Analys

OPEC+ removes the downside price risk

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6 år sedan

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3 december, 2018

Russia and Saudi Arabia agreed over the weekend to continue the cooperation of managing supply of crude oil to the market which was initiated in late 2016 in the so called “Declaration of cooperation” between OPEC and 10 cooperating oil producers. No decision of any specific cuts has yet been decided but the message was clear: “We’ll monitor the market situation and react to it quickly”.

While they may disagree on what is the right price to aim for they are all in agreement that they do not want global oil inventories to rising back up again.

Specific strategy and cuts will be communicated later this week when OPEC meets in Vienna on 6 December.

Bjarne Schieldrop, Chief analyst commodities

The key take away from all of this is that global oil inventories will not rise back up, the Brent crude oil price curve will not bend deeper and deeper into contango and the front month Brent crude oil will not dive yet lower to USD 55, 50, 45,…/bl.

Exactly in what price range above USD 60/bl we’ll end up depends on the final decision, strategy and communication from OPEC+ at the end of this week.

Canada, Alberta’s Premier Rachel Notley decided this weekend to cut Alberta’s oil production by 325 k bl/d from January onwards until local inventories are back down to normal. Alberta is the largest oil producer in Canada and the cut constitutes a reduction of 8.7% in Alberta. After that the production cuts will be reduced to 95 k bl/d until the end of 2019. Together with the agreement between Russia and Saudi Arabia this weekend this adds to the forward fundamental price support picture.

OPEC’s Advisory Committee last week estimated that OPEC needs to cut production by 1.3 m bl/d versus its October level of 33 m bl/d in order to balance the market next year. I.e. it estimated a call-on-OPEC for 2019 of 31.7 m bl/d. In comparison the IEA in November estimated a call-on-OPEC for 2019 of 31.3 m bl/d. OPEC has produced 32.2 m bl/d on average ytd.

A contracting call-on-OPEC is of course unsustainable over time. As such the estimated decline in call-on-OPEC in 2019 is fundamentally problematic. Internal dynamics within OPEC will however decide how problematic this is. For 2019 we expect production in Venezuela to decline further from an average of 1.4 m bl/d this year to only 1.0 m bl/d in 2019. In addition we expect Iran’s production to be roughly 0.4 m bl/d lower on average in 2019 than in 2018. So here already we have internal OPEC declines of some 0.8 m bl/d y/y to 2019 which reduces the needs for cuts by the other members. So with help also from Russia and the other 9 cooperating countries the magnitude of needed active cuts by those who have to cut will not amount to all that much. The amount of needed cuts by the active cutters within OPEC+ can of course change rapidly due to very unpredictable production in Libya, Nigeria and Angola just to mention a few.

Russia has been very reluctant to join in on further cuts and has stoically announced that it is fine with almost any oil price next year. In our view Russia seems to be concerned over the very strong US crude oil production growth. As such its position as we read it is twofold: 1) It does not want to see global inventories rising back up again and 2) It wants an oil price at a level which tempers US shale oil production growth. The challenge for Russia thus seems to be how to cut production without driving up the oil price too much.

The Brent crude oil price has rebounded close to 4% this morning to USD 61.7/bl but seems to have halted there waiting for the details and specifics to materialize. The Joint Ministerial Monitoring Committee which works on behalf of OPEC+ will meet in Vienna on 5 December and discuss needed action. Its recommendation will be the foundation for the OPEC ministerial meeting and the full meeting of OPEC+ the following day.

Ch1: OECD commercial inventories have increased 58 m bl from June to September. Inventories normally increase 25 m bl this period of year. Thus adjusting for seasonality the inventories rose only 33 m bl over these three months

Ch2: Net long speculative positions in million barrels for Brent + WTI down to the previous lows since start of 2016

Ch3: Net long speculative positions in billion USD for Brent + WTI close to the low of mid-2017. Crude prices were even lower in mid-2017 and of course crude prices were much higher in 2011, 2012, 2013 and partially also 2014

Ch4: Russia produced 11.4 m bl/d in October. They may cut 0.2 m bl/d from this level in 2019

Ch5: Saudi Arabia produced 10.7 m bl/d and can easily cut production by 0.2 to 0.4 m bl/d in 2019

Annons

Ch6: Production losses from selected countries have led to losses of more than 2 m bl/d since early 2017. We expect further losses also in 2019. How much will of course strongly impact the supply/demand balance in the oil market and thus the need for active production cuts by OPEC+ or those who can cut in OPEC+. As Aleksander Novak said: ”we don’t know yet if there will be a surplus in 2019 or not”. Putin’s statement this weekend “…we will monitor the market and react to it quickly” is thus a natural continuation of this.

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Saudi won’t break with OPEC+ to head calls for more oil from Trump

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3 dagar sedan

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28 januari, 2025

Redaktionen

Rebounding after yesterday’s drop but stays within recent bearish trend. Brent crude sold off 1.8% yesterday with a close of USD 77.08/b. It hit a low on the day of USD 76.3/b. This morning it is rebounding 0.8% to USD 77.7/b. That is still below the 200dma at USD 78.4/b and the downward trend which started 16 January still looks almost linear. A stronger rebound than what we see this morning is needed to break the downward trend.

Bjarne Schieldrop, Chief analyst commodities, SEB

Saudi won’t break with OPEC+ to head calls for more oil from Trump. OPEC+ will likely stick to its current production plan as it meets next week. The current plan is steady production in February and March and then a gradual, monthly increase of 120 kb/d/mth for 18 months starting in April. These planned increases will however highly likely be modified along the way just as we saw the group’s plans change last year. When they are modified the focus will be to maintain current prices as the primary goal with production growth coming second in line. There is very little chance that Saudi Arabia will unilaterally increase production and break the OPEC+ cooperation in response to recent calls from Trump. If it did, then the rest of OPEC+ would have no choice but to line up and produce more as well with the result that the oil price would totally collapse.

US shale oil producers have no plans to ramp up activity in response to calls from Trump. There are no signs that Trump’s calls for more oil from US producers are bearing any fruits. US shale oil producers are aiming to slow down rather than ramp up activity as they can see the large OPEC+ spare capacity of 5-6 mb/d sitting idle on the sideline. Even the privately held US shale oil players who account for 27% of US oil production are planning to slow down activity this year according to Jefferies Financial Group. US oil drilling rig count falling 6 last week to lowest since Oct 2021 is a reflection of that.

The US EIA projects a problematic oil market from mid-2025. Stronger demand would be the savior. Looking at the latest forecast from the US EIA in its January STEO report one can see why US shale oil producers are reluctant to ramp up production activity. If EIA forecast pans out, then either OPEC+ has to reduce production or US shale oil producers have to if they want to keep current oil prices. The savior would be global economic acceleration and higher oil demand growth.

Saudi Arabia to lift prices for March amid tight Mid-East crude market. But right now, the market is very tight for Mid-East crude due to Biden-sanctions. The 1-3mth Dubai time-spread is rising yet higher this morning. Saudi Arabia will highly likely lift its Official Selling Prices for March in response.

US EIA January STEO report. Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. Projects a surplus market where either US shale oil producers have to produce less, or OPEC+ has to produce less.

Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. — Source: SEB graph and calculations, US EIA data

Forward prices for ICE gasoil swaps in USD/ton. Deferred contracts at very affordable levels.

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Brent rebound is likely as Biden-sanctions are creating painful tightness

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4 dagar sedan

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27 januari, 2025

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Bearish week last week and dipping lower this morning on China manufacturing and Trump-tariffs. Brent crude traded down 4 out of five days last week and lost 2.8% on a Friday-to-Friday basis with a close of USD 78.5/b. It hit the low of USD 77.8/b on Friday while it managed to make a small 0.3% gain at the end of the week with a close that was marginally below the 200dma. This morning it is trading down 0.4% at USD 78.2/b amid general market bearishness. China manufacturing PMI down to 49.1 for January versus 50.1 in December is pulling copper down 1.3%. Trump threatening Colombia with tariffs.

Rebound in crude prices likely as Dubai time-spreads rises further. The Dubai 1-3mth time-spread is rising to a new high this morning of USD 3.7/b. It is a sign that the Biden-sanctions towards Russia is making the medium sour crude market very tight. Brent crude is unlikely to fall much lower as long as these sanctions are in place. Will likely rebound.

Asian buyers turning to the Mid-East to replace Russian barrels. Amin Nasser, CEO of Saudi Aramco, said that the new sanctions are affecting 2 out of 3.4 mb/d of Russian seaborne crude oil exports. Strong bids for Iraqi medium and heavy crudes are sending spot prices to Asia to highest premiums versus formula pricing since August 2023. And Europe is seeing spot premiums to formula pricing at highest since 2021 (Argus).

Strong rise in US oil production is a losing hand. A lot of Trump-talk about a 3 mb/d increase in US oil production. Occidental Petroleum CEO Vicki Hollub commented in Davos that it is possible given the US resource base, but it is not the right thing to do since the global market is oversupplied (Argus). Everyone knows that OPEC+ has a spare capacity of 5-6 mb/d on hand. The comfort zone is probably to have a spare capacity of around 3 mb/d. FIRST the group needs to re-deploy some 3 mb/d of its current spare capacity and THEN the US and the rest of non-OPEC+ can start to think about acceleration in supply growth again. Vicki Hollub understands this and highly likely all the other oil CEOs in the US understands this as well. Donald Trump calling for more US oil will not be met before market circumstances allows it. Even sanctions on Iran forcing 1.5-2.0 mb/d of its crude exports out of the market will first be covered by existing surplus spare capacity within OPEC6+ and not the US.

US oil drilling rig count fell by 6 to 472 last week and lowest since October 2021. Current decline could be due to winter weather in the US but could also be like Hollub commented in Davos arguing that US oil production growth is not the right thing to do.

1-3mth time-spreads in USD/b. Dubai to yet higher level this morning. Even Brent and WTI are rebounding. Could be some extra spike since we are moving towards the end of the month. But it is still indicating a very tight market for medium sour crude as a result of the latest Biden-sanctions.

US oil drilling rig count down 6 last week to lowest level since October 2021

Non-OPEC, non-FSU production to grow 1.4 mb/d in 2025. Third weakest in 4 years. Though still a bit more than total expected global oil demand growth of 1.1 mb/d/y (IEA)

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Brent testing the 200dma at USD 78.6/b with API indicating rising US oil inventories

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1 vecka sedan

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23 januari, 2025

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Brent touching down to the 200dma. Brent crude traded down for a fifth day yesterday with a decline of 0.4% to USD 70/b. This morning it has traded as low as USD 78.6/b and touched down and tested the 200dma at USD 78.6/b before jumping back up and is currently trading up 0.2% on the day at USD 79.1/b.

The Dubai 1-3mth time-spread is holding up close to recent highs. The 1-3mth time spreads for WTI and Brent crude have eased significantly. The Dubai 1-3mth spread is however holding up close to latest high. Indian refiner Bharat is reported to struggle to get Russian crude for March delivery (Blbrg). The Biden-sanctions are clearly having physical market effects. So, the Dubai 1-3mth time-spread holding on to recent high makes a lot of sense. I.e. it was not just a spike on fears.

US oil inventories may have risen 6 mb last week (API). Actual data later today. The US DOE will release US oil data for last week later today. The US API last night indicated that US crude and product stocks may have risen close to 6 mb last week. This may be weighing on the oil price today.

Brent and WTI 1-3mths time-spreads have fallen back while Dubai is holding up