Analys

Iran – Hard to swallow a double insult

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7 år sedan

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20 juni, 2018

Brent crude fell back 0.3% to $75.08/bl ydy after a strong rebound on Mon but is again up 0.8% this morning to $75.7/bl. It is taking little notice of the escalating trade war between the US and China which is threatening global growth and oil demand growth down the road. It is not even daunted by the repeated proposition by Russia to lift the production cap by 1.5 m bl/d.

Bjarne Schieldrop, Chief analyst commodities

Iran is naturally offended and disgusted by first having US sanctions reactivated forcing down its production and exports and then at the same time seeing Donald calling for more oil from from OPEC+ in order to push oil prices lower and appease US consumers so the Republicans can make a good mid-term election in Nov. Iran is thus naturally opposing any suggestion of an increase in production. Iran argues that if the oil price now goes high and the US consumers suffers at the pump then Donald is directly to be blamed for this due to the Iran sanctions.

Apparently it looks like Saudi Arabia wants more oil from OPEC+ because Donald Trump is asking for it as a return favour for reviving sanctions towards Iran and standing by Saudi Arabia as a long term ally. Thus even if the most sensible and responsible thing to do is to increase production in the face of collapsing production in Venezuela and now also Libya it will be extremely difficult for Iran to swallow a decision to increase production. It would be a double insult to see the “US bully” first having its way with Iran and then having its way with OPEC+.

It is important to remember that OPEC+ has been extremely lucky with its production cuts. Yes, they have been good and delivered on their cuts but they have also definitely been lucky. If it had not been for a continuous improvement in the global economy since late 2016 and thus strong oil demand growth and a collapsing production in Venezuela then things might have looked quite differently today. Then the group might have had to cut deeper and then yet deeper again in 2019. Now instead the five active cutters (Saudi Arabia, Kuwait, UAE, Iraq and Russia), can and should responsibly exit their cuts in order to avoid a further rallying in the oil price towards $100/bl in 2H18. An oil price of $75/bl is already taxing global consumers (ex-US) as when the oil price was $110/bl back in 2011 to 2014 due to the today much stronger USD. Thus having the oil price rallying to $100/bl in 2H18 at today’s dollar strength would not be good for the global economy at all.

By exiting cuts and reviving production the group is achieving two things. Firs it avoids creating unnecessary risk of hurting global growth and thus oil demand growth. Worst case if OPEC+ does not revive production would be a real spike in the oil price tipping the global economy into recession. In that case there would be no exit from current cuts as an option and instead the cutters would potentially have to cut yet deeper in the face of booming US shale oil production and a tanking global economy. Secondly, by exiting cuts now that it is possible and necessary to do so it will strengthen the position of the group to cut the next time it is a need for cuts by the group.

Thus the only sensible thing to do seems to be to revive production and exit cuts. However, as long as it seems like OPEC+ is abiding by Donald Trump’s call for more oil from OPEC+ it must be very difficult for Iran to swallow such a double insult. To us however it seem more like the real call for more oil and exit of cuts is coming from Russia. Its private oil companies are clearly eager to get back in business and away from their “voluntary” caps directed by Putin/Novak in cooperation with OPEC+. After all the goal of the cuts of getting OECD inventories back down to the rolling five year average has been reached.

It would be great if OPEC+ could unite behind exit of cuts and revival of production. The challenge would be to formulate a statement that removes any suggestion that the increase in production comes as a response to Donald’s call for more oil from OPEC+. It would however be difficult to avoid that Donald would take it as a victory to see a revival of production by the cutters in the group following he’s recent tweets on the subject. Iran’s oil minister Zanganeh has said that he’ll leave Vienna on Friday following the normal OPEC meeting and not attending the Saturday meeting including the ten cooperating countries.

We think that OPEC+ will either unanimously decide to lift production or the cutters will increase production anyhow. Cutters lifting production by 1 m bl/d in 2H18 and another 0.5 m bl/d in 2019 will however not lift total production by OPEC+ in our estimates due to declines within the group. It would probably look more like Iran is in control of the situation if it unites together with OPEC+ on lifting production.

Ch1: Weekly crude and product inventories US, EU, Sing, Floating given as change vs. start of year in million barrels.

Iran has a point that it does not seem like there is a need for more oil in the market as inventories are actually up ytd by 25 m bl. This does however not take into account likely further rapid decline in Venezuela’s production in 2H18 together with seasonally higher demand in the second half of the year. Latest disruption in Libya’s production adds to the tightening outlook for 2H18. The jump in weekly stocks does however look a little random and may just be a temporary issue due to refinery maintenance.

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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.

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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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Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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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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Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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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.