Följ oss

Analys

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

Publicerat

den

SEB - analysbrev på råvaror

SEB - Prognoser på råvaror - CommodityHeadlines 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?

Brent crude oil 1mth contract in USD/bl

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

And speculators have positioned themselves accordingly. A sell-off ahead in the making?

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

Record high net long spec position (Brent + WTI) when counting contracts and barrels

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

Gratis uppdateringar om råvarumarknaden

*

Brent Dated crude oil price has started to weaken versus the Brent 1mth price signalling weakness in the physical Brent crude oil market

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Analys

Tightening fundamentals – bullish inventories from DOE

Publicerat

den

SEB - analysbrev på råvaror

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

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

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).

Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.

Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.

The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.

Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.

US DOE, inventories, change in million barrels per week
US crude inventories excl. SPR in million barrels
Fortsätt läsa

Analys

Bombs to ”ceasefire” in hours – Brent below $70

Publicerat

den

SEB - analysbrev på råvaror

A classic case of “buy the rumor, sell the news” played out in oil markets, as Brent crude has dropped sharply – down nearly USD 10 per barrel since yesterday evening – following Iran’s retaliatory strike on a U.S. air base in Qatar. The immediate reaction was: “That was it?” The strike followed a carefully calibrated, non-escalatory playbook, avoiding direct threats to energy infrastructure or disruption of shipping through the Strait of Hormuz – thus calming worst-case fears.

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

After Monday morning’s sharp spike to USD 81.4 per barrel, triggered by the U.S. bombing of Iranian nuclear facilities, oil prices drifted sideways in anticipation of a potential Iranian response. That response came with advance warning and caused limited physical damage. Early this morning, both the U.S. President and Iranian state media announced a ceasefire, effectively placing a lid on the immediate conflict risk – at least for now.

As a result, Brent crude has now fallen by a total of USD 12 from Monday’s peak, currently trading around USD 69 per barrel.

Looking beyond geopolitics, the market will now shift its focus to the upcoming OPEC+ meeting in early July. Saudi Arabia’s decision to increase output earlier this year – despite falling prices – has drawn renewed attention considering recent developments. Some suggest this was a response to U.S. pressure to offset potential Iranian supply losses.

However, consensus is that the move was driven more by internal OPEC+ dynamics. After years of curbing production to support prices, Riyadh had grown frustrated with quota-busting by several members (notably Kazakhstan). With Saudi Arabia cutting up to 2 million barrels per day – roughly 2% of global supply – returns were diminishing, and the risk of losing market share was rising. The production increase is widely seen as an effort to reassert leadership and restore discipline within the group.

That said, the FT recently stated that, the Saudis remain wary of past missteps. In 2018, Riyadh ramped up output at Trump’s request ahead of Iran sanctions, only to see prices collapse when the U.S. granted broad waivers – triggering oversupply. Officials have reportedly made it clear they don’t intend to repeat that mistake.

The recent visit by President Trump to Saudi Arabia, which included agreements on AI, defense, and nuclear cooperation, suggests a broader strategic alignment. This has fueled speculation about a quiet “pump-for-politics” deal behind recent production moves.

Looking ahead, oil prices have now retraced the entire rally sparked by the June 13 Israel–Iran escalation. This retreat provides more political and policy space for both the U.S. and Saudi Arabia. Specifically, it makes it easier for Riyadh to scale back its three recent production hikes of 411,000 barrels each, potentially returning to more moderate increases of 137,000 barrels for August and September.

In short: with no major loss of Iranian supply to the market, OPEC+ – led by Saudi Arabia – no longer needs to compensate for a disruption that hasn’t materialized, especially not to please the U.S. at the cost of its own market strategy. As the Saudis themselves have signaled, they are unlikely to repeat previous mistakes.

Conclusion: With Brent now in the high USD 60s, buying oil looks fundamentally justified. The geopolitical premium has deflated, but tensions between Israel and Iran remain unresolved – and the risk of missteps and renewed escalation still lingers. In fact, even this morning, reports have emerged of renewed missile fire despite the declared “truce.” The path forward may be calmer – but it is far from stable.

Fortsätt läsa

Analys

A muted price reaction. Market looks relaxed, but it is still on edge waiting for what Iran will do

Publicerat

den

SEB - analysbrev på råvaror

Brent crossed the 80-line this morning but quickly fell back assigning limited probability for Iran choosing to close the Strait of Hormuz. Brent traded in a range of USD 70.56 – 79.04/b last week as the market fluctuated between ”Iran wants a deal” and ”US is about to attack Iran”. At the end of the week though, Donald Trump managed to convince markets (and probably also Iran) that he would make a decision within two weeks. I.e. no imminent attack. Previously when when he has talked about ”making a decision within two weeks” he has often ended up doing nothing in the end. The oil market relaxed as a result and the week ended at USD 77.01/b which is just USD 6/b above the year to date average of USD 71/b.

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

Brent jumped to USD 81.4/b this morning, the highest since mid-January, but then quickly fell back to a current price of USD 78.2/b which is only up 1.5% versus the close on Friday. As such the market is pricing a fairly low probability that Iran will actually close the Strait of Hormuz. Probably because it will hurt Iranian oil exports as well as the global oil market.

It was however all smoke and mirrors. Deception. The US attacked Iran on Saturday. The attack involved 125 warplanes, submarines and surface warships and 14 bunker buster bombs were dropped on Iranian nuclear sites including Fordow, Natanz and Isfahan. In response the Iranian Parliament voted in support of closing the Strait of Hormuz where some 17 mb of crude and products is transported to the global market every day plus significant volumes of LNG. This is however merely an advise to the Supreme leader Ayatollah Ali Khamenei and the Supreme National Security Council which sits with the final and actual decision.

No supply of oil is lost yet. It is about the risk of Iran closing the Strait of Hormuz or not. So far not a single drop of oil supply has been lost to the global market. The price at the moment is all about the assessed risk of loss of supply. Will Iran choose to choke of the Strait of Hormuz or not? That is the big question. It would be painful for US consumers, for Donald Trump’s voter base, for the global economy but also for Iran and its population which relies on oil exports and income from selling oil out of that Strait as well. As such it is not a no-brainer choice for Iran to close the Strait for oil exports. And looking at the il price this morning it is clear that the oil market doesn’t assign a very high probability of it happening. It is however probably well within the capability of Iran to close the Strait off with rockets, mines, air-drones and possibly sea-drones. Just look at how Ukraine has been able to control and damage the Russian Black Sea fleet.

What to do about the highly enriched uranium which has gone missing? While the US and Israel can celebrate their destruction of Iranian nuclear facilities they are also scratching their heads over what to do with the lost Iranian nuclear material. Iran had 408 kg of highly enriched uranium (IAEA). Almost weapons grade. Enough for some 10 nuclear warheads. It seems to have been transported out of Fordow before the attack this weekend. 

The market is still on edge. USD 80-something/b seems sensible while we wait. The oil market reaction to this weekend’s events is very muted so far. The market is still on edge awaiting what Iran will do. Because Iran will do something. But what and when? An oil price of 80-something seems like a sensible level until something do happen.

Fortsätt läsa

Centaur

Guldcentralen

Fokus

Annons

Gratis uppdateringar om råvarumarknaden

*

Populära