Följ oss

Analys

Overdue correction on the back of equity sell-off and rising US crude production and rig count rise

Publicerat

den

SEB - analysbrev på råvaror

SEB - Prognoser på råvaror - CommodityOil prices experienced a long overdue price correction last week as Brent crude fell back 2.8% to $68.58/bl along with a broad based sell-off in equities. Bearish oil stats showing US crude production rose above 10 m bl/d in November and a fraction from all time high was clearly bearish news though the market did not seem to care too much about it when it was released. US oil players adding 6 rigs last week and 18 ytd probably created bearish concern at the end of the week along with the accelerating sell-off. We expect the US EIA to revise its forecasted US crude oil production significantly higher in tomorrow’s STEO report. That will be the 5th revision in five months and it is probably not done with upwards revisions until it reaches an average 2018 production forecast of 10.7 m bl/d. A combination of the latest STEO and DPR reports indicates that US crude oil production is standing at 10.41 m bl/d now in February.

More US crude oil production in 2018 is what the US STEO report will say tomorrow

Last week the US EIA released actual US crude oil production for Nov 2017. It came in at 10.038 m bl/d, just a fraction from the all-time high in 1970 of 10.044 m bl/d. The November data was 170 k bl/d higher than what EIA’s estimated in the Jan-17 STEO report which estimated it to be 9.87 k bl/d.

Last week’s data point came as little surprise to us. This is because when you look at the monthly US EIA STEO report and the monthly US EIA DPR report it is evident that the two reports are out of sync. It shows that the strong rise in US shale oil production which is spelled out very clearly in the DPR report is not reflected in the US STEO report. Neither when it comes to the latest months back to November nor the forward looking months over the coming year.

Last week’s upwards revision of 170 k bl/d to 10.038 k bl/d may seem fickle in the big scheme of things. But when you see that reason is the lack of synchronization between the STEO and the DPR reports then the error becomes systematic rather than just noise. Then one can take into account US shale oil production growth also for December, January and February. The DPR report spells out clearly that shale grew and will grow by 311 k bl/d during those three months. In addition is 60 k bl/d of production growth in GoM and Alaska. Thus a total gain of 371 k bl/d on top of the November data.

This brings us to the fact that US crude oil production is highly likely standing at 10.41 m bl/d now in February 2018. In perspective the US EIA STEO report forecasts US crude oil production to average 10.27 m bl/d in 2018. For February alone we are already 136 k bl/d above that (based on DPR data). We are also 359 k bl/d above the EIA’s February production estimate (STEO report) of 10.05 m bl/d.

All told the US monthly STEO report which is the official US crude oil production forecast is lagging US shale oil production growth both on a 2-3 months backward looking basis (vs the DPR report) as well as on a forward looking basis. After all the US EIA DPR report is showing that US shale oil production is now is growing at more than 100 k bl/d per month. Well completions are still rising and since the start of the year there has been an additional 18 drilling rigs activated in the US oil space.

Unless oil prices collapses there is little reason to believe that US shale oil production will not continue to grow by 100 k bl/d per month all through 2018 (as it has done since July 2017) rather than the 41 k bl/d/month estimated in the January EIA STEO report. We expect another solid revision higher for 2018 US crude oil production projection by the US EIA when it publishes its monthly STEO report tomorrow. It will be the 5th upwards revision in 5mths and it won’t be the last until they reach a forecast of around 10.7 to 10.8 m bl/d for 2018.

We view the current sell-off as a very good buying opportunity for forward crude contracts. Brent Dec-2020 now trades at $57.9/bl = $54.6/bl if inflation adjusted.

Chart 1: Weekly oil inventory data rising marginally rather than declining steeply

Weekly oil inventory data rising marginally rather than declining steeply

Chart 2: Dated Brent crude has shifted to a discount to Brent 1mth rather than a premium

Dated Brent crude has shifted to a discount to Brent 1mth rather than a premium

Chart 3: Net long speculative allocation to oil at all-time-high
That’s a painful position as the market now sells off

Net long speculative allocation to oil at all-time-high

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Annons

Gratis uppdateringar om råvarumarknaden

*

Analys

Brent prices slip on USD surge despite tight inventory conditions

Publicerat

den

SEB - analysbrev på råvaror

Brent crude prices dropped by USD 1.4 per barrel yesterday evening, sliding from USD 74.2 to USD 72.8 per barrel overnight. However, prices have ticked slightly higher in early trading this morning and are currently hovering around USD 73.3 per barrel.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

Yesterday’s decline was primarily driven by a significant strengthening of the U.S. dollar, fueled by expectations of fewer interest rate cuts by the Fed in the coming year. While the Fed lowered borrowing costs as anticipated, it signaled a more cautious approach to rate reductions in 2025. This pushed the U.S. dollar to its strongest level in over two years, raising the cost of commodities priced in dollars.

Earlier in the day (yesterday), crude prices briefly rose following reports of continued declines in U.S. commercial crude oil inventories (excl. SPR), which fell by 0.9 million barrels last week to 421.0 million barrels. This level is approximately 6% below the five-year average for this time of year, highlighting persistently tight market conditions.

In contrast, total motor gasoline inventories saw a significant build of 2.3 million barrels but remain 3% below the five-year average. A closer look reveals that finished gasoline inventories declined, while blending components inventories increased.

Distillate (diesel) fuel inventories experienced a substantial draw of 3.2 million barrels and are now approximately 7% below the five-year average. Overall, total commercial petroleum inventories recorded a net decline of 3.2 million barrels last week, underscoring tightening market conditions across key product categories.

Despite the ongoing drawdowns in U.S. crude and product inventories, global oil prices have remained range-bound since mid-October. Market participants are balancing a muted outlook for Chinese demand and rising production from non-OPEC+ sources against elevated geopolitical risks. The potential for stricter sanctions on Iranian oil supply, particularly as Donald Trump prepares to re-enter the White House, has introduced an additional layer of uncertainty.

We remain cautiously optimistic about the oil market balance in 2025 and are maintaining our Brent price forecast of an average USD 75 per barrel for the year. We believe the market has both fundamental and technical support at these levels.

Oil inventories
Oil inventories
Fortsätt läsa

Analys

Oil falling only marginally on weak China data as Iran oil exports starts to struggle

Publicerat

den

SEB - analysbrev på råvaror

Up 4.7% last week on US Iran hawkishness and China stimulus optimism. Brent crude gained 4.7% last week and closed on a high note at USD 74.49/b. Through the week it traded in a USD 70.92 – 74.59/b range. Increased optimism over China stimulus together with Iran hawkishness from the incoming Donald Trump administration were the main drivers. Technically Brent crude broke above the 50dma on Friday. On the upside it has the USD 75/b 100dma and on the downside it now has the 50dma at USD 73.84. It is likely to test both of these in the near term. With respect to the Relative Strength Index (RSI) it is neither cold nor warm.

Lower this morning as China November statistics still disappointing (stimulus isn’t here in size yet). This morning it is trading down 0.4% to USD 74.2/b following bearish statistics from China. Retail sales only rose 3% y/y and well short of Industrial production which rose 5.4% y/y, painting a lackluster picture of the demand side of the Chinese economy. This morning the Chinese 30-year bond rate fell below the 2% mark for the first time ever. Very weak demand for credit and investments is essentially what it is saying. Implied demand for oil down 2.1% in November and ytd y/y it was down 3.3%. Oil refining slipped to 5-month low (Bloomberg). This sets a bearish tone for oil at the start of the week. But it isn’t really killing off the oil price either except pushing it down a little this morning.

China will likely choose the US over Iranian oil as long as the oil market is plentiful. It is becoming increasingly apparent that exports of crude oil from Iran is being disrupted by broadening US sanctions on tankers according to Vortexa (Bloomberg). Some Iranian November oil cargoes still remain undelivered. Chinese buyers are increasingly saying no to sanctioned vessels. China import around 90% of Iranian crude oil. Looking forward to the Trump administration the choice for China will likely be easy when it comes to Iranian oil. China needs the US much more than it needs Iranian oil. At leas as long as there is plenty of oil in the market. OPEC+ is currently holds plenty of oil on the side-line waiting for room to re-enter. So if Iran goes out, then other oil from OPEC+ will come back in. So there won’t be any squeeze in the oil market and price shouldn’t move all that much up.

Fortsätt läsa

Analys

Brent crude inches higher as ”Maximum pressure on Iran” could remove all talk of surplus in 2025

Publicerat

den

SEB - analysbrev på råvaror

Brent crude inch higher despite bearish Chinese equity backdrop. Brent crude traded between 72.42 and 74.0 USD/b yesterday before closing down 0.15% on the day at USD 73.41/b. Since last Friday Brent crude has gained 3.2%. This morning it is trading in marginal positive territory (+0.3%) at USD 73.65/b. Chinese equities are down 2% following disappointing signals from the Central Economic Work Conference. The dollar is also 0.2% stronger. None of this has been able to pull oil lower this morning.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

”Maximum pressure on Iran” are the signals from the incoming US administration. Last time Donald Trump was president he drove down Iranian oil exports to close to zero as he exited the JCPOA Iranian nuclear deal and implemented maximum sanctions. A repeat of that would remove all talk about a surplus oil market next year leaving room for the rest of OPEC+ as well as the US to lift production a little. It would however probably require some kind of cooperation with China in some kind of overall US – China trade deal. Because it is hard to prevent oil flowing from Iran to China as long as China wants to buy large amounts.

Mildly bullish adjustment from the IEA but still with an overall bearish message for 2025. The IEA came out with a mildly bullish adjustment in its monthly Oil Market Report yesterday. For 2025 it adjusted global demand up by 0.1 mb/d to 103.9 mb/d (+1.1 mb/d y/y growth) while it also adjusted non-OPEC production down by 0.1 mb/d to 71.9 mb/d (+1.7 mb/d y/y). As a result its calculated call-on-OPEC rose by 0.2 mb/d y/y to 26.3 mb/d.

Overall the IEA still sees a market in 2025 where non-OPEC production grows considerably faster (+1.7 mb/d y/y) than demand (+1.1 mb/d y/y) which requires OPEC to cut its production by close to 700 kb/d in 2025 to keep the market balanced.

The IEA treats OPEC+ as it if doesn’t exist even if it is 8 years since it was established. The weird thing is that the IEA after 8 full years with the constellation of OPEC+ still calculates and argues as if the wider organisation which was established in December 2016 doesn’t exist. In its oil market balance it projects an increase from FSU of +0.3 mb/d in 2025. But FSU is predominantly part of OPEC+ and thus bound by production targets. Thus call on OPEC+ is only falling by 0.4 mb/d in 2025. In IEA’s calculations the OPEC+ group thus needs to cut production by 0.4 mb/d in 2024 or 0.4% of global demand. That is still a bearish outlook. But error of margin on such calculations are quite large so this prediction needs to be treated with a pinch of salt.

Fortsätt läsa

Centaur

Guldcentralen

Fokus

Annons

Gratis uppdateringar om råvarumarknaden

*

Populära