Analys

OPEC+ is holding good cards and a steady course

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4 år sedan

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6 juni, 2021

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OPEC+ is to meet virtually in Vienna today for its official half-yearly meeting. The bull-recipe is still intact: ”Reviving demand, muted US shale oil response and controlled/restrained supply from OPEC+”. This will drive inventories yet lower and prices yet higher. There are no signs of division within the group and we expect it to hold on to a steady course with very good control of the market. We stick to our forecast of a Brent crude oil price averaging USD 75/bl in Q3-21 with Brent at times trading to USD 80 – 85/bl. Come Q4-21 however we think that the group increasingly will have to consider reviving US shale oil production.

Brent crude jumped above USD 70/bl for the first time since May 2019 on signals from OPEC+ of continued reviving demand and a tightening market with plenty of room for more oil from the group in H2-2021.

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

Today OPEC+ will meet virtually in Vienna for their official half yearly meeting to discuss and decide on production strategies for the second half of this year. Yesterday its Joint Technical Committee (JTC) presented its outlook for the supply/demand balance for the rest of the year. It depicted continued reviving demand and a tightening balance with an expected inventory draw of 2 – 2.5 m bl/d from August to December.

What it shows is that it is most likely plenty of room (and need) for a further increase of supply from the group beyond the planned increase of 2.1 m bl/d from May to July. It also makes it much easier for the group to accommodate the return of Iranian supplies to the market.

There are still very few signs of internal strife within the group. The group is thus likely to keep on going on a steady course. The bull-recipe for the oil market is still intact: “Reviving demand, muted US shale oil response together with controlled and restrictive supply from OPEC+” thus resulting in further declines in inventories and thus yet higher oil prices.

Given that the group now meets on a monthly basis it is less of a challenge to lay out a production strategy for H2-2021 since it can adjust and revise its plan on a monthly basis. I.e. it doesn’t need to have a full crystal ball view of how H2-2021 will play out.

The natural thing for the group to do now that global oil inventories are close to the 2015-19 average is to signal an additional increase of 2 m bl/d from August to December thus leading to an anticipated inventory draw of 0.5 m bl/d during that period if the JTC is correct in its projections on Monday.

The group signalled yesterday that the return of Iranian supplies will be gradual and managed and won’t create any supply shock into the market. Between 1-1.5 m bl/d of Iranian oil exports are probably already in the market. Thus a return of Iranian supplies probably implies an added supply of about 1 – 1.5 m bl/d of crude and condensates.

The likely continued strong oil demand revival in H2-2021 is handing OPEC+ with a good hand of cards to play from and there is no indication that they won’t play it wisely and for what it’s worth.

Looking into 2022 and beyond is however much more difficult. Supply is then likely to increase from Canada, Brazil, Russia, Kazakhstan, Iran, Iraq, Libya and of course also the US. Eventually also of course in Venezuela.

With respect to US shale oil. It is not so that nothing is happening. From January to April the number of completed shale oil wells increased by 8% on average every month and 10% in April. Losses in underlying production is currently running at 424 k bl/d per month. New production from the 754 completed wells in April however yielded close to 400 k bl/d that month. Another 10% increase in completed wells in May will leave US shale oil production at a steady state production level. Yet another 10% increase in completions in June would then place US shale oil production on an annualized production growth pace of 500 k bl/d without any further increase in the number of completed wells beyond June. Add in production growth of NGLs and you have a solid production growth rate in the US. And with respect to drilling rigs. That number is increasing as well even though not at the wild pace seen from June 2019 onwards it is still rising at a rate of about 15 – 20 rigs per month thus placing US shale oil into expanding territory as the number of drilling rigs surpasses the 450 mark needed for expansion sometime in July/August this year. Expansion for 2022 that is.

Thus OPEC+ will need to keep a close eye on US shale oil players. If it looks like they aim to eat into the market share of OPEC+ by expanding too much then they are bound to be taught yet another lesson of low prices.

Our standing forecast for quite some time now is for Brent crude to average USD 75/bl in Q3-2021. That means that Brent crude at times is likely to trade to USD 80/bl to USD 85/bl. This will help to drag 2022/23 forward prices up towards USD 70/bl. Producers should bid their time well and look closely at securing forward hedges at such levels.

As the autumn progresses we expect US shale oil producers to show more vigour with reviving activity and rising production leading to a more cautious oil market and likely softer oil prices in Q4-21.

Current crude oil forward prices curves versus the 50 year real average crude oil price in 2019 USD according to BP. One should not expect oil prices to deliver at USD 70-80-90/bl in the years to come.

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Stronger inventory build than consensus, diesel demand notable

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

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3 dagar sedan

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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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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

Redaktionen

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.