Analys

Market at unease over high Brent specs and OPEC+ 2018 decision but Brent backwardation should attract yet more long Brent specs

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7 år sedan

den

9 oktober, 2017

OPEC compliance is back in focus as compliance fell in September to 990 kb/d of cust versus a pledge of 1200 kb/d for the cutters. OPEC’s meeting on November 30th in Vienna thus coming into focus. Market is concernd for oil market balance in 2018 and is starting to feel at unease over whether OPEC+ will cut all through 2018 or not. We think they need to but we also think they will.

Brent net long managed money reached a record high level the week before last. It fell back only marginally last week. Brent crude is thus at risk to the downside if speculators/investors decides to take yet more money off the table. Thus correction since Brent 1mth reached a new ytd high the week before last may not be over. The general backdrop for Brent does however continue to be positive. The global financial and economic backdrop is positive. Oil inventories continues to decline on the back of strong oil demand growth and cuts by OPEC+ with the result that Brent backwardation should continue to strengthen. Thus even if we see a correction in Brent now driven by speculative money we should see more money heading for Brent long specs going forward. Not less.

From Friday to Friday the Brent Dec-17 contract lost 2.9% closing the week at $55.62/b. The longer dated contract Brent Dec-2020 lost 1.7% with a close of $54.06/b.

Last week’s sell-off was clearly a continuation of the sell-off that kicked in when Brent crude front month reached a new year to date high the week before last when it printed $59.49/b.

To us the sell-off seems technically driven as a counter reaction to Brent crude front month reaching a new year to date high. Net long Brent speculative positions reached its highest historical level in the week before last (records back to 2011) while it fell back marginally last week. With such high levels it does not take much for a correction to take place.

The general back-drop last week was positive with global equities gaining 1%, industrial metals gaining 2.4% while natural gas and coal gaining 3.8% (ARA coal Dec-18) and 1% (EU gas Q4-18).

On oil specifics we saw US crude, distillates and gasoline stocks declining 7 mb while global floating storage of crude and products fell 16 mb. In sum there were a lot of supportive winds last week but Brent crude countered it with a continued to sell off as record high specs took money off the table in a technical reaction to the high print of the year in the week before last.

This morning Brent crude has been trading in positive and negative territory but clos to unchanged and undecided.

In focus this morning is OPEC compliance for September which fell back slightly from August. The members with pledges delivered a cut of 990 kb/d of in September versus pledges of 1.2 mb/d. The OPEC producers with no obligations to cut have increased production by 530 kb/d (versus their October production). In effect OPEC’s total cuts versus its 2017 October level only amounted to 460 kb/d in September.

This is negative since it not a lot. It is positive since inventories are falling rapidly despite the fact that OPEC in total is not cutting a lot. However, the 990 kb/d held back by the cutters in OPEC in September will move back into the market at some point in time in the future again.

Some concern now is that OPEC’s exports will rise since the peak domestic oil demand in OPEC is behind us. In addition refineries will move off-line for autumn maintenance also reducing off-take for crude. OPEC’s upcoming meeting on Nov 30th is putting the spot light back on the 2018 balance. Will they or won’t they roll cuts beyond 1Q18? In our view it is needed and that view is shared by many. Our view is also that they will roll cuts forward since the magnitude of needed cuts is manageable. However the issue creates unease in the market as we run towards the Nov 30th meeting and proper decision by OPEC (+ Russia etc) some time in 1Q18.

Have we now come to the end of the correction we have seen the last two weeks? Brent speculative positions are still close to record high with room to pull more money off the table. However, the backdrop is still fairly positive as inventories continue to draw down which should be supportive for further strengthening of the backwardation of the Brent crude forward curve which is attractive for long positions.

In our view the Backwardation of the Brent crude forward curve is likely to continue to attract yet more money into additional net long speculative positions. This is because the backwardation hands investors/speculators a positive roll yield even if the Brent front month only trades sideways. And as we see in the rest of financial markets there is lots of money chasing yield in a low yield world. Over the past 20 trading days the Brent backwardation measured on the back of the 1-3 mth Brent time spread has averaged an annualized positive roll yield of +3.9%.

Thus despite the fact that net long Brent spec is close to record high we should see more passive money being allocated to Brent long positions. As long as inventories continue to draw down as they currently do with further strengthening of the Brent backwardation. As long as alternative yields around the world is very low as they are. As long as the general global growth outlook looks positive as it does with strong oil demand growth. Yes then we should see more long specs heading to Brent.

Annons

The current sell-off may thus not be too deep. The general backdrop is positive. Inventories are declining. Brent backwardation is likely to strengthen further and yet more passive money is likely going to head the Brent long positions.

Ch1: Brent 1-3 mth annualized roll-yield in the positive – Attracting long specs
Passive money likely to continue to roll into long front end Brent positions with a positive roll yield

Ch2: WTI oil in dollar allocation still well below prior highs
But the WTI curve is in contango so no rush to enter additional longs there

Ch3: Brent net long allocation recently reached record high of close to USD 30 billion
Thus plenty of room for a pull-back as we have seen the last two weeks
But Brent backwardation is likely to lure yet more passive long allocations to Brent front end contracts

Ch4: Brent net long managed money allocations at uncomfortable high levels

Ch5: Brent net long managed money allocations at uncomfortable high levels

Ch6: OPEC cutters delivered close to promissed cuts even though they inched slightly higher in Sep

Ch7: OPEC cutters and no-cutters. Net cuts of only 460 kb/d. But cutters deliver close to target

Ch8: OPEC total production. Not cutting all that much. Ytd YoY OPEC’s production is down only 115 kb/d

Ch9: Inventories continue to fall in weekly data

Ch10: Crude forward curves. Sell-off along the curve but Brent still in backwardation

Ch11: US oil rig count down by 2 last week

Ch12: US shale oil rigs count change. Price – rig relationship not what it used to be

Annons

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Relaterade ämnen:bjarne schieldrop seb analys

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Analys

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

Publicerat

3 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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