Analys

Crude oil comment – All is good near term with more upside to come

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7 år sedan

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19 september, 2017

Following some intraday swings with Brent trading as low as $54.82/bl it closed the day with only a slight loss of 0.3% at $55.48/bl. The whole forward curve lost slightly more with Brent Dec-2020 loosing 0.6% with a close of $55.53/b. During the day there were clearly some concerns that the bull-rally we have had since early September and which has handed us the highest Brent price since April should topple over. It did however hold with Brent closing above the earlier resistance at $55.33/bl. This morning Brent is trading steady at $55.5/bl. It takes little note of the Caribbean hurricane Maria since it is not projected to enter the US Gulf. Iraq and some other producers are calling out for an additional 1% output cut but that does not give any resonance in higher prices either. We don’t really see the point in cutting more as the current cuts currently are highly effective with declining inventories and most crude and product curves already having moved into backwardation at the front end of the forward curves.

The US EIA yesterday released its monthly drilling productivity report and DUCs report. Of interest was the fact that the number of drilled wells came in at the highest level since March 2015 reaching 1267 wells drilled. Today’s wells are however twice as productive. Thus real drilling is actually way higher than in March 2015. Drilling continued to run ahead of completions also in August just as has been the trend all since December last year. Both drilling and completions rose but the gap widened and led to an increase in DUCs (Drilled but uncompleted wells) of 231 with total number of DUCs reaching 7048 wells. That was the largest monthly increas in DUCs since January this year. Marginal, annualized production growth was projected to fall back slightly to a rate of 960 k bl/d/yr in October from 1,151 k bl/d/yr in Sepember.

We maintain the view that there is more upside near term in crude oil prices with the same arguments we have pitched lately: Net long specs are fairly low, inventories are falling, OPEC in general and Saudi specifically are firm on cuts and do deliver, curves have shifted into backwardation (enticing more long specs to enter into positive roll-yield), US oil rig count is declining (adds bullish sentiment) and technicals points to a revisit of earlier highs of the year.

If you spice it up with a continued softening in the USD and potentially another hurricane heading for the US Gulf, then higher prices are on your plate.

Short term price gains the nearest months should however not be taken at face value in terms of indications for what one should expect in 2018 where we still see the need for OPEC intervention all through 2018. Thus oil producers looking to hedge their production for 2018 should bide their time for the likely upside near term.

Ch1: US shale oil production continues to rise, but losses in existing production is rising as well

Ch2: Legacy losses in existing production has increased faster than US shale oil production since production bottomed out last year
But end-point is not far away from the trend line.
If it moves more and more to the upside of the trend it means that legacy losses are accelerating versus total production.
I.e. would be a sign that it is more and more difficult to maintain production or to drive it higher

Ch3: Marginal, annualized shale oil production growth to fall back slightly in October to just below 1 m bl/d
Producers do however have a lot to gain from speeding up completions as they have A LOT of DUCs to take from

Ch4: Drilling continues to run ahead of completions. Both rose in August but gap widened to 231 and highest gap since Jan this year
As a consequence the DUC inventory continues to rise and rise
In perspective we have that the 1510 DUC which has been added to the DUC inventory since December last year implicitly contains some 500 m bl of producible oil within a three year time horizon.
In addition comes the other 5538 DUCs (out of the total 7048) being of unknown quality and quantity
In reference the OECD inventories were down 85 m bl YoY in July

Ch5: Brent crude Cal-2018 has ticked higher and higher now just a little more than 3 dollar below year high
Producers should probably target and act if Brent Cal-2018 hits ytd high of $58.52/bl (high close)

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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

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5 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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7 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.