Analys

Orange juice: Declining supply meets weak demand

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11 år sedan

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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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Six consecutive weeks of flows into long gold and oil ETPs

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Analys

Brent crude will pull back if the US climbs down its threats towards Iran

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2 veckor sedan

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26 januari, 2026

Redaktionen

Brent crude rose 2.7% last week to $65.88/b with a gain on Friday of 2.8%. Unusually cold US winter weather with higher heating oil demand and likely US oil supply outages was probably part of the bullish drive at the end of last week. But US threats towards Iran with USS Abraham Lincoln being deployed to the Middle East was probably more important.

Bjarne Schieldrop, Chief analyst commodities, SEB

Brent crude has maintained the gains it got from 8 January onwards when it rose from the $60/b-line and up to around $65/b on the back of Iranian riots where the US added fuel to the fire by threatening to attack Iran in support of the rioters. This morning Brent has tested the upside to $66.54/b. That is short of the $66.82/b from 14 January and Brent has given back part of the early gains this morning and is currently trading close to unchanged versus Friday’s close with a dollar decline of 0.4% not enough to add much boost to the price yet at least.

Brent crude front-month prices in USD/b

The rally in Brent crude from the $60/b-line to its current level of $65-66/b seems to be tightly linked to an elevated risk of the US attacking Iran in support of the rioters. Bloomberg reported on Saturday that the US has dispatched the USS Abraham Lincoln aircraft carrier and its associated strike group to the Middle East. It is a similar force which the US deployed to the Caribbean Sea just weeks before the 3 January operation where Maduro was captured. The probability of a US/Israeli attack on Iran is pegged at 65-70% by geopolitical risk assessment firms Eurasia Group and Rapidan Energy Group. Such a high probability explains much of the recent rally in Brent crude.

The recent rally in Brent crude is not a signal from the oil market that the much discussed global surplus has been called off. If we look at the shape of the Brent crude oil curve it is currently heavily front-end backwardated with the curve sloping upwards in contango thereafter. It signals front-end tightness or near term geopolitical risk premium followed by surplus. If the market had called off the views of a surplus, then the whole Brent forward curve would have been much flatter and without the intermediate deep dip in the curve. The shape of the Brent curve is telling us that the market is concerned right now for what might happen in Iran, but it still maintains and overall view of surplus and stock building unless OPEC+ cuts back on supply.

It also implies that Brent crude will fall back if the US pulls back from its threats of attacking Iran.

Brent crude forward curves in USD/b.

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Analys

Oil market assigns limited risks to Iranian induced supply disruptions

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4 veckor sedan

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12 januari, 2026

Redaktionen

Falling back this morning. Brent crude traded from an intraday low of $59.75/b last Monday to an intraday high of $63.92/b on Friday and a close that day of $63.34/b. Driven higher by the rising riots in Iran. Brent is trading slightly lower this morning at $63.0/b.

Iranian riots and risk of supply disruption in the Middle East takes center stage. The Iranian public is rioting in response to rapidly falling living conditions. The current oppressive regime has been ruling the country for 46 years. The Iranian economy has rapidly deteriorated the latest years along with the mismanagement of the economy, a water crisis, encompassing corruption with the Iranian Revolutionary Guard Corps at the center and with US sanctions on top. The public has had enough and is now rioting. SEB’s EM Strategist Erik Meyersson wrote the following on the Iranian situation yesterday: ”Iran is on the brink – but of what?” with one statement being ”…the regime seems to lack a comprehensive set of solutions to solve the socioeconomic problems”. That is of course bad news for the regime. What can it do? Erik’s takeaway is that it is an open question what this will lead to while also drawing up different possible scenarios.

Personally I fear that this may end very badly for the rioters. That the regime will use absolute force to quash the riots. Kill many, many more and arrest and torture anyone who still dare to protest. I do not have high hopes for a transition to another regime. I bet that Iranian’s telephone lines to its diverse group of autocratic friends currently are running red-hot with ”friendly” recommendations of how to quash the riots. This could easily become the ”Tiananmen Square” moment (1989) for the current Iranian regime.

The risks to the oil market are:

1) The current regime applies absolute force. The riots die out and oil production and exports continue as before. Continued US and EU sanctions with Iranian oil mostly going to China. No major loss of supply to the global market in total. Limited impact on oil prices. Current risk premium fades. Economically the Iranian regime continues to limp forward at a deteriorating path.

2) The regime applies absolute force as in 1), but the US intervenes kinetically. Escalation ensues in the Middle East to the point that oil exports out of the Strait of Hormuz are curbed. The price of oil shots above $150/b.

3) Riots spreads to affect Iranian oil production/exports. The current regime does not apply sufficient absolute force. Riots spreads further to affect oil production and export facilities with the result that the oil market loses some 1.5 mb/d to 2.0 mb/d of exports from Iran. Thereafter a messy aftermath regime wise.

Looking at the oil market today the Brent crude oil price is falling back 0.6% to $63/b. As such the oil market is assigning very low risk for scenario 2) and probably a very high probability for scenario 1).

Venezuela: Heavy sour crude and product prices falls sharply on prospect of reduced US sanctions on Venezuelan oil exports. The oil market take on Venezuela has quickly shifted from fear of losing what was left of its production and exports to instead expecting more heavy oil from Venezuela to be released into the market. Not at least easier access to Venezuelan heavy crude for USGC refineries. The US has started to partially lift sanctions on Venezuelan crude oil exports with the aim of releasing 30mn-50mn bl of Venezuelan crude from onshore and offshore stocks according to the US energy secretary Chris Wright. But a significant increase in oil production and exports is far away. It is estimated that it will take $10bn in capex spending every year for 10 years to drive its production up by 1.5 mb/d to a total of 2.5 mb/d. That is not moving the needle a lot for the US which has a total hydrocarbon liquids production today of 23.6 mb/d (2025 average). At the same time US oil majors are not all that eager to invest in Venezuela as they still hold tens of billions of dollars in claims against the nation from when it confiscated their assets in 2007. Prices for heavy crude in the USGC have however fallen sharply over the prospect of getting easier access to more heavy crude from Venezuela. The relative price of heavy sour crude products in Western Europe versus Brent crude have also fallen sharply into the new year.

Iran officially exported 1.75 mb/d of crude on average in 2025 falling sharply to 1.4 mb/d in December. But it also produces condensates. Probably in the magnitude of 0.5-0.6 mb/d. Total production of crude and condensates probably close to 3.9 mb/d.

The price of heavy, sour fuel oil has fallen sharply versus Brent crude the latest days in response to the prospect of more heavy sour crude from Venezuela.

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Analys

The oil market in 2026 will not be about Venezuela but about OPEC+ cutting or not

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1 månad sedan

den

5 januari, 2026

Redaktionen

Lower this morning as Rodriguez opens for US cooperation. Brent crude is down 1.4% to USD 69.95/b this morning. The acting president in Venezuela, Delcy Rodriguez, has struck a much more conciliatory tone and offered to cooperate with the US. This reduces the risk for an extended embargo on Venezuelan oil exports with oil potentially flowing freely out of Venezuela in not too long if Rodriguez actually do cooperate as the US whishes.

Venezuela is not a big oil producer today. It produced 960 kb/d in November. At the same time it consumes some 400 kb/d with net to the world exports of only 560 kb/d. Supply risk to the global oil market is thus very limited as it stands today.

Venezuela produced closer to 2.4 mb/d in 2015. But years of corruption plus US sanctions has eroded production capacity. Its oil infrastructure is worn down. Engineers who could get jobs in other countries have left.

What makes everyone lift their eyebrows over Venezuela with respect to oil is that it has the world’s largest oil reserves. The idea is that US capital coupled with Venezuelan oil reserves could lead to a major upturn in oil production. But it will require billions and billions of dollar and also time to drive production higher.

China has poured billions into infrastructure in Venezuela with most of it lost due to corruption. While Rodriguez now has opened for cooperation with the US, the corrupt regime under Maduro is probably still fully intact. It may not be all that safe for US oil majors to pour billions in capex into Venezuela.

Venezuela has the potential to produce significantly more oil. But lots of money and time to materialize it. Yes, it has the world’s largest oil reserves, but the world is full of oil reserves. The key question is thus more about where do you want to place your capex? What reserves will yield the greatest returns and the lowest risks versus corruption and geopolitics? Impressions from latest headlines is that US money is already knocking on the door in Venezuela, but it is too early to say whether such a dollar-flow will really materialize in the end or not.

The global oil market in 2026 will not be about Venezuela. It will be about OPEC+ balancing act between oil price and market share. Making cuts or not. The IEA projected in December that the world will only need 25.6 mb/d from OPEC in 2026 versus a production in November of 29.1 mb/d. If the IEA is correct then the OPEC will need to cut production by 3.5 mb/d to keep the oil market balanced.

Brent crude is at USD 69.95/b and OPEC+ confirmed this weekend that it will keep production unchanged in Q1-26. The consequence is that the oil price is heading lower by the week. We expect OPEC+ to shift from ”hold” to ”cut” as Brent crude moves to the low 50ies.

Venezuela crude oil production in mb/d