Analys

Crude oil comment: Iran 180 degrees?

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6 år sedan

den

26 september, 2018

If you mess with the Middle East then the most natural thing to expect is that you will get a high oil price in return. Donald Trump of course knows this but he still tries to fight it as he whish for a lower oil price leading into the US mid-term election. Last week ahead of the Algerian OPEC/non-OPEC JMMC weekend-meeting he verbally charged into the market again. But it was to no help as the group of producers promised no more than they already had promised earlier. “OPEC+” produced 49.8 m bl/d in Aug (ex. Bahrain & Congo in lack of good data) while its pledged target is 50.1 m bl/d.

Oil importing and oil consuming countries have always been fearful that the oil rich Middle East countries could cut off oil supply and thereby drive their economies to a grinding halt. They have been fearful of a repeat of oil supply being chocked off like in the 70ies and 80ies. Deliberate or not. Fearful of a Mid-East oil embargo.

Bjarne Schieldrop, Chief analyst commodities

These days Donald Trump is playing hard ball with Iran: “We’ll drive your oil exports to zero unless you renegotiate the JCPOA nuclear deal”. Feeling confident that the US these days is almost self-sufficient with oil. What if Iran took him up on this and instead turned it around with Iran saying: “There will be no oil exports out of Iran at all unless the US ratifies the JCPOA deal again as is”.

It is true that the US is getting close to self-sufficiency in terms of oil supply. As such Donald Trump can feel confident versus challenging Iran. The US economy and its consumers are however still exposed to high oil prices. And Donald Trump is especially exposed and vulnerable right now leading up to the US mid-term election on November 6th which is just two days after the US sanctions against Iran kicks in fully and legally. Donald Trump probably wants low oil prices, low gasoline prices, happy consumers and happy voters leading up to the mid-term elections.

It is however doubtful that the US as well as Donald Trump really want low oil prices in the longer term as it is really high prices which will make the US totally hydrocarbon liquid independent in not too long. But in the short term to November 6th he probably wants to see muted oil prices. There is thus probably a brief window of opportunity where Iran could turn the situation around 180˚ from being a victim of oil sanctions from the US to instead playing hard ball right back and declare an oil embargo to the world. After all Iran is one of the key oil suppliers in the world. It is also on good terms with Iraq with which it potentially could persuade to cooperate for a few months. And in the current fairly tight oil market it would not take much oil off the market to drive the oil price spiky higher.

In terms of oil prices there is suddenly a lot of talk about $100/bl. And it is of course some merit to it. Market is getting tight as we lose more and more supply from Iran and Venezuela. If we look at the price distribution of daily Brent crude oil front month prices since January 2005 till today we see that the price rarely stays in the price range from $80 – 100/bl. It has historically either been lower or higher. This is of course purely statistical and to a large degree a play with numbers. Nonetheless it does make some sense logically.

The oil market is basically hardly ever in balance. It is either too much or too little. It is very hard to balance it just right. That means that the oil market naturally will move between the two extremes of

Low price: “Demand boost & Supply destruction”, or
High price: “Supply boost & Demand destruction”

And since 2005 the middle ground between these two seems to be the $80 – 100/bl range where it is neither of the two.

So those who are calling out for $100/bl should probably, statistically lift their target to a range of $100 – 120/bl.

We have currently no strong view for $100/bl but in general our view is that “OPEC+” is getting less and less control of upside price risk as its reserve capacity increasingly is eroded.

If Iran decides to play hard ball with the US and give Donald Trump what he is asking for: “No exports out of Iran” then Iran still has some 2.5 m bl/d of hydro carbon liquids exports which it could halt. That would definitely drive the oil price to $120/bl or higher in today’s market.

Ch1: Distribution of daily Brent crude oil prices. Not a lot from $80 – 100/bl as the oil market is normally either in surplus or deficit

Ch2: Production of “OPEC+” got close to the pledged target in August. No promises of more than that as of yet.

Ch3: Iran production, consumption and implied exports. Exports have fallen some 500 k bl/d but there is still another 2.5 m bl /d at stake

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Saudi won’t break with OPEC+ to head calls for more oil from Trump

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3 dagar sedan

den

28 januari, 2025

Redaktionen

Rebounding after yesterday’s drop but stays within recent bearish trend. Brent crude sold off 1.8% yesterday with a close of USD 77.08/b. It hit a low on the day of USD 76.3/b. This morning it is rebounding 0.8% to USD 77.7/b. That is still below the 200dma at USD 78.4/b and the downward trend which started 16 January still looks almost linear. A stronger rebound than what we see this morning is needed to break the downward trend.

Bjarne Schieldrop, Chief analyst commodities, SEB

Saudi won’t break with OPEC+ to head calls for more oil from Trump. OPEC+ will likely stick to its current production plan as it meets next week. The current plan is steady production in February and March and then a gradual, monthly increase of 120 kb/d/mth for 18 months starting in April. These planned increases will however highly likely be modified along the way just as we saw the group’s plans change last year. When they are modified the focus will be to maintain current prices as the primary goal with production growth coming second in line. There is very little chance that Saudi Arabia will unilaterally increase production and break the OPEC+ cooperation in response to recent calls from Trump. If it did, then the rest of OPEC+ would have no choice but to line up and produce more as well with the result that the oil price would totally collapse.

US shale oil producers have no plans to ramp up activity in response to calls from Trump. There are no signs that Trump’s calls for more oil from US producers are bearing any fruits. US shale oil producers are aiming to slow down rather than ramp up activity as they can see the large OPEC+ spare capacity of 5-6 mb/d sitting idle on the sideline. Even the privately held US shale oil players who account for 27% of US oil production are planning to slow down activity this year according to Jefferies Financial Group. US oil drilling rig count falling 6 last week to lowest since Oct 2021 is a reflection of that.

The US EIA projects a problematic oil market from mid-2025. Stronger demand would be the savior. Looking at the latest forecast from the US EIA in its January STEO report one can see why US shale oil producers are reluctant to ramp up production activity. If EIA forecast pans out, then either OPEC+ has to reduce production or US shale oil producers have to if they want to keep current oil prices. The savior would be global economic acceleration and higher oil demand growth.

Saudi Arabia to lift prices for March amid tight Mid-East crude market. But right now, the market is very tight for Mid-East crude due to Biden-sanctions. The 1-3mth Dubai time-spread is rising yet higher this morning. Saudi Arabia will highly likely lift its Official Selling Prices for March in response.

US EIA January STEO report. Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. Projects a surplus market where either US shale oil producers have to produce less, or OPEC+ has to produce less.

Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. — Source: SEB graph and calculations, US EIA data

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Analys

Brent rebound is likely as Biden-sanctions are creating painful tightness

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4 dagar sedan

den

27 januari, 2025

Redaktionen

Bearish week last week and dipping lower this morning on China manufacturing and Trump-tariffs. Brent crude traded down 4 out of five days last week and lost 2.8% on a Friday-to-Friday basis with a close of USD 78.5/b. It hit the low of USD 77.8/b on Friday while it managed to make a small 0.3% gain at the end of the week with a close that was marginally below the 200dma. This morning it is trading down 0.4% at USD 78.2/b amid general market bearishness. China manufacturing PMI down to 49.1 for January versus 50.1 in December is pulling copper down 1.3%. Trump threatening Colombia with tariffs.

Rebound in crude prices likely as Dubai time-spreads rises further. The Dubai 1-3mth time-spread is rising to a new high this morning of USD 3.7/b. It is a sign that the Biden-sanctions towards Russia is making the medium sour crude market very tight. Brent crude is unlikely to fall much lower as long as these sanctions are in place. Will likely rebound.

Asian buyers turning to the Mid-East to replace Russian barrels. Amin Nasser, CEO of Saudi Aramco, said that the new sanctions are affecting 2 out of 3.4 mb/d of Russian seaborne crude oil exports. Strong bids for Iraqi medium and heavy crudes are sending spot prices to Asia to highest premiums versus formula pricing since August 2023. And Europe is seeing spot premiums to formula pricing at highest since 2021 (Argus).

Strong rise in US oil production is a losing hand. A lot of Trump-talk about a 3 mb/d increase in US oil production. Occidental Petroleum CEO Vicki Hollub commented in Davos that it is possible given the US resource base, but it is not the right thing to do since the global market is oversupplied (Argus). Everyone knows that OPEC+ has a spare capacity of 5-6 mb/d on hand. The comfort zone is probably to have a spare capacity of around 3 mb/d. FIRST the group needs to re-deploy some 3 mb/d of its current spare capacity and THEN the US and the rest of non-OPEC+ can start to think about acceleration in supply growth again. Vicki Hollub understands this and highly likely all the other oil CEOs in the US understands this as well. Donald Trump calling for more US oil will not be met before market circumstances allows it. Even sanctions on Iran forcing 1.5-2.0 mb/d of its crude exports out of the market will first be covered by existing surplus spare capacity within OPEC6+ and not the US.

US oil drilling rig count fell by 6 to 472 last week and lowest since October 2021. Current decline could be due to winter weather in the US but could also be like Hollub commented in Davos arguing that US oil production growth is not the right thing to do.

1-3mth time-spreads in USD/b. Dubai to yet higher level this morning. Even Brent and WTI are rebounding. Could be some extra spike since we are moving towards the end of the month. But it is still indicating a very tight market for medium sour crude as a result of the latest Biden-sanctions.

US oil drilling rig count down 6 last week to lowest level since October 2021

Non-OPEC, non-FSU production to grow 1.4 mb/d in 2025. Third weakest in 4 years. Though still a bit more than total expected global oil demand growth of 1.1 mb/d/y (IEA)

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Analys

Brent testing the 200dma at USD 78.6/b with API indicating rising US oil inventories

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1 vecka sedan

den

23 januari, 2025

Redaktionen

Brent touching down to the 200dma. Brent crude traded down for a fifth day yesterday with a decline of 0.4% to USD 70/b. This morning it has traded as low as USD 78.6/b and touched down and tested the 200dma at USD 78.6/b before jumping back up and is currently trading up 0.2% on the day at USD 79.1/b.

The Dubai 1-3mth time-spread is holding up close to recent highs. The 1-3mth time spreads for WTI and Brent crude have eased significantly. The Dubai 1-3mth spread is however holding up close to latest high. Indian refiner Bharat is reported to struggle to get Russian crude for March delivery (Blbrg). The Biden-sanctions are clearly having physical market effects. So, the Dubai 1-3mth time-spread holding on to recent high makes a lot of sense. I.e. it was not just a spike on fears.

US oil inventories may have risen 6 mb last week (API). Actual data later today. The US DOE will release US oil data for last week later today. The US API last night indicated that US crude and product stocks may have risen close to 6 mb last week. This may be weighing on the oil price today.

Brent and WTI 1-3mths time-spreads have fallen back while Dubai is holding up