Analys

More for longer and highly vulnerable ($75-85/bl)

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5 år sedan

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17 september, 2019

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The message from Saudi Arabia is now that it will take longer than first expected before production is fully back to normal. We are also getting military assessments saying that attacks of the nature seen on Saturday in Saudi Arabia are fundamentally difficult to protect against and that you basically need to take out the threat before it lifts off the ground. So more for longer and highly vulnerable for future, comparable attacks is the current assessment.

That is all together more bullish than the market action during most of Monday trading session when Brent crude after the first initial spike to close to $72/bl quite quickly fell back again to ~$65/bl.

We have lived so long now with abundant and booming US shale oil production growth that it is hard to shake the market out of its overwhelming sense of affluence. And in some aspects the market has some rights in being relaxed as OECD commercial inventories in July stood some 300 m bl above where they were in mid-summer 2014 while non-OPEC supply will grow strongly in 2020.

The current cooling global economic growth is also having a strongly dampening impact on the oil market sentiment. We don’t need to go further back than late April when we had a Brent crude oil price of close to $75/bl. Following Saturday’s strike at the center of the global oil market the oil price did not even manage to get up to the level where Brent traded for more normal reasons in April. That tells you that there is quite a broad based sentiment holding a bearish hand over the market.

It has been reported that US shale oil players are utilizing the bounce in the oil prices as an opportunity to add forward hedges at higher prices. I.e. their main take at the moment is that oil prices will likely fall back again rather than spiral upwards. So take the added gain in prices and run.

Speculators with short positions in the market may however think differently in the face of more outage for longer in Saudi Arabia and fundamentally vulnerable installations versus future potential attacks. It would be sensible to cut the losses and close such short positions for now in our view given the latest information. Consumers who have held back on forward buying in the hope for lower forward prices for 2020 and 2021 may also cave in and buy before a potential new attack on Saudi Arabia’s oil installations materializes.

Thus while market participants are still quite relaxed about the whole situation they may now gradually start to change their mind with shorts likely covering positions and consumers buying before any new attacks potentially can occur.

So what about counter attacks? Saudi Arabia is now fully blaming Iran (or at least saying it was Iranian military material) and has stated that the attack was a mix of Iranian drones and rockets. Given the severity of the attack on Saturday it is difficult to see how Saudi Arabia cannot retaliate. But if Saudi Arabia is fundamentally vulnerable and unable to protect itself from comparable future attacks how can they retaliate? It would seem to be more or less like asking for yet more damages to Saudi Arabia’s oil infrastructure down the road.

Donald Trump on the other hand has pulled away from “Locked and loaded” and stated that what he meant was that the US is loaded with oil and with no need for Middle East oil. What a great twist!!

When Donald Trump kicked out the US national security adviser John Bolton one week ago it looked like Donald Trump wanted to move towards negotiations with Iran’s president Hassan Rouhani.

If the US now joins in with Saudi Arabia with a retaliatory attack on Iran it would weaken president Rouhani while it would strengthen the position of Iran’s Revolutionary Guard which is probably the once who stood behind Saturday’s attack on Saudi Arabia in the first place. I.e. it would strongly reduce the possibility for the US to move down a negotiating path with president Rouhani which is probably what is needed in order to get out of this mess.

Ram Yavne, a retired brigadier general in the Israel Defense Forces has stated according to Bloomberg: “Iranian’s have tried several times to raise the price of oil to show the world that the price for blocking Iran’s ability to produce oil is very high”.

Even though the US now has become more or less self sufficient with oil (at least if you include imports from Canada) and that it does not need to entangle it selves in armed conflicts in the Middle East in order to safeguard supply of oil there it’s economy still strongly impacted by higher or lower oil prices.

Thus a sharply higher oil price will be an additional negative headwind for a slowing global economy and a slowing US economy. As such it is also a threat to the re-election of Donald Trump in November 2020 who need happy consumers in a blossoming US economy to re-elect him.

Annons

It is difficult to see how we are going to get out of this mess, but it may seem like Iran has a very strong position. With little effort it can do a lot of damage to both Saudi Arabia and to Donald Trumps potential to be re-elected. If Donald Trump will have to eat humble pie or can get out of this without loosing face remains to be seen but this is indeed a tricky situation.

For now the market is preparing itself for a likely counter attack from Saudi Arabia towards Iran (with potential further snowballing effect) unless Donald Trump is able to miraculously diffuse it.

With respect to oil prices we think that the latest assessment of the situation in Saudi Arabia looks more severe than what it looked like on Sunday. On Sunday we expected that the Brent crude oil price would jump to $65-70/bl which is what we have seen today. Given the latest information from Saudi Arabia of ”more outage for longer” and military assessments of ”highly vulnerable for future comparable attacks” we think a higher oil price is warranted. Again it will in the end boil down to details on how much the market actually looses of supply. But a Brent crude oil price trading around $75-85/bl sees highly sensible to us in the current situation.

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Analys

Brent prices slip on USD surge despite tight inventory conditions

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3 dagar sedan

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19 december, 2024

Redaktionen

Brent crude prices dropped by USD 1.4 per barrel yesterday evening, sliding from USD 74.2 to USD 72.8 per barrel overnight. However, prices have ticked slightly higher in early trading this morning and are currently hovering around USD 73.3 per barrel.

Ole R. Hvalbye, Analyst Commodities, SEB

Yesterday’s decline was primarily driven by a significant strengthening of the U.S. dollar, fueled by expectations of fewer interest rate cuts by the Fed in the coming year. While the Fed lowered borrowing costs as anticipated, it signaled a more cautious approach to rate reductions in 2025. This pushed the U.S. dollar to its strongest level in over two years, raising the cost of commodities priced in dollars.

Earlier in the day (yesterday), crude prices briefly rose following reports of continued declines in U.S. commercial crude oil inventories (excl. SPR), which fell by 0.9 million barrels last week to 421.0 million barrels. This level is approximately 6% below the five-year average for this time of year, highlighting persistently tight market conditions.

In contrast, total motor gasoline inventories saw a significant build of 2.3 million barrels but remain 3% below the five-year average. A closer look reveals that finished gasoline inventories declined, while blending components inventories increased.

Distillate (diesel) fuel inventories experienced a substantial draw of 3.2 million barrels and are now approximately 7% below the five-year average. Overall, total commercial petroleum inventories recorded a net decline of 3.2 million barrels last week, underscoring tightening market conditions across key product categories.

Despite the ongoing drawdowns in U.S. crude and product inventories, global oil prices have remained range-bound since mid-October. Market participants are balancing a muted outlook for Chinese demand and rising production from non-OPEC+ sources against elevated geopolitical risks. The potential for stricter sanctions on Iranian oil supply, particularly as Donald Trump prepares to re-enter the White House, has introduced an additional layer of uncertainty.

We remain cautiously optimistic about the oil market balance in 2025 and are maintaining our Brent price forecast of an average USD 75 per barrel for the year. We believe the market has both fundamental and technical support at these levels.

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Analys

Oil falling only marginally on weak China data as Iran oil exports starts to struggle

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6 dagar sedan

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16 december, 2024

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Up 4.7% last week on US Iran hawkishness and China stimulus optimism. Brent crude gained 4.7% last week and closed on a high note at USD 74.49/b. Through the week it traded in a USD 70.92 – 74.59/b range. Increased optimism over China stimulus together with Iran hawkishness from the incoming Donald Trump administration were the main drivers. Technically Brent crude broke above the 50dma on Friday. On the upside it has the USD 75/b 100dma and on the downside it now has the 50dma at USD 73.84. It is likely to test both of these in the near term. With respect to the Relative Strength Index (RSI) it is neither cold nor warm.

Lower this morning as China November statistics still disappointing (stimulus isn’t here in size yet). This morning it is trading down 0.4% to USD 74.2/b following bearish statistics from China. Retail sales only rose 3% y/y and well short of Industrial production which rose 5.4% y/y, painting a lackluster picture of the demand side of the Chinese economy. This morning the Chinese 30-year bond rate fell below the 2% mark for the first time ever. Very weak demand for credit and investments is essentially what it is saying. Implied demand for oil down 2.1% in November and ytd y/y it was down 3.3%. Oil refining slipped to 5-month low (Bloomberg). This sets a bearish tone for oil at the start of the week. But it isn’t really killing off the oil price either except pushing it down a little this morning.

China will likely choose the US over Iranian oil as long as the oil market is plentiful. It is becoming increasingly apparent that exports of crude oil from Iran is being disrupted by broadening US sanctions on tankers according to Vortexa (Bloomberg). Some Iranian November oil cargoes still remain undelivered. Chinese buyers are increasingly saying no to sanctioned vessels. China import around 90% of Iranian crude oil. Looking forward to the Trump administration the choice for China will likely be easy when it comes to Iranian oil. China needs the US much more than it needs Iranian oil. At leas as long as there is plenty of oil in the market. OPEC+ is currently holds plenty of oil on the side-line waiting for room to re-enter. So if Iran goes out, then other oil from OPEC+ will come back in. So there won’t be any squeeze in the oil market and price shouldn’t move all that much up.

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Brent crude inches higher as ”Maximum pressure on Iran” could remove all talk of surplus in 2025

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1 vecka sedan

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13 december, 2024

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Brent crude inch higher despite bearish Chinese equity backdrop. Brent crude traded between 72.42 and 74.0 USD/b yesterday before closing down 0.15% on the day at USD 73.41/b. Since last Friday Brent crude has gained 3.2%. This morning it is trading in marginal positive territory (+0.3%) at USD 73.65/b. Chinese equities are down 2% following disappointing signals from the Central Economic Work Conference. The dollar is also 0.2% stronger. None of this has been able to pull oil lower this morning.

Bjarne Schieldrop, Chief analyst commodities, SEB

”Maximum pressure on Iran” are the signals from the incoming US administration. Last time Donald Trump was president he drove down Iranian oil exports to close to zero as he exited the JCPOA Iranian nuclear deal and implemented maximum sanctions. A repeat of that would remove all talk about a surplus oil market next year leaving room for the rest of OPEC+ as well as the US to lift production a little. It would however probably require some kind of cooperation with China in some kind of overall US – China trade deal. Because it is hard to prevent oil flowing from Iran to China as long as China wants to buy large amounts.

Mildly bullish adjustment from the IEA but still with an overall bearish message for 2025. The IEA came out with a mildly bullish adjustment in its monthly Oil Market Report yesterday. For 2025 it adjusted global demand up by 0.1 mb/d to 103.9 mb/d (+1.1 mb/d y/y growth) while it also adjusted non-OPEC production down by 0.1 mb/d to 71.9 mb/d (+1.7 mb/d y/y). As a result its calculated call-on-OPEC rose by 0.2 mb/d y/y to 26.3 mb/d.

Overall the IEA still sees a market in 2025 where non-OPEC production grows considerably faster (+1.7 mb/d y/y) than demand (+1.1 mb/d y/y) which requires OPEC to cut its production by close to 700 kb/d in 2025 to keep the market balanced.

The IEA treats OPEC+ as it if doesn’t exist even if it is 8 years since it was established. The weird thing is that the IEA after 8 full years with the constellation of OPEC+ still calculates and argues as if the wider organisation which was established in December 2016 doesn’t exist. In its oil market balance it projects an increase from FSU of +0.3 mb/d in 2025. But FSU is predominantly part of OPEC+ and thus bound by production targets. Thus call on OPEC+ is only falling by 0.4 mb/d in 2025. In IEA’s calculations the OPEC+ group thus needs to cut production by 0.4 mb/d in 2024 or 0.4% of global demand. That is still a bearish outlook. But error of margin on such calculations are quite large so this prediction needs to be treated with a pinch of salt.

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