Analys

Price action Rebounding from $50/b but running into headwind from stronger USD

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9 år sedan

den

31 mars, 2017

Redaktionen

SEB Brent crude front month price forecast:
Q2-17: $57.5/b
Q3-17: $55.0/b
Q4-17: $52.5/b

Price action – Rebounding from $50/b but running into headwind from stronger USD
After having touched a low of $49.71/b last Wednesday Brent crude front month contract revived to touch a high of $53.1/b yesterday. This morning it is trading down 0.4% at $52.7/b. Prices found good support at the $50/b level with a solid influx of natural oil consumers jumping in securing forward hedges at lower levels. The oil price recovery over the last week is however facing headwinds from a 1.3% stronger USD and might thus run out of steam.

Crude oil comment – No reason for OPEC to roll cuts into H2
There seems to be an almost unanimous view that OPEC will roll their H1-17 cuts into H2-17. We cannot really understand why they should do that. OECD inventories declined all through the second half of 2016 and ended down y/y in December for the first time in quite a few years. And that was without the help of OPEC! The market has been confused by the fact that inventories in weekly data rose some 100 mb through the first two and a half months of the year. The market was also disappointed when it heard that OECD inventories rose 48 mb month/month in January. Do note however that the normal seasonal pattern is for OECD inventories to rise by 30 mb in January. Thus they only rose by 18 mb more than normal. Total crude and product stocks in the US have declined 4 weeks out of the last 6 weeks and we strongly believe that inventories will declined steadily from here onwards. When OPEC meets in Vienna on May 25th the perspective will be

1) Declining inventories (i.e. market is in balance to deficit)
2) A flat to backwardated crude oil curve. I.e. no spot price discount to longer dated contracts
3) US crude production standing close to previous peak and rising rapidly
4) Demand will jump some 1.9 mb/d from H1-17 og H2-17 seasonally with little risk for surplus

Thus the natural communication from OPEC following their forthcoming May 25th meeting in Vienna would be that the market is in balance. Actually it is in deficit and inventories are drawing down. There is no longer a spot price discount to longer dated contracts. I.e. there is very little stress in the market due to surplus oil and OPEC receives no discounted cash flow versus longer dated prices. I.e. there is little economic reason for OPEC to cut as they then are receiving a fair price for their oil (equal to longer dated prices). A further cut would only endanger OPEC’s market share through unnecessary stimulus of US shale oil production. That last dimension will be highly accentuated at the meeting on the 25th of May since if we just extrapolate US crude oil production so far this year it may stand at 9.5 mb/d at their May meeting. US crude oil production is now growing just as fast (marginal annualized pace of 1.5 mb/d) as it did from 2011 to 2015. The hypothesis from OPEC’s November meeting in 2016 that US shale oil production will only recover gradually as long as the oil price stays below $60/b has been totally busted. The empirical evidence is that when the mid-term WTI curve (one to two year horizon forward prices) averaged $52/b in H2 then US shale oil rigs rose by 7 rigs/week. When those forward prices instead rose to $55-56/b following OPEC’s decision to cut the weekly rig additions rose to about 10 rigs/week.

OPEC is likely to conclude that all looks good. Market is in balance to deficit. Inventories are drawing down. There is no longer any spot price rebate in the market and little stress from surplus oil to be seen. Demand will rise strongly into H2-17. Thus OPEC is likely to move back into operation putting their 1.16 mb/d H1-17 cut aside and revisit the question of cuts at their next meeting in Vienna at the end of 2017. They will like to look like they are in control and an extension of cuts into H2-17 will stimulate US shale oil production to an extent that will make it look like they are out of control.

We expect crude oil prices to get a brief set-back when OPEC announces such a decision. But we do expect it to be brief and with limited consequences. We expect Brent crude oil prices to end the year with an average of $52.5/b in Q4-17. We expect the curve to be some $3/b in backwardation at that time which implies that the one to two year forward prices at that time will trade around $50/b. Since the WTI curve is trading at some $2/b below the Brent crude curve it will mean that the mid-term (1 to 2 year forward) WTI crude oil curve will then trade at around $48/b. We expect that to dampen the current very strong weekly rig additions which we see currently.

Ch1: US shale oil rigs continues to rise strongly
Last week the number of US shale oil rigs rose by 16 rigs or 9 rigs more than our projection
So far the average weekly US shale oil rig additions stands at 9.75 rigs/week

Ch2: SEB US crude oil production projection lifted by 12 kb/d in 2017, by 49 kb/d in 2018 and by 68 kb/d in 2019
Total additional cumulative US crude oil production over the next three years rose by 47 million barrels as a result of 16 rigs being added last week versus our expected 7 rigs
We expect the US EIA to lift its US crude oil production projection again in its forthcoming April report reflecting the fact that 51 shale oil rigs were added to the market in March.

Ch3: SEB US crude oil production projection graph

Ch4: SEB global crude oil supply demand balance

Ch5: SEB projected OECD end of year inventories

Ch6: Time development of SEB’s projected 2019 end of year OECD oil inventories versus a normal of 2700 million barrels
A deep draw in OECD inventories at the end of 2019 has become much less pronounced as rig count is rising much faster than expected thus lifting our US crude oil production projection

Ch6: Time development of SEB’s dynamic Brent crude oil price forecast
Much less price squeeze risk in 2019 as the balance has softened with higher US production projection

Annons

Ch7: US crude oil production increasing in a stright line
Potentially closing in at 9.5 mb/d when OPEC meets in Vienna on May 25th

Ch8: Volatility is trending lower with yet more downside to come we expect

Ch9: Weekly inventory data are starting to show a draw

Ch10: And this is what we expect OECD inventories will do in 2017 (We assume OPEC will not cut in H2-17)
But due to US shale oil revival there won’t be much draws in 2018
Thus all through 2017 and 2018 the OECD inventories will stay above normal with few pressure points in the global oil market

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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Analys

A sharp weakening at the core of the oil market: The Dubai curve

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2 timmar sedan

den

3 oktober, 2025

Redaktionen

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.

Bjarne Schieldrop, Chief analyst commodities, SEB

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.

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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

Publicerat

2 dagar sedan

den

1 oktober, 2025

Redaktionen

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.

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Analys

Modest draws, flat demand, and diesel back in focus

Publicerat

1 vecka sedan

den

26 september, 2025

Redaktionen

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.

Ole R. Hvalbye, Analyst Commodities, SEB

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.