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SEB – Råvarukommentarer, 14 september 2012

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SEB Banken - Veckans råvarukommentarer - Prognoser

Sammanfattning av rekommendationer

Sammanfattning av vilka råvaror SEB rekommenderar

Förra veckans summerade vinst på 28% vändes den här veckan såsom mätt per stängning igår torsdag, till en förlust. Dock skulle det ha sett annorlunda ut om man beräknade vinsten idag, eftersom FED:s besked igår kväll ledde till kursrusning i ädelmetallerna. FED annonserade en öppen Quantitative Easing (QE3), där man ska köpa amerikanska bostadsobligationer för 40 miljarder dollar varje månad till dess sysselsättningen förbättras. FED fortsätter också ”Operation Twist” och behåller räntorna mellan noll och 0.25%. Man lovade att hålla räntorna i botten fram till slutet av 2014. En journalist för the New York Times beskrev den här oväntade aggressiviteten så här: ”We will provide the punch for the party. Heavy pours. And we’re not going to be too careful about closing time.”

Naturligtvis är detta mycket positivt för ädelmetaller. Men fundamentalt är efterfrågan på råvaror alltjämt svag. Det betyder att koppar, olja, elektricitet och annat som efterfrågas när industrin går på högvarv kanske omotiverat har stigit i pris. Sedelpressen skapar inte tillväxt och välstånd.

Råolja – Brent

Trots QE3 har råoljepriset svårt att gå över 117 dollar, där det finns ett tekniskt motstånd. Vi förväntar oss ett svagare oljepris in i det fjärde kvartalet, men Iran-problematiken hänger i bakgrunden som ett olöst problem. Orkansäsongen i Mexikanska golfen och underhållsarbeten på Nordsjön, tillsammans med säsongsmässigt hög konsumtion har gett stöd till oljemarknaden. QE3 och det tyska godkännande av ESM ger också stöd. Men underliggande svag makroekonomisk statistik visar att efterfrågan är svag framöver i USA, Europa och Kina. Således tror vi att oljepriset kommer att falla tillbaka något från nuvarande nivå när vi ger oss in i det fjärde kvartalet.

Oljemarknaden är emellertid i en svår situation. Balansen mellan utbud och efterfrågan är svag. Reservkapaciteten är liten, pga sanktionerna mot Iran och det finns inga tecken på ett det ”phony war” är på väg att lösas. Snarare tvärt om. Iran fortsätter arbeta på sitt kärnenergiprogram. Man kan därför lätt tänka sig en ytterligare åtstramning av sanktionerna från EU och USAs sida. Israel har än så länge låtit Kfirerna stå på marken. Strategiska lager finns att lätta på om det skulle bli ännu hårdare restriktioner. Detta skulle kunna gjuta olja på varje prisuppgång.

Diagram över pris på olja (brent) - 13 september 2012

Vi rekommenderar en kort position i oljemarknaden, om man inte föredrar att förhålla sig neutral. Alltså t ex BEAR OLJA X2 S.

Elektricitet

Vi har noterat att de flesta varit intresserade av att köpa BULL EL X4 S, medan vi här vidhållit att det är lite för tidigt att göra det. Vi tror att priset kommer att utveckla sig svagt under september och oktober, att marknaden söker en botten under den här perioden. Ett pris under 40 euro per MWh är köpvärt. Nu är 40 euro ett tekniskt stöd, så det är möjligt att 40 euro är botten. Mellan 40 och 41 euro kan det vara köptillfälle, men annars bör man vara försiktig med BULL.

Prisutveckling på elektricitet - 13 september 2012

Guld, Silver och Platina

Allt har talat för ädelmetallerna den här veckan: Löften om monetära stimulanser på båda sidor om Atlanten. Tekniskt sett ser det mycket starkt ut. Guld är upp 4 %, silver och platina ca 6 % sedan förra fredagen. Vi deklarerade förra veckan att ädelmetallerna hade mer att ge. Målkurserna som vi angav börjar närma sig och det kan vara idé att börja ta hem vinster. $1800 för guld och $35 för silver utgör motståndsnivåer. Platina kan vara undantaget där potentialen kan vara större med tanke på oroligheterna i Sydafrika som har eskalerat i veckan. Uppror och strejker har spridits till fler gruvor, och flera bedömare varnar för kaos i hela landet. Det är i och för sig inte bra för utbudet på guld heller, även om Sydafrika för längesedan lämnade förstaplatsen som producentland.

Prisdiagram på guld spot - 13 september 2012

Vår favorit är Platina (t ex genom certifikatet PLATINA S, eller för den som vill ha lite mer hävstång, BULL PLATIN X4 S). Nedan ser vi platinaprisets utveckling, där brottet av den långsiktiga motståndslinjen, signalerade att den långa konsolideringsperioden är bruten, på uppsidan. Det ser ut som om 1700, toppen från februiari/mars, kan bli ett motstånd. Det är sent i den raska uppgångsfasen och det är väl inte otroligt att det kommer lite eftertankens kranka blekhet här. Med vägen stadigt inslagen på helikopterpengar i världe borde dock priset på ädelmetaller som t ex platina kunna inflateras mer.

Diagram över pris på platina - 13 september 2012

Nedan ser vi priset på guld dividerat med priset på platina. Vi ser att guld har utvecklats sämre än platina sedan mitten av augusti. Tekniskt ser den här trenden stark ut och har potential att gå från 1.05 till 1, dvs en outperformance på ytterligare 5% till platinas fördel. Det mesta av rörelsen från 1.15 är dock avklarad och platina har inte lång tid kvar att vara vår favorit bland ädelmetallerna.

Priset på guld dividerat med priset på platina

Nedan ser vi silverprisets kursutveckling. Det är samma starka tekniska köpsignal i den här metallen.

Diagram över pris på silver spot - 13 september 2012

Även i den här jämförelsen med silver, ser vi att guld har utvecklats sämre än silver sedan månadsskiftet juli/augusti. Vi ser att det finns en stödnivå kring 50 i kvot mellan guld och silverpris. Silverprisets uppgång i förhållande till guld är nära den nivå och vi rör oss alltså in i stödområdet. Det mesta av silvrets outperformance i förhållande till guld är avklarat.

Relation mellan pris på silver och guld

Koppar

Förra veckans svaga arbetsmarknadsstatistik blev (paradoxalt nog) startskottet för ett nytt rally för både bas- och ädelmetaller. Det var en ”tillräckligt” svag siffra som skulle behövas för att få FED att agera. Helgens nyhet att Kina beslutat om ett infrastrukturpaket inkluderande järnvägs- och tunnelbanebyggen motsvarande 157 Mdr USD, blev nästa impuls. Förväntningarna var således högt ställda, och FED:s besked nu ikväll (torsdag) om ett nytt penningpolitiskt stimulanspaket, har därför ännu inte gett någon större effekt. Prisuppgångarna sedan förra fredagen ligger mellan 5 och 10 % för de stora basmetallerna. Aluminium sticker ut med en uppgång på hela 10 %.

I skrivandes stund ligger kopparpriset på LME kring $8180 ($3,72/Lbs) vilket är upp ca 5 % från förra fredagen. Marknaden har nu (med besked) brutit igenom motståndet. Stimulanspaketen från Kina, Europa och USA har naturligtvis gjort sitt för att stärka stämningsläget. Frågan är hur det ser ut fundamentalt. Det bör påpekas att Kina som förbrukar ca 40 % av all koppar befinner sig i en avmattning. Det gäller att stimulanserna får effekt för att prisnivåerna ska hålla. Det är svårbedömt. Aktörerna räknar med fler åtgärder från den kinesiska ledningen. Frågan är till vilka sektorer stimulanserna riktas. Utbyggnaden av elnätet betyder mest (för koppar). Lagernivåerna är höga, vissa marknadsbedömare uppskattar den totala nivån till hela 1,8 milj. ton (det produceras ca 18-19 milj. ton globalt). Statistiken i Kina är osäker. Om det stämmer är det väldigt stora lager, men kom ihåg att Kina kommer att behöva metallen förr eller senare. Just nu är mycket av ett positivt scenario inprisat. Risken har ökat för en rekyl.

Prisutveckling på koppar - 13 september 2012

Vi väljer att vara neutrala till koppar till nästa veckobrev.

Kaffe

Priset på Arabica, som handlas i New York, som steg pga regnen i viktiga kaffeodlingsormråden i Brasilien i juni och juli, föll sedan tillbaka i augusti.

Colombia, som är världens näst största producent av arabica, tycks vara på väg mot en mindre skörd än väntat. Colombia behöver skörda 3.6 miljoner säckar (à 60 kg) från och med nu till årsskiftet, eller 34% mer än samma period förra året, för att nå upp till 8.5 miljoner säckar. Det är vad Colombias ”National Federation of Coffee Growers” förutspådde den 10 september.

Tekniskt verkar priset röra sig ”sidledes” och vi avvaktar ett eventuellt köp lite längre fram.

Tekniskt verkar kaffepriset röra sig ”sidledes”

Socker

Priset på socker, tycks ha funnit ett stöd. Priset vände upp på samma nivå som i juni. Det skulle inte förvåna om priset nu steg upp mot motståndslinjen, dvs till 21 – 22 cent per pund, ur teknisk synvinkel.

Regnväder har återvänt till Brasiliens sockerrörsproducerande områden. Somar Meteorologia i Sao Paulo kommenterar att fälten kan vara för blöta för att skörda mot slutet av oktober. Branschföreningen Unica rapporterar produktionsdata varannan vecka. I Sud-Oeste (Center South i engelsk betydelse), där delstaten Sao Paulo ligger, hade branschen processat 9.4% mindre sockerrör än förra året fram till slutet av augusti. Augusti låg dock högre än förra året, då man tog igen vad man missat tidigare. Augusti låg 14.2% över förra årets augusti. Risken är nu alltså att regnen åter gör det svårt att skörda, vilket bör ge stöd för priset på socker.

Prisutveckling och teknisk prognos på sockerpriset - 13 september 2012

I Indien, världens näst största producent av socker, har monsunen, som står för 70% av nederbörden i landet, fortsatt att förbättras. Från att under sommaren ha legat ca 30% sämre, ligger nederbörden sedan den 1 juni nu bara 9% under genomsnittet för de senaste 50 åren.

Vi stänger positionen i SHORT SOCKE A S. Och så ser vi vad som händer, om det kan utveckla sig ett köptillfälle istället.

Kakao

Förra veckan rekommenderade vi köp av KAKAO S. Det har varit torrt i Elfenbenskusten i juni och juli och det har påverkat utvecklingen av kakaoskörden negativt. De senaste dagarna har nederbörden återvänt och det har ökat förhoppningarna om skörden. Följaktligen har priset backat de senaste dagarna. Det rapporteras att chokladfabrikanterna avvaktade med köp när priset låg över 2700 dollar och väntade på en rekyl. Vi har nu den rekylen och det kan vara ett köptillfälle just nu.

Kakaopris - Utveckling och prognos - 13 september 2012

För spannmål och övriga jordbruksprodukter hänvisas till gårdagens nyhetsbrev.

[box]SEB Veckobrev Veckans råvarukommentar 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.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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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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SEB - analysbrev på råvaror

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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