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Analys

Sharp cuts in Saudi OSPs – A warning that further unilateral cuts are unlikely

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SEB - analysbrev på råvaror

Last week, Brent crude experienced a notable gain of USD 1.7/b, concluding Friday at USD 78.8/b, propelled by escalating risks in the Middle East. However, this morning, we are witnessing a 1% retreat in Brent prices to USD 78/b, attributed in part to a broader market weakness in industrial metals and equities.

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

Adding to the current bearish sentiment is a significant reduction of USD 2/b in Saudi Arabia’s Official Selling Prices (OSPs) to Asia. This move is particularly impactful as it places the average OSPs below the 10-year average for Super light and Extra light, indicating a weakness in the light-end spectrum of crudes. This adjustment may signal demand softness in this segment, although it is more likely a reflection of robust growth in the supply of light sweet crudes, notably shale oil, from the United States.

This reduction mirrors the sharp decline observed in early 2020 when Saudi Arabia slashed its OSPs by USD 2/b from February to March. The strategic intent behind this move appears to be Saudi Arabia’s commitment to ensuring the sale of its entire 9 million barrels per day (b/d) production, a quantity it has voluntarily committed to. Lowering its OSPs is a signal that Saudi Arabia aims to remain competitive in the market and is unwilling to unilaterally reduce its volume below the 9 million b/d mark.

This is probably not a signal that Saudi Arabia is suddenly shifting strategy from ’price’ to ’volume’. But it could be taken as a warning that Saudi Arabia won’t go the road alone indefinitely. If further cuts are needed by OPEC+ to maintain the oil price around USD 80-90/b and OPEC+ as an organization resist backing the needed cuts, then further unilateral cuts by Saudi is far from given.

The upcoming release of the U.S. Jan Short-Term Energy Outlook (STEO) report on January 9 will be studied closely. Of particular interest is whether there will be a revision in the outlook for U.S. shale oil production in 2024. The December report projected virtually zero growth from December 2023 to December 2024, following a robust year of 2 million b/d growth in hydrocarbon liquids from December 2022 to December 2023. The market will closely scrutinize the report to assess whether the EIA still expects U.S. liquids production to plateau in 2024 or whether it will continue its robust growth by 1-2 million b/d on a Dec-to-Dec basis.

US shale production growth in 2024 will be key in shaping the decisions of OPEC+, influencing whether their strategy will be on price or volume. US shale oil production growth in 2024 will likely have a significant impact on the trajectory of oil prices in the coming year.

Saudi Arabia’s Official Selling Prices (OSPs) to Asia was reduced by USD 2/b for February.

Saudi Arabia's Official Selling Prices (OSPs) to Asia
Source: SEB graph, Blbrg data

Saudi OSPs for all grades were reduced by USD 2/b

Saudi OSPs for all grades were reduced by USD 2/b
Source: SEB graph, Blbrg data

Saudi Arabia’s OSPs are now below the 10yr average for Super light and Extra light while still above for the lighter grades.

Saudi Arabia's OSPs are now below the 10yr average for Super light and Extra light while still above for the lighter grades.
Source: SEB graph, Blbrg data

Average Saudi OSPs to Asia now at lowest level since April 2021 and the MoM change is the biggest since October 2022

Average Saudi OSPs to Asia
Source: SEB graph and calculations, Blbrg data

Analys

Rising with softer USD and positive markets but less bullish tailwind from nat gas

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Ticking higher along with softer USD and gains in metals and equities. Brent traded down marginally (-0.2%) yesterday to USD 72.02/b following a 2.4% decline on Wednesday. This morning it is ticking up 0.5% to USD 75.4/b, well aligned with a 0.4% softer USD and solid gains in equities and industrial metals. Technically it is neither overbought nor oversold with RSI at 45. Though it is flirting with the 100dma also being below both the 50dma and the 200dma. So, no obvious strength either. The bullish tailwind from nat gas is fading a bit with TTF nat gas falling sharply to below the price of ICE Gasoil (”diesel”).

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

Longer-dated prices supported at USD 68/b. But looks like a process of fading strength. The longer-dated contracts for Brent keep trading down towards the high 60ies around USD 68/b but are rejected repeatedly. The pricing for these contracts looks like a process of fading strength. Just oozing closer to the USD 68/b level with smaller and smaller bounces each time. Very clear consumer buying interest for oil products when Brent crude prices move towards the USD 68-70/b level. This support level may thus to some degree come from the consumer side of the market. If oil consuming industry loses confidence in the economy, we might see the longer dated prices break below USD 68-70/b. But oil producers may also have limited interest in hedging downside risk at around the 68-mark. So, selling from that side of the market is probably also fading at that level. But also, sellers/producers may change if the global economy was to look shakier.

Microscopic changes in IEA forecast. OPEC(+) still needs to cut in 2025 to balance market. The IEA made only microscopic adjustments to its oil market balance yesterday. Adjusting production in OECD Europe and FSU production slightly lower resulting in call-on-OPEC going up by 0.2 mb/d versus the previous report. Call-on-OPEC is still set to decline from 27.1 mb/d in 2024 to 26.7 mb/d in 2025. A y-y decline of 0.4 mb/d implying that the group will have to cut production comparably in 2025. OPEC+ is of course planning to lift production by 120 kb/d/month from April onwards. Nope, says the IEA. It has to reduce supply instead.

Front-month and longer dated Brent crude oil prices in USD/b bouncing off the USD 68-70/b level.

Front-month and longer dated Brent crude oil prices in USD/b bouncing off the USD 68-70/b level.
Source: SEB graph, Bloomberg data

European TTF front-month price trading sharply lower following signals that nat gas inventories in Europe may not need to mandatory fill to 90% by 1 November anyhow.

European TTF front-month price trading sharply lower following signals that nat gas inventories in Europe may not need to mandatory fill to 90% by 1 November anyhow.
Source: SEB calculations and graph, Bloomberg data
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Analys

Climbing crude inventories in line with seasonal patterns

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Yesterday’s report from the US DOE revealed an increase of 4.1 million barrels in US crude oil inventories for the previous week. This build exceeded the consensus estimate of 2.5 million barrels whilst less than the API forecast of 9 million barrels reported on Tuesday. As of last week, total US crude inventories stand at 428 million barrels, which represents a decrease of 12 million barrels compared to the same week last year.

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

In addition, gasoline inventories decreased by 3.0 million barrels, surpassing the consensus estimate of a 0.5-million-barrel drawdown. Conversely, distillate (diesel) inventories saw an increase of 0.135 million barrels, contrary to the expected decline of 1.5 million barrels. In total, commercial inventories (excluding the SPR) – which include crude oil, gasoline, and diesel – rose by 1.2 million barrels.

Refinery utilization improved by 0.5 percentage points, reaching 85% last week. Meanwhile, total products supplied (a proxy for implied demand) over the past four-week period averaged 20.3 million barrels per day, reflecting a 2.8% increase compared to the same period last year.

Additionally, gasoline demand averaged 8.3 million barrels per day over the past four weeks, up by 0.9% from the same period in 2024. Diesel demand averaged 4.2 million barrels per day, showing a significant increase of 13.6% year-on-year. Jet fuel demand also saw an increase of 4.4% compared to the same four-week period in 2024.

The International Energy Agency (IEA) will be releasing its monthly report today at 10:00 CET.

Oil inventories
Oil inventories
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Analys

Crude oil comment: Tariffs spark small reactions, but price gains hold steady

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Brent crude prices bottomed out at USD 74.10 per barrel on Thursday evening (February 6th) after a continuous decline since mid-January. Since then, prices have climbed uninterruptedly by USD 2.5 per barrel, reaching the current level of USD 76.50 per barrel.

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

Since the beginning of 2025, price movements have been more volatile compared to the fourth quarter of 2024. Additionally, the market has broken the firm range-bound levels of USD 70–75 per barrel that prevailed from mid-October 2024 to January 2025.

Brent crude rose by nearly USD 1.50 per barrel yesterday (February 10th), driven by a tighter supply outlook. This has been credited to stricter sanctions resulting in Russia producing below its quota. Meanwhile, the US President recently ordered a 25% tariff on all aluminum and steel imports, including from Canada and Mexico, the country’s top two foreign suppliers. The tariffs are set to take effect on March 12, according to the White House.

At present, Brent crude appears to be holding onto its price gains, with little reaction so far to the latest tariff news, as markets await key US CPI data scheduled for tomorrow (February 12th).

As we highlighted last week (link), there has recently been a significant build-up in US crude inventories, with Canadian crude flows increasing rapidly to meet the tariff deadline, which was originally set for March. However, US industry-based inventory data (API) is due to be released later today, and we expect a slowdown, as Canada negotiated a 30-day delay in the imposition of US tariffs. A 10% import tariff on Canadian oil had been proposed.

On top of that, there is an increasing risk to the Gaza ceasefire deal, as both parties have accused each other of violating the terms of the agreement. The US President has stated that Israel should call off its ceasefire agreement with Hamas if hostages are not returned by this weekend, further contributing to heightened geopolitical tensions, as well as the US’ tougher stance on Iran.

Stay tuned. This week, monthly oil market reports from the EIA (this evening), IEA (Thursday, February 13th), and OPEC (tomorrow, February 12th) will be released.

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