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Analys

SEB – Råvarukommentarer, 23 september 2013

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SEB Veckobrev med prognoser på råvaror

Rekommendationer

Rekommenderade råvaror att köpa och sälja

*) Avkastningen anges för 1:1 certifikaten där både BULL och 1:1 certifikat är angivna.

Inledning

Prisrörelserna förra veckan påverkades mycket av den amerikanska centralbanken. Först kom beskedet att det inte blir någon minskning i centralbankens (FED:s) köp av amerikanska obligationer, förrän tidigast år 2015. Anledningen är att man inte sett tillräcklig effekt på ekonomin än av de köp (och utbetalningar av pengar) som skett. Man kan fråga sig var de läst att sedelpressen någonsin skapat sysselsättning. Beslutet fick alla råvarumarknader att hoppa upp. Råvarulandet Brasliens aktiebörs blev den bästa av nästan 100 aktiebörser i världen, den dagen. I fredags gjorde så en medlem i FED ett uttalande som antydde att det ändå kan bli fråga om minskning i centralbankens återköp. Analytiker tolkade detta som en del i FED:s kommunikationsstrategi. Marknaderna föll abrupt på detta sent på fredagen. Jag ser dock detta inte som en medveten kommunikationsstrategi utan som ett tecken på oenighet i FED om fortsatt pengaproduktion är rätt väg. Det viktiga är dock att de som tycker att sedelpressen ska stå på är i majoritet och att dissidenterna är få. Vid det senaste FED-beslutet var det endast en person som var emot en förlängning till 2015. Kanske har marknaden kommit fram till samma slutsats under helgen. I så fall skulle priserna kunna gå upp i veckan som kommer.

Inga tekniska stödnivåer bröts i under fredagens prisfall – utom för sojabönor – men ”it had it coming”. Vår position i BEAR SOJA X4 S ökade i pris med 19% i veckan. Vi är fortsatt negativa till sojabönor och raps, men neutrala till spannmål och vi har köp på socker, samt köp på el och zink. Generellt sett är det, som en kollega i branschen uttryckte det i fredags, ett gyllene läge för råvaror som placering.

I torsdags var vi på Copenhagen Grain Exchange, som besöktes av rekordmånga från branschen. När man talade med folk var den allmänna bedömningen att priset på spannmål kommer att hålla sig stabilt på den här nivån åtminstone fram till våren. Det är i sig ett observandum, att man tror att volatiliteten kommer att vara låg och att priserna kommer att vara låga. Det finns inget som tyder på det, men skulle det komma nyheter som indikerar högre priser, finns ingen psykologisk förberedelse på detta.

Råolja – Brent

Oljepriset fortsatte att rekylera nedåt och gick även igenom den psykologiskt viktiga 110-dollarsnivån. Vi tycker att detta gör olja än mer köpvärt. Det är rabatten på terminerna som gör att vi vill vara investerade i olja.

Bra pris på olja

Terminskurvorna för Brent (den lägre) och gasolja (mer eller mindre detsamma som diesel) ligger något lägre jämfört med förra veckan. Men notera att medan terminskurvan för brent fallit för alla löptider, har kurvan för gasolja faktiskt vridit sig, så att de längre terminskontrakten ligger högre än förra veckan. Det är också väsentligt lägre grad av backwardation i gasoljekurvan än i oljekurvan. Man får bättre betalt för att vara investerad i olja än i gasolja.

Terminskurvor på olja

Nedan ser vi hur 100 dollar i början av januari 2011 utvecklat sig om man investerat i fysisk råolja (svart linje) eller via terminer (grön linje). På grund av rabatten på terminerna, har mer än hälften av de ca 35% avkastning under dessa två år kommit från dem – och inte från prisförändring på fysisk råolja.

Rabatt på olja via terminer ger extra avkastning

För råvaruinvesterare är den här rabatten nu väldigt attraktiv. Man kan tjäna ca 7 – 10% extra på att äga råoljeterminer.

När nu priset fallit tillbaka och rabatten på terminer är så attraktiv, tycker vi att det är ett bra tillfälle att komma in i den lönsamma oljemarknaden och rekommenderar köp av OLJA S. Det är framförallt rabatten på terminerna vi vill komma åt och därför föredrar vi OLJA S framför t ex BULL OLJA X4 S.

Elektricitet

Elpriset gick i veckan över motståndet på 42.35 och vi har nu en teknisk köpsignal på el. Vi skulle dock inte bli förvånade om det kom en rekyl nedåt, efter den snabba prisuppgång som varit. En sådan rekyl nedåt ser vi som ett utmärkt köptillfälle.

Elpriset analyserat av SEB, köp vid rekyl

Hydrologisk balans visar inge större förändringar i veckan. 10-veckors-prognosen visar på ett marginellt mindre underskott än förra veckan.

Hydrologisk balans som påverkar elpriset

Vi rekommenderar köp av el, t ex EL S eller BULL EL X4 S.

Naturgas

Naturgaspriset studsade var uppe vid 4 dollar, en nivå som tidigare varit ett motstånd.

Naturgaspriset var uppe på 4 USD

Vi har neutral rekommendation.

Guld & Silver

Guldpriset fann stöd på 1300 dollar och rusade uppåt på FED-beskedet om fortsatt penningpolitisk stimulans åtminstone till år 2015. Detta vände till panikförsäljning i fredags när marknaden tolkade uttalandet från St. Louis-FED:s chef som att det nog ändå kunde bli frågan om en minskning av obligationsköpen innan 2015. Den tekniska bilden indikerar att lägre pris är att vänta, men vi har ingen säljsignal än, bara en bruten uppgång.

Bruten uppgång i guldpriset

Nedan ser vi kursdiagrammet för silver i dollar per troy ounce. Tekniskt ser marknaden faktiskt lite mer positiv ut än guld. Den fallande trenden är dock inte bruten och vi skulle inte vilja köpa så länge detta inte har skett.

Analys ger neutral rekommendation på silver

Vi fortsätter att vara neutrala guld och silver och skulle inte vilja köpa någon av dem idag.

Platina & Palladium

Prisuppgången i platina hindrades vid 55-dagars glidande medelvärde. Tekniskt ser platina svagare ut än både silver och guld. Det är många som hoppas på att platina och palladium ska gå bättre än guld och silver, därför att de också har ett industriellt invändningsområde i katalysatorer. Det innebär att det finns mycket förhoppningar investerat redan i metallerna och egentligen, en ganska stor nedsida.

Stor nedsida i platina

Nedan ser vi frontmånadskontraktet på palladium. Palladium är en ganska illikvid metall och vi ser att priset steg kraftigt i veckan och sedan föll tillbaka.

Teknisk analys på palladiumpriset

Palladiumpriset är tillbaka i den triangelformation vi talat om tidigare.

Palladiumpriset är tillbaka i triangelformation

Vi är för närvarande neutrala platina och palladium, men om palladium skulle falla bara något lite ytterligare, skulle vi vilja haka på och ta en kort position via BEAR PALLAD X4 S. Vi skulle absolut inte vilja köpa någon av dem.

Koppar

Koppar var den basmetall som gick bäst i veckan med en uppgång på 2.5%, trots den generella svagheten på fredagen. Tekniskt bröts den kortsiktiga nedåttrenden i torsdags. SEB:s tekniska analytiker gjorde följande bedömning på fredagen: “Rechecking $+7,400 before down… There is some near-term momentum in the ongoing move higher, as it was able to gap through short-term resistance at ≈7,200 (now likely support). This behavior puts the Aug high of 7,420 in focus, but extension beyond this level should be restricted to the 233day moving average band (7,445\7,575)”.

Den fysiska marknaden rapporteras vara i någorlunda balans. Arbitraget mellan SHFE och LME fanns förra veckan (Shanghai 200 dollar högre). Lagren på LME har fallit ytterligare 2.2% i veckan.

Det ser positivt ut, men uppsidan är begränsad, enligt den tekniska analysen. Vi fortsätter därför att ha en neutral position.

Teknisk analys på koppparpriset

Aluminium

Aluminiumprisets relativa svaghet var tydlig i veckan. Vi rekommenderar att man försöker köpa BEAR ALU X4 S på rekyler (uppåt).

Den oberoende analysfirman Wood Mackenzie publicerade en rapport i veckan som gick, som utmålade en mörk framtid för aluminiummarknaden de kommande åren. De förutspår ett överskott nästa år på 1.1 mt. Det är en rejäl ökning av överproduktionen om man jämför med årets 0.5 mt. Kina behöver stänga produktion på 1.6 mt för att regionen ska komma i balans, enligt rapporten. Det råder samstämmighet bland bedömare att marknaden behöver stora produktionsneddragningar. Den här rapporten pekar på att detta kan ta längre tid än de flesta hoppats.

Neutral rekommendation på aluminium

Vi har neutral rekommendation, men tycker man ska försöka komma in i BEAR ALU X4 S på rekyler uppåt.

Zink

Som vi har noterat tidigare, håller zink-balansen (utbud/efterfrågan) på att förbättras. ILZG rapporterade siffrorna för juli och de visade ett litet överskott. Produktionen av raffinerad zink var 1.109 mt i juli och efterfrågan var 1.095. Detta tog bort optimismen och gav baissarna ammunition. Men faktum är att trenden går mot ett underskott. Det tar naturligtvis tid att beta av de uppkomna lagren, men det ligger i priserna. De flesta som följer marknaden är överens om att gruvkapacitet kommer att stängas nästa år, och att ny kapacitet inte kommer att kompensera detta. Det finns en stor möjlighet till stora underskott framöver. Detta kommer att ge marknaden stöd enligt vårt sätt att se. Samtidigt verkar ekonomierna i Kina, USA och Europa ta fart och den effekten på underskottet måste också beaktas.

Zink blev en besvikelse den här veckan efter den oväntade svagheten i fredags och stängde ner 0.5% på veckan.

Teknisk analys visar på köpläge i zink

Vi fortsätter med en försiktig köprekommendation, av ZINK S.

Nickel

Nickel är traditionellt den mest volatila av metallerna som handlas på LME och den levde upp till sitt rykte den här veckan. FEDbeskedet fick priset att stiga från 13900 dollar till 14400. Detta vändes sedan i dramatiskt prisfall på fredagskvällen och veckan stängde bara precis över 14000 dollar. De stora och stigande lager hänger hotfullt över marknaden, men vi märker av mer intressen att köpa metallen från industrin. Med tanke på vad den tekniska analysen säger, tror vi det finns möjligheter för priset att nå 15000 dollar inom överskådlig tid. Nyhetsflödet kring Indonesiens export av järnmalm med nickelinnehåll för tillverkning av Nickel Pig Iron i Kina kommer att spela en central roll och vara en källa till volatilitet i marknaden.

Teknisk analys på nickel den 20 september

Kaffe

Den fallande trenden i kaffepriset tog ett nytt trappsteg ner i veckan som gick. Den här nedgången är den längsta i tid sedan 1993.

Kaffepriset i fallande trend

Regn i Brasilien har fått kaffeträden att sätta blomknoppar för en andra blomning. Dessa blommor kommer sedan att bli bönor. Den kommande skörden är den växelvis större. Den skörd som just bärgats var ett mellanår. Arabica är en varannanårsgröda.

Brasilianska bönor av ”good cup” kvalitet (även kallad ”Swedish quality”, faktiskt) handlades till 18 till 21 cents rabatt till noteringen på ICE i New York. ”Fine cup” kvalitet handlas till en rabatt på 13 cent enligt företaget Flavour Coffee i Rio de Janeiro.

Flavour Coffee rapporterade också att Conillons, som den brasilianska robustan kallas, handlas till 8 cents premium över LIFFE:s terminspris i London, en uppgång från förra veckans premium på 5 cent. Det fanns även vissa kvaliteter av robusta som var dyrare än arabica. Robusta odlas mest i Afrika och i Asien, där Vietnam har blivit den största producenten. Robusta används mest i snabbkaffe.

Brasilien kommer att bärga en rekordskörd, av allt att döma och globala lager ökade med över 7% i augusti enligt tradinghuset FC Stone.

Vi behåller tills vidare neutral rekommendation, tills vi ser tecken på ett trendbrott.

Fler analyser på jordbruksråvaror från SEB.

[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

The self-destructive force of unregulated solar power

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SEB - analysbrev på råvaror

Modifications

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

Solar and wind power production has increased rapidly over the latest years as LCOE costs have fallen sharply while government support schemes have given it an extra boost as well. Solar and wind power production is totally unregulated supply. They produce whenever they produce. Fossil power supply on the other hand is fully dispatchable to the degree that we tend to take it for granted. As such we have naturally tended to underestimate the consequences of not having dispatchability in solar and wind power.

When you start out with a large, fossil-based power system it is fairly easy to add unregulated power supply from solar and wind because it can piggyback on the dispatchability and flexibility of the fossil power system. But as the share of unregulated renewable energy rises to a larger and larger share of production, the flexibility in the fossil part of the system naturally gets smaller and smaller. This problem is accentuated further  by the fact that solar power production has a very high concentration of production where 80% of production in a year is produced in only 20% of the hours in the year. Thus fossil flexibility and dispatchability is eroded much faster during these 20% hours.

Power prices typically collapse to zero or negative when demand is fully met or saturated by unregulated power supply. That again implies that solar power profitability collapse as well. And the result of that of course is that the exponential growth in solar power production which we now take for granted and which we expect will lead us all the way to zero emissions could come to a full stop as well.

This is already a rapidly increasing problem in California where more and more renewable energy is denied access to the grid because there simply isn’t enough demand for it just then or because the grid cannot handle it. But it is also becoming an increasing problem in Germany where the strong growth and high concentration of solar power increasingly is destroying the power prices just when they produce the most.

The need for biiiig, cheeeeap grid batteries are now becoming increasingly critical for the the exponential growth in solar and wind power to continue.

We fear that the self-destructive force on power prices, of exponential growth in unregulated solar power, is some kind of Solar-hara-kiri process with respect to its own profitability. And that it has the potential to develop along a curve of ”first gradually, then suddenly”. And when/if that happens the exponential growth in unregulated solar power production should naturally come to a screeching halt.

The resolution of the problem is of course the eventual arrival of biiiig, cheeeap grid batteries which then again will sett solar power production free to resume its exponential growth. 

Feeding solar and wind power supply into a fossil system is easy to start with. Then very difficult. It is easy to build unregulated solar and wind power supply into a flexible fossil system. It is easy to infuse unregulated power supply (Solar and Wind) into a power system where there is lots and lots of fossil based power. Fossil supply can then back-off and make room for solar and wind power whenever the sun is shining or the wind is blowing and then ramp up again when it suddenly disappear.  But when unregulated, renewable energy supply keeps growing it becomes harder and harder to infuse yet more of it into the system as the fossil flexibility is increasingly eroded. That’s when yet more supply of solar and wind is no longer pushing aside fossil supply but instead is starting to destroy their own prices.

Solar power produces 80% of its production during 20% of the hours in the year. Solar power has however a much more tightly focused production profile than wind. In Germany in 2023 some 80% of all solar power production was concentrated on only 20% of the hours of the year. For wind power the 80% share of production was spread out over 50% of the hours in the year. The reason is of course that the wind can blow both summer and winter and night and day. Solar power is instead focused during the day and during summer. It has a much higher concentration of production.

Power prices tend to collapse when demand is fully covered by unregulated power supply. When solar power production grows rapidly in a given power system then its high production concentration will eventually lead to full saturation during certain hours of the year. Demand during these hours will then be fully supplied and covered by unregulated power like solar, wind, run-of-river hydro and other unregulated supply. That is great as it means that the fossil share in these hours then are close to zero.

The problem is that power markets, more than any other commodity market in the world, are extremely sensitive to imbalances in supply and demand. A little bit too little supply and the power price can spike up to close to infinity. A little bit too much supply and the price crashes to zero or negative.

When unregulated power supply reaches full demand saturation during certain hours then power prices tend to collapse because it is so easy to get a little bit too much supply.

It is not a problem when power prices collapse for just a few hours per year. But the number of hours affected is growing rapidly many places. The US EIA highlighted in October 2023 (”Solar and wind power curtailments are rising in California”) that this is becoming a bigger and bigger problem in California. Since 2019 the power system operator there has been forced to curtail supply of unregulated power more and more. There simply isn’t enough demand in certain hours to meet the spikes in unregulated supply or the grid isn’t up to the task of distributing the unregulated supply in the system.

So when producers of unregulated supply produces the most they increasingly are denied access to sell it into the grid or if they are allowed to sell it into the grid the price is close to zero or even negative.

US EIA: Solar and wind power curtailments are rising in California

US EIA: Solar and wind power curtailments are rising in California
Source: The US EIA in October 2023

Germany is increasingly affected as booming solar production is depressing prices more and more. This is now also a rapidly increasing problem in Germany where rapid growth in supply of solar and wind power together increasingly are forcing power prices lower just when they produce the most.

Average German power prices for hour 1 to 24 for certain periods and years. Highly concentrated supply of solar power during summer and during the day is increasingly forcing power prices towards zero during these periods

Average German power prices for hour 1 to 24 for certain periods and years
Source: SEB calculations and graph, Blbrg data

It is like ”Solar hara-kiri” when increasing supply of solar power is killing its own prices and profits. It was not a big problem economically when only a few hours are affected. But as more and more hours are affected it is becoming an increasing problem. It is like ”Solar hara-kiri” where rapidly rising supply of solar power is increasingly killing its own prices. With that it is killing its profits. And if profits are killed than new-build and growth in supply will typically slow down rapidly as well. 

This is probably not a big problem globally yet as the global power system is still predominantly fueled by fossil fuels which can back off when renewable energy spikes up. But in certain pockets of the world where penetration of unregulated power supply has reached high levels it is becoming an increasing problem. Like in California and in Germany.

The volume weighted solar power price in September 2023 in Germany had a 38% discount to power prices during non-solar power hours. And the discount looks like it is rapidly getting bigger and bigger.

The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile. In Germany in September 2023 solar power producers only achieved 62% of the average price during hours of the day when the sun wasn’t shining.
The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile.
Source:  Source: SEB graph and calculations and graphs. Based on German 15 min solar power prod. extracted from Blbrg

First gradually, then suddenly. There is a clear risk here that this progresses along a process of ”first gradually, then suddenly”. This is already what we have seen over the past couple of years: The discount for what solar power earns when it produces power versus what the power price is when it is not producing is increasing rapidly as more and more unregulated power supply hits right into the ”demand ceiling”. The inflicted pain from this process so far has to a large degree been masked by incredibly high natural gas prices. So even if the profitability for solar power has been eroding, the average power price in the system has been much higher than usual due to high natural gas and CO2 prices.

Graphing all the individual hourly data for solar power and power demand in Germany in 2022 we see that solar power alone is not yet reaching full saturation versus demand.

Germany 2022: Hourly German power demand and solar power supply in 2022. A total of 8760 hours for each in consecutive order. Her showing only Demand and Solar power production
ourly German power demand and solar power supply in 2022
Source: SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply is increasingly hitting the ”demand ceiling”. If we now add all the other sources of unregulated power supply, predominantly offshore and onshore wind and run of river, then we get the following picture where we see that unregulated German power supply increasingly is hitting right up and into the ”demand ceiling”. In those instances there will be no, flexible fossil power supply left to back off and that is typically when power prices collapse or go negative.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours for each in consecutive order.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

High unregulated power supply saturation vs demand implied lower power prices in 2022. Sorting 8760 individual power prices in Germany from Y2022 from lowest to highest shows that power German power prices were strongly related to the penetration of unregulated power supply. In the following graph, we have  sorted the data from the lowest price to the highest price in the year 2022. Prices were ireasingly depressed when unregulated power penetrated up and into the ”demand ceiling”. Natural gas prices were extreme in 2022 and overall power prices were exceptionally high for that reason as well. But the tendency of price destruction in relation to high levels of unregulated power vs demand is clear.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply penetrating vs demand was even deeper in 2023. If we make the same graph for the year 2023 from 1 Jan to 20 Oct, we can see how the unregulated power is penetrating deeper and deeper into the power ”demand ceiling”. As a result the solar power discount vs. non-solar power hours from March to September in 2023 reached an even higher discount in 2023 than in 2022.

2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest. German power demand was down 8.3% YoY in H1-2023 due to the European energy crisis and still very high power prices
2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

Solar power hours and non-solar power hours is not given as a clear cut-off, but a gradual one. In the following graph given as average profiles of the year from hour 1 to hour 24. First calculated explicitly for solar power production and then the inverse is calculated from that one. These solar power profiles can then be calculated for each individual day in the year giving individual inverse-curves on a daily basis.

The daily ”solar power production profiles” and the ”non-solar power production profiles” typically looks like this graph but calculated individually per day as solar power production varies from day to day and through the seasons. The solar power production profile is explicitly given by the actual solar power production that day while the non-solar power profile is derived directly from this and the inverse of it on a daily basis.
The daily "solar power production profiles" and the "non-solar power production profiles
Source: SEB graph and calculations and graphs. German 15 min solar power prod. extracted from Blbrg

The exponential growth in solar and wind power is likely to slow down in the years to come as grid constraints and lack of power cables is holding up growth in renewable energy with waiting times for access of 5-10 years:

Offshore wind auction’s lack of bids must be ‘wake-up call’ for UK, says RWE chief”

FT: ”Gridlock: how a lack of power lines will delay the age of renewables”

FT: ”Will there be enough cables for the clean energy transition?” 

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Analys

Surge in US crude inventories dampens bullish sentiment

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SEB - analysbrev på råvaror

Price action
Brent crude is currently trading at USD 81.4 per barrel, marking a decline from its February peak of USD 83.6 per barrel recorded yesterday (February 14th), representing a notable drop of 2.6% within a short span of time.

Ole R. Hvalbye,
Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

This morning, crude prices continue to slide, following a larger-than-anticipated increase in US crude inventories (+12.0 million barrels) as reported in the US Petroleum Status Report (EIA). This uptick in inventories is attributed to a further decrease in refinery operations and a relatively softer demand for petroleum products.

Yesterday, crude prices flirted with January highs amidst geopolitical tensions in the Middle East and sustained production cuts by OPEC+. However, the surge in crude inventories observed recently, the most significant since November 2023, is tempering bullish sentiment. Notably, inventories at the ”key” Cushing, Oklahoma, exceeded expectations for this time of year (refer to page 2 in attachment).

Adding to the bearish sentiment is the widespread reduction in oil product inventories, primarily influenced by refinery outages rather than a substantial uptick in demand. Notably, US crude oil refinery inputs averaged 14.5 million barrels per day, marking a decrease of 297 thousand barrels per day compared to the previous week, with refineries operating at 80.6% of their capacity.

Recent market expectations suggest the likelihood of prolonged higher US interest rates due to persistent inflationary pressures, resulting in a stronger US dollar. This aspect contributes to weaker oil prices, as the cost of procuring oil in other currencies becomes relatively expensive, thereby impacting short-term demand dynamics.

Oil inventories

Changes in Inventories:
Crude Oil Excluding SPR: Commercial crude oil inventories (excluding SPR) increased notably by 12.0 million barrels, representing a 2.8% rise from the previous week, but still a substantial 6.8% decrease from the same period last year. However, the surge exceeds typical seasonal adjustments, indicating potential reduced crude demand, and a more well-balanced market.

Distillate: Distillate (diesel) fuel oil inventories declined by 1.9 million barrels, showcasing a 1.5% decrease from the prior week but a significant 5.4% increase compared to the same period last year (naturally from very low levels). The weekly drawdown contributed to a further decline compared to normal, and now distillate stocks remain approximately 7% below the five-year average for this time of year – indicating sustained demand or constrained production.

Gasoline: Total motor gasoline inventories witnessed a decrease of 3.7 million barrels, marking a 1.5% decline from the previous week but a modest 2.2% increase from the same period last year. This reduction aligns with seasonal expectations, albeit slightly exceeding typical adjustments.

Jet Fuel: Inventories of kerosene-type jet fuel increased by 0.1 million barrels, representing a minimal change of 0.2% from the prior week. However, compared to the same period last year, jet fuel inventories surged by 12.1%, indicative of potential shifts in air travel for the start of 2024.

Crude & Product Including SPR: Total petroleum stocks, inclusive of SPR, witnessed a modest increase of 5.9 million barrels, indicating a 0.4% rise from the prior week. However, compared to the same period last year, total stocks experienced a notable 2.4% decrease.

Crude & Product Excluding SPR: Excluding SPR holdings, total petroleum stocks increased by 5.2 million barrels, reflecting a 0.4% rise from the previous week but a 2.1% decrease compared to the same period last year. Despite the weekly increase, petroleum stocks remain below historical averages for this time of the year.

Supply and Demand:
Supply remained relatively stable, with domestic crude oil production and imports showing marginal fluctuations. However, net imports witnessed a notable decline, reflecting shifts in trade patterns and production capacities.

Demand for petroleum products witnessed a decline, as evidenced by product supplied figures. The declines in certain product categories suggest nuanced shifts in consumer behavior.

Exports and Imports:
Exports surged by 751 thousand barrels per day, indicating robust international demand for US petroleum products. Conversely, imports witnessed a decline of 437 thousand barrels per day.

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Analys

The EUA price could drop to EUR 40/ton and then be picked up by Airliners, Shipping and Utilities

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The EUA price is dropping hard along with a sharp decline in the front-year TTF nat gas contract. The typical last-round sell-off in EUA prices have typically been a final sell-off of 10-20-30%. From EUR 60/ton level it implies a price decline down to EUR 54; 48; 42/ton. The front-year nat gas price and the front-year Coal-to-Gas (C-t-G) differential is what has held the EUA price above EUR 60/ton. But if the TTF 2025 price falls down to EUR 27/ton the front-year C-t-G differential will fall all the way towards EUR 40/ton. That TTF 2025 falls to EUR 27/ton or lower seems likely to happen and the risk is high that the EUA price will be sucked down along with it. But nat gas demand is starting to come back with a lag in nat gas price declines in the EU but probably also in Asia. Thus first an over-sell in nat gas prices, then demand revival and then a rebound in both nat gas prices and EUA prices. Airliners, shipping companies and Utilities will probably buy as much EUAs they can get if the EUA price fall down towards EUR 40/ton.

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

Front-year 2025 TTF nat gas price falls hard and so does the EUA price. The front-month EUA price dropped 2.7% yesterday to EUR 58.97/ton and thus broke out of the sideways trend around EUR 61/ton since 18 January. Today it has sold off another 3.2% to EUR 57.1/ton.

Again it is the nat gas price which is leading the way and more specifically it is about the front-year nat gas which lost 1.9% on Wednesday and another 2.5% again ydy to a close of EUR 30.65/MWh and today it has solf off 2.8% to EUR 29.8/ton.

The EUA price has very clearly been balancing on the front-year Coal-to-Gas (C-t-G) differentials. The C-t-G differentials have been significantly lower than EUR 60/ton both at the front-end of the curve (1-2-3 month) and for calendars 2026 and 2027. But the front-year nat gas price has held up at around EUR 31/MWh quite well since around mid January. 

How far down will the EUA price go? The final sell-off could be down towards EUR 40/ton. With these dynamics the big question then becomes: How far down will the front-year nat gas contract sell? It will of course sell off too far as commodities always do. The reason commodities do this is the natural reactive chain of events which normally comes with a lag: First the price goes down before dropping hard in the final round of the sell-off. Then demand comes back with a lag to the price action. This again drives the price back up and off from the lows to a level consistent with the revival in demand. If demand instead had reacted immediately to lower prices then the hard drop at the end of the sell-off might not have happened.

Looking at previous hard, final sell-off-drops in the EUA price we can see that final drops typically have been 10-20-30% as the last final drop. If we take the EUR 60/ton as the starting point of this final drop, then we are talking an EUA price bottom of somewhere in the range of EUR 54; 48; 42/ton.

Global nat gas demand destruction in the face of very high nat gas prices solved the energy crisis. Let’s link this back to price action in nat gas. The reason why Europe has managed the recent energy crisis (Russia/Ukraine, nat gas,…) so surprisingly well is 1) Large reduction in nat gas demand in EU due to exceptionally high prices and 2) Significant demand destruction in Asia freeing up nat gas to flow to the EU. I.e. it was global demand destruction of nat gas in response to extremely high prices globally which solved the energy crisis. It was solved by the global market.

Demand for nat gas is starting to come back as the price falls. The nominal historical average nat gas TTF price was EUR 20/MWh from 2010 to 2019. But the real average was EUR 26/MWh. So seen from the eyes of consumers in both Europe and Asia, a price of EUR 26/MWh is an historically absolutely normal price. Demand for nat gas should thus naturally accelerate back towards normal levels at current nat gas prices. Not just in Europe, but also globally in all regions exposed to nat gas prices set by global LNG prices. This is already happening in the EU. Temp. adj. demand destruction vs. normal has typically been running at around 16% from mid-2022 to December 2023. Average ytd is 14% while the last 15 days is 9%. Demand destruction is fading as the price of nat gas is falling. But do remember that this is also happening in Asia but it is harder to track.

Normal nat gas demand AND normal gas prices is not consistent as Russian nat gas exports still down 1100 TWh/yr. There is however an inconsistency here in expecting normal prices and normal demand for natural gas now onward. The inconsistency is that the EU and thus the world is still robbed of the normal flow of nat gas on pipelines to Europe. This amounts to a loss of 3 TWh/day and thus close to 1100 TWh/year. When this gas is no longer flowing to the EU it isn’t flowing anywhere. It is lost to both the EU and the world. Until that is, Russia has built loads of new pipes to Asia and new LNG terminals. And that takes years.

A return to normal prices and normal demand while the world still is missing 1100 TWh/year of Russian nat gas isn’t really a consistent outcome in our view.

Demand for nat gas will continue to revive as the price of nat gas keeps falling. But both the EU and the world still need of a nat gas price at above normal levels to induce a certain amount of demand destruction until the point in time when new LNG export facilities globally has managed to replace the 1100 TWh/year we have lost from Russia.

Front-end TTF nat gas down to EUR 27/MWh could drive the EUA price to EUR 40/ton. The dynamic sell-off nat gas, prices will likely move lower than to the level which over time is consistent with continued need for some demand destruction globally.  This because demand revival will come with a lag to the decline in prices. It is thus fully plausible that the TTF 2025 contract moves all the way down to EUR 27/MWh (or maybe even lower). If so it would imply a 2025 C-t-G differential of only EUR 40/ton for the EUA price to balance on and reference to. That could be the final hard drop in the EUA price. That’s a 30% drop from EUR 60/ton. But it won’t last because that nat gas price is likely too low vs. what is needed globally to maintain some level of demand destruction for a while longer.

An EUA price of EUR 40/ton would also be too cheap to resist for a range of market participants and they’d likely jump in and purchase with both hands. Airliners and shipping companies which will have difficulties of shifting away from fossil fuels and will need EUAs for years to come. Also utilities could step in and purchase large amounts of EUAs even if forward margins are negative. Some EU based utilities with large fossil-based assets bought truckloads of EUAs from 2011 to 2017 when the EUA price ranged from EUR 3/ton to EUR 9/ton. For them the EUA certificate is not only a marginal cost. It is also a licence to operate. The EUA price will of course not return to that level again. But if we move to EUR 40-50/ton, then it will probably trigger strategic buying by shipping companies, airliners as well as utilities.

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan
Source: SEB graph, Blbrg data

But the EU and the world is still missing some 3 TWh/d or 1100 TWh/yr of piped nat gas from Russia. When Russian nat gas is no longer flowing on pipes to Europe, it is flowing nowhere.

Natgas
Source: SEB graph, Blbrg data

Nat gas demand destruction in the EU has been running at 15% to 17%  since mid-2022 in the face of high nat gas prices. But demand destruction is now fading down to 8%. Demand has started to come back as nat gas prices fall. Demand is probably also coming back in Asia, but not so easily to see.

Nat gas demand destruction in the EU
Source: SEB graph and calculations, blbrg data

EU nat gas demand destruction has started to fade.

EU nat gas demand destruction has started to fade.
Source: SEB graph and calculations, Blbrg data

Forward Coal to Gas (C-t-G) differentials vs EUA market prices. The EUA price has balanced on the front-year differential. But that has now fallen like a rock along with the fall in front-year TTF nat gas price.  Lead the EUA into a free-fall

Forward Coal to Gas (C-t-G) differentials vs EUA market prices.

The front-year Coal-to-Gas differential is a distribution of crosses between many different levels of efficiencies for coal and nat gas power plants. Averages of these are EUR 52.4/ton with Coal at USD 94.3/ton and Nat gas at EUR 29.8/MWh (both front-year 2025 prices). So EUA price is still hanging high.

The front-year Coal-to-Gas differential
Source: SEB graph and calculations, Blbrg EUA market price
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