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It’s artificial, but is still real and prices will tick higher

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7 år sedan

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23 april, 2018

Donald’s tweet on Friday that the OPEC cartel is keeping oil prices artificially high sent Brent crude down to an intraday low of $72.88/bl. The market later in the day totally disregarded the tweet sending Brent to its highest close of the week at $74.06/bl, up $0.4/bl on the day, +2% w/w and the highest close since November 2014. Of course Donald is totally right. The market is artificially tight because the OPEC+ cartel has deliberately cut production. In total its production is down 1.7 m bl/d versus Oct 2016. In our view there were deliberate cuts of 2,052 k bl/d in February if we cut out involuntary cuts of 810 k bl/d and production gains of 1,146 k bl/d. Of course Donald is right that it is the OPEC+ cartel which is driving the market. Tell us something new! That has been the case since their decision in October 2016. Of course the cartel has been lucky since their strategy has been supported by synchronised global growth and very strong oil demand growth as well as production in Venezuela falling like a rock. If it had not been for the very strong global oil demand growth their strategy would probably have been very close to failure since US crude oil production is reviving so strongly. In our estimate they will not be able to exit their cuts in 2019 without driving global inventories back up again. That is why an extension of their agreement to 2019 is on the agenda for the meeting in Vienna on June 20/21/22. So the market is artificially tight but it is the oil market reality of today. They are cutting, oil demand is strong, inventories are going down and prices are moving higher. The OPEC+ cartel will in our view be in control of the market in 2019 unless we have a global recession. They can put some of their cuts back into the market, but not all. Any involuntary production cuts by Venezuela, Libya, Mexico or possibly Iran will of course be welcomed by the deliberate cutters in the group.

Bjarne Schieldrop, Chief analyst commodities

If it had not been for cuts by the OPEC+ cartel since January 2017 we would probably have had an oil price still somewhere around $50-55/b

Since a 2017 high of 3059.7 in May 2017 the commercial OECD oil inventories have declined 218 million barrels which equals a 0.8 m bl/d daily draw down on average through the period. On average through that period the production of OPEC+ has been 1.4 m bl/d below its October 2016 production level in a mix of deliberate cuts, gains and involuntary cuts. Since the world is bigger than the OECD inventories there has probably been some inventory draws in non-OECD stocks as well. So while the OECD drawdown implied global deficit since May 2017 is 0.8 m bl/d the actual deficit may have been higher, but probably not higher than the net effective cuts of OPEC+ of 1.4 m bl/d over the same period. So yes, our view sides with Donald Trump that if it had not been for cuts by the OPEC+ cartel since January 2017 we would probably have had an oil price still somewhere around $50-55/b or even maybe sub-$50/bl.

There have however hardly been any negative responses to the OPEC+ cartel’s actions up until now on Friday with the tweet by Donald Trump. Not even Donald has acted before now even though production cuts have been going on since the start of 2017. Mostly the action by the cartel has been viewed positively across the board. I cannot remember to have seen any negative takes on it before now. Mostly the take has been that OPEC+ has been doing the world a favour.

OPEC+ has driven the global oil sector out of its investment hysteresis and out of its deep, dark abyss of despair and back into action

Through its cuts, inventory draws and higher prices OPEC+ has driven the global oil sector out of its investment hysteresis and out of its deep, dark abyss of despair and back into action. That is probably a good thing since it will help to reduce the risk for a significant undershoot in supply down the road due to the deep investment cuts in new conventional supply since 2014. And the jury is still out whether we will be able to dodge that bullet when the pipeline of legacy green field conventional oil investments from before 2014 starts to run dry in 2020. Our view is that there is clearly upside price risk due to this on this time horizon.

For the time being we remain bullish for Brent crude oil prices as OPEC+ cuts are intact, their agreement will and must be extended to 2019 at their June 20/21/22 in order to avoid raising inventories in 2019. For the rest of 2018 we expect inventories do draw lower with added supply risk due to Venezuela, Libya and possibly Iran.

If Donald wants to do something he can sign the sanction waivers on May 12 in order to safeguard Iranian crude oil supply. Else his dear voters and consumers are likely to face higher gasoline prices this summer.

Ch1: OPEC+ deliberate cuts, involuntary cuts and gains

Ch2: OPEC+showing who are doing what versus October 2018

C3: Crude and product weekly inventory data versus start of year. Heading lower. Down 23 m bl last week

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Stronger inventory build than consensus, diesel demand notable

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18 timmar sedan

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21 februari, 2025

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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.

Ole R. Hvalbye, Analyst Commodities, SEB

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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3 dagar sedan

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19 februari, 2025

Redaktionen

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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5 dagar sedan

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17 februari, 2025

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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.