Analys

Brent trades lower with concerns for oil demand down the road the likely culprit

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19 augusti, 2024

Brent crude is down below USD 80/b and is trading down today despite gains in industrial metals and a softer USD. Concerns for Chinese oil demand as a result of a potentially ”severe winter” in the Chinese steel market is likely a concern for the market. Middle East nerves have calmed a bit as there is no sign of Iranian retaliation towards Israel as of yet. Speculators added 45 m b of net length in Brent and WTI over the week to Tuesday last week but specs are still the 4th lowest in 52 weeks. The signals from the physical market is significantly stronger. Speculators are clearly concerned for global oil demand down the road.

Bjarne Schieldrop, Chief analyst commodities, SEB

Rejecting the upside and trading down today despite positive equities and a weaker USD. Brent crude traded in a range of USD 78.62 – 82.4/b last week with some hectic fluctuations for example on on Friday. It ended unchanged Friday to Friday at USD 79.68/b with market rejecting upside price action. This morning Brent crude is trading down 0.5% to USD 79.3/b taking little note from gains in industrial metals and a 0.4% weakening of the USD index which together normally would have given some strength to crude oil.

Concerns for Chinese oil demand. The market is naturally concerned for Chinese oil demand. Last week the world’s largest steel producer, Baowu Steel Group, said the sector is facing a ”severe winter” which will be worse than both 2008 and 2015/16 with little hope for yet another infra/housing stimulus package from the government this time around. Net Chinese imports of crude and products has been a big disappointment this year with net imports down 6% YoY on average since March and down 10% YoY over the three months to July. Normally one would think that this is just temporary fluctuations. But if a ”severe winter” in the Chinese steel market is a lasting issue and also the fundamental reason for the latest disappointment in Chinese oil imports, then the weakness we have seen in Chinese oil imports over the past months could be more than just a blip or a fluctuation.

Middle East nerves have cooled a bit as there is still no retaliation by Iran towards Israel for the killing of the Hamas leader Ismail Haniyeh on 31. July in Iran. It is very clear that neither Iran nor the US or Israel for that sake have any interest in an escalating conflict which potentially could spiral into an all out war between Iran and Israel. Iran is assumed to hold back on retaliatory attack in order not to disturb Gaza peace negotiations. Some kind of retaliatory attack will highly likely come at some point. But it will likely be of a form which will not inflame an escalating conflict between Israel and Iran.

Speculators are more bearish on oil than the physical market. Net long speculative positions in Brent and WTI rose by 45 m b last week to 314 m b. But that is still the 4th lowest level in 52 weeks. At the same time the backwardation in the Brent crude curve as given by the 1mth contract vs. the 7mth contract is at 24 week high. So who is going to be right on this one? Risk here is that speculators are too bearish too soon with Brent crude lifting higher and speculators then trying to catch up.

Net Chinese imports of crude and products in m b/d. A big disappointment over the past three mths. A blip or a reflection of the start of a ”severe winter” in the Chinese steel sector?

52-week ranking of net-long speculative positions vs. the 1 to 7 mth Brent backwardation. Speculators are much more bearish than the physical oil market.

Relaterade ämnen:bjarne schieldrop oil seb analys

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Analys

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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Analys

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.

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

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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.