Analys

A tight July counters OPEC+ efforts to calm the market

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7 år sedan

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26 juni, 2018

Brent crude fell back 1.1% yesterday to $74.73/bl while it intraday was down as much as 2.4% to $73.74/bl following the forceful message from Russia and Saudi Arabia on Saturday that they have already geared up production and will deliver whatever is needed by the market. The simple story is that OPEC+ cut production through 2017 till today, drew down inventories to “normal levels” and lifted the oil price to a satisfactory level of $70-80/bl and now they are done. In other words the orchestrated steady draw down of inventories is over as well as the continuous rise in the oil price. At least until OPEC+ has exhausted its spare capacity. Oil market conditions in July however look like they might be quite strained anyhow.

Bjarne Schieldrop, Chief analyst commodities

The oil market conditions in July do however look like they are going to be tight. Russia, Saudi Arabia and some of the other OPEC+ members are likely going to increase production by some 0.7 to 1.0 m bl/d. Saudi Arabia looks like it is going to produce some 10.5 to 10.6 m bl/d in July vs. 10.0 m bl/d in May. This will however to a large degree be eaten up by increased domestic summer heating demand. On the supply side we have however lost 350 k bl/d in Canada and 400 k bl/d in Libya while Venezuela continues to decline. The WTI August contract has jumped to a one dollar premium to the September contract reflecting the tight situation. US Cushing crude stocks where WTI is priced has declined five weeks in a row to low levels and will likely continue to decline through July and August as US refineries are running close to flat out. Thus at least for July the market looks like it is going to be tight and that is why oil prices are bid and take little notice of elevated risk aversion in equities and bonds.

Saudi Arabia increased its production by 0.3 m bl/d to 10.3 m bl/d in June according to Energy Aspects and is set to lift it to 10.5 or 10.6 m bl/d in July. The June production lift is however already in the market and thus most likely reflected in the oil price. Russia is likely to lift its production by some 02 m bl/d to 11.2 m bl/d and UAE, Kuwait and Iraq are likely to add some more as well. So all in all versus May there will be internal production increases by some 0.7 to 1 m bl/d. A significant amount of the increase from Saudi Arabia is however eaten up by higher domestic consumption due oil fired power production for air conditioning through the hot summer.

These additions are however countered by declines of 400 k bl/d in Libya (don’t know how long) and 350 k bl/d in Canada (through July) as well as further likely declines in Venezuela.

An oil transformer/upgrader with a 350 k bl/d capacity in Fort McMurray, Alberta, Canada blew up on Wednesday 20th. This will halt supply of 350 k bl/d of high quality low sulphur crude normally flowing to the US and Cushing Oklahoma.

In Libya, General Haftar who is controlling the eastern side of the country has now handed all oil assets in that region to the National Oil Company (NOC) in Benghazi (east) thus defying the internationally recognized NOC in Tripoli (west). The recent loss of 400 k bl/d of supply in Libya may thus be a more permanent situation. The NOC in Benghazi has earlier tried in vain to export oil out of Libya without channelling the proceeds to the NOC in Tripoli. And now it looks like they are trying again. The effect is likely going to be a production in Libya of around 0.5 m bl/d rather than 1.0 m bl/d which it has produced a while now.

US refineries will now run close to max capacity all through July and August which will help to draw down US crude oil inventories. US Cushing Oklahoma crude stocks have already been drawing down for five weeks in a row and this trend now seems likely to continue through July and August.

Ch1: US Cushing crude oil stocks are ticking lower

Ch2: WTI crude price premium for front month contract over the second month jumping

Ch3. Libya’s crude oil production may move down to around 0.5 m bl/d as General Haftar has handed the oil assets in the east to the authorities in Benghazi which are not recognized by the international community

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Stronger inventory build than consensus, diesel demand notable

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Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

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Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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3 dagar sedan

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19 februari, 2025

Redaktionen

Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

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Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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5 dagar sedan

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17 februari, 2025

Redaktionen

Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.