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SEB Jordbruksprodukter, 14 januari 2013

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SEB - Prognoser på råvaror - CommodityI fredags på den nya tiden 18:00 publicerade det amerikanska jordbruksdepartementet årets första World Agricultural Supply and Demand Estimates (WASDE) och lagerstatistiken per den 1 december samt sådd höstvete-areal. Vi går igenom WASDE-statistiken under respektive råvara längre fram i veckobrevet.

Tendens på råvarupriserLagerstatistiken i miljoner bushels visade att det fanns mindre sojabönor och majs i lager i USA än marknaden hade väntat sig. Viktigast för dessa var majs, eftersom lagersituationen där är mest ansträngd efter sommarens torka i USA. Lagren visade sig vara ännu mindre än vad marknaden hade väntat sig. Det betyder att foderefterfrågan inom USA har varit större än vad marknaden hade väntat sig. Etanolproduktion och export har vi ju god koll på. Vi minns också att USDA i september gjorde en märklig uppjustering av lagren (1 september), som vi skrev att vi inte trodde på (att lagret borde vara lägre). Man hade ökat lagret per 1 september med den del som var skördad tidigt, skörden var ju ovanligt tidig, men inte i motsvarande mån minskat skörden resten av hösten.

Prognos på jordbruksråvaror

Lagren av sojabönor indikerar att priset bör gå upp något för att nå marknadsjämvikten. För vete motiveras något lägre pris, men det är så lite att det nästan är försumbart.

Om vi så går vidare med vetet för att se hur mycket som var sått i miljoner acres, enligt USDA:s statistik, av höstvete, kan vi se att det är väsentligt mindre Hard Red Winter Wheat, den sort som handlas på Kansas City Board of Trade. Det har såtts mindre HRWW än förra året, till och med. HRWW innehåller mer protein än Chicago-sorten, Soft Red Winter Wheat. Det har såtts mer SRWW än väntat och betydligt mer än förra året. Vi kan alltså vänta oss i år att premien för protein ökar i år.

Prognoser på vete

Sammantaget är det en rapport som indikerar högre priser för vete. Möjligtvis kommer detta att locka fram mer sådd av vårvete och i så fall mindre sådd av majs och sojabönor. I vilket fall, sammantaget en rapport som pekar på högre priser på alla dessa grödor.

Vi ändrar nu rekommendationen för vete och majs till neutral från sälj.

Odlingsväder

Torkan i USA håller i sig, som vi ser i den senaste ”Drought Monitor”, som publicerades i torsdags. Sedan förra veckan är det en marginell förbättring i torkan, dvs något lite mindre yta är drabbad av torka.

U.S. drought monitor

Sedan förra veckan har alla kategorier av torka (D0 – D4) minskat, som vi ser i nedanstående tabell.

Torka i USA

I Kina har det varit extremt kallt vilket fått priset på höstvete att nå en rekordnivå. Mer om det nedan. I England har det regnat extremt mycket den senaste veckan. Höstvetet befaras ha tagit skada. Argentina fick tillbaka torrt väder i veckan (majs, sojabönor).

Vete

Nedan ser vi november (2013) kontraktet, där priset föll kraftigt i fredags, men återhämtade sig och stängde på 217.50, nästan oförändrat på dagen.

Vetepriset återhämtade sig

Nedan ser vi decemberkontraktet på CBOT. Chicago stängde upp efter fredagens handel, till skillnad från Matif. GASC, den Egyptiska statens huvudsakliga veteimportör, köpte 115,000 ton amerikanskt och kanadensiskt vete i den senaste tendern, som publicerades i veckan. Till nästa tender GASC franskt vete. Det amerikanska vetet är det billigaste i världen, men frågan är om man lyckas exportera allt eftersom Mississippi-floden har stängts på grund av lågt vattenstånd (orsakat av torkan).

Decembertermin på vete hos CBOT

Vi ser här en bild på terminskurvorna för Matif och Chicago, båda omräknade till euro per ton.

Terminskurvor för vete på CBOT och Matif

Av diagrammet ovan ser man att gammal skörd av Matif-vete är avsevärt mycket dyrare än Chicagovetet. Maj-terminen handlas dessutom lägre än mars-terminen. Det säger att den som väntar med att sälja till maj riskerar att få väsentligt sämre betalt – och dessutom får bära ränte- och lagerkostnader fram till dess. Den som vill ta en position på högre priser och har fysiskt vete i lager gör därför sannolikt bäst i att sälja den fysiska varan och istället köpa terminer.

I Kina har priset på vete stigit till en ny rekordnotering. Det har i våra ”mainstream” media helt missats att Kina drabbats av den värsta kylan på över 30 år och den har skadat höstvetet långt söderut i landet. Priset var efter årsskiftet uppe på över 300 euro per ton för spotleverans i Shanghai. I diagrammet är priset omräknat från Renminbi till euro per ton. Vi ser också spotkontraktet på Matif som jämförelse.

I Kina har priset på vete stigit till en ny rekordnotering

Kina har inte varit någon nettoimportör av vete sedan 2004/05, men risken finns att de måste importera mer framöver. I år räknar USDA med att Kina ska importera 3 mt, som vi ser i diagrammet nedan.

USDA - Vete import Kina

De råvaror som Kina blivit blivit nettoimportör av har rusat iväg i pris.

I fredagens WASDE-rapport sänkte USDA produktionsestimatet för skörden i år med 0.8 mt, fördelat i Argentina och Ryssland/Ukraina.

Världsproduktion av vete

Utgående lager enligt USDA ser vi nedan. Vi ser att det är en liten sänkning. Sänkningar gjordes för USA och Ryssland/Ukraina. Höjningar gjordes däremot för Australien och Kanada på grund av att man antagit lägre export.

Lager av vete

Själva WASDE-rapporten innehöll inget speciellt kursdrivande. Förväntad sådd areal, däremot, som vi gick igenom i inledningen till veckobrevet, indikerade att priset ”bör” kunna gå upp.

Ser vi förhållandet mellan pris och utgående lager i ett historiskt perspektiv, ser vi att priset för spotkontraktet (det med kortast återstående löptid) på CBOT ligger ganska mycket i linje med de senaste årens relation mellan utgående lager och pris.

Vete - USDA och SEB

Slutsatsen efter att ha gått igenom såväl den tekniska bilden, som WASDE-rapporten, lager per 1 december och höstvete-areal, är att marknaden bör etablera en botten på de här nivåerna och stabilisera sig. Vi går därför över till en neutral rekommendation. Ytterligare motiv för detta är att situationen i majsmarknaden är ännu mer ”bullish”.

Maltkorn

November 2013-kontraktet fortsätter att hoppa sig framåt. I veckan steg priset upp nästan till 260 euro per ton, men föll i fredags ner till 252 euro. 240 euro är en tydlig stödnivå strax under. Det förefaller som om de allra ivrigaste maltkornsköparna har den som ”fyndnivå”. Vi kan också se att de lite mindre ivriga maltkornsköparna tycks vara villiga att köpa kring 220 euro per ton. Det finns alltså ganska gott om stödnivåer för priset strax under dagens prisnivå för kommande skörd.

Maltkorn - Diagram den 12 januari 2013

Potatis

Potatispriset för leverans i april nästa år (2014) har sjunkit något sedan förra veckan och handlas på 15.70 euro per deciton. Det är i den nedre delen av det prisintervall som potatisen som skördas i höst har handlats till sedan september.

Diagram öve potatispris

Majs

Majspriset (december 2013) reagerade på fredagens WASDE-rapport med att först stiga och sedan falla. Tekniskt stöd finns på 550 cent i decemberkontraktet, som vi ser i diagrammet nedan. Vi tycker inte att rapporten från USDA motiverar lägre pris.

Diagram på majspriset

WASDE-rapportens produktionsestimat ser vi nedan och det är alltså en höjning från december med 3 mt på global basis. Höjningarna gjordes för USA, Argentina och Brasilien.

Världsproduktion av majs

Utgående lager sänktes på global basis till 116 mt från 117.6 beroende på att man antagit en högre foderefterfrågan och för att lagren per 1 december var lägre än vad USDA tidigare antagit. Att foderefterfrågan var högre under det fjärde kvartalet än vad USDA antagit innebär att den kommer att vara det även under det första och kanske andra kvartalet i år också. Med så pass låga som lagren är, behövs en riktigt stor skörd i år. Och för att det ska ske kan inte priset fortsätta att falla.

Världslager av majs

Nedanμ ser vi förhållandet mellan lager och pris. Vi ser att priset är exceptionellt högt i ett historiskt perspektiv, men lagren är också exceptionellt låga.

Majs - Relation mellan lager och pris

Vi ska titta på lagren i ett historiskt perspektiv nu i termer av dagars konsumtion:

Historiska lager av majs

Sammanfattnignsvis: Det behövs en riktigt ordentlig skörd av majs i USA för att utbudet ska återställas. Lagerrapporten tyder på att foderefterfrågan är större än väntat och globala lager är nära rekordlåga nivåer. Vi går därför över till en neutral rekommendation på majsen.

Sojabönor

Efter lager- och WASDE-rapporten i fredags föll priset på sojabönor. Lagerrapporten indikerade högre priser, men WASDE-rapportens utbuds- och efterfrågebalans (sammanfattad som utgående lager) innehöll inget som skrämde marknaden. Priset i förhållande till utgående lager visar att priset ligger något ”högt” i förhållande till väntad lagernivå.

Tekniskt gjorde prisfallet i fredags ett en stödlinje bröts, vilket signalerar att ytterligare prisfall kan väntas de närmaste dagarna då säljarna verkar vara mer motiverade än köparna. 1225 cent / bushel på novemberkontraktet kan kanske tas som en första målkurs.

Prisfall i sojabönor

USDA justerade upp sojabönsproduktionen 2012/13 i fredagens WASDE-rapport. Brasilien höjdes, vilket är i linje med lokala prognoser. USA höjdes också, men Argentina sänktes. USDA sänkte även Argentinas uppskattade skörd förra året, vilket då slår på utgående lager för 12/13.

Världsproduktion av sojabönor

Nedan ser vi USDA:s uppskattning av utgående lager 2011/12 och prognos för 2012/13. Som vi ser resulterade det i en liten sänkning, främst i USA och Argentina (pga sänkt ingående lager, huvudsakligen).

Uppskattning av världslager på sojabönor

Nedan ser vi förhållandet mellan pris och förväntade utgående lager 2012/13 i termer av dagars konsumtion. På basis av den här bilden ser vi att priset ser ”högt” ut.

Pris och lager av sojabönor

Sammanfattningsvis: Prisfall ner mot 1225 cent på novemberkontraktet ser ut att kunna vara ett riktmärke.

Raps

Rapspriset (november 2013) föll i pris i fredags som en följd av prisfallet i sojabönorna. Tekniskt finns en stödnivå på 415 euro per ton. Det är troligt att den ska testas – och kanske brytas på nedsidan – i veckan som kommer.

Rapspriset

Gris

Grispriset (Maj 13), amerikansk Lean Hogs, har brutit en teknisk stödnivå (röd linje i diagrammet nedan). 94 cent per pund var första stödnivån, men antagligen fortsätter priset ner mot 92 cent i första hand.

Grispriset

Mjölk

I diagrammet nedan ser vi tre kurvor.Den gröna linjen är priset på skummjölkspulver i euro per ton på Eurex-börsen. Den blå är priset på smör på Eurex börsen. Priserna på Eurex anges i euro per ton.

Slutligen så den gröna linjen. Den visar priset på helmjölkspulver (WMP) FOB Västeuropa. Källan är USDA och priserna uppdateras varannan vecka. Vi ser att WMP-priset legat stabilt det fjärde kvartalet förra året, med en liten nedgång mot slutet av året. 2013 har dock börjat med en liten prisuppgång.

Mjölkrelaterade terminspriser

Det börsbaserade priset i svenska kronor beräknas med formeln:

Börsbaserade priset i kr / kg

där

BUT = priset på smör i euro per ton
SMP = priset på skummjölkspulver i euro per ton
FX = växelkursen för EURSEK.

SEB erbjuder, som första bank i världen, sina kunder att prissäkra ovanstående pris (marknad) i kronor per kilo med terminskontrakt.

EURSEK

EURSEK stärktes successivt under veckan som gick och nådde upp till de gamla motståndsnivåerna. Det finns inte mycket ny information som ger anledning till att anta annat än att den ”sidledes” rörelse vi sett de senaste månaderna ska fortsätta.

EURSEK valutaprognos

USDSEK

Dollarn föll mot kronan i veckan som gick. Det är fortsatt instabilt finansiellt och politiskt i USA. Stödnivån från botten i september är bruten och det ser ut som om vi ska vänta oss ytterligare dollarförsvagning i veckan som kommer.

USD SEK valutaprognos

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

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Analys

Bearish momentum may return but strategic buying is starting to kick in

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SEB - analysbrev på råvaror

EUA price action: The seeds of the rally may have come from Red Sea troubles, higher freight rates and higher ARA coal prices. Add in record short positioning in EUAs, nat gas being cheap relative to oil in Asia, participants in the EU ETS purchasing EUAs strategically, rising temperature adj. nat gas demand in Europe (though absolute demand still very, very weak due to warm weather) and lastly a weather forecast pointing to more normal temperatures in North West Europe. And ”Bob’s your uncle”, the EUA Dec-24 price rallied 10.8% from EUR 52.2/ton on Feb 26 to EUR 57.84/ton ydy.

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

It is normal with short-covering rallies in bear markets. What puzzled us a little was the involvement of coal prices in the rally together with nat gas and EUAs. Did the upturn in coal prices come from the Chinese market with participants there maybe sniffing out some kind of imminent, large government stimulus package and front-running the market?  No. There has been no rally in iron ore and the upturn in coal prices in Asia have been lagging the upturn in ARA coal prices.

Did the rally come from the Utility side in Europe where Utilities jumped in and bought Coal, Gas and EUAs and selling power against it? Probably not because forward fossil power margins are still very negative.

The most plausible explanation for the upturn in coal prices is thus Red Sea troubles, higher dry freight rates and higher ARA coal prices as a result. ARA coal prices bottomed out on 14 Feb and then started to move higher. The Baltic dry index started to rally already in mid-January. This may have been the seeds which a little later helped to ignite the short-covering rally in nat gas and EUAs. Add in a) Record short positioning in EUA contracts by investment funds with need for short-covering as EUA prices headed higher, b) Japanese LNG trading at only 58% versus Brent crude vs. a 2015-19 average of 73% thus nat gas was cheap vs. oil, c) Participants in the EU ETS starting to buy EUAs strategically because the price was close to EUR 50/ton, d) Gradually improving nat gas demand in Europe in temperature adjusted terms though actual.

Mixed price action this morning. Bearish momentum may return but strategic buying is kicking in. Today the EUA price is falling back a little (-0.3%) along with mixed direction in nat gas prices. The coal-to-gas differential (C-t-G diff) for the front-year 2025 still looks like it is residing at around EUR 47/ton and lower for 2026 and 2027. We expect C-t-G diffs to work as attractors to the EUA price from the power market dynamics side of the equation. Thus if nat gas prices now stabilizes at current levels we should still see bearish pressure on EUAs return towards these C-t-G diff levels. The forward hedging incentive index for power utilities in Germany is still deeply negative with no incentive to lock in forward margins as these largely are negative. Thus no normal purchasing of EUAs for hedging of power margin purposes.

That said however. We do see increasing interest from corporate clients to pick up EUAs for longer-term use and strategic positioning and that will likely be a counter to current bearish power market drivers. Even utilities will likely step in a make strategic purchases of EUAs. Especially those with coal assets. Irrespective of current forward power margins. An EUA price below EUR 60/ton is cheap in our view versus a medium-term outlook 2026/27 north of EUR 100/ton and we are not alone holding the view.

The Baltic dry index (blue) bottomed in mid-Jan and rallied on Red Sea issues. European coal, ARA 1mth coal price (white) bottomed on 14 Feb and then rallied. 

The Baltic dry index (blue) bottomed in mid-Jan and rallied on Red Sea issues. European coal, ARA 1mth coal price (white) bottomed on 14 Feb and then rallied.
Source: Blbrg graph and data

ARA 1mth coal price in orange starting to move higher from 14 Feb. EUA Dec-24 price bottomed for now on 26 Feb

ARA 1mth coal price in orange starting to move higher from 14 Feb. EUA Dec-24 price bottomed for now on 26 Feb
Source: Blbrg graph, SEB highlights

Net speculative positioning in EUAs by financial players. Record short

Net speculative positioning in EUAs by financial players. Record short
Source: Blbrg graph and data

Price of Japanese LNG vs price of TTF nat gas as a spread in EUR/MWh. Rising price of Japanese LNG vs. TTF. But this could be coming from changes in LNG freight rates

Price of Japanese LNG vs price of TTF
Source: SEB graph and calculations

Price of Japanese LNG vs. Brent crude traded all the way down to 58% making it cheap in relative terms to oil.

Price of Japanese LNG vs. Brent crude
Source: SEB graph and calculations, Blbrg data

The German forward hedging incentive index just getting more and more negative

The German forward hedging incentive index just getting more and more negative
Source: SEB calculations and graph

Forward EUA prices in green (today’s prices) and the EUA balancing price for Coal power vs Gas power in lilac. The latter is calculated with today’s nat gas prices and closing prices for ARA coal from ydy. In a medium-tight EUA market the Coal-to-Gas differential in lilac will typically be an ”attractor” for the EUA price in terms of power market dynamics.

Forward EUA prices in green (today's prices) and the EUA balancing price for Coal power vs Gas power in lilac.
Source: SEB graph and calculations, Blbrg data
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Analys

A ”Game of Chicken”: How long do you dare to wait before buying?

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SEB - analysbrev på råvaror

The EUA market rallied 3.4% ydy and is adding another 0.5% this afternoon with EUA Dec-24 at EUR 54.2/ton. Despite the current bounce in prices we think that the ongoing sell-off in EUA prices still has another EUR 10/ton downside from here which will place the low-point of EUA Dec-24 and Dec-25 at around around EUR 45/ton. Rapidly rising natural gas inventory surplus versus normal and nat gas demand in Europe at 23% below normal will likely continue to depress nat gas prices in Europe and along with that EUA prices. The EUA price will likely struggle to break below the EUR 50/ton level, but we think it will break.

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

That said, our strong view is still that the deal of the year is to build strategic long positions in EUA contracts. These certificates are ”licence to operate” for all companies who are participants in the EU ETS irrespective whether it is industry, shipping, aviation or utilities. We have argued this strongly towards our corporate clients. The feedback we are getting is that many of them indeed are planning to do just that with board approvals pending. Issuance of EUAs is set to fall sharply from 2026 onward. The Market Stability Reserve (MSR) mechanism will clean out any surplus EUAs above 833 m t by 2025/26. Medium-term market outlook 2026/27 is unchanged and not impacted by current bearish market fundamentals with fair EUA price north of EUR 100/ton by then. Building strategic long position in EUAs in 2024 is not about pinpointing the low point which we think will be around EUR 45/ton, but instead all about implementing a solid strategic purchasing plan for EUAs for 2024.

The ingredients in the bottoming process will be: 1) Re-start of European industry as energy prices come down to normal, 2) Revival in nat gas demand as this happens, 3) Nat gas prices finding a floor and possibly rebounding a bit as this happens, 4) Asian nat gas demand reviving as nat gas now normally priced versus oil, 5) Strategic purchasing of EUA by market participants in the EU ETS, 6) Speculative buying of EUAs, 7) Bullish political intervention in H2-24 and 2025 as EU economies revive on cheap energy and politicians have 2024-elections behind them.

On #1 we now see calculations that aluminium smelters in Europe now are in-the-money but not restarted yet. On #2 we see that demand destruction (temp. adj.) in Europe is starting to fade a bit. On #3 we have not seen that yet. On #4 we see stronger flows of LNG to Asia. On #5 we see lots of our corporate clients planning to purchase strategically and finding current EUA prices attractive.  On #6 it may be a bit early and so as well for #7.  

For EU ETS participants it may be a ”Game of Chicken”: How long do you dare to wait before buying? Those who wait too long may find the carbon constrained future hard to handle. 

Ydy’s short-covering rally lost some steam this morning before regaining some legs in the afternoon. The EUA Dec-24 ydy rallied 3.4% to EUR 53.97/ton in what looks like a short-covering-rally in both coal, nat gas, power and EUAs. This morning it gave almost all of the gains back again before regaining some strength in the afternoon to the point where it is now up at EUR 54.7/ton which is +1.4% vs. ydy. A weather forecast promising more seasonally normal temperatures and below normal winds could be part of the explanation.

The power market is currently the main driver and nat gas prices the most active agent. The main driver in the EUA market is the power market. When the EUA market is medium-tigh (not too loose and not too tight), then the EUA price will naturally converge towards the balancing point where the cost of coal fired electricity equals the cost of gas fired electricity. I.e. the EUA price which solves the equation: a*Coal_price + b*EUA_price = c*Gas_price + d*EUA_price where a, b, c and d are coefficients given by energy efficiency levels, emission factors and EURUSD fex forward rates. As highlighted earlier, this is not one unique EUA balancing price but a range of crosses between different efficiencies for coal power and gas power versus each other.

Coal-to-gas dynamics will eventually fade as price driver for EUAs but right now they are fully active. Eventually these dynamics will come to a halt as a price driver for the EUA price and that is when the carbon market (EU ETS) becomes so tight that all the dynamical flexibility to flex out of coal and into gas has been exhausted. At that point in time the marginal abatement cost setting the price of an EUA will move to other parts of the economy where the carbon abatement cost typically is EUR 100/ton or higher. We expect this to happen in 2026/27.

But for now it is all about the power market and the converging point where the EUA price is balancing the cost of Coal + CO2 equal to Gas + CO2 as described above. And here again it is mostly about the price of natural gas which has moved most dramatically of the pair Coal vs Gas.

Nat gas demand in Europe is running 23% below normal and inventories are way above normal. And natural gas prices have fallen lower and lower as proper demand recovery keeps lagging the price declines. Yes, demand will eventually revive due low nat gas prices, and we can see emerging signs of that happening both in Europe and in Asia, but nat gas in Europe is still very, very weak vs. normal. But reviving demand is typically lagging in time vs price declines. Nat gas in Europe over the 15 days to 25. Feb was roughly 23% below normal this time of year in a combination of warm weather and still depressed demand. Inventories are falling much slower than normal as a result and now stand at 63.9% vs. a normal 44.4% which is 262 TWh more than normal inventories.

Bearish pressure in nat gas prices looks set to continue in the short term. Natural gas prices will naturally be under pressure to move yet lower as long as European nat gas demand revival is lagging and surplus inventory of nat gas keeps rising rapidly. And falling front-end nat gas prices typically have a guiding effect on forward nat gas prices as well.

Yet lower nat gas prices and yet lower EUA prices in the near term most likely. Nat gas prices in Europe will move yet lower regarding both spot and forwards and the effect on EUA will be continued bearish pressure on prices.

EUA’s may struggle a bit to break below the EUR 50/ton line but most likely they will. EUA prices will typically struggle a bit to cross below EUR 50/ton just because it is a significant number. But it is difficult to see that this price level won’t be broken properly as the bearish pressure continues from the nat gas side of the equation. Even if nat gas prices comes to a halt at current prices we should still see the EUA price break below the EUR 50/ton level and down towards EUR 45/ton for Dec-24 and Dec-25.

The front-year nat gas price is the most important but EUA price should move yet lower even if it TTF-2025 stays unchanged at EUR 27.7/ton. The front-year is the most important for the EUA price as that is where there is most turnover and hedging. The following attractors for the EUA forward prices is with today’s TTF forward price curve (TTF Cal-2025 = EUR 27.7/ton) and today’s forward EURUSD FX curve and with ydy’s ARA coal closing prices. What it shows is that the forward EUA attractors are down at EUR 45/ton and lower.

The front-year Coal-to-Gas differential is the most important ”attractor” for the EUA price (Cal-2025 = average of Dec-24 and Dec-25) and that is down to around EUR 45/ton with a TTF Cal-2025 price of EUR 27.7/ton. The bearish pressure on EUA prices will continue as long as the forward nat gas prices are at these price levels or lower.

The front-year Coal-to-Gas differential is the most important "attractor" for the EUA price
Source: SEB graph and calculations, Blbrg data

And if we take the EUA attractors from all the different energy efficiency crosses between coal and gas then we get an average attractor of EUR 44.2/ton for EUA Cal-2025 (= average of Dec-24 and Dec-25) versus a market price today of EUR 53.9/ton.

Calculating all the energy efficiency crosses between coal and gas power plants with current prices for coal and nat gas for 2025 we get an average of EUR 44.2/ton vs an EUA market price of EUR 53.9/ton. Bearish pressure on EUAs will continue as long as this is the case.

Calculating all the energy efficiency crosses between coal and gas power plants with current prices for coal and nat gas
Source: SEB graph and calculations, Blgrg data

Utility hedging incentive index still deeply negative: Utilities have no incentive currently to buy coal, gas and EUAs forward and sell power forward against it as these forward margins are currently negative => very weak purchasing of EUAs from utilities for the time being. 

Utility hedging incentive index
Source: SEB calculations and graph, Blbrg data

Natural gas in Europe for different periods with diff between actual and normal decomposed into ”price effect” and ”weather effect”. Demand last 15 days were 23% below normal!

Natural gas demand in Europe
Source: SEB calculations and graph, Blbrg data

Natural gas inventories in Europe vs the 2014-2023 average. Surplus vs. normal is rising rapidly.

Natural gas inventories in Europe vs the 2014-2023 average. Surplus vs. normal is rising rapidly.
Source: SEB graph and calculations, Blbrg data

Nat gas inventories in Europe at record high for the time of year. Depressing spot prices more and more. Nat gas prices are basically shouting: ”Demand, demand, where are you?? Come and eat me!”

Nat gas inventories in Europe at record high for the time of year
Source: SEB graph and calculations, Blbrg data
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Analys

Comfort zone for OPEC+ in 2024 as fundamentals gradually improve in its favor

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Back to its sideways trade range and inching almost unnoticeable higher as the year progresses. Brent crude is up 0.2% this morning to USD 82.7/b along with copper (+0.3%) and Shanghai equities (+1.0%). Brent crude saw some bearish action at the end of last week but it recovered a good portion of that ydy (+1.1%) and then a little more again this morning. With this it has mostly returned back to its sideways trading pattern.

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

Brent crude averaged USD 79.1/b in January. So far in February it has averaged USD 81.5/b and at the moment it trades at USD 82.7/b. Typical market comments these days are along the theme ”looking for direction” or ”waiting for new signals on supply or demand”. But other comments are more attuned to a view that the direction is indeed sideways this year. Argus last week describe the outlook for the supply/demand balance for 2024 as ”almost perfectly aligned” and Goldman adds to this view in a note yesterday with ”oil set to extend its tight trading range”.

Cease-fire in Gaza on Monday 4 March may create a buying opportunity. News this morning is Biden expressing hopes that a cease-fire in Gaza may start as soon as Monday next week. In our view there is basically zero risk premium in the current oil price due to Middle East tensions. So if the oil price sells off on firm news of a cease-fire, then it is probably a good buying opportunity in our view.

We maintain our strong view of an average Brent crude oil price of USD 85/b in 2024. Total US crude and product stocks including SPR has gone flat sideways since the end of 2022, all through 2023 and has continued to do so in 2023. US oil inventories are below where they were one year ago both when SPR is included and excluded. This is a reflection of a global oil market in balance though OPEC+ has indeed been the balancing agent.

For the year to come, total US hydrocarbon liquids production is forecast by the US EIA to go flat sideways until October this year and in Q4-24 US production is forecast to be only 0.1 m b/d above Q4-23. So no damaging super-growth from the US to kill the oil party this year. In its last monthly report the US EIA actually reduced its forecast for US production by 100 k b/d to 22.3 m b/d (all liquids included). Russia’s energy minister, Nikolay Shulginov, stated in Tass news agency recently that he expects Russian oil production to decline to 530 mn ton in 2024 from 523 mn ton in 2023. That’s a decline of 1.3% YoY and would equate to a decline of 120-130 k b/d decline YoY. So neither of these oil producing giants are set to unsettle the global oil market this year with too much supply.

Demand growth looks set to be a normal 1.3 m b/d in 2024. The most bearish on oil demand growth is probably the IEA which predicts demand to grow on by 1.2 m b/d YoY in 2024. The US EIA expects demand to grow by 1.4 m b/d. But if we look closer at the numbers from the IEA it expects demand to rise by 1.6 m b/d YoY from Q4-23 to Q4-24. Together with muted supply from both the US and Russia this year this all sums up to a gradually rising need for oil from OPEC through 2024. This made us write the headline ”Better and better every day” in a crude oil comment in late January. Demand for oil from OPEC doesn’t look stellar. But it looks set to be better and better through the year and that is most definitely a great comfort zone for OPEC+.

Sideways, yes, but normal trade range around the mean is still usually +/- USD 20/b. Amid all the current calmness, let us still not forget that Brent crude usually trades in a range through the year of +/- USD 20/b around the mean as there are always some surprises along the way. We don’t think that the situation in the Middle East will spiral out of control into an all-out regional war involving Iran and resulting in large losses of oil supply to the market. And we don’t think there are much risk premium in current oil prices related to this either. But at times in 2024 it may look like it might happen. And that’s probably when you would see the high price point of the year. Maybe as high as USD 105/b. On the bearish we do not think that we’ll have a major economic slowdown or a recession in 2024. But at times in 2024 it may look like we are about to tip into a major slowdown and that would probably be when you’d see the low price point of the year. Maybe as low as USD 65/b.

Total US crude and product stocks incl. SPR has gone sideways since end of 2022, all through 2023 and so far in 2024. Currently it is only 13 m b above the low-point in late 2022!

Total US crude and product stocks incl. SPR
Source: SEB graph, Blbrg data

Commercial US crude and product stocks are below normal and below last year.

Commercial US crude and product stocks are below normal and below last year.
Source: SEB graph and calculations, Blbrg data

US Commercial oil inventories vs. the 2015-19 average. Still struggling with a significant deficit of middle distillates.

US Commercial oil inventories vs. the 2015-19 average.
Source: SEB graph and calculations, Blbrg and EIA data

US refinery utilization at very low level vs. normal. Extensive maintenance this spring is expected. Result will be low production of oil products, falling inventories of oil products, higher refining margins but also rising crude stocks.

US refinery utilization at very low level vs. normal.
Source: SEB graph and calculations, Blbrg data

US EIA forecast for total US liquids production. To go sideways in 2024 to Oct-2024.

US EIA forecast for total US liquids production
Source: SEB graph and calculations, US EIA data STEO

Strong growth in US supply in 2022 and 2023. But 2024 is only set to grow 0.5 m b/d YoY on average. The growth in 2024 is in part a result of production in 2023 starting low and ending high. But from Jan to Oct 2024 US production will go sideways and only rise by 0.1 m b/d YoY from Q4-23 to Q4-24.

YoY change in total US hydrocarbon liquids production
Source: SEB calculations and graph, US EIA data STEO

Global floating crude stocks at 66 m b and not too far above the more normal 50 m b level.

Global floating crude stocks
Source: SEB graph, Blbrg data

IEA Feb-2024 OMR: Call-on-OPEC is rising gradually through 2024. Better and better for OPEC every quarter to Q3-24

Source: SEB graph, IEA data
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