Analys

Oman leading the way as sanctions hits physical market

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6 år sedan

den

4 oktober, 2018

Rarely have we seen such a brutal break of a major level as when Brent crude broke above $80/bl on September 24. It did not spend a second looking back (re-testing the $80/bl level etc) but instead just charged directly higher. In hindsight we can see that it was really the Oman crude benchmark which was leading the way. This is very unusual as it is normally the light sweet grades like WTI and Brent which takes the lead. The Oman benchmark with gravity and sulphur of (API; S%) = (31.3˚; 1.4%) is the typical medium-heavy and sour grade benchmark of the Middle East. Most modern refineries are built exactly for this kind of crude grade because that is the kind of crude which is most abundant in the world.

Bjarne Schieldrop, Chief analyst commodities

Iran’ crudes have an average gravity of API = 31 but has a higher sulphur content of 2.2%. It is nonetheless a medium-heavy, sour crude now being ripped out of the market. One could say that the actual implementation of the US sanctions towards Iran do not fully kick in before November 4. The fact is however that the real consumers of crude oil, the refineries, are doing their physical purchasing on a typical 1 to 3 months forward basis. November is now thus in the middle of this physical purchasing window.

Privately owned refineries around the world cannot afford to cross swords with Donald Trump’ Iran sanctions. They cannot afford to lose access to the global financial system (where US banks are tightly interwoven), to the international ship insurance market or to the US market in general. Thus they all do the natural thing: They do not contract physical oil from Iran for November onwards.

Thus all their physical crude purchases for the month of November and onwards are now hitting other crude oil producers instead thus doubling up the orders hitting these other producers. The sanctions are thus now fully hitting the physical market but on a two to three months forward horizon. Thus as of yet we do not see it reflected in the weekly inventory numbers. It is however still fully hitting the physical market.

Since the refineries currently using Iran crude are made to process medium-heavy, sour crude their purchases are now naturally re-directed towards other producers of this type of crude. That means Middle East producers. That means the Oman crude benchmark and not the Brent crude benchmark. This means that the Oman benchmark could continue to lead the way on this issue. So in order to look for direction of Brent crude one should keep a close eye on the Oman benchmark these days.

If we look at the Brent – Oman spread we see that Brent crude is only trading $0.4/bl above Oman. That is a very small margin versus the ytd average of $2.2/bl. This tighter spread may be the new norm now in this tighter medium sour crude market (due to Iran sanctions). However, if the Oman benchmark holds its stand at current level it does look like Brent is likely going to be pushed upwards. Overall it looks likely that Oman is going to be pushed yet higher and that Brent will be riding on the top of that wave higher.

When we look at the graphical development of the Oman crude price the impact from the Iran sanctions now hitting the forward physical purchasing window of the world’s refineries looks brutal. Oman has taken a pause in order to let Brent crude catch up with its upwards move but Brent needs to move another dollar or two upwards before normal spreads are re-established.

Unless the other Middle East producers offers sufficient medium sour crude on the market in this forward window in order to offset the loss of Iranian supply then Oman, your direction is up and Brent will follow or float higher on top.

Ch1: Oman 1mth and Brent 1mth. Oman led the way to break above $80/bl

Ch2: Oman crude grade versus Iran crude grades

Ch3: Global crude volumes by grades according to ENI

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

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7 timmar sedan

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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

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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

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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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