Analys

Oil price is mostly fundamentals, not geopolitical risk premium

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2 år sedan

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16 oktober, 2023

Brent crude has recovered to above USD 90/b again. Risk premium due to Israel/Gaza? Maybe not so much at all. Latest data from the IEA indicates that the global oil market ran an implied deficit of 2.1 m b/d in August, a deficit of 0.7 m b/d in September and a likely deficit of 1.2 m b/d in Q4-23. Inventory draws have mostly taken place in floating stocks and in non-OECD. Inventories which are typically harder to track. Demand growth of 2.3 m b/d this year has more or less entirely taken place in non-OECD. As such it is not so strange that inventory draws have first taken place just there as well. But if we continue to run a deficit of 1.2 m b/d in Q4-23 then we should eventually see OECD stocks starting to draw down as well. This should keep oil prices well supported in Q4-23. The US EIA last week lifted its outlook for Brent crude for 2024 to USD 95/b (+7) on the back of slowing US shale oil growth leaving OPEC in good control of the market.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop, Chief analyst commodities, SEB

Brent crude sold off sharply at the end of September as longer dated bond yields rallied and markets feared that central banks would keep rates high for longer leading to a recession in the end with associated weak oil demand and falling oil price. One can of course question if that is the right interpretation. If market had really turned bearish on the economic outlook (recession, crash,..), then longer dated bond yields should have gone down and not up as they did. Hm, well, maybe oil was just ripe for a bearish correction following a long upturn in prices since late June and only needed some kind of bearish catalyst story to set off that correction in late September. The sell-off was short-lived as the attack on Israel by Hamas on 7 October made oil jump back up above USD 90/b again. The low-point in the recent sell-off was a close of USD 84/b on 6 October. With Brent crude now at USD 90/b the most immediate interpretation is that we now have a USD 6/b risk premium in the oil price due to Israel/Hamas/Gaza. The fear is that the conflict might spiral out and eventually lead to real loss of supply with Iran being most at risk there. But such geopolitical risk premiums are usually short-lived unless actual supply disruptions occur. The most immediate fear is that the US would impose harsher sanctions towards Iran which is Hamas’ biggest backer. But US Treasury Secretary Jannet Yellen stated on 11 Oct that the US has no plans to impose new sanctions on Iran.

So let’s leave possible recession fears as well as geopolitical risk premiums aside and instead just look at the current state and the outlook for the oil market. The three main monthly oil market reports from IEA, US EIA and OPEC were out last week. One thing that stands out is a continued disagreement of what oil demand is today and what it will be tomorrow. On 2024 the IEA and the EIA partially agrees while OPEC is in a camp of its own. But one thing is to have strongly diverging outlooks for demand in 2024. Another is to have extremely wide estimates for what demand is here and now in Q4-23. This shows that there is still a very high uncertainty of what is actually the current state of the oil market. Deficit, balanced, surplus?

Global oil demand — Source: EIA, IEA, OPEC

The most prominent of the three reports, the IEA, made few changes to its overall projects vs. its September report. Changes were typically +/- 100 k b/d or less for most items. The reports was however still very interesting with respect to clues to what is the actual state of the market balance. The proof of the pudding is always the change in oil inventories and as such always in hindsight. IEA data showed that global oil inventories declined by 63.8 m b in August which equals a deficit of 2.1 m b/d. Preliminary inventory data for September indicates an implied deficit of 0.7 m b/d.

Change in global oil inventories — Source: IEA, OMR Oct-23

Important here is that the stock draws in August mostly took place in oil on water and in non-OECD. These stocks are typically less easily observable. Oil markets are often highly focused on more easily observable data like the weekly US oil inventories as well as EU and Japan. The US commercial crude and product stocks have moved upwards since week 35 (late August) so that in the last data point the US commercial stocks are only 10 m b below the 2015-19 seasonal average. This has undoubtedly been a bearish factor for oil prices lately and probably contributed to the sell-off in late September, early October.

US crude and product stocks (excl. SPR)

US crude & products inventories (excluding SPR) in million barrels — Source: US EIA, Macrobond

1) The global August and September (indic.) inventory data from IEA gives credibility to its current assessment of the global oil market. For Q4-23 it estimates Call-on-OPEC at 29.3 m b/d. Russia and Saudi Arabia last week held a joint statement heralding that they would keep production at current level to the end of year. With OPEC production steady at 28 m b/d it implies a global oil market deficit of 1.2 m b/d. For H1-24 its estimates a call-on-OPEC of 27.7 m b/d. This means that Saudi Arabia and Russia will likely stick to their current production levels also in H1-24. But then the market will likely be balanced rather than in deficit like it has been in Q3-23 and Q4-23.

2) The global oil market is very large with significant dynamical time lags. IEA estimates a global consumption growth this year of 2.3 m b/d. China accounts for 77% of this and non-OECD accounts for 97%. So oil demand growth this year is all taking place in non-OECD. As such it is not so surprising that inventory draws have been taking place there and on-water rather than in the OECD. But a global deficit will eventually involve also the OECD inventories. The demand-pull this year has been all about non-OECD. First you draw down non-OECD supply chains, inventories and on-water oil. Then you start to pull more oil from the wider market which eventually involve a draw-down also in OECD inventories. IEA’s estimate of an implied deficit of about 1.2 m b/d in Q4-23. So if we have already drawn down non-OECD supply chains and oil on water we might start to see a significant draw in OECD stocks in Q4-23 if the market runs an estimated 1.2 m b/d as estimated by the IEA.

3) Worth noting however is IEA’s warning that higher oil prices are starting to hurt demand. Demand in Nigeria, Pakistan and Egypt are all down 10% or more while US demand for gasoline also has shown significant demand weaknesses. For 2024 the IEA only projects a global demand growth of 0.9 m b/d YoY along with weaker global economic growth. Non-OPEC production continues to grow robustly at 1.3 m b/d with the result that call-on-OPEC falls from 28.8 m b/d this year to 28.3 m b/d next year. This is of course negative for OPEC and gives a bearish tint to the oil market next year. But it is still not so weak that OPEC will give up on holding the price where they (Saudi/Russia) want it to be. But implies that Saudi/Russia/OPEC will have to stick to current production levels through most of 2024.

Floating crude oil stocks in million barrels

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Reloading the US ’oil-gun’ (SPR) will have to wait until next downturn

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

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Analys

Brent crude ticks higher on tension, but market structure stays soft

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2 dagar sedan

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16 september, 2025

Redaktionen

Brent crude has climbed roughly USD 1.5-2 per barrel since Friday, yet falling USD 0.3 per barrel this mornig and currently trading near USD 67.25/bbl after yesterday’s climb. While the rally reflects short-term geopolitical tension, price action has been choppy, and crude remains locked in a broader range – caught between supply-side pressure and spot resilience.

Ole R. Hvalbye, Analyst Commodities, SEB

Prices have been supported by renewed Ukrainian drone strikes targeting Russian infrastructure. Over the weekend, falling debris triggered a fire at the 20mtpa Kirishi refinery, following last week’s attack on the key Primorsk terminal.

Argus estimates that these attacks have halted ish 300 kbl/d of Russian refining capacity in August and September. While the market impact is limited for now, the action signals Kyiv’s growing willingness to disrupt oil flows – supporting a soft geopolitical floor under prices.

The political environment is shifting: the EU is reportedly considering sanctions on Indian and Chinese firms facilitating Russian crude flows, while the U.S. has so far held back – despite Bessent warning that any action from Washington depends on broader European participation. Senator Graham has also publicly criticized NATO members like Slovakia and Hungary for continuing Russian oil imports.

It’s worth noting that China and India remain the two largest buyers of Russian barrels since the invasion of Ukraine. While New Delhi has been hit with 50% secondary tariffs, Beijing has been spared so far.

Still, the broader supply/demand balance leans bearish. Futures markets reflect this: Brent’s prompt spread (gauge of near-term tightness) has narrowed to the current USD 0.42/bl, down from USD 0.96/bl two months ago, pointing to weakening backwardation.

This aligns with expectations for a record surplus in 2026, largely driven by the faster-than-anticipated return of OPEC+ barrels to market. OPEC+ is gathering in Vienna this week to begin revising member production capacity estimates – setting the stage for new output baselines from 2027. The group aims to agree on how to define “maximum sustainable capacity,” with a proposal expected by year-end.

While the IEA pegs OPEC+ capacity at 47.9 million barrels per day, actual output in August was only 42.4 million barrels per day. Disagreements over data and quota fairness (especially from Iraq and Nigeria) have already delayed this process. Angola even quit the group last year after being assigned a lower target than expected. It also remains unclear whether Russia and Iraq can regain earlier output levels due to infrastructure constraints.

Also, macro remains another key driver this week. A 25bp Fed rate cut is widely expected tomorrow (Wednesday), and commodities in general could benefit a potential cut.

Summing up: Brent crude continues to drift sideways, finding near-term support from geopolitics and refining strength. But with surplus building and market structure softening, the upside may remain capped.

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Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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6 dagar sedan

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12 september, 2025

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Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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1 vecka sedan

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10 september, 2025

Redaktionen

Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

Bjarne Schieldrop, Chief analyst commodities, SEB

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January