Analys

Price action Rebounding from $50/b but running into headwind from stronger USD

Publicerat

9 år sedan

den

31 mars, 2017

Redaktionen

SEB Brent crude front month price forecast:
Q2-17: $57.5/b
Q3-17: $55.0/b
Q4-17: $52.5/b

Price action – Rebounding from $50/b but running into headwind from stronger USD
After having touched a low of $49.71/b last Wednesday Brent crude front month contract revived to touch a high of $53.1/b yesterday. This morning it is trading down 0.4% at $52.7/b. Prices found good support at the $50/b level with a solid influx of natural oil consumers jumping in securing forward hedges at lower levels. The oil price recovery over the last week is however facing headwinds from a 1.3% stronger USD and might thus run out of steam.

Crude oil comment – No reason for OPEC to roll cuts into H2
There seems to be an almost unanimous view that OPEC will roll their H1-17 cuts into H2-17. We cannot really understand why they should do that. OECD inventories declined all through the second half of 2016 and ended down y/y in December for the first time in quite a few years. And that was without the help of OPEC! The market has been confused by the fact that inventories in weekly data rose some 100 mb through the first two and a half months of the year. The market was also disappointed when it heard that OECD inventories rose 48 mb month/month in January. Do note however that the normal seasonal pattern is for OECD inventories to rise by 30 mb in January. Thus they only rose by 18 mb more than normal. Total crude and product stocks in the US have declined 4 weeks out of the last 6 weeks and we strongly believe that inventories will declined steadily from here onwards. When OPEC meets in Vienna on May 25th the perspective will be

1) Declining inventories (i.e. market is in balance to deficit)
2) A flat to backwardated crude oil curve. I.e. no spot price discount to longer dated contracts
3) US crude production standing close to previous peak and rising rapidly
4) Demand will jump some 1.9 mb/d from H1-17 og H2-17 seasonally with little risk for surplus

Thus the natural communication from OPEC following their forthcoming May 25th meeting in Vienna would be that the market is in balance. Actually it is in deficit and inventories are drawing down. There is no longer a spot price discount to longer dated contracts. I.e. there is very little stress in the market due to surplus oil and OPEC receives no discounted cash flow versus longer dated prices. I.e. there is little economic reason for OPEC to cut as they then are receiving a fair price for their oil (equal to longer dated prices). A further cut would only endanger OPEC’s market share through unnecessary stimulus of US shale oil production. That last dimension will be highly accentuated at the meeting on the 25th of May since if we just extrapolate US crude oil production so far this year it may stand at 9.5 mb/d at their May meeting. US crude oil production is now growing just as fast (marginal annualized pace of 1.5 mb/d) as it did from 2011 to 2015. The hypothesis from OPEC’s November meeting in 2016 that US shale oil production will only recover gradually as long as the oil price stays below $60/b has been totally busted. The empirical evidence is that when the mid-term WTI curve (one to two year horizon forward prices) averaged $52/b in H2 then US shale oil rigs rose by 7 rigs/week. When those forward prices instead rose to $55-56/b following OPEC’s decision to cut the weekly rig additions rose to about 10 rigs/week.

OPEC is likely to conclude that all looks good. Market is in balance to deficit. Inventories are drawing down. There is no longer any spot price rebate in the market and little stress from surplus oil to be seen. Demand will rise strongly into H2-17. Thus OPEC is likely to move back into operation putting their 1.16 mb/d H1-17 cut aside and revisit the question of cuts at their next meeting in Vienna at the end of 2017. They will like to look like they are in control and an extension of cuts into H2-17 will stimulate US shale oil production to an extent that will make it look like they are out of control.

We expect crude oil prices to get a brief set-back when OPEC announces such a decision. But we do expect it to be brief and with limited consequences. We expect Brent crude oil prices to end the year with an average of $52.5/b in Q4-17. We expect the curve to be some $3/b in backwardation at that time which implies that the one to two year forward prices at that time will trade around $50/b. Since the WTI curve is trading at some $2/b below the Brent crude curve it will mean that the mid-term (1 to 2 year forward) WTI crude oil curve will then trade at around $48/b. We expect that to dampen the current very strong weekly rig additions which we see currently.

Ch1: US shale oil rigs continues to rise strongly
Last week the number of US shale oil rigs rose by 16 rigs or 9 rigs more than our projection
So far the average weekly US shale oil rig additions stands at 9.75 rigs/week

Ch2: SEB US crude oil production projection lifted by 12 kb/d in 2017, by 49 kb/d in 2018 and by 68 kb/d in 2019
Total additional cumulative US crude oil production over the next three years rose by 47 million barrels as a result of 16 rigs being added last week versus our expected 7 rigs
We expect the US EIA to lift its US crude oil production projection again in its forthcoming April report reflecting the fact that 51 shale oil rigs were added to the market in March.

Ch3: SEB US crude oil production projection graph

Ch4: SEB global crude oil supply demand balance

Ch5: SEB projected OECD end of year inventories

Ch6: Time development of SEB’s projected 2019 end of year OECD oil inventories versus a normal of 2700 million barrels
A deep draw in OECD inventories at the end of 2019 has become much less pronounced as rig count is rising much faster than expected thus lifting our US crude oil production projection

Ch6: Time development of SEB’s dynamic Brent crude oil price forecast
Much less price squeeze risk in 2019 as the balance has softened with higher US production projection

Annons

Ch7: US crude oil production increasing in a stright line
Potentially closing in at 9.5 mb/d when OPEC meets in Vienna on May 25th

Ch8: Volatility is trending lower with yet more downside to come we expect

Ch9: Weekly inventory data are starting to show a draw

Ch10: And this is what we expect OECD inventories will do in 2017 (We assume OPEC will not cut in H2-17)
But due to US shale oil revival there won’t be much draws in 2018
Thus all through 2017 and 2018 the OECD inventories will stay above normal with few pressure points in the global oil market

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Relaterade ämnen:seb analys

Nästa

OPEC öppnar för en förlängning av avtalet

Missa inte

SEB Råvarubrev 28 mars 2017

Fortsätt läsa

Analys

OPEC+ will likely unwind 500 kb/d of voluntary quotas in October. But a full unwind of 1.5 mb/d in one go could be in the cards

Publicerat

2 dagar sedan

den

1 oktober, 2025

Redaktionen

Down to mid-60ies as Iraq lifts production while Saudi may be tired of voluntary cut frugality. The Brent December contract dropped 1.6% yesterday to USD 66.03/b. This morning it is down another 0.3% to USD 65.8/b. The drop in the price came on the back of the combined news that Iraq has resumed 190 kb/d of production in Kurdistan with exports through Turkey while OPEC+ delegates send signals that the group will unwind the remaining 1.65 mb/d (less the 137 kb/d in October) of voluntary cuts at a pace of 500 kb/d per month pace.

Bjarne Schieldrop, Chief analyst commodities, SEB

Signals of accelerated unwind and Iraqi increase may be connected. Russia, Kazakhstan and Iraq were main offenders versus the voluntary quotas they had agreed to follow. Russia had a production ’debt’ (cumulative overproduction versus quota) of close to 90 mb in March this year while Kazakhstan had a ’debt’ of about 60 mb and the same for Iraq. This apparently made Saudi Arabia angry this spring. Why should Saudi Arabia hold back if the other voluntary cutters were just freeriding? Thus the sudden rapid unwinding of voluntary cuts. That is at least one angle of explanations for the accelerated unwinding.

If the offenders with production debts then refrained from lifting production as the voluntary cuts were rapidly unwinded, then they could ’pay back’ their ’debts’ as they would under-produce versus the new and steadily higher quotas.

Forget about Kazakhstan. Its production was just too far above the quotas with no hope that the country would hold back production due to cross-ownership of oil assets by international oil companies. But Russia and Iraq should be able to do it.

Iraqi cumulative overproduction versus quotas could reach 85-90 mb in October. Iraq has however steadily continued to overproduce by 3-5 mb per month. In July its new and gradually higher quota came close to equal with a cumulative overproduction of only 0.6 mb that month. In August again however its production had an overshoot of 100 kb/d or 3.1 mb for the month. Its cumulative production debt had then risen to close to 80 mb. We don’t know for September yet. But looking at October we now know that its production will likely average close to 4.5 mb/d due to the revival of 190 kb/d of production in Kurdistan. Its quota however will only be 4.24 mb/d. Its overproduction in October will thus likely be around 250 kb/d above its quota with its production debt rising another 7-8 mb to a total of close to 90 mb.

Again, why should Saudi Arabia be frugal while Iraq is freeriding. Better to get rid of the voluntary quotas as quickly as possible and then start all over with clean sheets.

Unwinding the remaining 1.513 mb/d in one go in October? If OPEC+ unwinds the remaining 1.513 mb/d of voluntary cuts in one big go in October, then Iraq’s quota will be around 4.4 mb/d for October versus its likely production of close to 4.5 mb/d for the coming month..

OPEC+ should thus unwind the remaining 1.513 mb/d (1.65 – 0.137 mb/d) in one go for October in order for the quota of Iraq to be able to keep track with Iraq’s actual production increase.

October 5 will show how it plays out. But a quota unwind of at least 500 kb/d for Oct seems likely. An overall increase of at least 500 kb/d in the voluntary quota for October looks likely. But it could be the whole 1.513 mb/d in one go. If the increase in the quota is ’only’ 500 kb/d then Iraqi cumulative production will still rise by 5.7 mb to a total of 85 mb in October.

Iraqi production debt versus quotas will likely rise by 5.7 mb in October if OPEC+ only lifts the overall quota by 500 kb/d in October. Here assuming historical production debt did not rise in September. That Iraq lifts its production by 190 kb/d in October to 4.47 mb/d (August level + 190 kb/d) and that OPEC+ unwinds 500 kb/d of the remining quotas in October when they decide on this on 5 October.

Fortsätt läsa

Analys

Modest draws, flat demand, and diesel back in focus

Publicerat

7 dagar sedan

den

26 september, 2025

Redaktionen

U.S. commercial crude inventories posted a marginal draw last week, falling by 0.6 million barrels to 414.8 million barrels. Inventories remain 4% below the five-year seasonal average, but the draw is far smaller than last week’s massive 9.3-million-barrel decline. Higher crude imports (+803,000 bl d WoW) and steady refinery runs (93% utilization) helped keep the crude balance relatively neutral.

Ole R. Hvalbye, Analyst Commodities, SEB

Yet another drawdown indicates commercial crude inventories continue to trend below the 2015–2022 seasonal norm (~440 million barrels), though at 414.8 million barrels, levels are now almost exactly in line with both the 2023 and 2024 trajectory, suggesting stable YoY conditions (see page 3 attached).

Gasoline inventories dropped by 1.1 million barrels and are now 2% below the five-year average. The decline was broad-based, with both finished gasoline and blending components falling, indicating lower output and resilient end-user demand as we enter the shoulder season post-summer (see page 6 attached).

On the diesel side, distillate inventories declined by 1.7 million barrels, snapping a two-week streak of strong builds. At 125 million barrels, diesel inventories are once again 8% below the five-year average and trending near the low end of the historical range.

In total, commercial petroleum inventories (excl. SPR) slipped by 0.5 million barrels on the week to ish 1,281.5 million barrels. While essentially flat, this ends a two-week streak of meaningful builds, reflecting a return to a slightly tighter situation.

On the demand side, the DOE’s ‘products supplied’ metric (see page 6 attached), a proxy for implied consumption, softened slightly. Total demand for crude oil over the past four weeks averaged 20.5 million barrels per day, up just 0.9% YoY.

Summing up: This week’s report shows a re-tightening in diesel supply and modest draws across the board, while demand growth is beginning to flatten. Inventories remain structurally low, but the tone is less bullish than in recent weeks.

Fortsätt läsa

Analys

Are Ukraine’s attacks on Russian energy infrastructure working?

Publicerat

1 vecka sedan

den

24 september, 2025

Redaktionen

Brent crude rose 1.6% yesterday. After trading in a range of USD 66.1 – 68.09/b it settled at USD 67.63/b. A level which we are well accustomed to see Brent crude flipping around since late August. This morning it is trading 0.5% higher at USD 68/b. The market was expecting an increase of 230 kb/d in Iraqi crude exports from Kurdistan through Turkey to the Cheyhan port but that has so far failed to materialize. This probably helped to drive Brent crude higher yesterday. Indications last evening that US crude oil inventories likely fell 3.8 mb last week (indicative numbers by API) probably also added some strength to Brent crude late in the session. The market continues to await the much heralded global surplus materializing as rising crude and product inventories in OECD countries in general and the US specifically.

The oil market is starting to focus increasingly on the successful Ukrainian attacks on Russian oil infrastructure. Especially the attacks on Russian refineries. Refineries are highly complex and much harder to repair than simple crude oil facilities like export pipelines, ports and hubs. It can take months and months to repair complex refineries. It is thus mainly Russian oil products which will be hurt by this. First oil product exports will go down, thereafter Russia will have to ration oil product consumption domestically. Russian crude exports may not be hurt as much. Its crude exports could actually go up as its capacity to process crude goes down. SEB’s Emerging Market strategist Erik Meyersson wrote about the Ukrainian campaign this morning: ”Are Ukraine’s attacks on Russian energy infrastructure working?”. Phillips P O’Brian published an interesting not on this as well yesterday: ”An Update On The Ukrainian Campaign Against Russian Refineries”. It is a pay-for article, but it is well worth reading. Amongst other things it highlights the strategic focus of Ukraine towards Russia’s energy infrastructure. A Ukrainian on the matter also put out a visual representation of the attacks on twitter. We have not verified the data representation. It needs to be interpreted with caution in terms of magnitude of impact and current outage.

Complex Russian oil refineries are sitting ducks in the new, modern long-range drone war. Ukraine is building a range of new weapons as well according to O’Brian. The problem with attacks on Russian refineries is thus on the rise. This will likely be an escalating problem for Russia. And oil products around the world may rise versus the crude oil price while the crude oil price itself may not rise all that much due to this.

Russian clean oil product exports as presented by SEB’s Erik Meyersson in his note this morning.

The ICE Gasoil crack and the 3.5% fuel oil crack has been strengthening. The 3.5% crack should have weakened along with rising exports of sour crude from OPEC+, but it hasn’t. Rather it has moved higher instead. The higher cracks could in part be due to the Ukrainian attacks on Russian oil refineries.

Ukrainian inhabitants graphical representation of Ukrainian attacks on Russian oil refineries on Twitter. Highlighting date of attacks, size of refineries and distance from Ukraine. We have not verified the detailed information. And you cannot derive the amount of outage as a consequence of this.