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Dr. copper has been ringing the alarm bells since early June

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SEB - analysbrev på råvaror

SEB - Prognoser på råvaror - CommodityPrice action – EM debt concerns, copper sell-off and rising US crude stocks

Brent crude yesterday rebounded 1.8% to an intraday high of $73.92/bl as the Turkish concerns eased a bit and the lira strengthened and OPEC reported that Saudi Arabia produced 10.288 k bl/d which was down 200 k bl/d m/m in July. The crude gain didn’t last out the day however as global growth concerns continued with a continued strengthening in the USD Index (+0.4%) and a further sell-off in industrial metals where copper sold off 1.8% just short of the $6000/ton line. Brent ended the day at $72.46/bl (-0.2%). It is down 1% this morning at $71.8/bl along with copper which has broken below the $6000/ton line and is down 2.2% this morning and down 19% since its peak in early June. Rising US crude stocks and EM debt concerns in focus.

Crude oil comment – Dr. copper has been ringing the alarm bells since early June

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities

The copper alarm bells have been ringing since early June when it peaked out at $7332/ton. Since then it has been downhill. Copper has been labelled as the only metal with a Ph.D. in economics due to its “canary in the coal mine” ability to sense turning points in the global economy. This morning copper broke down below the $6000/ton line losing 1.7% only this morning.

Global growth has been sliding since January this year. Through this ongoing slide the thinking has been that this is transitory with accelerating global growth kicking in again in 2H18. That is definitely still possible. The thinking now however is increasingly that what we are seeing now in Turkey is only the first symptoms of the broad based ongoing financial tightening and exit of easy money by the world’s central banks. Bloomberg predicts that net asset purchases by the three main global central banks will decline from $100 billion a month in 2017 to zero by the end of the year.

This tightening will typically hit countries with substantial external dollar liabilities which they have accumulated during the easy money era. The Institute for International Finance estimates that debt in 30 emerging markets has increased from 143% in 2008 to 211% today (Bloomberg). Now the dollar is rallying and liquidity is tightening and dollar interest rates are rising. In addition Donald Trump tops up global growth concerns with escalating trade war talk/action and sanctions.

The USD Index continues higher and the US Fed continues its rate hike cycle and the world’s three main central banks continues to rein in easy liquidity and it all seems to come down on the shoulders of emerging market growth again hitting both sentiment and demand growth for both copper and oil.

There are many reasons to be bullish both crude and copper down the road but right here and now the arrows seem to point lower. Today we’ll have US manufacturing and retail sales data. If they continue on the strong side then the dollar gain and EM debt-pain probably has further to go with continued bearish pressure on crude and copper. We also have the weekly US oil inventory data due at 16.30 today which are expected to show a 2.5 m bl crude build with US API seeing it even higher at 3.7 m bl w/w.

The longer dated Brent crude rolling 36 mth contract has held out well against the sell-off in the front end Brent contract. It still trades at $66/bl and more or less bang in the middle of where it has traded since early May. However, if the EM debt-pain continues to escalate along with dollar gains and US rate hikes then also the longer dated contracts are likely to cave in at some point along with the bearish pressure at the front end of the crude curve.

Counter to the copper market the oil market has OPEC to shore up the market in case of a surplus. But such action may not be immediate and historically there is definitely a very visible relationship between fluctuations in global growth, copper prices and crude oil prices. The current EM weakness and front end crude curve weakness has the clear potential to create a buying opportunity out on the curve if it at some point sells off along with the front. Consumers should definitely utilize such a sell-off if it materializes with lots of bullish factors down the road.

Ch1: Historical crude and copper prices are well related

Historical crude and copper prices are well related

Ch2: Changes in global growth, copper prices and crude prices are visibly related historically
I.e. it is hard to hold out against fluctuations in global growth

Changes in global growth, copper prices and crude prices are visibly related historically

Ch3: The rolling 36 mth Brent contract is holding out well against the front end sell-off

The rolling 36 mth Brent contract is holding out well against the front end sell-off

Analys

Rising with softer USD and positive markets but less bullish tailwind from nat gas

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Ticking higher along with softer USD and gains in metals and equities. Brent traded down marginally (-0.2%) yesterday to USD 72.02/b following a 2.4% decline on Wednesday. This morning it is ticking up 0.5% to USD 75.4/b, well aligned with a 0.4% softer USD and solid gains in equities and industrial metals. Technically it is neither overbought nor oversold with RSI at 45. Though it is flirting with the 100dma also being below both the 50dma and the 200dma. So, no obvious strength either. The bullish tailwind from nat gas is fading a bit with TTF nat gas falling sharply to below the price of ICE Gasoil (”diesel”).

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

Longer-dated prices supported at USD 68/b. But looks like a process of fading strength. The longer-dated contracts for Brent keep trading down towards the high 60ies around USD 68/b but are rejected repeatedly. The pricing for these contracts looks like a process of fading strength. Just oozing closer to the USD 68/b level with smaller and smaller bounces each time. Very clear consumer buying interest for oil products when Brent crude prices move towards the USD 68-70/b level. This support level may thus to some degree come from the consumer side of the market. If oil consuming industry loses confidence in the economy, we might see the longer dated prices break below USD 68-70/b. But oil producers may also have limited interest in hedging downside risk at around the 68-mark. So, selling from that side of the market is probably also fading at that level. But also, sellers/producers may change if the global economy was to look shakier.

Microscopic changes in IEA forecast. OPEC(+) still needs to cut in 2025 to balance market. The IEA made only microscopic adjustments to its oil market balance yesterday. Adjusting production in OECD Europe and FSU production slightly lower resulting in call-on-OPEC going up by 0.2 mb/d versus the previous report. Call-on-OPEC is still set to decline from 27.1 mb/d in 2024 to 26.7 mb/d in 2025. A y-y decline of 0.4 mb/d implying that the group will have to cut production comparably in 2025. OPEC+ is of course planning to lift production by 120 kb/d/month from April onwards. Nope, says the IEA. It has to reduce supply instead.

Front-month and longer dated Brent crude oil prices in USD/b bouncing off the USD 68-70/b level.

Front-month and longer dated Brent crude oil prices in USD/b bouncing off the USD 68-70/b level.
Source: SEB graph, Bloomberg data

European TTF front-month price trading sharply lower following signals that nat gas inventories in Europe may not need to mandatory fill to 90% by 1 November anyhow.

European TTF front-month price trading sharply lower following signals that nat gas inventories in Europe may not need to mandatory fill to 90% by 1 November anyhow.
Source: SEB calculations and graph, Bloomberg data
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Analys

Climbing crude inventories in line with seasonal patterns

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Yesterday’s report from the US DOE revealed an increase of 4.1 million barrels in US crude oil inventories for the previous week. This build exceeded the consensus estimate of 2.5 million barrels whilst less than the API forecast of 9 million barrels reported on Tuesday. As of last week, total US crude inventories stand at 428 million barrels, which represents a decrease of 12 million barrels compared to the same week last year.

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

In addition, gasoline inventories decreased by 3.0 million barrels, surpassing the consensus estimate of a 0.5-million-barrel drawdown. Conversely, distillate (diesel) inventories saw an increase of 0.135 million barrels, contrary to the expected decline of 1.5 million barrels. In total, commercial inventories (excluding the SPR) – which include crude oil, gasoline, and diesel – rose by 1.2 million barrels.

Refinery utilization improved by 0.5 percentage points, reaching 85% last week. Meanwhile, total products supplied (a proxy for implied demand) over the past four-week period averaged 20.3 million barrels per day, reflecting a 2.8% increase compared to the same period last year.

Additionally, gasoline demand averaged 8.3 million barrels per day over the past four weeks, up by 0.9% from the same period in 2024. Diesel demand averaged 4.2 million barrels per day, showing a significant increase of 13.6% year-on-year. Jet fuel demand also saw an increase of 4.4% compared to the same four-week period in 2024.

The International Energy Agency (IEA) will be releasing its monthly report today at 10:00 CET.

Oil inventories
Oil inventories
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Analys

Crude oil comment: Tariffs spark small reactions, but price gains hold steady

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Brent crude prices bottomed out at USD 74.10 per barrel on Thursday evening (February 6th) after a continuous decline since mid-January. Since then, prices have climbed uninterruptedly by USD 2.5 per barrel, reaching the current level of USD 76.50 per barrel.

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

Since the beginning of 2025, price movements have been more volatile compared to the fourth quarter of 2024. Additionally, the market has broken the firm range-bound levels of USD 70–75 per barrel that prevailed from mid-October 2024 to January 2025.

Brent crude rose by nearly USD 1.50 per barrel yesterday (February 10th), driven by a tighter supply outlook. This has been credited to stricter sanctions resulting in Russia producing below its quota. Meanwhile, the US President recently ordered a 25% tariff on all aluminum and steel imports, including from Canada and Mexico, the country’s top two foreign suppliers. The tariffs are set to take effect on March 12, according to the White House.

At present, Brent crude appears to be holding onto its price gains, with little reaction so far to the latest tariff news, as markets await key US CPI data scheduled for tomorrow (February 12th).

As we highlighted last week (link), there has recently been a significant build-up in US crude inventories, with Canadian crude flows increasing rapidly to meet the tariff deadline, which was originally set for March. However, US industry-based inventory data (API) is due to be released later today, and we expect a slowdown, as Canada negotiated a 30-day delay in the imposition of US tariffs. A 10% import tariff on Canadian oil had been proposed.

On top of that, there is an increasing risk to the Gaza ceasefire deal, as both parties have accused each other of violating the terms of the agreement. The US President has stated that Israel should call off its ceasefire agreement with Hamas if hostages are not returned by this weekend, further contributing to heightened geopolitical tensions, as well as the US’ tougher stance on Iran.

Stay tuned. This week, monthly oil market reports from the EIA (this evening), IEA (Thursday, February 13th), and OPEC (tomorrow, February 12th) will be released.

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