Analys
Crude oil comment – The dissconnect and the reconnect

Brent crude sold off 4.7% ydy to a close of $48.38/b (1 mth contract) while in the longer dated contracts we saw the December 2020 contract lose 2.1% to trade down to $51.15/b which was the lowest level since April 2016. Early this morning the Dec 2020 contract traded as low as $50.5/b. At the time of writing the 1 mth Brent contract is up 0.5% to $48.6/b after having traded as low as $46.64/b in the early hours of the day.
The discussion is going left, right and centre for explanations of why we have such a sharp sell-off in commodities in general and oil specifically. Is the macro backdrop deteriorating? The decline in US consumer confidence by 5 points from March to April as well as a topping over of the global manufacturing PMI at the same time might have been a queue to macro driven investors to take profits on commodities in general. The general view is however that the macro backdrop is fine. That US Q1 growth weakness is transitory and that Chinese infrastructure contractor order intake was strong in Q1-17. Chinese tightening liquidity settings aiming to prevent overheating and too much speculative activity is probably a part of the reason for the sell-off in metals. As such it seems like there is a disconnect between the general macro-view which looks overall positive and the current commodity sell-off which is blood red. Graphing global PMI to commodities does however paint a picture of a fairly good relationship. Is the commodity sell-off an indicator that the somewhat rosy macro view is wrong? Probably not seems to be the main view so far.
Another angel for the sell-off in crude oil is US gasoline. Looking at the sell-off in crude oil we can see that the sell-off has been preceded by a sell-off in gasoline. Gasoline and the driving season is normally a bullish element this time of year. Counter to normal we have instead had a sell-off in gasoline which has been feeding into a bearish pressure on crude oil as well. So weakening US gasoline prices clearly are partly to blame for the latest crude sell-off.
Rapidly rising US crude oil production in combination with elevated net long speculative positions in WTI has of course been important foundation for the current sell-off. Speculators have been taking cover as the price moved into technically bearish territory. On Tuesday next week the US EIA will publish its last monthly energy report before OPEC’s meeting on May 25th. It is likely to lift its projected US crude oil production for 2018 yet another 150 – 200 kb/d as it accounts for the 35 oil rigs which were added to the market in April.
Hardly anyone seems to doubt that OPEC will roll over its cuts from H1 to H2 and Russia also seems to be positive for such a decision. This is probably the biggest disconnect in the oil sell-off. OPEC seems positive for cuts, Russia seems positive and the general market expectation is for a roll-over of cuts into H2. A decision to roll over cuts into H2-17 when OPEC meets on May 25th in Vienna will clearly lift Brent crude oil prices back up towards $55/b. As such the current sell-off to $46-47-48/b is clearly a disconnect to the consensus that OPEC will cut in H2-17. Cutting in H2-17 will however stimulate more US oil rigs to enter the market thus leading to higher production in 2018 and 2019. As such a decision to cut on May 25th will be a sacrifice of the balance and oil prices for 2018 and 2019 as it will shift both of those years into strict surplus.
But for now the sell-off is a disconnect to the view that OPEC will cut. As such it is a good buy ahead of the OPEC meeting which is now less than three weeks ahead. Unless of course OPEC totally caves in and instead lets oil production flow unhindered. That would be a vindication of prior Saudi oil minister Ali al-Naimi’s earlier aired view that cutting production is not a good idea as it would only lead to lower volume but not necessarily a higher price. Saudi Arabia may however have too much at stake with its planned Saudi Aramco IPO planned for early 2018 to let the oil flow loose quite yet. Thus betting on the consensus for a cut and buying the current sell-off may not be such a bad idea and strattegy. Rather we think it is a good strattegy to buy into the current sell-off at the moment ahead of the upcoming OPEC meeting.
On the one hand there is now a dissconnect between a strong belief in an OPEC cut versus a current weak oil prices. On the other hand though one might also say that the oil price finally has reconnected with shale oil fundamentals. If the oil market is in no need for yet more oil in 2018 then there is no need to activate yet more oil rigs in the US right now. At the moment we forecast 2018 to be close to balanced. As such the mid-term WTI crude price curve should traded at about $47/b (empirical rig count inflection point versus prices). The 1-2 year WTI forward curve at the time of writing trades at $47.8/b. But that reconnect looks likely to be foreced apart again if/when OPEC decides to roll cuts over into H2-17. In that case the reconnect is postponed to 2018. Post the Saudi Aramco IPO.
Ch1: Global growth momentum topping out?
Graphically yes, but general view is that global growth is fine and that US Q1-17 weakness is transitory
Ch2: Commodity prices are softening anyhow
Ch3: Gasoline prices usually a bullish factor into the US driving seasson – But this time it has been a bearish factor dragging crude prices lower
Ch4: Relationship between US mid-term WTI forward prices and weekly US oil rig additions
The inflection point is from April/May/June last year
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
OPEC+ in a process of retaking market share

Oil prices are likely to fall for a fourth straight year as OPEC+ unwinds cuts and retakes market share. We expect Brent crude to average USD 55/b in Q4/25 before OPEC+ steps in to stabilise the market into 2026. Surplus, stock building, oil prices are under pressure with OPEC+ calling the shots as to how rough it wants to play it. We see natural gas prices following parity with oil (except for seasonality) until LNG surplus arrives in late 2026/early 2027.

Oil market: Q4/25 and 2026 will be all about how OPEC+ chooses to play it
OPEC+ is in a process of unwinding voluntary cuts by a sub-group of the members and taking back market share. But the process looks set to be different from 2014-16, as the group doesn’t look likely to blindly lift production to take back market share. The group has stated very explicitly that it can just as well cut production as increase it ahead. While the oil price is unlikely to drop as violently and lasting as in 2014-16, it will likely fall further before the group steps in with fresh cuts to stabilise the price. We expect Brent to fall to USD 55/b in Q4/25 before the group steps in with fresh cuts at the end of the year.

Natural gas market: Winter risk ahead, yet LNG balance to loosen from 2026
The global gas market entered 2025 in a fragile state of balance. European reliance on LNG remains high, with Russian pipeline flows limited to Turkey and Russian LNG constrained by sanctions. Planned NCS maintenance in late summer could trim exports by up to 1.3 TWh/day, pressuring EU storage ahead of winter. Meanwhile, NE Asia accounts for more than 50% of global LNG demand, with China alone nearing a 20% share (~80 mt in 2024). US shale gas production has likely peaked after reaching 104.8 bcf/d, even as LNG export capacity expands rapidly, tightening the US balance. Global supply additions are limited until late 2026, when major US, Qatari and Canadian projects are due to start up. Until then, we expect TTF to average EUR 38/MWh through 2025, before easing as the new supply wave likely arrives in late 2026 and then in 2027.
Analys
Manufacturing PMIs ticking higher lends support to both copper and oil

Price action contained withing USD 2/b last week. Likely muted today as well with US closed. The Brent November contract is the new front-month contract as of today. It traded in a range of USD 66.37-68.49/b and closed the week up a mere 0.4% at USD 67.48/b. US oil inventory data didn’t make much of an impact on the Brent price last week as it is totally normal for US crude stocks to decline 2.4 mb/d this time of year as data showed. This morning Brent is up a meager 0.5% to USD 67.8/b. It is US Labor day today with US markets closed. Today’s price action is likely going to be muted due to that.

Improving manufacturing readings. China’s manufacturing PMI for August came in at 49.4 versus 49.3 for July. A marginal improvement. The total PMI index ticked up to 50.5 from 50.2 with non-manufacturing also helping it higher. The HCOB Eurozone manufacturing PMI was a disastrous 45.1 last December, but has since then been on a one-way street upwards to its current 50.5 for August. The S&P US manufacturing index jumped to 53.3 in August which was the highest since 2022 (US ISM manufacturing tomorrow). India manufacturing PMI rose further and to 59.3 for August which is the highest since at least 2022.
Are we in for global manufacturing expansion? Would help to explain copper at 10k and resilient oil. JPMorgan global manufacturing index for August is due tomorrow. It was 49.7 in July and has been below the 50-line since February. Looking at the above it looks like a good chance for moving into positive territory for global manufacturing. A copper price of USD 9935/ton, sniffing at the 10k line could be a reflection of that. An oil price holding up fairly well at close to USD 68/b despite the fact that oil balances for Q4-25 and 2026 looks bloated could be another reflection that global manufacturing may be accelerating.
US manufacturing PMI by S&P rose to 53.3 in August. It was published on 21 August, so not at all newly released. But the US ISM manufacturing PMI is due tomorrow and has the potential to follow suite with a strong manufacturing reading.

Analys
Crude stocks fall again – diesel tightness persists

U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.
Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.
Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).
Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.
On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.


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