Analys

Risk for OPEC dissapointment and a short term sell-off as all bets are on the long side

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8 år sedan

den

27 november, 2017

Marked has placed all chips on the long side betting on an extension of OPEC/non-OPEC production cuts which officially ends in Q1-18. In general we do think that OPEC/non-OPEC will manage the market and hold back production if needed through 2018 in order to secure further gradual draw down of OECD inventories. However we also think that it would be better for OPEC/non-OPEC to make hard decissions on this in Feb/Mar getting as much data as possible before making that decission. That is also what the group has mostly consistengly communicated through the autumn. The market seems to expect and demand a firm decission right now this week. As such the market is rigged for dissapointment with a possible short term sell-off as all chips are on the long side.

On Thursday 30th OPEC and some non-OPEC producers will meet in Vienna to discuss whether to extend current production cuts or not.

The communication all through the autumn has been that they want to make this decission in February/March 2018 in order to have as much data on the table as possible before making the decission.

That makes a lot of sense since there is substantial dissagreement with respect to how much oil is needed from OPEC in 2018.

Somehow the market has geared it self up to an expectation that OPEC/non-OPEC needs to make a firm decission on this right now on Thursday. And further that the decission will be an extension of current cuts maintained all to the end of 2018.

As such it seems to us that there is a substantial risk that the market is setting it self up for a dissapointment this week. For us it makes much more sense for the group to make this call in Feb/Mar which is also what they mostly have been communicating all through the autumn.

The challenge for the group this is week may thus be all about managing the market’s expectations. How not to let the market down when it communicates that the decission will be taken in Feb/March.

And if there is a decission this week it is likely going to be a sign of intention: “If needed we’ll maintain cuts to the end of 2018”, or “We’ll maintain cuts to June 2018 and then make a new assessment”, or “We are all in agreement that we’ll extend cuts as long as needed in order to drive OECD inventories down to the 5 year average”.

That is indeed a trickey reference. This is because for every month we move forward the 5 year average reference is rising. Since March 2017 the OECD inventories have declined some 0.7 mb/d when adjusting for seasonal trends (given by the 2010-2014 seasonal average profile). If we extend this decline rate on top of the seasonal trend (2010-2014) we actually almost get all the way down the 2013-2017 average profile.

As such one can say that in February when we get the OECD inventory data for December 2017 the goal of getting inventories down to the 5 year average (2013-2017) will have been achieved. The goal of getting OECD inventories down to the 5 year average is thus a trickey goal and a moving target.

The big question though is what is really needed in order to secure a balanced oil market in 2018? There is a significant dissagreement on this. The IEA says that call-on-OPEC will be 32.4 mb/d in 2018. SEB’s estimate is 32.7 mb/d, the US EIA’s is 32.7 mb/d while OPEC’s own estimate is 33.4 mb/d. Variations on this comes down to projections for demand, US shale oil production and the level of OPEC’s NGL production in 2018.

The OECD draw down since March this year of 0.7 mb/d (adjusted for seasonallity) indicates an implied oil market deficit of 0.7 mb/d thrugh Q2 and Q3 this year during which OPEC produced 32.55 mb/d. However, if we assume that the OECD inventories only cover half or a third of global inventories then what we see of deficit implied by the draw down in the OECD inventories could actually be two or three times as much if there have been comparable draw downs in non-OECD inventories.

Thus beeing carefule about committing to further cuts now on Thursday seems kind of sensible with the aim of instead making that decission in Feb/Mar.

Market participants are seemingly all expecting OPEC/non-OPEC to make a firm and clear decission this Thursday for extending current cuts to Dec-2018. Net long speculative positions for Brent and WTI together are now very close to all time high. US oil rig count has started to rise again (+9 rigs last week). The decission to add these 9 rigs was probably taken some 6-8 weeks ago when the WTI forward price only stood at $51-52/b. Now that reference WTI price stands at $55/bl with a clear risk for a rise in rig count in the weeks to come. The outage of the 590 kbl/d Keystone pipeline due to an oil spill has reduced supply into Cushing Oklahoma by some 4 mbl/week. It has helped to reduce Chushing inventories and to drive also the WTI crude curve into backwardation. However, the Keystone pipline is likely to back in operation within a week or so.

Annons

Thus overall there is a fair chance that the market will be dissapointed on Thursday. That there will be no firm decission even though there will be firm support for further cuts if needed. And if OPEC/non-OPEC actually do make a firm decission to maintain cuts all to the end of 2018 then there may not be much upside price action since that decission is already so highly priced in already.

Thus buying a put option on the front month WTI contract with short time to expiry may be a good strattegy in the run-up to this week’s digital OPEC/non-OPEC decission risk on Thursday.

Our general stand on OPEC/non-OPEC cuts for 2018 is that further cuts are likely needed but also that if needed we expect OPEC/non-OPEC to manage the market in order to prevent inventories from rising back up.
Needed cuts will likely be of a magnitude which are perfectly manageable for the group. Why through away all they have acchieved in 2017 with inventory draw downs when they can hold back a little supply.

Ch1: OECD inventories with extrapolation to end of 2017 of the 0.7 mb/d draw down in Q2 and Q3 2017
Getting closer to the 2010-2014 average in December 2017

Ch2: OECD inventories. Which 5 year normal should you use? The 2013-2017?
If the latter then mission acomplished in December 2017, but we won’t know before February

Ch3: Call-on-OPEC 2018? – Big dissagreement!
Who knows OPEC NGL the best? Account for 0.6 mb/d difference to the IEA!

Ch4: Close to record USD allocation in net long speculative Brent crude oil positions
Makes it vulnerable to downside corrections and OPEC/non-OPEC dissapointments
Net long Brent crude oil speculative positions are now at the 3rd highest over the past 52 weeks

Ch5: US oil rig count has started to rise again

Ch6 The increas in rig count we see now came from price signals some 6-8 weeks ago
Since then the WTI curve price has moved from $51/bl to $55/bl.
The effect of the price rise over the past 6-8 weeks will be visible in terms of rig count over the coming 6-8 weeks

Ch7: Risk of rising rig count in the weeks to come
Could weight bearishly on the WTI crude oil price

Ch8: While US crude oil production continues to rise
Will it rise 0.7 mb/d or 1.5 mb/d next year?

Ch9: WTI crude oil curve shifted into backwardation following the outage of the Keystone pipeline which feeds 590 kbl/d of Canadian oil into Chushing Oklahoma
The Keystone pipeline is likely going to be back on line within a week or so which could push the WTI curve back into contango again

Kind regards

Annons

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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Analys

Brent crude ticks higher on tension, but market structure stays soft

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2 dagar sedan

den

16 september, 2025

Redaktionen

Brent crude has climbed roughly USD 1.5-2 per barrel since Friday, yet falling USD 0.3 per barrel this mornig and currently trading near USD 67.25/bbl after yesterday’s climb. While the rally reflects short-term geopolitical tension, price action has been choppy, and crude remains locked in a broader range – caught between supply-side pressure and spot resilience.

Ole R. Hvalbye, Analyst Commodities, SEB

Prices have been supported by renewed Ukrainian drone strikes targeting Russian infrastructure. Over the weekend, falling debris triggered a fire at the 20mtpa Kirishi refinery, following last week’s attack on the key Primorsk terminal.

Argus estimates that these attacks have halted ish 300 kbl/d of Russian refining capacity in August and September. While the market impact is limited for now, the action signals Kyiv’s growing willingness to disrupt oil flows – supporting a soft geopolitical floor under prices.

The political environment is shifting: the EU is reportedly considering sanctions on Indian and Chinese firms facilitating Russian crude flows, while the U.S. has so far held back – despite Bessent warning that any action from Washington depends on broader European participation. Senator Graham has also publicly criticized NATO members like Slovakia and Hungary for continuing Russian oil imports.

It’s worth noting that China and India remain the two largest buyers of Russian barrels since the invasion of Ukraine. While New Delhi has been hit with 50% secondary tariffs, Beijing has been spared so far.

Still, the broader supply/demand balance leans bearish. Futures markets reflect this: Brent’s prompt spread (gauge of near-term tightness) has narrowed to the current USD 0.42/bl, down from USD 0.96/bl two months ago, pointing to weakening backwardation.

This aligns with expectations for a record surplus in 2026, largely driven by the faster-than-anticipated return of OPEC+ barrels to market. OPEC+ is gathering in Vienna this week to begin revising member production capacity estimates – setting the stage for new output baselines from 2027. The group aims to agree on how to define “maximum sustainable capacity,” with a proposal expected by year-end.

While the IEA pegs OPEC+ capacity at 47.9 million barrels per day, actual output in August was only 42.4 million barrels per day. Disagreements over data and quota fairness (especially from Iraq and Nigeria) have already delayed this process. Angola even quit the group last year after being assigned a lower target than expected. It also remains unclear whether Russia and Iraq can regain earlier output levels due to infrastructure constraints.

Also, macro remains another key driver this week. A 25bp Fed rate cut is widely expected tomorrow (Wednesday), and commodities in general could benefit a potential cut.

Summing up: Brent crude continues to drift sideways, finding near-term support from geopolitics and refining strength. But with surplus building and market structure softening, the upside may remain capped.

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Analys

Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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6 dagar sedan

den

12 september, 2025

Redaktionen

Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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1 vecka sedan

den

10 september, 2025

Redaktionen

Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

Bjarne Schieldrop, Chief analyst commodities, SEB

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January