Analys

Crude oil prices needs to move lower in Q1-19

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29 januari, 2019

Brent crude closed down 2.8% yesterday at $59.93/bl while WTI closed down a bit more violently 3.2% at $51.99/bl. A 0.8% decline in the S&P 500 was a bearish guiding force for the oil market which has traded more or less in lock-step with equities for a long time now. A bearish US rig count last Friday (+10 w/w) also lingered giving the market a bearish flavour. Rising international support for Juan Guaido in Venezuela and now also US sanctions towards PDVSA has increased the chances for a regime shift from the current Nicholas Maduro regime with a possible revival in crude oil production in Venezuela thereafter. We think that such a revival in crude production is not around the corner and that it will probably get worse before it gets better. We would be surprised if Maduro steps down without resistance.

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities, SEB

Our Brent crude oil price forecast for Q1-19 is $55/bl but so far in January it has delivered close to $60/bl. Our call for $55/bl in Q1-19 is integral for our price forecast for the rest of 2019 because the Q1-19 price will set the pace of US shale oil production in Q1 and Q2 2019 and thus the production base also for the rest of 2019. We are forecasting a softer US shale oil production growth in 2019 but that requires a softer crude oil price. Especially at the start of the year.

The US oil rig count on Friday was somewhat sobering as it bounced by 10 rigs w/w to 862 which is just 16 rigs shy of this cycle high of 888 rigs. What it showed was that as of yet the lower oil prices since early October has not really dented the appetite for shale oil drilling to any significant degree. The US EIA Drilling Productivity report in January gave a bit more ground for optimism as it showed that well completions in December fell to 1,211 wells from a cycle high of 1,322 in October. Our current forecast is for Brent crude to average $55/bl in Q1-19 and US shale oil well completions to average 1,000 wells/month in Q1-19. But the latter will probably not materialize without the first.

The oil market is currently strongly driven by the sentiment and direction of the S&P 500 index. US investors are focusing on US equities, US oil inventories, WTI crude oil curve price structure, US shale oil activity and refining economics. At the moment refineries are losing money by making gasoline. US shale oil rig count has not yet fallen to any significant degree. US oil inventories have spiked by 90 m bl over the past half year and with much of it over the past month or two. The WTI crude curve is naturally in contango. The Brent crude curve is however close to flat as OPEC+ is tightening up the global oil market.

As such the focal point of the oil market now is S&P 500, WTI and shale oil and from there it reverberates out to the Brent crude oil prices. We have seen a very nice rebound in the S&P 500 index so far this year but the weakness over the past week has led the Brent crude oil price lower. On Wednesday we’ll have US GDP data for Q4-18 and we think there is a significant risk for a disappointment which naturally would be bearish for both the S&P 500 and crude oil.

As of yet we have not seen a satisfactory reaction of lower activity in US shale oil drilling and completions as a result of lower oil prices since October 2018. In our view crude oil prices needs to move lower during the first part of 2019 than where prices are at the moment in order to secure a satisfactory oil market balance later in 2019.

Ch: SEB Brent crude oil price forecast together with SEB US shale oil well completions forecast.
Brent crude at $55/bl in Q1-19 is needed for higher prices to materialize later in 2019

Ch2: OPEC+ is tightening the global market => flat Brent crude oil curve. Weak contango WTI curve

Ch3: US drilling rig count is only off 16 rigs from this cycle high. Not much reaction yet.

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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

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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6 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.