Analys

OPEC meeting: Holding back is easy as Iran and Venezuela takes all the pain

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6 år sedan

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1 juli, 2019

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Brent crude jumps 2.8% this morning to $66.6/bl following news that Saudi Arabia and Russia are in agreement of an extension of current cuts for another 6 to 9 months and that this plan is also endorsed by Iran’s oil minister Zanganeh. A trade truce between US and China also adds strength to the oil price this morning.

OPEC being “between a rock and a hard place” has been the description of OPEC’s situation in the run-up to this OPEC meeting. Losing market share to booming US shale oil production on the one hand while facing weakening oil demand growth along with slowing global growth on the other hand. It is true that OPEC as a whole is losing market share. But this burden is not evenly distributed as it is Venezuela and Iran who are taking almost all the pain. The other OPEC members (and OPEC+ members) are basically not taking any heat at all.

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

From Jan to May Saudi Arabia produced only 173 k bl/d below its 2014-2018 average while Russia produced 371 k bl/d above that average.

It is thus easy for the main producers to decide to roll cuts forward as they do not really cost them anything, or very little to do so. The only price they have to pay is to hold back supply slightly and refrain from growing their production along with global oil demand growth while harvesting an oil price of $60-70/bl.

It will of course be problematic when Iran and Venezuela eventually returns to the market. And that could indeed be a very bearish moment in the oil market. Given the large range of uncertainties in the oil market OPEC has learned to act reactively rather than trying to act pre-emptively. Thus OPEC will have to deal with the return of Venezuela and Iran at some point in the future but then it will deal with that rainy day when it comes. Right now things are as they are and it is easy for OPEC’s key members and Russia to roll the cuts forward into H2-19 and also likely into Q1-20.

It is clear that the global economy is still in a slow-down mode and so is global oil demand growth. Global oil demand growth is however rarely below +1% y/y unless the global economy is in a recession and as far as we can see we are not there yet at all.

Global oil demand seasonally jumps roughly 1 m bl/d from Q2 to H2. US shale oil production is currently growing at a marginal annualized rate of about 0.8 m bl/d YoY and in addition comes US NGL growth. US crude production will thus probably be 0.4 m bl/d higher at year end but on average just 0.2 m bl/d higher in H2 than in June. So OPEC+ will probably have to produce more in H2 than they did in H1 in order to satisfy seasonally higher demand unless the global economy tanks completely. Thus if Russia, Saudi Arabia and the other key OPEC members keeps production at the levels they produced in H1-19 they will ensure that the global oil market is not flowing over. They will only have to pay a small restraint while reaping a nice oil price of $60-70/bl

Two factors are coming into play in H2-19 in addition to global oil demand growth. The first is a large ramp-up of oil pipelines coming online from the Permian basin and out to the US Gulf. Cactus, EPIC and Grey Oak will add a total capacity of between 2.2 and 2.5 m bl/d from Permian to the USGC which effectively (80%) will amount to 1.7 to 2.0 m bl/d. This will help to release surplus oil inventories in the US into the global market place, tighten up the US market while easing the global situation. It will help to tighten up the WTI crude price curve while helping to ease the Brent crude price curve in relative terms. The oil market has a tendency to trade the global oil price on the back of US oil data due to lacking availability of high quality global data. Thus a draining of US oil inventories could be interpreted bullishly even though it is only shifting inventories from the US to non-US.

The other factor is the IMO – 2020 shift of fuel quality in global shipping from maximum 3.5% sulphur to only 0.5% sulphur in January 2020. In general this will add a lot of Marine Gasoil (MGO) demand from global shipping and especially so in Q4-19 and H1-2020. Global refineries will need to run hard to satisfy elevated stock building and demand already in Q4-19. This will be bullish for global crude oil demand already in H2-19. Ballpark figures are that shipping will need an additional 2 m bl/d of MGO in this period. Global refineries will probably have to process another 4-5 m bl/d of crude in order to satisfy this added MGO demand.

Ch1: Supply from OPEC+ declined 3.0 m bl/d from a peak in November last year. It looks like a decisive cut. To a large degree it is the misfortune of Iran and Venezuela. OPEC+ also boosted production from May to Nov last year and then cut from a peak.

Ch2: Production in OPEC+ during Jan to May this year versus average levels from 2014 to 2018 in %. Russia, Iraq and UAE are well above while Saudi Arabia and Kuwait are just marginally below. Not a high price for these countries to hold production unchanged through H2-19 and Q1-20. Venezuela and Iran are taking the pain

Ch3: Production in OPEC+ during Jan to May this year versus average levels from 2014 to 2018 in k bl/d. Saudi Arabia produced only 173 k bl/d below the 5 year average while Russia produced 371 k bl/d above that level. They are producing at very good volumes and not really paying a high price.

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Stronger inventory build than consensus, diesel demand notable

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2 dagar sedan

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21 februari, 2025

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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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4 dagar sedan

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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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Analys

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.