Analys

More oil from OPEC+ is the base case

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13 juni, 2018

Saudi Arabia and Russia have already started to lift production and are arguing for an increase in production at the upcoming OPEC+ meeting next week. Unofficial sources have said that Russia will propose to return production back to the October 2016, i.e. removing the cap altogether over a period of three months. The countries who do not have any capacity to increase production are naturally opposing any suggestion of an end to the current cap as they will have no gain from higher production and just face a loss due to a relatively lower price due to production increases by the others. So Iran, Iraq and Venezuela are all opposing any removal of the cap. We think there is no way around an increase in production by Russia and Saudi Arabia. It does not make sense to risk an overly tight oil market in 2H18 just when global economic growth is cooling down with 16 of the world’s largest financial institutions having moved into bear market in a sign that higher interest rates, a stronger USD and higher oil prices are problematic for the global economy. It makes no sense for Saudi Arabia to break the OPEC+ cooperation either as it will likely be needed at another occasion further down the road. The challenge at next week’s OPEC+ meeting will thus be how to formulate a proposal for a gradual revival of production which all members can sign on to.

Bjarne Schieldrop, Chief analyst commodities

Price action: Ticking lower with more production from OPEC+ on the horizon

Brent crude fell back 0.8% to $75.88/bl with the longer dated contracts down almost as much as the Dec-2021 contract settled 0.6% lower at $65.94/bl. The WTI benchmark however gained 0.4% to $66.36/bl thus leading to a narrowing of the spread which blew out lately. The Brent to Midland (Permian) WTI spread narrowed to $17.9/bl having recently been trading as wide as $22.0/bl. This morning Brent pulls back another 0.3% to $75.64/bl as production revival by OPEC+ next week seems more and more like the most likely outcome.

OPEC’s MOMR report yesterday contains ammunition for those in OPEC+ who do not want a production revival

OPEC’s monthly oil market report yesterday was somewhat confusing. At the start of the report it highlighted significant uncertainty for Call-on-OPEC for 2H18. It set an uncertainty range of 1.8 m bl/d with a span from 31.5 m bl/d to 33.3 m bl/d and a mean expectation of 32.1 m bl/d. In its supply/demand balance later in the report it still set forecasted a call-on-OPEC at 33.3 m bl/d for 2H18, i.e. at the absolute high end of its uncertainty range highlighted at the start of its report. There must obviously have been some considerable disagreement between different writers participating in the writing of the report. As the report said in the Feature Article “World oil market prospects for the second half of 2018”: “Given the Secretariat’s forecast for 2H18, demand for OPEC crude is projected at 33.3 m bl/d..” Thus the Secretariat seems to have more or less dictated what the official Call-on-OPEC for 2H18 should be thus overruling the analysis that the mean expected call-on-OPEC for 2H18 was projected at 32.1 m bl/d. Or it is basically just two separate pieces of analysis.

OPEC produced 32.1 m bl/d on average from January to May. Thus according to the average forecasted sensitivity analysis in OPEC’s latest MOMR report in the Feature Article there is no room for any increase in production from OPEC in 2H18. Keeping production at current level of about 32.0 would actually keep the market at a neutral balance though OECD. The story in the MOMR Feature Article is thus strong ammunition for all those in the OPEC+ group who are arguing that production should not be lifted from the current production level. Production in Venezuela is of course declining by 50 k bl/d MoM and Iran’s production is likely going to decline a little as well. There is thus obviously some room to increase production by some of the other members in order to compensate for this. The caps set in Nov-2016 are however individual caps so increasing production by Saudi Arabia and Russia in order to compensate for lost supply in Venezuela and possibly Iran needs a vote.

Uncertainty for Call-On-OPEC in 2H18 clearly warrants serious attention. While US consumer confidence is ticking higher the JPMorgan global PMI manufacturing index has ticked lower and lower since its peak in December last year even though it is still in positive territory of 53.1. Global growth has definitely cooled in 1H18. At the moment it does not seems as if a booming US economy is able to drag the rest of the world with it. Rather it seems like higher interest rates, a stronger USD and a higher oil price increasingly is creating a headwind for the global economy. The story in the FT today that 16 large global financial companies are down more than 20% from their peaks is highlighting the fact that the global economy is having a problem swallowing higher interest rates, stronger dollar and more expensive oil.

We expect OPEC+ to decide next week to increase production by 0.5 m bl/d in 2H18 at a gradual and measured pace.

Ch3: Solid OECD inventory decline in April if adjusting for normal seasonal trendsThe OECD inventories declined

MoM by 3.1 million barrels in April. However, inventories normally rise by 26 million barrels in April. So versus seasonal trends the OECD inventories fell 28.6 million barrels in April which is equal to a seasonally adjusted deficit of 0.95 m bl/d.

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Stronger inventory build than consensus, diesel demand notable

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21 februari, 2025

Redaktionen

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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Analys

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

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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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Analys

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.