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Brent crude in non-USD as expensive as in 2011 to 2014

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19 juni, 2018

In order to reach a consensus and keep the OPEC+ group united the latest proposal on the table for the upcoming meeting of OPEC+ on Friday and Saturday in Vienna is a modest increase of 300 to 600 k bl/d in 2H1. The proposal before the weekend by Saudi Arabia and Russia was an increase of 1.5 m bl/d. What is most imperative in our view is that the group is adaptive to market conditions going forward. Uncertainties on both the supply side and the demand side are significant. In the eyes of emerging markets (but also Norway) the oil price in local currency is today as high as it was when Brent traded at $110/bl from 2011 to 2014 with demand destruction naturally setting in at such a cost level. Rapidly escalating US – China trade tension is adding to global growth headwinds. With large uncertainties on the supply side the group should stay ready to increase production in order to avoid escalating pain for the consumers.

Bjarne Schieldrop, Chief analyst commodities

It turns out that Donald Trump’s tweets over the past months that “OPEC is at it again creating artificially high prices” are not just a whim. It is actually one of his core views going back more than 30 years. US lawmakers have tried to pass the NOPEC bill (“Non Oil Producing and Exporting Cartels Act”) for years. It will allow the US Government to sue OPEC for oil market manipulation. Earlier attempts to pass the bill have been blocked by President vetoes. Donald is however one of the big supporters of the bill. This bill is now rolling towards OPEC+ and the group certainly do not want to stir the pot by holding back to much oil creating too high prices.

Price action – Rebounding 2.6% ydy as OPEC+ seen to aim for modest compromise. Sinking back on trade war today

Following Friday’s 3.3% sharp sell-off on the back of Saudi Arabia’s comment that an increase in production is “inevitable” the Brent price yesterday rebounded 2.6% to $75.34/bl as the group was seen to aim for a modest compromise. An increase of 1.5 m bl/d has earlier been seen as the proposal by Russia and Saudi Arabia while the latest proposal said to be discussed is an output hike of 300 to 600 k bl/d. This helped the Brent price to rebound yesterday. This morning Brent is pulling back 0.6% to $74.9/bl following the queue of the sharp sell-off in Asian equities on fear that Donald Trump will add tariffs on an additional $200 billion worth of Chinese goods exported to the US.

Aiming for a compromise but adaption to market conditions will be key

In order to hold the OPEC+ group together and appease Iran, Iraq and Venezuela who have strongly opposed any increase in production the group now seems to aim for a compromise of a modest increase of 300 to 600 k bl/d at the upcoming meeting on Friday and Saturday this week. It has all the time been argued that any revival in production will be gradual and adapted to market conditions. To be reactive and adaptive to market conditions seems to be even more important now due to significant uncertainties for both supply and demand.

The global economy ex the US has been cooling since the start of the year and the US – China trade tension is escalating rapidly with an additional $200 billion worth of exports to the US at risk of getting tariffs. This is not good for global growth and for oil demand growth. The strengthening of the USD, especially versus emerging markets is bad both for global growth and for oil demand growth. An oil price of $75/bl seems fairly modest, neither too hot nor too cold. However, if we measure it in local currencies like the Norwegian krone the oil price now is just as high as it was during the period 2011 to 2014 when Brent crude was trading at around $110/bl. The same goes if we take JPM’s EM currency index and adjust Brent crude prices from July 2010. So in the eyes of the emerging market consumers the oil price today is just as expensive as it was during the 2011 to 2014 period. That means that demand destruction is naturally setting in at these prices for the EM’s. And, since EM’s holds the lion’s share of the world’s oil demand growth this is probably not insignificant. It is thus highly important that OPEC+ is sensitive, adaptive and reactive to oil demand conditions going forward.

The supply side is of course just as challenging to gauge as production in Venezuela is declining rapidly but could as well disrupt entirely and unpredictably. US sanctions towards Iran, a sharp decline in Nigeria’s production in June and increasing violence in Libya where the destruction of two of five crude storage tanks at Ras Lanuf“ may take years” to rebuild are all contributing to a highly unpredictable supply.

For a large share of the world’s consumers the oil price is already as high as it was during 2011 to 2014 and OPEC+ does definitely not want to risk that the oil price moves yet higher as the world economy is already facing challenges. Thus adaptivity to market conditions must be the most imperative goal of OPEC+ at the upcoming meeting this week as the goal of getting OECD inventories down to the rolling five year average has been reached. Thus aim for moderate increase in 2H18, but increase more if needed.

Ch1: The oil price for emerging markets is just as high today as it was in 2011 to 2014
Thus demand destruction is naturally setting in at such a price level with weakness in demand as a result

Ch2: OPEC+ produced 2 m bl/d less in May than it did in October 2016

On average since the start of 2017 the group has delivered net cuts of 1.5 m bl/d and slightly less than the pledged 1.7 m bl/d

Ch3: But deliberate cuts were only 1.55 m bl/d while involuntary cuts amounted to 1.3 m bl/d

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Stronger inventory build than consensus, diesel demand notable

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21 februari, 2025

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

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19 februari, 2025

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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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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

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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.