Analys

The cutters should utilize seasonal strong demand in H2-18 to wind down cuts

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7 år sedan

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30 november, 2017

Headlines this morning gives the impression that all are now on-board for extending the cuts to the end of 2018. Reading in more detail however shows that it is not at all yet a done deal. And in addition it does not say whether the cuts will be maintained at current level all to the end of 2018. Specifically it seems like there is going to be an option to review and revise strategy at the next meeting in June. I.e. “maintain cuts if needed, but only if needed”. Russian producers are deeply concerned about the end-game. How to wind down the cuts without risking to crash the oil price. As such a sensible outcome in our eyes would be to wind down the cuts gradually through seasonal demand strength in H2-18. The cutters probably do not want to surprise the market positively risking firing up the oil price yet more at the same time as Rystad Energy is calling US crude oil production to hit 9.9 mb/d end of 2017 while also the US oil rig count has started to rise.

We have seen great reluctance from the Russian side in the run-up to this meeting and decision. Key has been the ”independent” oil companies in Russia who are getting ready dispatch new green field projects in 2018 in addition to what they have been holding back this year. These companies are getting very eager to get these new projects into production as well as the side lined once.

These companies fear that unconditional promises of cuts to the end of 2018 will fire up the oil market yet more with yet more stimulus of US shale oil production thus making it difficult for them to get back into the market at the start of 2019 without risking crashing the oil price then.

Thus exit of cuts has come into focus and has been a key point for Russian oil companies and thus the Russian delegation in Vienna.

I do not expect to see an unconditional extension of cuts to end of 2018 coming out of today’s meeting. A sensible outcome would be to keep current production cap through H1-18 and then ramp down the cuts through H2-18 during seasonally high demand in H2-18. And finally to have a touchdown in November 2018 assessing whether there is a need to trim production during seasonal weakness in H1-19.

This kind of outcome is probably less than what the market is hoping for and pricing in. Such an outcome would thus likely lead to some sell-off in the crude oil market.

Nonetheless in terms of appearance of price action ahead of the meeting the market seems extremely relaxed in terms of interpreting oil price action in the run-up to the meeting. I think the market is correctly assessing that OPEC/Non-OPEC is highly unlikely to throw away all what they have achieved over the past year (inventory draw down and a major shift from contango to backwardation, from spot price discount to spot price premium versus longer dated prices). However, it is probably wrong in assuming a full Christmas present with unconditional cuts to end of 2018.

Speculative net long crude oil positions in the market are currently at the second highest level in history. The fairly muted price action ahead of this meeting may thus be completely misguided in terms of possible price reaction to the outcome of this meeting in case the market is significantly disappointed by the outcome.

My expectation in terms of outcome of the meeting is thus that cuts are maintained during H1-18 and then gradually ramped down in H2-18 with a possible trimming during seasonal weakness in H1-19 if needed.

The message will be clear that they are NOT shifting from current strategy of “Price over volume” and back again to “Volume over price”. However, they are neither willing to drive the Brent crude oil price to the sky risking further strong acceleration of US shale oil production at the same time as OPEC/Non-OPEC cutters are holding back production. Yesterday’s news that US crude oil production is likely going to reach 9.9 mb/d by end of 2017 according to Rystad Energy’s estimates is a very clear message that OPEC/Non-OPEC cutters needs to tread carefully both when it comes to actual further cut extensions as well as how it communicates its plans and ambitions in terms of prices and goals.

As such the group should not really want to surprise the market positively today.
Rather it should want to give reassurance and confidence.
The perfect outcome for the group today would be if the oil price does not move at all.

Ch1: “I want $69.63/b!”
Brent crude oil 1mth contract in USD/bl
But the market has gone in a one way street upwards since June.
Will we get there this time around or will we need a round of speculative re-set before heading for the $69.63/bl at a later stage?

Ch3: And speculators have positioned themselves accordingly. A sell-off ahead in the making?
Riding the upwards trend since June has been a good thing adding more and more length on the way upwards

Ch4: Record high net long spec position (Brent + WTI) when counting contracts and barrels
Almost doubling since June!
There will be a reset at one point. Maybe today or maybe later

Ch5: Brent Dated crude oil price has started to weaken versus the Brent 1mth price signalling weakness in the physical Brent crude oil market
Should be trading on par if market is tight

Annons

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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SEB Råvarubrev 5 december 2017

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Analys

Stronger inventory build than consensus, diesel demand notable

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3 dagar 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.

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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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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.