Analys

Crude oil comment: Market battling between spike-risk versus 2025 surplus

Publicerat

4 månader sedan

den

21 oktober, 2024

Brent crude falls back as day by day goes by with no Israeli retaliation. Market focus returns to concerns for surplus in 2025. Brent crude fell 7.6% last week following a rally to USD 81.16/b the week before when it felt like a retaliatory attack by Israel on Iran was imminent with all targets possible. Israel has promised that ”Iran will pay” for its attack on Israel on 1 October when it fired 200 ballistic missiles at Israel.

But days passed by and no retaliation happened. Fears that Israel will go after Iranian oil installations and nuclear facilities also seems to have faded. Biden has urged Israel to not hit such targets. Israel has said that it will make its own choices so it is still an open risk that Israel could indeed hit Iranian oil installations.

Last week we had yet another report from the IEA where it predicts that OPEC must cut yet another 0.9 mb/d in 2025 to keep the market in balance. That keeps the fear going for lower oil prices in 2025. All in all Brent fell back 7.6% last week to a close on Friday at USD 73.06/b.

This morning it is back up to USD 73.3/b (+0.4%) which is not much and less than the 1% gain in industrial metals. So most likely it has very little to do with increased fears for an Israeli retaliation.

To us it seems like close to certain that Israel will indeed retaliate at some point. Likely hard and forceful and not a muted retaliation like in April. Leaked US intelligence documents over the weekend show rather extensive Israeli preparations for a retaliation on Iran involving three Israeli airfields including F-15s and refueling aircrafts. So market today most likely also thinks that the Israeli retaliation will come and a hard one as well. If so it will likely lead to yet another re-retaliation by Iran with a risk for spiraling effects which in the end could involve Iranian oil installations etc., etc.

But as long as nothing happens on a day to day basis, the oil price falls back with market focus circling back to concerns over a surplus of oil in 2025 where OPEC needs to cut another 0.9 mb/d to keep it in balance according to the latest report from the IEA. Though only 0.7 mb/d if FSU production is unchanged. OPEC+ planning to add barrels to the market from December onward makes that look even worse of course.

From backwardation-market in 2022/23/24 to contango-market in 2025? Over the past three years the oil market has been running tight. Tight on products and tight on crude. The long-dated Brent crude five year contract, or the 60 month contract, has been very stable at close to USD 70/b. The front-end Brent crude contract however has traded at a premium of USD 28/b, USD 15/b and USD 12/b for 2022, 2023 and 2024 respectively versus the 60 month contract.

If the oil market next year flips to a surplus with rising inventories then the market should naturally flip to a contango-market. The implication of that is that the front-end Brent contract will trade at a discount to the longer dated Brent price. The Brent 1 month price would then typically be USD 70/b (long-dated 60mth price) minus some discount of maybe USD 5-10/b. Implying a Brent 1 month price of USD 60-65/b. This is what the oil bears are eyeing for 2025 and why we have seen such overly bearish positioning lately.

Counter to such a development would be possible damage to Iranian oil supplies due to the forthcoming Israeli retaliation. Or in the following re-re-re-re-retaliations after that. Or that Donald Trump is elected president and more strictly enforces sanctions on Iranian oil exports thus making room for more exports from the rest of OPEC+.

Brent crude 1mth contract minus the 60mth contract. Market shifting between contango-market (negative) and backwardation-market (positive).

Relaterade ämnen:bjarne schieldrop oil seb analys

Nästa

Crude oil comment: It takes guts to hold short positions

Missa inte

Brent stabilizes, yet upside potential persists

Fortsätt läsa

Annons

Analys

Stronger inventory build than consensus, diesel demand notable

Publicerat

1 dag sedan

den

21 februari, 2025

Redaktionen

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.

Fortsätt läsa

Analys

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

Publicerat

3 dagar sedan

den

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

Fortsätt läsa

Analys

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

Publicerat

5 dagar sedan

den

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.