Analys

SEB Commodities price outlook

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3 år sedan

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28 april, 2022

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Macro: Hot US, cold China, expensive energy, and a looming food crisis. The US economy is super-hot like it is running on steroids following trillions of USD in stimulus during the pandemic. Naturally strong demand for everything. It is in urgent need for cool-down and the US Fed is on the case. It will not let a possible recession down the road stand in its way of killing off the current wild US inflation. The US Fed will now force the US economy to cool down, potentially to the point of recession. The temperature in Chinese economy on the other hand is close to zero due to Covid lock-downs.

The Chinese government is in what looks like a futile and losing battle versus the virulent Omicron virus. Lock-downs, lock-downs, lock-downs of large cities are the government’s response as the virus pops up in more and more places. Omicron infections are now present in regions constituting 75% of China’s GDP. It is difficult to see how China can escape the current vicious lock-downs without letting the virus free. Once China is on the other side of the Omicron virus the government will likely stimulate the economy significantly to counter the pain and weakness created from the ongoing lock-downs. But first it needs to move through the Omicron problem by letting it loose as it most likely cannot bypass it like previous, and less virulent virus variants.

In the middle of all this we have the war in Ukraine which has contributed to much higher energy prices and especially so in Europe where power and natural gas prices now are 5 times higher than normal. Ukraine is usually a large exporter of fertilizers as well as the 5th biggest grain exporter in the world. Its grain production could be down by 50% this year. Russia is the world’s biggest grain exporter and current sanctions are likely to hamper its production. Kansas, the biggest wheat producer in the US is experiencing severe drought. Bloomberg’s agri index is already at an all-time-high in nominal terms though it is still 18% below its previous real term high from 2011. The global food crisis from 2010 to 2013 let to riots, hording, export curbs and presumably set off the tragic ‘Arab spring’ which led to a lot of tragic bloodshed.

So, in total we have a situation where:

The US economy is super-hot but set to cool down as fast as the US Fed possibly can cool it
The Chinese economy will likely be chilled as long as the Chinese government tries to fight Omicron with lock-downs
The EU economy will struggle under the burden of 5x normal power and nat gas prices due to the Russian invasion of Ukraine
A looming food crisis could possibly destabilize lower income countries

The current macro situation is very challenging and global growth has been revised considerably lower by the IMF. Over the past 6 months it has adjusted its 2022 growth expectations from almost 5% to now just above 3.5% (April update). Since then, things have probably gotten worse. Many commodities are however still in short supply. 1) Due to capex cuts over the past two years as producers went into protective mode amid the first pandemic since 1918. 2) Due to muted commodity capex spending over the past decade as profits were low and investors looked in other directions. We thus maintain a robust outlook for commodity prices. There are clearly downside risks due to the current macro environment but there are also significant supply risks.

This report has been compiled by SEB´s Commodity Research, a division within Skandinaviska Enskilda Banken AB (publ) (”SEB”), to provide background information only.

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Stronger inventory build than consensus, diesel demand notable

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2 dagar sedan

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21 februari, 2025

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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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4 dagar sedan

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19 februari, 2025

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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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6 dagar sedan

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17 februari, 2025

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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.