Analys

Rebounding on expectations for a tightening Q3-17 while US shale oil rigs continues to rise

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8 år sedan

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26 juni, 2017

Brent crude front month contract lost 3.9% last week closing the week at $45.54/b. Even the longer dated December 2020 contract lost 1.7% with a close of $51.86/b. WTI crude prices lost a comparable amount with the WTI 1 mth contract closing at $43.01/b.

Oil prices staged a 1.6% rebound during the last two days of the week following a more or less continuous sell-off since late May. There were no obvious bull-drivers lifting prices higher. Technical indicators however pointed to solid oversold territory. Headlines started to air views that “when all headlines are bearish, that’s the time to buy” etc.

Crude oil prices are gaining another 1% this morning with Brent 1mth contract trading at $46.0/b. Again there is no obvious bull-driving headline. The price recovery of 2.7% since the bottom last week cannot really be said to be explosive and there is currently no headline bullish driver pushing it higher.

We do have a strong, seasonal increase in oil demand ahead of us for Q3 and Q4 with a substantial amount of refineries heading back into operation. Thus the current weakness in the physical crude oil market could be the final bear-point before a tightening crude oil market and significant inventory draw downs in Q3 and Q4. We do believe that inventories will draw down significantly during the coming two quarters. The price effect could however be a firming of the 1 to 18 mth contract where the 1 mth contract gains versus the 18 mth contract rather than a lifting of the whole forward crude price curve.

The strong rise in floating storage was also suddenly look upon as a sign that physical crude traders are taking long position in physical cargoes awaiting better prices. The reason being that it is not economical to store oil at sea since the contango isn’t really deep enough. Thus the only explanation would thus be that physical traders are proactively taking on floating cargoes in order to position for an oil price rebound. We are however not all that convinced about this argument. The 2 mn bl Sea Lynx VLCC has now been circling in the North Sea for several weeks with oil from the vessel being offered repeatedly to the market. The same goes for the 2 mn bl Desimi with has been circling in the North Sea since late April, early May.

The production revival in Libya and Nigeria is creating concerns for the effect of OPEC’s cuts. Exports from Nigeria now look set to reach 2 mn bl in August while Libya’s NOC last week stated that they reached 0.9 mb/d with a target of 1 mb/d in July. This adds up to 3 mb/d for the two versus a production of 2.2 mb/d in November when OPEC & Co agreed on its production cut.

Last week 11 oil rigs were added in the US. Implied shale oil rigs rose by 13 which is the highest weekly addition since mid-April. Looking 6 weeks back the WTI 18 mth price contract traded at $49-50/b which obviously was not low enough to deter drillers from adding more oil rigs. On average there has been added 6.7 shale oil rigs each week the last 6 weeks. The average weekly additions since June last year are 6.8 rigs/week. The high of rig additions was from mid-Jan to mid-March when 11.6 rigs/week were added. Thus seen from the US shale oil drilling side of things the oil price has not yet become low enough for long enough in order to stem a further rise in active shale oil rigs.

Table1: 11 additional oil rigs last week in the US

Ch1: Changes in US shale oil rig count versus WTI 18 mth contract price some 6 weeks ago.

Ch2: The 1-6 mth contango has not deepened
This part of the curve should tighten in Q3 and Q4

Ch3: Hedgefund speculative positioning – Net-long close to previous lows

Ch4: Total net long speculative WTI positioning – Into neutral territory but still some way to go to previous lows

Ch5: Production revival in Libya and Nigeria partially countering the effect of OPEC cuts

Kind regards

Annons

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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Stronger inventory build than consensus, diesel demand notable

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3 dagar sedan

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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.

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Analys

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

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5 dagar sedan

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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

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

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7 dagar sedan

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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.