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Down to $61.1/b with EM and metals. Time to buy

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SEB - Prognoser på råvaror - CommodityOver the past week Brent crude has sold down 3% along with EM equities (-3.5%), Industrial metals (-2.8%) plus some headwind from a 0.5% stronger USD. While not bullish to the $80/b in terms of the 2018 horizon, the OPEC+ decision last week is still supportive. Further inventory draw down will lead to a steeper Brent backwardation spot price premium to forward contracts while further US crude oil production growth is likely to lead to a yet wider Brent to WTI crude price spread. As such a Brent crude spot price delivery in the range of $60-65/b seems reasonable for 2018. Brent crude year 2018 is currently trading at $60.6/b and 2019 at $58.5/b. We expect the Brent crude front month to head towards $65-67/b in not too long.

There never was much of a bull rally following OPEC+’ firm and credible announcement last Thursday for maintaining production cuts to the end of 2018. Brent crude has instead sold off 3% w/w since last Wednesday, the day before the OPEC meeting. The sell-off has in our view little to do with oil specifics and much more to do with broad based drivers. In perspective EM equities have sold off 3.5% while the USD index has increased 0.5% with all commodity sub-indices down between 1.3% and 2.8%. All the major industrial metals were down with copper loosing 3.1% and nickel loosing 6.2%. So Brent crude loosing 3% with this kind of backdrop has little to do with oil specifics.

We still perceive OPEC+’ announcement last Thursday as an overall very strong and credible message of lasting market management. “We will not allow the inventories to rise back up”; “Production cuts will be reversed gradually” and “We’ll drive inventories down another 150 mb (vs Sep OECD level)”.

The message was however not a message of “We’ll cut so much that we’ll drive the market back to $80/b”. The market may very well drive back up to $80/b eventually, but not because OPEC+ places it there deliberately. The lack of this kind of message was maybe why the Brent crude oil price did not roll on higher after OPEC+ message but rather followed general market trends (EM and metals) lower.

In terms of hopes for a further strong bullish drive from OPEC+ the only weakness in the announcement last week was the goal of another 150 mb lower. The reason for this is that the reference point is OECD inventories from September 2017. Since then we have seen weekly data decline by close to 70 mb with probably another 20 mb lower before the end of year. In addition it will only drive OECD inventories down to the ‘2013-2017 five year average’ rather than the normal conditions of ‘2010-2014’ from before inventories started to rise.

We’ll thus be pretty close to the inventory goal already at the end of 2017 and for sure by mid-2018. And 1Q18 will not be like 1Q17 when OECD inventories jumped 82 mb from Dec-16 to Jan-17 due to elevated OPEC production in 4Q16. This time we have disciplined production by OPEC+ in 4Q17 with little reason to expect an unusual large jump in OECD inventories into January.

OPEC+’ message last week was measured and not a message of aiming for the sky in terms of prices. As inventory targets are reached they will gradually wind down cuts. Thus even if they promised to keep cuts to end of 2018 they are unlikely to over-deliver in terms of inventory target. As this target is likely to be firmly in their hands by mid-2018 we expect OPEC+ wind down production cuts in 2H18.

2018 is not going to be a year where Libya and Nigeria are going to increase production and thus counter production cuts from the rest of the OPEC+ group as was the case in 2017. Not because they have accepted a cap under the new agreement, but because they have taken out the upside production capacity in the short term. Venezuela on the other hand is likely to decline further with an extension of its current 3m y/y decline rate of -257 kb/d. Iran is likely to move sideways.

The main downside price concern for the oil market in 2018 is primarily connected to the coming tapering in bond purchases by Central Banks as well as the unavoidable debt-deleveraging in China.

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

Analys

Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it  wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

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

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January

US IEA STEO September report. In total not much different than it was in January
Source: SEB graph. US IEA data

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.
Source: SEB graph. US IEA data
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Brent crude sticks around $66 as OPEC+ begins the ’slow return’

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Brent crude touched a low of USD 65.07 per barrel on Friday evening before rebounding sharply by USD 2 to USD 67.04 by mid-day Monday. The rally came despite confirmation from OPEC+ of a measured production increase starting next month. Prices have since eased slightly, down USD 0.6 to around USD 66.50 this morning, as the market evaluates the group’s policy, evolving demand signals, and rising geopolitical tension.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

On Sunday, OPEC+ approved a 137,000 barrels-per-day increase in collective output beginning in October – a cautious first step in unwinding the final tranche of 1.66 million barrels per day in voluntary cuts, originally set to remain off the market through end-2026. Further adjustments will depend on ”evolving market conditions.” While the pace is modest – especially relative to prior monthly hikes – the signal is clear: OPEC+ is methodically re-entering the market with a strategic intent to reclaim lost market share, rather than defend high prices.

This shift in tone comes as Saudi Aramco also trimmed its official selling prices for Asian buyers, further reinforcing the group’s tilt toward a volume-over-price strategy. We see this as a clear message: OPEC+ intends to expand market share through steady production increases, and a lower price point – potentially below USD 65/b – may be necessary to stimulate demand and crowd out higher-cost competitors, particularly U.S. shale, where average break-evens remain around WTI USD 50/b.

Despite the policy shift, oil prices have held firm. Brent is still hovering near USD 66.50/b, supported by low U.S. and OECD inventories, where crude and product stocks remain well below seasonal norms, keeping front-month backwardation intact. Also, the low inventory levels at key pricing hubs in Europe and continued stockpiling by Chinese refiners are also lending resilience to prices. Tightness in refined product markets, especially diesel, has further underpinned this.

Geopolitical developments are also injecting a slight risk premium. Over the weekend, Russia launched its most intense air assault on Kyiv since the war began, damaging central government infrastructure. This escalation comes as the EU weighs fresh sanctions on Russian oil trade and financial institutions. Several European leaders are expected in Washington this week to coordinate on Ukraine strategy – and the prospect of tighter restrictions on Russian crude could re-emerge as a price stabilizer.

In Asia, China’s crude oil imports rose to 49.5 million tons in August, up 0.8% YoY. The rise coincides with increased Chinese interest in Russian Urals, offered at a discount during falling Indian demand. Chinese refiners appear to be capitalizing on this arbitrage while avoiding direct exposure to U.S. trade penalties.

Going forward, our attention turns to the data calendar. The EIA’s STEO is due today (Tuesday), followed by the IEA and OPEC monthly oil market reports on Thursday. With a pending supply surplus projected during the fourth quarter and into 2026, markets will dissect these updates for any changes in demand assumptions and non-OPEC supply growth. Stay tuned!

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