Analys
Market doubting demand but Saudi/Russia are holding a steady course


Brent crude has sold off hard since 28 September. Fear for the health of the global economy and thus oil demand going forward is at the heart of the sell-off. Prior to that, a clarifying message from the Saudi Energy Minister, Prince Abdulaziz bin Salman, at a conference in Calgary on 18 September to a large degree also removed the USD 100/b plus scenario. Speculators had also accumulated significant long positions in oil since a low point in late June. And the last in have probably been hurt in the sell-off and tried to get out. Lastly we have the US oil inventories published on Wednesday this week which were very bearish as they rose almost 5 m b vs an normal draw this time of year of around 2 m b. And specifically gasoline stocks which jumped 6.5 m b to above the 2015-19 level with gasoline refining margins crashing as a result. But amid all this we still have Saudi/Russia which are holding a steady course with cuts and export reductions to end of year with Saudi spicing this up with Official Selling Price of its Extra Light crude to Europe at USD 7.2/b (Premium to Dubai crude) for November which is the highest since 2002. So USD 100/b plus is not in the cards. But neither is USD 50-60-70/b as Saudi his holding a steady course. Our bet is Brent crude averaging USD 85/b in Q4-23 in a balance between what Saudi Arabia wants and needs versus what is a sensible and acceptable level for the global economy.
The December Brent crude oil contract has fallen from an intraday high of USD 95.35/b on 28 September to now USD 83.9/b, a loss of USD 11.4/b. At heart of this decline is concerns for the outlook for the global economy and thus oil demand.
The clear and almost unanimous message from central banks across the board towards the end of September was ”interest rates higher for longer”. Add in flows for US government bonds where China and Japan no longer are big buyers (if at all), the US Fed is a net seller of bonds (QT) rather than a buyer (QE) while the US government is selling more and more bonds. This has driven the US 10yr government bond yield higher and higher to a recent peak of 4.8% which is the highest since 2007. With no relief in sight, this ”interest rate pain” is going to hurt the global economy and thus oil demand. This is probably one key reason/trigger for why oil has sold down so hard recently.
An other reason is probably the message to the market which Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, delivered to the market at a conference in Calgary on 18 September. He made it very clear that the current cuts were not about driving the oil price to the sky, but rather that it was precautionary versus uncertain demand. Further that if demand indeed turned out to be strong then hallelujah, they would produce more. The oil market has probably been a bit confused on this point with some saying that the aim of Saudi cuts was to drive crude oil above USD 100/b. Such kind of views was pushed aside by the Saudi minister. A sustained move above USD 100/b was very unlikely after the minister’s statements.
Speculators added more than 300 million barrels of net long positions late June. These have probably taken money off the table in the recent sell-off and thus contributed to the sharpness in the sell-off.
Then we have the US oil inventory data this Wednesday which gave a very bearish message to the market. Rather than a seasonal draw of around 2 m b the total US commercial crude and product stocks rose 4.6 m b. With this the US commercial oil stocks are only about 15 m b below the smoothed 2015-19 seasonal average. Gasoline stocks roes 6.5 m b to a level slightly above the 2015-19 average with implied US gasoline demand falling to the lowest level since 2008. The gasoline refining margin, the crack, has now collapsed to less than USD 6/b while it was more than USD 30/b in late August. US inventories of crude and middle distillates are still significantly below normal. In total almost 50 m b below the 2015-19 level. This is an uncomfortable situation ahead of the winter which keeps the market in a partial bullish grip.
A key bullish driver for crude oil has been the stellar overall refining margins. This has give refineries incentive to buy as much crude as they could and convert it to oil products which consumers could consume. Bullish for crude oil demand. A part of this bullishness has dissipated with the collapse of the gasoline crack. The diesel and jet fuel cracks are however still unusually strong at USD 26/b and USD 31/b vs. seasonal norms of around USD 16/b. Strong mid-dist cracks and still low inventories of middle distillates ahead of the winter will induce refineries to keep processing crude and churn out oil products. As such we should expect US gasoline stocks to continue higher. Gasoline cracks could thus drop yet lower from an already very low level.
But amid all this bearishness we still have OPEC+. We still have Saudi/Russia. And they are holding a strong and steady course. They are extending existing cuts and export reductions to the end of the year. They haven’t wavered for a second. Backing up this picture of steadfastness is the fact that Saudi Arabia has lifted its Official Selling Prices (OSPs) for November. By USD 0.5/b to USD 3.4/b for its Extra Light grade to Asia vs. a 10yr average of USD 2.3/b. And to Europe it has lifted it to USD 7.2/b which is the highest since 2002. These are reference prices vs. the Dubai marker. With this Saudi Arabia is saying to the market: ”You are free to buy our crude, but it will cost you”. It is a way of making its supply less available to the market. Making it more expensive.
Yes, Brent crude can of course sell off further and test the USD 80/b line for a little while. But Saudi/Russia are holding a steady course and USD 85/b is a great price. It should be acceptable for a shaky global economy as well as for Saudi/Russia for the time being.
The December Brent crude oil contract has fallen like a rock since its intraday high of USD 95.35/b on 28 Sep. Interest rates ”high for longer” has created deep concerns for oil demand going forward.

US commercial crude and product stocks are converging to the 2015-19 average and thus easing the bullishness in the market.

US gasoline stocks were up 6.5 m b last week and are now above the 2015-19 average. They could rise yet higher as implied demand is very weak and refineries keeps producing more gasoline because they are trying to satisfy the market’s craving for middle distillates where stocks are still low.

As a result the ARA gasoline crack has crashed to less than USD 6/b and could fall further.

But Saudi Arabia is holding a strong and steady course. It keeps its production at 9 m b/d vs. a normal of 10 m b/d to the end of the year. And to back it up it has lifted its official selling prices further to Asia and to the highest since 2002 to Europe (Extra Light).

Analys
Lowest since Dec 2021. Kazakhstan likely reason for OPEC+ surprise hike in May

Collapsing after Trump tariffs and large surprise production hike by OPEC+ in May. Brent crude collapsed yesterday following the shock of the Trump tariffs on April 2 and even more so due to the unexpected announcement from OPEC+ that they will lift production by 411 kb/d in May which is three times as much as expected. Brent fell 6.4% yesterday with a close of USD 70.14/b and traded to a low of USD 69.48/b within the day. This morning it is down another 2.7% to USD 68.2/b. That is below the recent low point in early March of USD 68.33/b. Thus, a new ”lowest since December 2021” today.

Kazakhstan seems to be the problem and the reason for the unexpected large hike by OPEC+ in May. Kazakhstan has consistently breached its production cap. In February it produced 1.83 mb/d crude and 2.12 mb/d including condensates. In March its production reached a new record of 2.17 mb/d. Its crude production cap however is 1.468 mb/d. In February it thus exceeded its production cap by 362 kb/d.
Those who comply are getting frustrated with those who don’t. Internal compliance is an important and difficult issue when OPEC+ is holding back production. The problem naturally grows the bigger the cuts are and the longer they last as impatience grows over time. The cuts have been large, and they have lasted for a long time. And now some cracks are appearing. But that does not mean they cannot be mended. And it does not imply either that the group is totally shifting strategy from Price to Volume. It is still a measured approach. Also, by lifting all caps across the voluntary cutters, Kazakhstan becomes less out of compliance. Thus, less cuts by Kazakhstan are needed in order to become compliant.
While not a shift from Price to Volume, the surprise hike in May is clearly a sign of weakness. The struggle over internal compliance has now led to a rupture in strategy and more production in May than what was previously planned and signaled to the market. It is thus natural to assign a higher production path from the group for 2025 than previously assumed. Do however remember how quickly the price war between Russia and Saudi Arabia ended in the spring of 2020.
Higher production by OPEC+ will be partially countered by lower production from Venezuela and Iran. The new sanctions towards Iran and Venezuela can to a large degree counter the production increase from OPEC+. But to what extent is still unclear.
Buy some oil calls. Bullish risks are never far away. Rising risks for US/Israeli attack on Iran? The US has increased its indirect attacks on Iran by fresh attacks on Syria and Yemen lately. The US has also escalated sanctions towards the country in an effort to force Iran into a new nuclear deal. The UK newspaper TheSun yesterday ran the following story: ”ON THE BRINK US & Iran war is ‘INEVITABLE’, France warns as Trump masses huge strike force with THIRD of America’s stealth bombers”. This is indeed a clear risk which would lead to significant losses of supply of oil in the Middle East and probably not just from Iran. So, buying some oil calls amid the current selloff is probably a prudent thing to do for oil consumers.
Brent crude is rejoining the US equity selloff by its recent collapse though for partially different reasons. New painful tariffs from Trump in combination with more oil from OPEC+ is not a great combination.

Analys
Tariffs deepen economic concerns – significantly weighing on crude oil prices

Brent crude prices initially maintained the gains from late March and traded sideways during the first two trading days in April. Yesterday evening, the price even reached its highest point since mid-February, touching USD 75.5 per barrel.

However, after the U.S. president addressed the public and unveiled his new package of individual tariffs, the market reacted accordingly. Overnight, Brent crude dropped by close to USD 4 per barrel, now trading at USD 71.6 per barrel.
Key takeaways from the speech include a baseline tariff rate of 10% for all countries. Additionally, individual reciprocal tariffs will be imposed on countries with which the U.S. has the largest trade deficits. Many Asian economies end up at the higher end of the scale, with China facing a significant 54% tariff. In contrast, many North and South American countries are at the lower end, with a 10% tariff rate. The EU stands at 20%, which, while not unexpected given earlier signals, is still disappointing, especially after Trump’s previous suggestion that there might be some easing.
Once again, Trump has followed through on his promise, making it clear that he is serious about rebalancing the U.S. trade position with the world. While some negotiation may still occur, the primary objective is to achieve a more balanced trade environment. A weaker U.S. dollar is likely to be an integral part of this solution.
Yet, as the flow of physical goods to the U.S. declines, the natural question arises: where will these goods go? The EU may be forced to raise tariffs on China, mirroring U.S. actions to protect its industries from an influx of discounted Chinese goods.
Initially, we will observe the effects in soft economic data, such as sentiment indices reflecting investor, industry, and consumer confidence, followed by drops in equity markets and, very likely, declining oil prices. This will eventually be followed by more tangible data showing reductions in employment, spending, investments, and overall economic activity.
Ref oil prices moving forward, we have recently adjusted our Brent crude price forecast. The widespread imposition of strict tariffs is expected to foster fears of an economic slowdown, potentially reducing oil demand. Macroeconomic uncertainty, particularly regarding tariffs, warrants caution regarding the pace of demand growth. Our updated forecast of USD 70 per barrel for 2025 and 2026, and USD 75 per barrel for 2027, reflects a more conservative outlook, influenced by stronger-than-expected U.S. supply, a more politically influenced OPEC+, and an increased focus on fragile demand.
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US DOE data:
Last week, U.S. crude oil refinery inputs averaged 15.6 million barrels per day, a decrease of 192 thousand barrels per day from the previous week. Refineries operated at 86.0% of their total operable capacity during this period. Gasoline production increased slightly, averaging 9.3 million barrels per day, while distillate (diesel) production also rose, averaging 4.7 million barrels per day.
U.S. crude oil imports averaged 6.5 million barrels per day, up by 271 thousand barrels per day from the prior week. Over the past four weeks, imports averaged 5.9 million barrels per day, reflecting a 6.3% year-on-year decline compared to the same period last year.
The focus remains on U.S. crude and product inventories, which continue to impact short-term price dynamics in both WTI and Brent crude. Total commercial petroleum inventories (excl. SPR) increased by 5.4 million barrels, a modest build, yet insufficient to trigger significant price movements.
Commercial crude oil inventories (excl. SPR) rose by 6.2 million barrels, in line with the 6-million-barrel build forecasted by the API. With this latest increase, U.S. crude oil inventories now stand at 439.8 million barrels, which is 4% below the five-year average for this time of year.
Gasoline inventories decreased by 1.6 million barrels, exactly matching the API’s reported decline of 1.6 million barrels. Diesel inventories rose by 0.3 million barrels, which is close to the API’s forecast of an 11-thousand-barrel decrease. Diesel inventories are currently 6% below the five-year average.
Over the past four weeks, total products supplied, a proxy for U.S. demand, averaged 20.1 million barrels per day, a 1.2% decrease compared to the same period last year. Gasoline supplied averaged 8.8 million barrels per day, down 1.9% year-on-year. Diesel supplied averaged 3.8 million barrels per day, marking a 3.7% increase from the same period last year. Jet fuel demand also showed strength, rising 4.2% over the same four-week period.


Analys
Brent on a rollercoaster between bullish sanctions and bearish tariffs. Tariffs and demand side fears in focus today

Brent crude rallied to a high of USD 75.29/b yesterday, but wasn’t able to hold on to it and closed the day at USD 74.49/b. Brent crude has now crossed above both the 50- and 100-day moving average with the 200dma currently at USD 76.1/b. This morning it is trading a touch lower at USD 74.3/b

Brent riding a rollercoaster between bullish sanctions and bearish tariffs. Biden sanctions drove Brent to USD 82.63/b in mid-January. Trump tariffs then pulled it down to USD 68.33/b in early March with escalating concerns for oil demand growth and a sharp selloff in equities. New sanctions from Trump on Iran, Venezuela and threats of such also towards Russia then drove Brent crude back up to its recent high of USD 75.29/b. Brent is currently driving a rollercoaster between new demand damaging tariffs from Trump and new supply tightening sanctions towards oil producers (Iran, Venezuela, Russia) from Trump as well.
’Liberation day’ is today putting demand concerns in focus. Today we have ’Liberation day’ in the US with new, fresh tariffs to be released by Trump. We know it will be negative for trade, economic growth and thus oil demand growth. But we don’t know how bad it will be as the effects comes a little bit down the road. Especially bad if it turns into a global trade war escalating circus.
Focus today will naturally be on the negative side of demand. It will be hard for Brent to rally before we have the answer to what the extent these tariffs will be. Republicans lost the Supreme Court race in Wisconsin yesterday. So maybe the new Tariffs will be to the lighter side if Trump feels that he needs to tread a little bit more carefully.
OPEC+ controlling the oil market amid noise from tariffs and sanctions. In the background though sits OPEC+ with a huge surplus production capacity which it now will slice and dice out with gradual increases going forward. That is somehow drowning in the noise from sanctions and tariffs. But all in all, it is still OPEC+ who is setting the oil price these days.
US oil inventory data likely to show normal seasonal rise. Later today we’ll have US oil inventory data for last week. US API indicated last night that US crude and product stocks rose 4.4 mb last week. Close to the normal seasonal rise in week 13.
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