached).
Gasoline inventories dropped by 1.1 million barrels and are now 2% below the five-year average. The decline was broad-based, with both finished gasoline and blending components falling, indicating lower output and resilient end-user demand as we enter the shoulder season post-summer (see page 6 attached).
On the diesel side, distillate inventories declined by 1.7 million barrels, snapping a two-week streak of strong builds. At 125 million barrels, diesel inventories are once again 8% below the five-year average and trending near the low end of the historical range.
In total, commercial petroleum inventories (excl. SPR) slipped by 0.5 million barrels on the week to ish 1,281.5 million barrels. While essentially flat, this ends a two-week streak of meaningful builds, reflecting a return to a slightly tighter situation.
On the demand side, the DOE’s ‘products supplied’ metric (see page 6 attached), a proxy for implied consumption, softened slightly. Total demand for crude oil over the past four weeks averaged 20.5 million barrels per day, up just 0.9% YoY.
Summing up: This week’s report shows a re-tightening in diesel supply and modest draws across the board, while demand growth is beginning to flatten. Inventories remain structurally low, but the tone is less bullish than in recent weeks.


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