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Oil prices climb, but fundamentals will keep rallies in check

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SEB - analysbrev på råvaror

Brent crude prices have risen for three consecutive days, gaining USD 1.7 per barrel since last Thursday’s close. On Friday afternoon, prices briefly dipped to USD 69.9 per barrel before rebounding to a high of USD 71.8 per barrel yesterday morning. As of this morning, Brent crude is trading at USD 71.67 per barrel, up USD 0.77 per barrel since midnight.

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

Why?

1. Chinese economic data
Two days ago, China released better-than-expected consumption, investment, and industrial production data for the start of the year, signaling economic resilience despite the need for further stimulus. With Donald Trump’s tariffs posing a risk to growth, China has responded by committing to policies aimed at boosting incomes, stabilizing equity and real estate markets, and reviving economic consumption – all of which naturally support crude and refined product demand.

2. U.S. strikes on Yemen’s Houthis
The U.S. airstrikes on Yemen’s Houthis on Sunday, March 16 served as a stark reminder of geopolitical risk, a factor that has not been fully priced into the market recently.

3. Rising tensions in the ME
Escalating tensions in the Middle East are currently (short-term) overshadowing concerns about a potential global oversupply. Overnight, Israel launched a series of military strikes on Gaza, breaking a nearly two-month ceasefire.

4. U.S. sanctions on Iran
Iran’s Oil Minister stated over the weekend (March 15) that Iranian oil exports are “unstoppable” and that Iran will not relinquish its share in the global oil market. The new U.S. administration has already imposed sanctions on Iranian crude, but these have yet to impact production levels significantly.

As of February 2025, Iran’s crude production stood at 3.23 million barrels per day (bpd), remaining above 3 million bpd since September 2023 (Platts data). Of this, Iran exports approximately 1.7 million bpd. For comparison, under Trump’s previous presidency, the U.S. withdrew from the Iran nuclear deal, and Iranian crude production fell to 1.95 million bpd by August 2020, significantly reducing its export capacity.

If the Trump administration reintroduces maximum pressure sanctions on Iran, the market impact could be substantial. In a worst-case scenario, where Iran loses its entire 1.7 million bpd of exports, and if Saudi Arabia or other major producers do not immediately compensate for the loss, global oil prices could theroretically see an upside of as much as USD 10 per barrel (Platts).

Bearish fundamentals still loom:
Despite these bullish factors, crude remains on track for a quarterly loss due to fundamental market weaknesses. Escalating global trade tensions threaten oil demand. OPEC+ is set to increase production from April, adding additional supply to a market already at risk of oversupply.

As a result, while geopolitical risks and bullish headlines provide short-term support to prices, SEB: forecasts that fundamental market conditions limit the potential for sustained price rallies.

Analys

Chinese stimulus measures drive Brent up and out of the USD 69-71/b trading range

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A tight sideways range last week. Bearish equities on tariff fears. Brent crude rose 0.3% last week with a close of USD 70.58/b. It traded in a range of USD 68.63 – 71.25/b. Closing wise it held well within the USD 69 – 71/b band, held down by S&P 500 moving into correction mode and the Russel 2000 index moving into bear territory. Brent is up 0.6% this morning at USD 71/b with a high so far today of USD 71.8/b. That is the highest intraday price point since 3 March. Brent crude is thus pushing towards the upper boundary of the trading range over the past 8-9 days.

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

Chinese stimulus measures feed some optimism back in crude. The upwards move this morning is driven by news that politicians will boost people’s income, revive consumption and stabilize the stock and real estate market. The Chinese economy has been struggling for a while following Covid-lockdowns and a tanking real estate market. The tariffs from Donald Trump are now an additional challenge making it even more imperative to support the Chinese economy. While the signaled measures are supportive and positive, words like ”reasonable” growth in wages are used. There isn’t any sense of ”bazooka” stimulus measures as of yet.

Moving up with the negative fallout from the Trump tariffs is left for another day to worry about. The oil market is thus in a balance between the negative effects of Trump’s tariffs versus the positive effects of Chinese stimulative measures. The global oil market isn’t in surplus yet if we look at the 1-3mth time-spreads as a measure. The bearish downwards pressure on oil has come from the forceful selloff in US equities with natural fears that the tariffs from Trump will give both the US and the global economy a hard, negative kick. But today it seems that the positive political signals from China on stimulus there is set to lift Brent crude up and out of the depressed range it has traded in over the past 8-9 trading days. The negative fallout from the Trump tariffs is left for another day to worry about it seems.

Brent crude 1mth has traded in a tight range over the past 8-9 trading days when it has closed between USD 69-71/b. Today it looks set to move up and out of that range.

Brent crude 1mth has traded in a tight range over the past 8-9 trading days when it has closed between USD 69-71/b. Today it looks set to move up and out of that range.
Source: Bloomberg graph
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Analys

Large drop in total commercial petroleum inventories

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Brent crude prices have risen by USD 0.8 per barrel so far this week since Monday’s opening. However, prices touched a weekly low of USD 68.6 per barrel on Tuesday before reaching a weekly high of USD 71.20 per barrel this morning.

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

Last week, U.S. crude oil refinery inputs averaged 15.7 million barrels per day, up by 321 thousand barrels per day compared to the previous week. Refineries operated at 86.5% of their total operable capacity during this period. Gasoline production declined to an average of 9.6 million barrels per day, while distillate fuel production also fell, averaging 4.5 million barrels per day.

U.S. crude oil imports averaged 5.5 million barrels per day, a decrease of 343 thousand barrels from the prior week. Over the past four weeks, imports have averaged 5.8 million barrels per day, reflecting a 10.6% year-on-year decline compared to the same period last year.

Total commercial petroleum inventories fell by a large 6.0 million barrels, contributing to some positive price movements observed yesterday evening and this morning. Although commercial crude oil inventories (excluding the SPR) increased by 1.4 million barrels, this was notably lower than the 4.3-million-barrel build forecasted by the API on Tuesday. With the most recent build included, U.S. crude oil inventories now stand at 435.2 million barrels, down by 12 million barrels compared to the same week last year.

Gasoline inventories decreased by 5.7 million barrels, exceeding the API’s reported decline of 4.6 million barrels. Despite this, gasoline stocks remain 1% above the five-year average. Distillate (diesel) inventories dropped by 1.6 million barrels, compared to the API’s forecast of a 0.4-million-barrel increase, and are currently about 5% below the five-year average.

Over the past four weeks, total products supplied, a proxy for U.S. demand, averaged 20.7 million barrels per day, a 3.9% increase compared to the same period last year. Gasoline supplied averaged 8.7 million barrels per day, showing a modest increase of 0.1% year-on-year. Diesel supplied averaged 4.1 million barrels per day, up by 9.5% from the same period last year. Additionally, jet fuel supplied saw a 1.5% year-on-year increase.

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Analys

Crude oil comment: Unable to rebound as the US SPX is signaling dark clouds on the horizon

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Held in check within a tight range. Brent managed to stage a small 0.4% gain yesterday. It closed at USD 69.56/b and traded within a range of USD 68.63 – 7.44/b. This morning it is adding another 0.4% to USD 69.8/b. Since 4 March it has closed within a tight range of USD 69.28 – 70.36/b and traded within a slightly wider range of USD 68.33 – 71.4/b.

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

Depressed by US equity market sell-off saying dark clouds are on the horizon. When we look at the dips to the 70-line and below since late 2021 we see that they have been very brief with little staying power at that level. Bouncing back up very quickly. Just a quick touch. This time however we have been staying down around the 70-line for 6-7 days. Despite the fact that the front-end 1-3mth time-spreads have held up and have not fallen off a cliff.

What stands out with the current selloff versus the previous selloffs is the sharp decline in the S&P 500 index. (SPX) Down 9.3% since 19 Feb. The SPX index is the ”canary in the coal mine”. It is all about the negative fallout from Trump-Tariff-Turmoil and all the other erratic and disrupting actions from Trump. The US equity market is saying that this is BAD for the US economy. And if so, it is usually also bad for the rest of the world in the old sense that ”when the US sneezes the rest of the world catches a cold”.

The implication of this is that if we now get an equity market rebound, then we are likely to get an oil price rebound as well since that is what seems to hold back the Brent crude oil price at the current level.

To all we can see however, Donald Trump does not seem to back off. He is steamrolling ahead. Drugged by his own power and assumed infallibility. The fear by investors which the SPX index is signaling aren’t going to go away except for temporary rebounds. Instead, we are likely to see increasing negative readings in a range of macro variables going forward as a consequence of what Trump is currently doing. The single reason for why we at all doubt that this will be the case is because we have never, ever seen anything like this out of the US in some 100 years or more.

US EIA says, ”all is good” while US oil veteran says, ”prepare for USD 50-60/b”. The US EIA ydy published its monthly oil market report (STEO). It projects a smaller surplus in 2025 with Brent crude averaging USD 74/b this year and USD 68/b next year. Fundamental to this forecast is that all is good and well with global oil demand growing by 1.4 mb/d this year and by 1.6 mb/d in 2026. No negative fallout with respect to global oil demand there reflecting the potential negative economic fallout from Trump-Turmoil.

The US shale oil pioneer Scott Sheffield on the other hand says that ”you’ve really got to hunker down” and prepare for oil to drop to USD 50-60/b as non-US production grows while China demand peaks. That is even without taking any note on possible negative fallout from current Trump actions. What Scott is saying here is echoed by the US Energy Secretary Chris Wright, the previous CEO of Liberty Energy, North America’s second largest hydraulic fracturing company, who has recently said that we’ll likely see a period of industry disruption ahead similar to the price war between OPEC and US shale oil producers in 2014.

These statements from US shale oil veterans in combination with the current vote of no confidence by US equity investors should be taken very seriously.

But then OPEC+ is always a wildcard and can counter oil price declines due to global macro weakness quite quickly as the group today meets on a regular monthly basis.

But then OPEC+ is always a wildcard and can counter oil price declines due to global macro weakness quite quickly as the group today meets on a regular monthly basis.
Source: Bloomberg

The Brent 1mth contract has been trading in a very tight range and for significant longer than the previous dips to the 70-line since late 2021 which lasted for only a day or two.

The Brent 1mth contract has been trading in a very tight range and for significant longer than the previous dips to the 70-line since late 2021 which lasted for only a day or two.
Source: Bloomberg

The Brent crude 1mth contract is probably currently held down and in check just below the 70-line because of the ”canary in the coal mine” SPX selloff signaling dark clouds on the horizon.

The Brent crude 1mth contract is probably currently held down and in check just below the 70-line because of the "canary in the coal mine" SPX selloff signaling dark clouds on the horizon.
Source: US EIA
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