Analys

Saudi Arabia cuts crude oil exports to 6.6 mb/d

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8 år sedan

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24 juli, 2017

Crude oil price action – Prices declined last week despite positive tailwinds from equities and dollar
Brent crude declined 1.7% last week despite the facto f positive tailwinds from a 0.6% gain in global equities and a 1.4% softer USD. Especially the latter should normally have given some support in nominal terms to oil prices. In perspective the other three commodity price sub-indices all made gains last week. Brent crude 1 mth contract closed last week at $48.06/b with its 1.7% decline. The longer dated Dec 2020 contract fell more actually with a decline of 2.8% w/w. This was especially bearish given the 1.4% softer USD. However, what we have said repeatedly is that the forward curve must move lower in order to stem the inflow of oil rigs. At least we got some delivery of that last week. However, so far it is about reversing gains since price trend shifted higher for this contract from June 26.

Following price swings this morning Brent crude is now up 1.2% to $48.6/b after Saudi stated they would cut exports to 6.6 mb/d

Crude oil comment –Saudi Arabia cuts crude oil exports to 6.6 mb/d
Latest: Saudi Arabia has decided to cut crude oil exports to 6.6 mb/d. Last week Saudi stated that they might cut exports by 1 mb/d. Saudi Arabia exported on average 7.2 mb/d from Jan to May. Thus cutting exports to 6.6 mb/d is a real tightening. This is a pure unilateral action. The rest of OPEC and non-OPEC members did not opt for any further cuts at the meeting (still ongoing) in St Petersburg this weekend and today. As such Saudi Arabia is saying that they want a faster re-balancing, faster inventory declines and also a higher oil price. Oil price shifts up 1% to $48.5/b following the statement. It is opportune for Saudi to do this now. Inventories will draw down in H2-17. Thus Said is playing into a positive trend and strengthening it. Net long speculative position by managed money has room to increase and as such prices have the potential to increase in response to a market re-positioning to an increasing long.

A faster inventory draw on the back of Saudi’s export cuts means more flattening of the forward crude oil curves during H2-17 for spot to 1mth contract and for 1mth to 18 month contract.

OPEC & Co’s Joint technical committee met in St Petersburg on July 22nd this weekend. The market may have hoped for a cap on Libya and Nigeria which have boosted production by half a million barrels from October last year (OPEC production reference for current cuts) to June this year. But hopes were probably not too high because there was little chance for this happening. Libya’s production averaged 840 kb/d in June according to Bloomberg which is slightly more than half of its prior production capacity of 1.6 mb/d. Thus there was no chance what so ever that Libya would accept capping production at current level of about 1 mb/d. Production in both Nigeria and Libya are however very fragile. Thus both may fall back again. But there is little OPEC & Co can do about it either way. That was also the outcome this weekend. No cap for Libya and Nigeria was even discussed.

Today OPEC & Co’s Joint ministerial monitoring committee is meeting in St Petersburg. The outcome is already pretty clear. “There will be no discussion of deeper cuts” said Saudi Arabia’s Minister of Energy Khalid Al-Falih. OPEC’s Secretary-General Mohammed Barkindo further stated that: “The re-balancing process may be going at a slower pace than earlier projected, but it is on course, and it’s bound to accelerate in the second half (of the year)”.

We concur with Barkindo. Inventories will draw down in H2-17. Point in case here is inventory draws in data from the last four weeks indicating draws of some 50 mb. During three weeks in June however these data instead showed a gain of close to 50 mb instead. That was part of the reason why oil prices fell in June and bottomed out on June 21st.

In perspective however the number of Drilled, but yet uncompleted wells (DUC’s) increased by 182 (4 main shale oil regions) wells during June. Looking at current well production levels and profiles for new US shale oil wells these 182 wells constitutes about 60 mb of producible oil within a three year time horizon. These must be considered as a type of oil inventory.

Since November last year when OPEC decided to cut the number of DUCs increased by 1188 wells to June (4 main regions). Again looking at current well and production profiles this equates to some 370 mb of producible oil over a three year period from these 1188 wells.

So OECD inventories are basically sideways from November last year to May this year with some 250 to 300 mb above normal. However, the three year producible inventory of US shale oil DUC’s has increased some 370 mb from November 2017 to June 2018. However, they are not sitting in the OECD inventories and are as such not felt directly in the crude oil spot market. They do however create a lot of surplus buffer inventory on top of the OECD inventories. This should help to keep oil prices in check and oil price volatility at bay over the nearest couple of years.

So while OPEC & Co in general and Saudi Arabia specifically are likely to be successful in drawing down inventories in H2-17 they may not be all that successful in total if we look at DUC’s + OECD in total.

Ch0: Managed money in WTI – some increase latest three weeks. More room to increase on the back of Saudi export cut

Table 1: US oil rigs down by 1 last week

Ch1: US shale oil rig versus WTI 18mth crude oil price probably slightly lower than $47/b

Annons

Ch2: Declining US WTI 18mth prices last six weeks calls for further slowing of rig additions next six weeks
However, WTI 18 mth price has still not yet moved to a level which will push rigs out of the market

Table2: Solid inventory draws in data last week

Ch3: Following a 3 week inventory rise in June, inventories have declined some 50 mb last 4 weeks
More to come in H2-17

Ch4: US crude, gasoline and mid-distillate inventories down y/y for the first time since 2014 in last week’s data

Ch5: US crude, gasoline and mid-distillate inventories down y/y for the first time since 2014 in last week’s data

Ch6: Brent dated price to 1mth contract still in negative territory

Ch7: Brent dated to 1mth contract spread should tighten during inventory draws in H2-17

Ch8: More tightening of Brent 1mth to 18mth contract should also materialize over H2-17

Ch9: Global refinery maintenance keeps falling back. Refineries keep coming back on line consuming more crude oil
This should help firming up the crude market.

Ch10: Refinery margins which have been high during refinery maintenance risks falling back however

Ch11: Forward crude curves as of Friday and the Friday before. Lower w/w

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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Crude inventories builds, diesel remain low

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4 timmar sedan

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15 augusti, 2025

Redaktionen

U.S. commercial crude inventories posted a 3-million-barrel build last week, according to the DOE, bringing total stocks to 426.7 million barrels – now 6% below the five-year seasonal average. The official figure came in above Tuesday’s API estimate of a 1.5-million-barrel increase.

Ole R. Hvalbye, Analyst Commodities, SEB

Gasoline inventories fell by 0.8 million barrels, bringing levels roughly in line with the five-year norm. The composition was mixed, with finished gasoline stocks rising, while blending components declined.

Diesel inventories rose by 0.7 million barrels, broadly in line with the API’s earlier reading of a 0.3-million-barrel increase. Despite the weekly build, distillate stocks remain 15% below the five-year average, highlighting continued tightness in diesel supply.

Total commercial petroleum inventories (crude and products combined, excluding SPR) rose by 7.5 million barrels on the week, bringing total stocks to 1,267 million barrels. While inventories are improving, they remain below historical norms – especially in distillates, where the market remains structurally tight.

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OPEC+ will have to make cuts before year end to stay credible

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1 dag sedan

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14 augusti, 2025

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Falling 8 out of the last 10 days with some rebound this morning. Brent crude fell 0.7% yesterday to USD 65.63/b and traded in an intraday range of USD 65.01 – 66.33/b. Brent has now declined eight out of the last ten days. It is now trading on par with USD 65/b where it on average traded from early April (after ’Liberation day’) to early June (before Israel-Iran hostilities). This morning it is rebounding a little to USD 66/b.

Bjarne Schieldrop, Chief analyst commodities, SEB

Russia lifting production a bit slower, but still faster than it should. News that Russia will not hike production by more than 85 kb/d per month from July to November in order to pay back its ’production debt’ due to previous production breaches is helping to stem the decline in Brent crude a little. While this kind of restraint from Russia (and also Iraq) has been widely expected, it carries more weight when Russia states it explicitly. It still amounts to a total Russian increase of 425 kb/d which would bring Russian production from 9.1 mb/d in June to 9.5 mb/d in November. To pay back its production debt it shouldn’t increase its production at all before January next year. So some kind of in-between path which probably won’t please Saudi Arabia fully. It could stir some discontent in Saudi Arabia leading it to stay the course on elevated production through the autumn with acceptance for lower prices with ’Russia getting what it is asking for’ for not properly paying down its production debt.

OPEC(+) will have to make cuts before year end to stay credible if IEA’s massive surplus unfolds. In its latest oil market report the IEA estimated a need for oil from OPEC of 27 mb/d in Q3-25, falling to 25.7 mb/d in Q4-25 and averaging 25.7 mb/d in 2026. OPEC produced 28.3 mb/d in July. With its ongoing quota unwind it will likely hit 29 mb/d later this autumn. Staying on that level would imply a running surplus of 3 mb/d or more. A massive surplus which would crush the oil price totally. Saudi Arabia has repeatedly stated that OPEC+ it may cut production again. That this is not a one way street of higher production. If IEA’s projected surplus starts to unfold, then OPEC+ in general and Saudi Arabia specifically must make cuts in order to stay credible versus what it has now repeatedly stated. Credibility is the core currency of Saudi Arabia and OPEC(+). Without credibility it can no longer properly control the oil market as it whishes.

Reactive or proactive cuts? An important question is whether OPEC(+) will be reactive or proactive with respect to likely coming production cuts. If reactive, then the oil price will crash first and then the cuts will be announced.

H2 has a historical tendency for oil price weakness. Worth remembering is that the oil price has a historical tendency of weakening in the second half of the year with OPEC(+) announcing fresh cuts towards the end of the year in order to prevent too much surplus in the first quarter.

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Analys

What OPEC+ is doing, what it is saying and what we are hearing

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4 dagar sedan

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11 augusti, 2025

Redaktionen

Down 4.4% last week with more from OPEC+, a possible truce in Ukraine and weak US data. Brent crude fell 4.4% last week with a close of the week of USD 66.59/b and a range of USD 65.53-69.98/b. Three bearish drivers were at work. One was the decision by OPEC+ V8 to lift its quotas by 547 kb/d in September and thus a full unwind of the 2.2 mb/d of voluntary cuts. The second was the announcement that Trump and Putin will meet on Friday 15 August to discuss the potential for cease fire in Ukraine (without Ukraine). I.e. no immediate new sanctions towards Russia and no secondary sanctions on buyers of Russian oil to any degree that matters for the oil price. The third was the latest disappointing US macro data which indicates that Trump’s tariffs are starting to bite. Brent is down another 1% this morning trading close to USD 66/b. Hopes for a truce on the horizon in Ukraine as Putin meets with Trump in Alaska in Friday 15, is inching oil lower this morning.

Trump – Putin meets in Alaska. The potential start of a process. No disruption of Russian oil in sight. Trump has invited Putin to Alaska on 15 August to discuss Ukraine. The first such invitation since 2007. Ukraine not being present is bad news for Ukraine. Trump has already suggested ”swapping of territory”. This is not a deal which will be closed on Friday. But rather a start of a process. But Trump is very, very unlikely to slap sanctions on Russian oil while this process is ongoing. I.e. no disruption of Russian oil in sight.

What OPEC+ is doing, what it is saying and what we are hearing. OPEC+ V8 is done unwinding its 2.2 mb/d in September. It doesn’t mean production will increase equally much. Since it started the unwind and up to July (to when we have production data), the increase in quotas has gone up by 1.4 mb/d, while actual production has gone up by less than 0.7 mb/d. Some in the V8 group are unable to increase while others, like Russia and Iraq are paying down previous excess production debt. Russia and Iraq shouldn’t increase production before Jan and Mar next year respectively.

We know that OPEC+ has spare capacity which it will deploy back into the market at some point in time. And with the accelerated time-line for the redeployment of the 2.2 mb/d voluntary cuts it looks like it is happening fast. Faster than we had expected and faster than OPEC+ V8 previously announced.

As bystanders and watchers of the oil market we naturally combine our knowledge of their surplus spare capacity with their accelerated quota unwind and the combination of that is naturally bearish. Amid this we are not really able to hear or believe OPEC+ when they say that they are ready to cut again if needed. Instead we are kind of drowning our selves out in a combo of ”surplus spare capacity” and ”rapid unwind” to conclude that we are now on a highway to a bear market where OPEC+ closes its eyes to price and blindly takes back market share whatever it costs. But that is not what the group is saying. Maybe we should listen a little.

That doesn’t mean we are bullish for oil in 2026. But we may not be on a ”highway to bear market” either where OPEC+ is blind to the price.

Saudi OSPs to Asia in September at third highest since Feb 2024. Saudi Arabia lifted its official selling prices to Asia for September to the third highest since February 2024. That is not a sign that Saudi Arabia is pushing oil out the door at any cost.

Saudi Arabia OSPs to Asia in September at third highest since Feb 2024