Analys

Orange juice: Declining supply meets weak demand

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11 år sedan

den

26 augusti, 2014

In oranges and orange juice, the outlook for both supply and demand is dim. Especially in the US, a declining supply will meet with softening demand. Supply concerns were in focus for months, causing prices to rise. But disappointing US consumption data and a lack of strong storms in the south of the US turned the price movement around in the summer. Prices were able to regain ground recently as estimates see Florida’s harvest as from October at a 50-year low and California is supposed to harvest fewer oranges as well. The price for frozen concentrated orange juice, which strongly depends on the US market, will probably continue to fluctuate for a long while, driven by declining supply and similarly declining demand.

Prices for frozen concentrated orange juice on the New York exchange have not been able to sustain their month-long uptrend that was intact until June. Instead, they dropped by more than 15% between the middle of June and the first days of August. Only at the current margin could the quotations regain some ground, rising from 139 US cents to nearly 150 US cents per pound. Though the two-year high of mid-June at 167 US cents per pound is still some ways away (chart 1).

The focus was therefore very much on the supply side. The month-long price rise until June had been triggered by prospects of a lower US supply. In fact, the last harvest in the US was already unsatisfactory. In its July report the USDA once more reduced its estimate for the 2013/14 US harvest compared to its last forecast from January. It now envisages only 6.3 million tons of oranges, 16% less than in 2012/13 (chart 2). This is the second large consecutive decline. The plant disease citrus greening, which causes the fruit to drop prematurely, still maintains its grip on large parts of the growing regions. As a result of the lower harvest, US orange juice production should come in at 481,000 tons, 20% below 2012/13 levels, which were already lower than in the previous year.

Moreover, the drought in Brazil spurred doubts as to whether rising production in Brazil would be able to compensate for the decline in the US. For Brazil, the USDA had predicted in January that the 2013/14 orange harvest would increase by 8.5%, but this forecast was cut to 6% in July. This still remarkable rise is largely attributable to high yields. The quantity of oranges used for processing is seen to rise at a similarly strong rate. As a result, Brazil’s orange juice production, which had fallen massively by almost a quarter in 2012/13, is now expected to post a 12% increase.

Unlike global orange production itself, where growth not only in Brazil but also in China will probably more than offset the decline in the US, global orange juice production should stagnate in 2013/14 in the best case according to the USDA. Juice production had already declined in the two preceding years.

However, not only juice production but also the consumption of orange juice is lacking momentum. Global consumption has for years been fluctuating around the mark of 2 million tons (chart 3). Consumption is clearly declining in the US – the most important market alongside the EU. US per-capita consumption of orange juice has reportedly fallen from 46 litres ten years ago to only 35 litres in 2013. According to latest data, US retailers sold 9% less orange juice than one year before in the four weeks ending on 2 August 2014. A wide range of other juices and new developments in other beverages are now competing with orange juice. Also, many consumers prefer beverages with lower sugar content or lower prices. In other developed countries, too, the market for orange juice should be largely saturated. Double-digit growth rates in some other countries, such as China, for instance, cannot reverse this outlook, given the low absolute figures.

But the market is now looking less at the current year 2013/14 than at the coming season. The year 2014/2015 as measured by the USDA begins in October or November in countries in the northern hemisphere. In Brazil, by far the most important country in the southern hemisphere, it even only starts in July 2015. The first USDA forecasts are only expected for autumn. In the US, the orange harvest for 2014/15 should thus get underway in a few weeks. Prospects are far from promising. Estimates are circulating according to which Florida’s orange production, which normally accounts for about 70% of total US production, could fall to less than 90 million boxes of 90 pounds (or 40.8 kilograms) each. This would be less than 3.7 million tons, i.e. the lowest level since 1965. Since according to latest USDA data, Florida harvested 133.6 million boxes in 2012/13 and 104.4 million boxes in 2013/14, this would be a fall by about another 15% compared with the already weak current year. Not all watchers anticipate such a dramatic situation. But there is broad agreement that the harvest will likely remain below 100 million boxes. In California, the only other important growing state in the US, the drought will presumably leave its mark. The situation there has been difficult since 2012 and has become further exacerbated in recent weeks, and more than half of the acreage currently falls in the highest category of “exceptional drought”. The critical outlook for US production has recently given prices a bit of a lift.

It remains to be seen whether in the present situation of weak demand the continuing decline in supply can contribute to noticeable price rises on a lasting basis. We only expect this to happen if supply shortfalls attributable to storms or diseases turn out even larger than currently expected. Fears of a marked hurricane season have driven up prices often already. This year has been relatively calm so far, but the hurricane season only ends in November. Hence, stormrelated crop losses in Florida are still a possibility.

Relaterade ämnen:commerzbank research orange juice

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Handelsbanken Jordbruk, 28 augusti 2014

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Analys

Breaking some eggs in US shale

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5 dagar sedan

den

5 augusti, 2025

Redaktionen

Lower as OPEC+ keeps fast-tracking redeployment of previous cuts. Brent closed down 1.3% yesterday to USD 68.76/b on the back of the news over the weekend that OPEC+ (V8) lifted its quota by 547 kb/d for September. Intraday it traded to a low of USD 68.0/b but then pushed higher as Trump threatened to slap sanctions on India if it continues to buy loads of Russian oil. An effort by Donald Trump to force Putin to a truce in Ukraine. This morning it is trading down 0.6% at USD 68.3/b which is just USD 1.3/b below its July average.

Bjarne Schieldrop, Chief analyst commodities, SEB

Only US shale can hand back the market share which OPEC+ is after. The overall picture in the oil market today and the coming 18 months is that OPEC+ is in the process of taking back market share which it lost over the past years in exchange for higher prices. There is only one source of oil supply which has sufficient reactivity and that is US shale. Average liquids production in the US is set to average 23.1 mb/d in 2025 which is up a whooping 3.4 mb/d since 2021 while it is only up 280 kb/d versus 2024.

Taking back market share is usually a messy business involving a deep trough in prices and significant economic pain for the involved parties. The original plan of OPEC+ (V8) was to tip-toe the 2.2 mb/d cuts gradually back into the market over the course to December 2026. Hoping that robust demand growth and slower non-OPEC+ supply growth would make room for the re-deployment without pushing oil prices down too much.

From tip-toing to fast-tracking. Though still not full aggression. US trade war, weaker global growth outlook and Trump insisting on a lower oil price, and persistent robust non-OPEC+ supply growth changed their minds. Now it is much more fast-track with the re-deployment of the 2.2 mb/d done already by September this year. Though with some adjustments. Lifting quotas is not immediately the same as lifting production as Russia and Iraq first have to pay down their production debt. The OPEC+ organization is also holding the door open for production cuts if need be. And the group is not blasting the market with oil. So far it has all been very orderly with limited impact on prices. Despite the fast-tracking.

The overall process is nonetheless still to take back market share. And that won’t be without pain. The good news for OPEC+ is of course that US shale now is cooling down when WTI is south of USD 65/b rather than heating up when WTI is north of USD 45/b as was the case before.

OPEC+ will have to break some eggs in the US shale oil patches to take back lost market share. The process is already in play. Global oil inventories have been building and they will build more and the oil price will be pushed lower.

A Brent average of USD 60/b in 2026 implies a low of the year of USD 45-47.5/b. Assume that an average Brent crude oil price of USD 60/b and an average WTI price of USD 57.5/b in 2026 is sufficient to drive US oil rig count down by another 100 rigs and US crude production down by 1.5 mb/d from Dec-25 to Dec-26. A Brent crude average of USD 60/b sounds like a nice price. Do remember though that over the course of a year Brent crude fluctuates +/- USD 10-15/b around the average. So if USD 60/b is the average price, then the low of the year is in the mid to the high USD 40ies/b.

US shale oil producers are likely bracing themselves for what’s in store. US shale oil producers are aware of what is in store. They can see that inventories are rising and they have been cutting rigs and drilling activity since mid-April. But significantly more is needed over the coming 18 months or so. The faster they cut the better off they will be. Cutting 5 drilling rigs per week to the end of the year, an additional total of 100 rigs, will likely drive US crude oil production down by 1.5 mb/d from Dec-25 to Dec-26 and come a long way of handing back the market share OPEC+ is after.

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More from OPEC+ means US shale has to gradually back off further

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6 dagar sedan

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4 augusti, 2025

Redaktionen

The OPEC+ subgroup V8 this weekend decided to fully unwind their voluntary cut of 2.2 mb/d. The September quota hike was set at 547 kb/d thereby unwinding the full 2.2 mb/d. This still leaves another layer of voluntary cuts of 1.6 mb/d which is likely to be unwind at some point.

Higher quotas however do not immediately translate to equally higher production. This because Russia and Iraq have ”production debts” of cumulative over-production which they need to pay back by holding production below the agreed quotas. I.e. they cannot (should not) lift production before Jan (Russia) and March (Iraq) next year.

Argus estimates that global oil stocks have increased by 180 mb so far this year but with large skews. Strong build in Asia while Europe and the US still have low inventories. US Gulf stocks are at the lowest level in 35 years. This strong skew is likely due to political sanctions towards Russian and Iranian oil exports and the shadow fleet used to export their oil. These sanctions naturally drive their oil exports to Asia and non-OECD countries. That is where the surplus over the past half year has been going and where inventories have been building. An area which has a much more opaque oil market. Relatively low visibility with respect to oil inventories and thus weaker price signals from inventory dynamics there.

This has helped shield Brent and WTI crude oil price benchmarks to some degree from the running, global surplus over the past half year. Brent crude averaged USD 73/b in December 2024 and at current USD 69.7/b it is not all that much lower today despite an estimated global stock build of 180 mb since the end of last year and a highly anticipated equally large stock build for the rest of the year.

What helps to blur the message from OPEC+ in its current process of unwinding cuts and taking back market share, is that, while lifting quotas, it is at the same time also quite explicit that this is not a one way street. That it may turn around make new cuts if need be.

This is very different from its previous efforts to take back market share from US shale oil producers. In its previous efforts it typically tried to shock US shale oil producers out of the market. But they came back very, very quickly.

When OPEC+ now is taking back market share from US shale oil it is more like it is exerting a continuous, gradually increasing pressure towards US shale oil rather than trying to shock it out of the market which it tried before. OPEC+ is now forcing US shale oil producers to gradually back off. US oil drilling rig count is down from 480 in Q1-25 to now 410 last week and it is typically falling by some 4-5 rigs per week currently. This has happened at an average WTI price of about USD 65/b. This is very different from earlier when US shale oil activity exploded when WTI went north of USD 45/b. This helps to give OPEC+ a lot of confidence.

Global oil inventories are set to rise further in H2-25 and crude oil prices will likely be forced lower though the global skew in terms of where inventories are building is muddying the picture. US shale oil activity will likely decline further in H2-25 as well with rig count down maybe another 100 rigs. Thus making room for more oil from OPEC+.

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Tightening fundamentals – bullish inventories from DOE

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1 månad sedan

den

26 juni, 2025

Redaktionen

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Ole R. Hvalbye, Analyst Commodities, SEB

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).

Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.

Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.

The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.

Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.