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Analys

Crude prices steady amid OPEC+ uncertainty and geopolitical calm

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SEB - analysbrev på råvaror

Since last Friday’s opening at USD 73.1 per barrel, Brent crude prices have steadily declined over the weekend, with further losses on Monday afternoon following a brief recovery that saw prices approach USD 73 per barrel. As of this morning (Tuesday), Brent crude is inching upward again, currently trading at USD 72.2 per barrel. Over the past week, implied volatility has dropped to its lowest levels in roughly two months, as the upward momentum observed since mid-November has temporarily stalled.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

On a bearish note, reduced geopolitical uncertainty in the Middle East has contributed to easing the risk premium in oil prices. Israel has signaled its intention to uphold the current ceasefire despite launching airstrikes in Lebanon in response to Hezbollah’s first attack under the truce. While this de-escalation has softened prices, the attacks during the ceasefire highlight that tensions in the region are far from resolved. This persistent instability will likely remain a source of uncertainty for oil markets in the weeks ahead.

On the bullish side, the OPEC+ supply meeting, rescheduled to Thursday, December 5th, looms. Additionally, expectations are building for increased Chinese stimulus measures, potentially to be unveiled at the Chinese Central Economic Work Conference next Wednesday. This closed-door meeting is expected to outline key economic targets and stimulus plans for 2025, which could provide fresh support for Chinese oil demand.

From a supply perspective, OPEC+ has added to market uncertainty by postponing its meeting, initially planned for Sunday, December 1st. The group will decide whether to reintroduce production cuts or proceed with a scheduled supply increase of 180,000 barrels per day. Current market sentiment suggests that OPEC+ is unlikely to rush into restoring production, reflecting cautiousness amid subdued global demand and concerns about a potential supply glut in 2024.

Market participants and traders widely anticipate that the cartel will maintain its wait-and-see approach to avoid worsening the fragile market balance. Such cautiousness could lend support to prices as the new year approaches. We believe OPEC+ is acutely aware of the risks associated with oversupplying the market and will likely act to stabilize prices rather than jeopardize them.

Looking ahead, fundamentals such as U.S. inventory levels, geopolitical developments, and OPEC+ decisions will remain key drivers of the crude oil market. These factors will shape the outlook as we move into the final weeks of 2024 and entering 2025.

Analys

Oversold. Rising 1-3mth time-spreads. Possibly rebounding to USD 73.5/b before downside ensues

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SEB - analysbrev på råvaror

Brent was shaken ydy by the sharp selloff on Wednesday but ticking above the 70-line today. Brent crude inched up 0.2% to USD 69.46/b yesterday following the sharp selloff on Wednesday. The market was clearly still shaken by the sharp selloff on Wednesday when it then traded all the way down to USD 68.33/b and the lowest since Dec 2021. Market ydy didn’t quite dare to make any bets on the upside and basically stayed put. Brent is rising 0.8% this morning to USD 70/b staging a bit more confidence that the recent selloff was a little too much and a little too soon as surplus is not here quite yet. Stronger 1-3mths time-spreads today is also indicating the same. The Brent 1mth price is currently trading very soft versus the 1-3mth time-spreads. So, more rebound is definitely possible given both time-spreads and technically oversold market.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

The current average 1-3mth time-spread of Brent, WTI and Dubai is rising to USD 1.06/b this morning. Looking at the relationship between the Brent 1M and these time-spreads so far this year we could possibly see the Brent 1M price rebound to USD 73.5/b given the level of the current time-spread and the fact that Brent is currently technically oversold.

Consolidation around the 70-line for a period, but message from OPEC+ is clear: lower oil price. The message from OPEC+ when they now have decided to lift production in April and into a period of surplus, is explicitly clear: lower oil prices. But the group is still acting in a highly controlled way. This is not a flash-crash but an adjustment. This is probably starting to dawn on the market today as it trades up above the 70-line again today following technically oversold territory. But back down below the 70-line again in the coming weeks and months seems the natural conclusion to draw following what OPEC+ now has decided to do. But given the current oversold state of Brent crude it seems likely that we’ll see some more consolidation around the 70-line before renewed bearish action ensues. Trump Tariff Turmoil of course adds a lot of bearish concerns for the US economy which naturally flavors over to crude oil as well.

Brent crude still very much in oversold territory. So, more consolidation around the 70-line seems likely before more bearish action continuous.

Brent crude still very much in oversold territory. So, more consolidation around the 70-line seems likely before more bearish action continuous.
Source: Bloomberg graph and calculations

The 1-3 months time-spreads are rebounding a little today. Again, highlighting the fact that surplus is not here quite yet.

The 1-3 months time-spreads are rebounding a little today. Again, highlighting the fact that surplus is not here quite yet.
Source: SEB calculations and graph, Bloomberg data

Brent 1M flat price is trading very soft vs. the 1-3mth time-spreads.

Brent 1M flat price is trading very soft vs. the 1-3mth time-spreads.
Source: SEB calculations and graph, Bloomberg data

The average Brent 1M price so far this year when the 1-3mth time-spread has been in the current range is USD 73.6/b. Brent M1 rising to that level would be kind of neutral territory given the level of the time-spreds.

The average Brent 1M price so far this year when the 1-3mth time-spread has been in the current range is USD 73.6/b. Brent M1 rising to that level would be kind of neutral territory given the level of the time-spreds.
Source: SEB calculations and graph, Bloomberg data
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Analys

A deliberate measure to push oil price lower but it is not the opening of the floodgates

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SEB - analysbrev på råvaror

Hurt by US tariffs and more oil from OPEC+. Brent crude fell 2.1% yesterday to USD 71.62/b and is down an additional 0.9% this morning to USD 71/b. New tariff-announcements by Donald Trump and a decision by OPEC+ to lift production by 138 kb/d in April is driving the oil price lower.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

The decision by OPEC+ to lift production is a deliberate decision to get a lower oil price. All the members in OPEC+ wants to produce more as a general rule. Their plan and hope for a long time has been that they could gradually revive production back to a more normal level without pushing the oil price lower. As such they have postponed the planned production increases time and time again. Opting for price over volume. Waiting for the opportunity to lift production without pushing the price lower. And now it has suddenly changed. They start to lift production by 138 kb/d in April even if they know that the oil market this year then will run a surplus. Donald Trump is the reason.

Putin, Muhammed bin Salman (MBS) and Trump all met in Riyadh recently to discuss the war in Ukraine. They naturally discussed politics and energy and what is most important for each and one of them. Putin wants a favorable deal in Ukraine, MBS may want harsher measures towards Iran while Trump amongst other things want a lower oil price. The latter is to appease US consumers to which he has promised a lower oil price. A lower oil price over the coming two years could be good for Trump and the Republicans in the mid-term elections if a lower oil price makes US consumers happy. And a powerful Trump for a full four years is also good for Putin and MBS.

This is not the opening of the floodgates. It is not the start of blindly lifting production each month. It is still highly measured and controlled. It is about lowering the oil price to a level that is acceptable for Putin, MBS, Trump, US oil companies and the US consumers. Such an imagined ”target price” or common denominator is clearly not USD 50-55/b. US production would in that case fall markedly and the finances of Saudi Arabia and Russia would hurt too badly. The price is probably somewhere in the USD 60ies/b.

Brent crude averaged USD 99.5/b, USD 82/b and USD 80/b in 2022, 2023 and 2024 respectively. An oil price of USD 65/b is markedly lower in the sense that it probably would be positively felt by US consumers. The five-year Brent crude oil contract is USD 67/b. In a laxed oil market with little strain and a gradual rise in oil inventories we would see a lowering of the front-end of the Brent crude curve so that the front-end comes down to the level of the longer dated prices. The longer-dated prices usually soften a little bit as well when this happens. The five-year Brent contract could easily slide a couple of dollars down to USD 65/b versus USD 67/b.

Brent crude 1 month contract in USD/b. USD 68.68/b is the level to watch out for. It was the lowpoint in September last year. Breaking below that will bring us to lowest level since December 2021.

Brent crude 1 month contract in USD/b.
Source: Bloomberg
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Analys

Brent whacked down yet again by negative Trump-fallout

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Sharply lower yesterday with negative US consumer confidence. Brent crude fell like a rock to USD 73.02/b (-2.4%) yesterday following the publishing of US consumer confidence which fell to 98.3 in February from 105.3 in January (100 is neutral). Intraday Brent fell as low as USD 72.7/b. The closing yesterday was the lowest since late December and at a level where Brent frequently crossed over from September to the end of last year. Brent has now lost both the late December, early January Trump-optimism gains as well as the Biden-spike in mid-Jan and is back in the range from this Autumn. This morning it is staging a small rebound to USD 73.2/b but with little conviction it seems. The US sentiment readings since Friday last week is damaging evidence of the negative fallout Trump is creating.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Evidence growing that Trump-turmoil are having negative effects on the US economy. The US consumer confidence index has been in a seesaw pattern since mid-2022 and the reading yesterday was reached twice in 2024 and close to it also in 2023. But the reading yesterday needs to be seen in the context of Donald Trump being inaugurated as president again on 20 January. The reading must thus be interpreted as direct response by US consumers to what Trump has been doing since he became president and all the uncertainty it has created. The negative reading yesterday also falls into line with the negative readings on Friday, amplifying the message that Trump action will indeed have a negative fallout. At least the first-round effects of it. The market is staging a small rebound this morning to USD 73.3/b. But the genie is out of the bottle: Trump actions is having a negative effect on US consumers and businesses and thus the US economy. Likely effects will be reduced spending by consumers and reduced capex spending by businesses.

Brent crude falling lowest since late December and a level it frequently crossed during autumn.

Brent crude falling lowest since late December and a level it frequently crossed during autumn.
Source: Bloomberg

White: US Conference Board Consumer Confidence (published yesterday). Blue: US Services PMI Business activity (published last Friday). Red: US University of Michigan Consumer Sentiment (published last Friday). All three falling sharply in February. Indexed 100 on Feb-2022.

White: US Conference Board Consumer Confidence (published yesterday). Blue: US Services PMI Business activity (published last Friday). Red: US University of Michigan Consumer Sentiment (published last Friday). All three falling sharply in February. Indexed 100 on Feb-2022.
Source: Bloomberg
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