Analys

Crude oil higher as Hurricanes disrupt crude supply rather than crude demand (refinery processing of crude)

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7 år sedan

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8 september, 2017

Crude oil comment – Crude oil higher as Hurricanes disrupt crude supply rather than crude demand (refinery processing of crude)
All since the end of July we have seen Brent crude trading fairly range bound between $50/b and $53.64/b. This week it broke upwards out of this trend. Brent crude hit an intraday low of $50.58/b last Wednesday on the fear that Hurricane Harvey would disrupt U.S. Gulf refineries’ consumption of crude oil for a lengthy period of time. I.e. lower refinery activity would give lower crude consumption and thus lower crude prices. When refineries gave signals that damage was not too great and restarts were on the table then Brent crude rose back up and then continued higher.

While the fear last week was for reduced oil processing by refineries due to hurricane Harvey, the coin has now flipped. Now the concern is that this may be a heavy hurricane season with the risk of substantial disruptions to crude oil production in the Gulf of Mexico. The US EIA yesterday reported that US crude oil production last week was down 749 kb/d WoW to 8,781 kb/d which is the lowest since December last year.

Following Harvey we now have Katia, Irma and Jose queuing up with Irma of course getting most attention as it leaves devastation in its trail as it heads for Florida. What we have seen of hurricanes so far this season may of course not be a good predictor for the rest of the hurricane season but it still setts the mind to expect more of the same. I.e. potentially more disruptions of supply.

The take from the sell-off down to $50.58/b last week is that there is little risk to the downside of $50/b at the moment. The Saudi oil put is firmly in place. Cutting exports to 6.6 mb/d in August (lowest since 2011), lifting official selling prices for all grades for October delivery while stating that Saudi Arabia goes full ahead for the Aramco IPO in 2018. They are not dropping the ball anytime soon. In addition we have seen the implied US shale oil rig count declining three weeks in a row now for the first time since May 2016.

On the upside price action the market will now look at technical references. I.e. highs from earlier in 2017 both for the Brent November contract as well as for the rolling 1mth Brent contract. For the November contract we have $55.33/b (25th May), $57.41/b (12th April) and then $60.08/b (3rd Jan). In references to historical values for the front end rolling Brent contract we comparably have $54.67/b (25th May, but already reached yesterday), $56.65/b (12th April) and then $58.37/b (3rd Jan).

The ball is definitely in the court of the bulls at the moment and the price action is looking towards earlier highs this year. However, when we look forward towards 2018 we do have concerns for the global oil market balance.

We expect US crude and NGL production growth to be very strong with lots of drilled but uncompleted wells ready to be completed. The declining drilling rig count right now is thus more a bullish sentiment driver than having a strong fundamental value. Combined with a still high level of commissioning of legacy non-OPEC crude oil production in 2018 we foresee the need for production management by OPEC+ all through 2018.

Thus bullish price moves this autumn towards the higher end of the $50ies/b should be utilized for those who need to hedge the downside price risk for 2018. When the Aramco IPO is done or if OPEC+ falls apart there is definitely downside price risk on the table in 2018. We must not forget that the current market tightness with declining oil inventories is as of now artificially managed by OPEC+. If it had not been for OPEC+ we would have been running a surplus.

This evening we again have the weekly US rig count data at 19.00 CET. We expect to see yet another week of declining US shale oil rig count. Sentiment wise it should help Brent crude to take out highs from earlier in 2017.

Ch1: Hurricane Harvey is taking out supply, not just demand

Ch2: Three weeks in a row of declining US shale oil rig count (implied)
Now three weeks in a row for the first time since May 2016

Ch3: Brent crude goal One: $55.33/b
Brent crude November contract price references from earlier in 2017
$55.33/b highlighted as next in line to reach for the Nov Brent contract

Ch4: Brent crude goal two and three: $56.65/b and then $58.37/b
Brent crude rolling front month price references from earlier in 2017
Bulls eying high of the year from Jan 3rd at $58.37/b

Ch5: Three hurricanes now in action
Is this what we should expect for the rest of the hurricane season?
More dissruptions to come all through the season?

Annons

Ch6: With Irma soon to make landfall but with not too much impact on oil infrastructure

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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3 dagar sedan

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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.

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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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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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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

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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.