SEB Oil Market Report: Price in a battle to balance the market

SEB Oil Market Report är en omfattande genomgång och analys av oljemarknaden från SEBs främsta analytiker på området. Nedan är fyra korta stycken som introduktion, läs hela rapporten på 24 sidor: SEB Oil Market Report: Price in a battle to balance the market (pdf).

The oil price, not OPEC will balance the market

The latest OPEC meeting made it yet again crystal clear that OPEC will not intervene to balance the market. The oil price has fallen 13% since the last shred of hope for OPEC intervention was lost in the wake of OPEC’s meeting on December 4. This time around the oil price has to do the job of getting the market into balance. Although not at full capacity, onshore storage is becoming increasingly stressed as crude stocks are at record highs. We expect a further strong increase in global oil inventories during H1 2016, with potentially increasing inventory stress and periods of very low oil prices.

Learning to live with shale oil dynamics

Exploding US shale oil production killed the oil price in 2014 and 2015. Magnitude of supply, flexibility and short lead times has also placed OPEC in a new position with limited control of the oil price through volume adjustments. US shale oil production is still a very new element in the global oil market. For the next 2-3 years the oil market has to learn to live with the flexibility and price dynamics of this element. Short lead times between investment decision and production makes a rapid price recovery much more difficult in this price cycle than in any previous price cycles. Cash flow versus profitability will be highly important as elevated forward prices versus lower short dated contracts makes for much improved profitability for the initiation of new shale oil in our price outlook for H2 2016. However, we expect limited capital and cash flow to hold back investments.

Conventional non-OPEC supply the main outlier risk for 2016 and beyond

We have looked at how “Big Oil’s” future production guidance has changed and found that the six largest supermajors and majors have cut their 2017 production guidance by 1.6m boe/d in total since 2013. By making certain assumptions about the oil/gas split, we find that supermajors and majors have cut their 2017 oil production estimate by 0.8m bl/d versus their 2013 estimate. Although there is no scientific formula, we estimate non-Opec, non-US production to decline 1.3% in 2016 and 1.6% in 2017.

2016 oil price forecast cut to USD 50/bl, while 2017 reiterated at USD 60/bl

We have cut our 2016 oil price estimate by USD 5/bl to USD 50/bl. We reiterate our oil price estimate of USD 60/bl for 2017 and USD 70/bl for 2018 and beyond. Overall, we expect OPEC to continue to choose volume over price and increase production. However, we expect healthy growth in demand, together with a negative impact on the US and non-Opec, non-US production from the ongoing large capex cuts.