Analys

Cutting supply of “black crude” will feel like more

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7 år sedan

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19 december, 2018

The point is that all crudes are not created equal. US supply of ultralight crudes and NGLs is drowning the world with light end products. As a result the gasoline refinery crack has crashed to zero. At the same time however the world is getting starved for medium to heavy molecules leading to abnormally strong refinery mid. dist. margins.

When OPEC+ now is cutting supply of at least 1.2 m bl/d of crude they are primarily cutting supply of medium sour crude or “black crude”. In exchange the market is left to consume more light to ultralight US shale oil crude and NGLs.

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities, SEB

US shale oil typically contains about 60% medium to heavy molecules. But if we also factor in the added supply of US liquids which is NGLs etc. which contains 0% such molecules then the total comes down to only 40%. I.e. average new liquids supply in the US only contains a 40% cut on average of medium to heavy molecules.

“Black crude” (medium sour) in comparison contains close to 80% medium to heavy molecules. I.e. twice as much as the new US liquids supply. So when OPEC+ now cuts 1.2 m bl/d of “black crude” it reduces supply of medium to heavy molecules by 0.93 m bl. To make up for this the US has to lift total liquids supply by 2.3 m bl/d.

You can always break apart longer hydrocarbon molecules to medium length molecules (mid-dist. and lighter). Yes, it is an expensive process but the equipment for splitting longer hydrocarbons is still widespread in the global refining system today. All from splitting VGO (Vacuum Gas Oil) to either Gasoline (by Fluid Catalytic Crackers (FCCs) or to middle distillates (by Hydrocrackers) to breaking apart vacuum residue in Cokers to mid and light products. But merging shorter molecules and converting them to middle distillates is way more difficult and expensive and is in general not done. The exception of this is Shell’s Perl, Gas To Liquids (GTL) plant in Qatar where natural gas is converted to diesel. But that is more one of a kind.

From end 2016 to end 2018 the US has increased its hydrocarbon liquids supply by 4.2 m bl/d consisting of 2.9 m bl/d of crude and 1.3 m bl/d non-crude (typically NGL’s). The later typically contains no medium to heavy molecules while the prior contains 59% such molecules or less. In total the 4.2 m bl/d of new liquids supply in the US has added 1.7 m bl/d of medium to heavy molecules or 0.4 m bl/d per m bl/d of additional US liquids. “Black crude” however typically contains close to 78% medium to heavy molecules.

The huge change in the oil market due to the arrival of booming US shale oil is many faceted and complex. The new molecule composition in US liquids supply growth is one of many. Of this aspect we have probably only seen the start. Most new refineries are in general geared towards Middle East medium sour crude or “black crude” and the new ultralight liquids supply from the US does not match these all that well. The new Chinese INE crude contract is typically defined as medium sour crude if we look at the crude streams going into the physical delivery of this contract. That is to match the Chinese refineries.

Again, when OPEC+ now is cutting 1.2 m bl/d of black crude it is more than meets the eye. The feel of this cut will be deeper than its headline number of 1.2 m bl/d and it may not lead to all that much of a blessing for US ultralight liquids supply as producers there hope for once the cut starts to bite.

Today at 16:30 CET we’ll have the US EIA oil inventory data. They are likely to be quite bearish. Given the US EIA’s drilling productivity report this Monday we are likely going to see that the EIA lifts US crude production by 100 to 200 k bl/d versus last week. The API yesterday indicated stock changes of US crude: +3.5 m bl, Gasoline: +1.8 and Distillates: -3.4 m bl. In total a rise and also bearish for crude if that is the outcome.

Positive note: Dimondback is cutting activity in the Permian basin in 2019 in response to lower crude prices and higher costs.

Ch1: US ultralight crude versus Brent crude and Oman crude. The difference is much larger if one also includes US supply growth in NGLs

Table 1: Ultralight US shale oil contains much less medium to heavy molecules

Ch2: Mid-dist and heavy ends; much more fun than gasoline lately versus what is usually the case. Probably just the beginning.

Ch3: Crude prices falling like a rock

Ch4: US EIA drilling productivity report on Monday. Only bearish reading as of yet: higher drilling, higher DUCs, higher production, higher productivity and a marginal, annualized production rate of 1.6 m bl/d per year. Lower crude oil prices have not yet started to impact activity in December and January. But news above from Dimondback shows that prices are starting to hurt.

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Analys

OPEC+ in a process of retaking market share

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2 dagar sedan

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2 september, 2025

Redaktionen

Oil prices are likely to fall for a fourth straight year as OPEC+ unwinds cuts and retakes market share. We expect Brent crude to average USD 55/b in Q4/25 before OPEC+ steps in to stabilise the market into 2026. Surplus, stock building, oil prices are under pressure with OPEC+ calling the shots as to how rough it wants to play it. We see natural gas prices following parity with oil (except for seasonality) until LNG surplus arrives in late 2026/early 2027.

Ole R. Hvalbye, Analyst Commodities, SEB

Oil market: Q4/25 and 2026 will be all about how OPEC+ chooses to play it
OPEC+ is in a process of unwinding voluntary cuts by a sub-group of the members and taking back market share. But the process looks set to be different from 2014-16, as the group doesn’t look likely to blindly lift production to take back market share. The group has stated very explicitly that it can just as well cut production as increase it ahead. While the oil price is unlikely to drop as violently and lasting as in 2014-16, it will likely fall further before the group steps in with fresh cuts to stabilise the price. We expect Brent to fall to USD 55/b in Q4/25 before the group steps in with fresh cuts at the end of the year.

Bjarne Schieldrop, Chief analyst commodities, SEB

Natural gas market: Winter risk ahead, yet LNG balance to loosen from 2026
The global gas market entered 2025 in a fragile state of balance. European reliance on LNG remains high, with Russian pipeline flows limited to Turkey and Russian LNG constrained by sanctions. Planned NCS maintenance in late summer could trim exports by up to 1.3 TWh/day, pressuring EU storage ahead of winter. Meanwhile, NE Asia accounts for more than 50% of global LNG demand, with China alone nearing a 20% share (~80 mt in 2024). US shale gas production has likely peaked after reaching 104.8 bcf/d, even as LNG export capacity expands rapidly, tightening the US balance. Global supply additions are limited until late 2026, when major US, Qatari and Canadian projects are due to start up. Until then, we expect TTF to average EUR 38/MWh through 2025, before easing as the new supply wave likely arrives in late 2026 and then in 2027.

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Analys

Manufacturing PMIs ticking higher lends support to both copper and oil

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3 dagar sedan

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1 september, 2025

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Price action contained withing USD 2/b last week. Likely muted today as well with US closed. The Brent November contract is the new front-month contract as of today. It traded in a range of USD 66.37-68.49/b and closed the week up a mere 0.4% at USD 67.48/b. US oil inventory data didn’t make much of an impact on the Brent price last week as it is totally normal for US crude stocks to decline 2.4 mb/d this time of year as data showed. This morning Brent is up a meager 0.5% to USD 67.8/b. It is US Labor day today with US markets closed. Today’s price action is likely going to be muted due to that.

Improving manufacturing readings. China’s manufacturing PMI for August came in at 49.4 versus 49.3 for July. A marginal improvement. The total PMI index ticked up to 50.5 from 50.2 with non-manufacturing also helping it higher. The HCOB Eurozone manufacturing PMI was a disastrous 45.1 last December, but has since then been on a one-way street upwards to its current 50.5 for August. The S&P US manufacturing index jumped to 53.3 in August which was the highest since 2022 (US ISM manufacturing tomorrow). India manufacturing PMI rose further and to 59.3 for August which is the highest since at least 2022.

Are we in for global manufacturing expansion? Would help to explain copper at 10k and resilient oil. JPMorgan global manufacturing index for August is due tomorrow. It was 49.7 in July and has been below the 50-line since February. Looking at the above it looks like a good chance for moving into positive territory for global manufacturing. A copper price of USD 9935/ton, sniffing at the 10k line could be a reflection of that. An oil price holding up fairly well at close to USD 68/b despite the fact that oil balances for Q4-25 and 2026 looks bloated could be another reflection that global manufacturing may be accelerating.

US manufacturing PMI by S&P rose to 53.3 in August. It was published on 21 August, so not at all newly released. But the US ISM manufacturing PMI is due tomorrow and has the potential to follow suite with a strong manufacturing reading.

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Analys

Crude stocks fall again – diesel tightness persists

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6 dagar sedan

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29 augusti, 2025

Redaktionen

U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.

Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.

Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).

Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.

On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.