Analys

One year after USD -37.63/bl

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4 år sedan

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22 april, 2021

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It is exactly one year since WTI crashed to USD -37.63/bl. Yes, it was probably trading games involved. Yes, it was highly specific to storage and pipeline constraints at the pricing point of WTI in Cushing Oklahoma as Brent crude only fell to USD 19.33/bl. Yes, it was a price war between Russia and Saudi Arabia which broke out after the 6 March meeting. Yes, it was Covid-19 lock-downs which killed demand. But what really stands out looking back was that you don’t steal from the King. You don’t steal from OPEC. You don’t steal market shares from the world’ lowest cost producers. Try that again and you’ll get punished again.

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

The price war between Russia and Saudi Arabia which broke out after the 6 March meeting last year looked like an ill considered tantrum from a hot tempered Muhammed bin Salman in Saudi Arabia lashing out against Russia which did not want to play the ”hold back production, loose market share, get higher prices” game any more. And maybe such a tantrum was really what happen. Who knows.

But the underlying fundamentals story here was that US liquids production was growing like crazy. From Sep 2016 to Jan 2020 it grew by 6.6 m bl/d. And Russia was sick of holding back production forever while seeing US taking more and more market share. The only reason for why this could go on as long as it did was because there was an almost comparable large decline in supply from the key OPEC producers being Venezuela, Iran and Libya which lost 4.5 m bl/d from mid-2017 to mid-2020. Thus yielding room for the incredible US production growth.

It was like the business strategy of US shale oil players was: ”Let’s steel market share from the lowest cost producers in the world being OPEC/OPEC+. Fundamentally that is a no-go strategy to start. Though it can go on for a little while before it falls apart. And it did go on for a little while but largely because of the very large decline from Venezuela, Libya and Iran. But looking back it is obvious that it had to end.

OPEC knows very well that the oil price is all about controlling supply. There is an infinite amount of oil under ground. Make sure it is not too much above ground and you’ll get rich. I.e. control your capex spending. US shale oil players obviously have been nowhere near thinking along such lines.

Looking forward is not all such a great picture if we base it on 1) The ongoing return of production from Iran and Libya. I.e. the reversal of the losses within OPEC from mid-2017 which enabled the US shale oil boom to go on as long as it did and 2) The projected non-OPEC production growth from the US EIA in its March STEO pointing to a very strong rebound in both US shale oil and total non-OPEC production towards the end of 2022.

The key message from 20 April 2020 is: Do not steal from the King. Do not try to steal market shares from the worlds lowest cost producers (it is stupid). If you do you will get punished again. In a world where oil demand is growing at around 1% over the coming years you should not lay plans for growing your production at 2% or 5% or 10% per year. Because if you do it fundamentally means that you must steel market share from someone. It for sure won’t be the lowest cost producers.

The end-game though could be that there is only one way to tame the production from non-OPEC and that is a lower price.

Brent and WTI crude prices and the crazy WTI crash to USD -37.63/bl. The recovery since then is all due to deep cuts in production by OPEC+ and still is. If OPEC+ hadn’t still been holding back significant volumes then we would have had no more than USD 30-40/bl today.

Crazy US hydrocarbon liquids growth. From a low in Sep-2016 it grew by 6.6 m bl/d before the collapse in Q1-2020. According to the EIA’s STEO from March it is set to revive and reach the same gain at the end of 2022 though the EIA STEO from April has modified that a bit lower again.

The same chart for changes in total non-OPEC production since Sep-2016 gives much the same picture. What we see is that it is not only US production which increased but also other non-OPEC producers lifted increased production in this period. But mostly it is US.

And the maga-growth in non-OPEC production did of course take their market share from OPEC. Massive decline in production by three OPEC members Iran, Venezuela and Iran. Libya has now kicked back with more to come and Iran is just about to move into the market again as signals from the ongoing Vienna talks on the revival of JCPOA (Iran nuclear deal) are positive with all sides at the table wanting the same thing. Saudi Arabia, Israel and the Iranian Revolutionary Guard may not want success but they are not sitting at the negotiation table in Vienna. A strong rebound in non-OPEC production as envisioned by the EIA March STEO forecast will be outright impossible with a production revival from these three countries.

Massive decline in production by three OPEC members Iran, Venezuela and Iran.

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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

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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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Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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6 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.