Analys

More downside to come – 2018 buying opportunity sailing up

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7 år sedan

den

5 mars, 2018

It is very clear that Brent crude oil has followed the general risk-on/risk-off movements in global equities so far this year. The catalyst and the real mover of the oil price so far this year has clearly been the popping of the forever optimistic equity market which was rising and rising in a zero interest rate world with ultralow volatility. Now some kind of normality has returned with rising interest rates and a more normal level of volatility and the S&P 500 is now in its second round of sell-off so far this year.

Bjarne Schieldrop, Chief analyst commodities

This again should lead to a reduction in net long speculative positions in Brent and WTI crude contracts along with a need to reduce leverage in a more normal volatile market. But this has not yet happened. Net long speculative positions in Brent and WTI are still close to record long and only 69 million barrels shy of the recent all-time high of 1,362 million barrels. Over the week to 27 February they actually rose 40 million barrels.

We think that the current crude sell-off has not yet run its course and that Brent crude will touch down towards $58/bl. The curve will flatten but longer dated futures will also sell lower. We think that this could be the buying opportunity of the year for the consumers. Unless OPEC & Co eases back on their cuts we think there is a real risk that the Brent crude oil price moves towards $85/bl later in the year.

This morning Brent crude oil front month is recovering 0.3% to $64.5/bl following three days of rapid sell-off. The S&P 500 March futures contract is however trading down 0.8% this morning which could indicate that this year’s second round sell-off in equities is not yet over. This would also mean that the ongoing sell-off in Brent crude is not yet over either given that the equity sell-off has been the main catalyst for the crude sell-off. This morning’s 0.3% gain in Brent crude is unlikely to hold out the day in the face of equity sell-off and a stronger USD. So lower Brent prices later in the day.

Our view is that the Brent crude oil contract is likely to touch down towards the $58/bl level before the current sell-off has run its course. The sell-off will mostly be hitting the front end of the crude oil curve which means that the crude oil curve will flatten. The longer dated contracts have however also been hit and are likely to be dragged somewhat lower in the day’s to come as well. We think that this is playing up to a very good buying opportunity for oil consumers which we think will be able to lock in forward crude oil contract prices at very favourable price levels.

At the moment we have rising inventories in the weekly data, rising US shale oil rig count, rising US shale oil production, increasing refinery outage for maintenance, weakening dated Brent crude oil spot price versus first month contract, a stronger USD and an ongoing sell-off in the S&P 500 index. All in a setting of a close to record net long speculative position.

However, overall oil demand is set to be strong this year as long as the global growth story is intact and not destroyed by Donald’s trade war. OPEC & Co’s production cuts are intact and helped out by involuntary production declines by several of the participants as well. Thus despite the very strong US shale oil revival we think that inventories will decline significantly also in 2018 as long as OPEC & Co sticks to their cuts.

If the group actually do stick to its cuts all through 2018 we think that global oil inventories are likely to decline an additional 100-150 million barrels in 2018. What this means is that the backwardation in the crude oil curve is likely to steepen significantly in the year to come which will push the Brent crude oil price up towards $85/bl at the end of the year.

In our view though such an outcome cannot be in the interest of OPEC & Co as it will fire up US shale oil production even more. As such it seems sensible to us that the group eases its cuts somewhat in order to avoid a Brent crude oil spike towards $85/bl later in 2018. There has however been very little to hear from the group.

Ch1: Brent crude oil front month versus the S&P 500. Oil thrown around by equities

Ch2: Global weekly inventory data – Soon to head lower again by mid- to late March
Ticking higher in January for yet another year. Up 38 million barrels first 10 weeks of this year. Up 112 million barrels first 10 weeks of 2017. Up 127 million barrels first 10 weeks of 2016. So much softer upturn this year. Soon turn to declines again.
If past two years’ pattern is to repeat then global inventories will start to turn to declines again by mid-March, late March

US shale oil rig count table:

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

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6 timmar sedan

den

4 mars, 2025

Redaktionen

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

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.

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Analys

Brent whacked down yet again by negative Trump-fallout

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6 dagar sedan

den

26 februari, 2025

Redaktionen

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.

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.

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.

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Analys

Crude oil comment: Price reaction driven by intensified sanctions on Iran

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1 vecka sedan

den

25 februari, 2025

Redaktionen

Brent crude prices bottomed out at USD 74.20 per barrel at the close of trading on Friday, following a steep decline from USD 77.15 per barrel on Thursday evening (February 20th). During yesterday’s trading session, prices steadily climbed by roughly USD 1 per barrel (1.20%), reaching the current level of USD 75 per barrel.

Ole R. Hvalbye, Analyst Commodities, SEB

Yesterday’s price rebound, which has continued into today, is primarily driven by recent U.S. actions aimed at intensifying pressure on Iran. These moves were formalized in the second round of sanctions since the presidential shift, specifically targeting Iranian oil exports. Notably, the U.S. Treasury Department has sanctioned several Iran-related oil companies, added 13 new tankers to the OFAC (Office of Foreign Assets Control) sanctions list, and sanctioned individuals, oil brokers, and terminals connected to Iran’s oil trade.

The National Security Presidential Memorandum 2 now calls for the U.S. to ”drive Iran’s oil exports to zero,” further asserting that Iran ”can never be allowed to acquire or develop nuclear weapons.” This intensified focus on Iran’s oil exports is naturally fueling market expectations of tighter supply. Yet, OPEC+ spare capacity remains robust, standing at 5.3 million barrels per day, with Saudi Arabia holding 3.1 million, the UAE 1.1 million, Iraq 600k, and Kuwait 400k. As such, any significant price spirals are not expected, given the current OPEC+ supply buffer.

Further contributing to recent price movements, OPEC has yet to decide on its stance regarding production cuts for Q2 2025. The group remains in control of the market, evaluating global supply and demand dynamics on a monthly basis. Given the current state of the market, we believe there is limited capacity for additional OPEC production without risking further price declines.

On a more bullish note, Iraq reaffirmed its commitment to the OPEC+ agreement yesterday, signaling that it would present an updated plan to compensate for any overproduction, which supports ongoing market stability.

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