Analys

Price action signals a rapidly balancing market (2021 oil is cheap)

Publicerat

5 år sedan

den

6 maj, 2020

Redaktionen

It is a huge challenge to be an oil analyst these days because the changes are so fast, the magnitudes are so large and exact numbers are so hard to pinpoint. Early estimates/projections for declines in global oil demand in April has been in the range of minus 30 m bl/d to minus 17 m bl/d. The proof is in the pudding though: Inventories. Morgan Stanley’s latest estimate is that global oil inventories rose by 13.4 m bl/d in April. If that is the total inventory build for both crude and products, then early projections for a massive fall in global demand of up to 30 m bl/d is totally off the mark and the market could today be close to balanced.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop,
Chief analyst commodities, SEB

Gunvor stated in mid-April that in their bottom-up analysis they could not find more than 70 m bl/d of demand versus a normal of 100 m bl/d. The US EIA in its April STEO report projected global demand down by 17 m bl/d vs its February report. The IEA estimated in its April report that global demand would be down by 23 m bl/d in Q2-20 vs Q2-19.

Actual data for supply and demand on a global scale are hard to aggregate and usually arrive several months after the fact. The estimates we have had so far are thus exactly that, estimates. Especially IEA’s April OMR forecast of a pull-back of 23 m bl/d YoY in Q2-20 as it is forward looking.

There is no doubt that the world to a large degree moved to an almost stand-still for a while and that oil demand has been hurt badly. How badly is the key question and how quickly it will recover.

The uncertainty over demand is huge, the range is wide and the magnitude of the demand shortfall for any of the estimates are all off the historical scale.

OPEC+ probably increased production by close to 2 m bl/d from March to April. Non-OPEC+ production may on the other hand have declined by up to 2 m bl/d. Production did over all at least not decline in April.

If we take the IEA’s projection of a pullback in demand of 23 m bl/d as the base assumption, then global inventories should have increased comparably in April. According to MS (via Bloomberg) the global build was more like 13 m bl/d in April based on satellite surveillance, onshore tank tracking, oil in transit and floating storage. If this reference is for both crude and oil products it means that even the very wide range of estimates we have been looking at so far are significantly off the mark.

If the IEA is correct in its assessment that global demand would stay 23 m bl/d below last year for all of Q2-20 then the historically large cut by OPEC+ of close to 11 m bl/d reduction from April to May and close to 9 m bl/d vs Jan/Feb would still leave the global oil market with a very large running surplus of oil of up to 12 m bl/d. If we factor in a 2-3 m bl/d decline in non-OPEC+ as well the surplus would still be close to 9 m bl/d in May which is enormous.

Such a surplus would imply further strong stock building, deepening contango in the crude curves and very bearish and declining spot crude oil prices. This is however not at all what we are seeing in the crude oil market these days. Spot prices are instead rising, and crude curves are flattening.

Price action these days would match much better with the reported stock building of 13.4 m bl/d in April estimated by MS (via Bloomberg). Assume that the demand short-fall in April was more like 13 m bl/d. Add in an oil demand recovery in May (due to economic opening) as well as a production cut of 9-11 m bl/d from OPEC+ (depending on base-line) and a non-OPEC+ production decline of 2-3 m bl/d then the global oil market in May would be close to balanced and could even be short.

Right now, the price action has been mostly focused on a flattening of crude oil curves. Bearish time-spreads are probably taken off rather than a full-fledged bullish buying spree. The reason for saying this is because the front-year Brent 2021 is trading at only $37.3/bl which is only $1.6/bl above its lowest closing price. The same goes for almost all the front-year 2021 oil product prices. They are all barely off their lows. They are at a bargain but maybe not for long.

Relaterade ämnen:bjarne schieldrop seb analys

Nästa

The crude oil market in June – Less of a crowded place

Missa inte

Brent and WTI – A tale of two benchmarks

Fortsätt läsa

Annons

Analys

Stronger inventory build than consensus, diesel demand notable

Publicerat

2 dagar sedan

den

21 februari, 2025

Redaktionen

Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

Fortsätt läsa

Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

Publicerat

4 dagar sedan

den

19 februari, 2025

Redaktionen

Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

Fortsätt läsa

Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

Publicerat

6 dagar sedan

den

17 februari, 2025

Redaktionen

Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.