Analys

The show must go on in Vienna

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8 år sedan

den

27 november, 2017

Handelsbanken - Råvarubrevet - Nyhetsbrev om råvaror

Along with the market, we expect an extension of oil production cuts from OPEC and Russia at the upcoming OPEC meeting in Vienna on November 30. OPEC is sailing with a strong tailwind, as a draw on global stocks has started, and compliance reached more than 100% in both OPEC and non-OPEC in October for the first time. For H1 2018, we see compliance with proposed cuts as less of a problem; instead, market focus will move to global stocks, which will likely start to flatten as the seasonal tailwind has swept through and there is higher activity in US shale after oil traded above USD 60.

High expectations

According to a Bloomberg survey, oil traders and analysts unanimously expect OPEC and Russia to prolong their production cuts on Thursday. Behind the scenes, however, it seems as though Saudi Arabia and Russia are still debating what course to follow, particularly regarding the duration of the extension.

Russia’s economy minister said last week that the OPEC/non-OPEC production cuts hurt Russia’s economic growth on October, through lower oil production, and indirectly, through lower investment activity. That was the first negative comment about the pact from a high-ranking Russian official. Despite the signs that Russian policy makers may be having second thoughts, they will agree to an extension in the end, in our view. Anything but an extension supported by Russia would have a significant negative impact on prices.

Putin crowns himself OPEC king

OPEC gatherings still influence oil prices, but Saudi Arabia’s voice no longer matters most in the media. Since he engineered Russia’s pact with OPEC 12 month ago, President Vladimir Putin has emerged as the group’s most influential player, in our view. Putin is now calling all the shots.

Cuts implemented successfully

Over the past year, OPEC and several other key producers, including Russia, have agreed to cut production by 1.8 million bbl/d to reduce a global glut, formally defined as returning global stocks to normal levels, i.e. their five-year average. The group reached more than 100% compliance for the first time in October. That’s a striking and surprising fact, in our view, and the market has reacted to OPEC’s success by trading oil at higher prices.

Will not reach target

Given the impressive compliance, it is striking, in our view, that OPEC is so far from its target of draining global stocks. Inventories are lower, but we believe the strong seasonal effect of the US driving season this year is the key factor behind that. The target should have been reached in May, but will not be reached by the November meeting, and it would be surprising if normal stock levels were reached before OPEC’s spring meeting in May/June 2018.

Saudi Arabia supports an extension

It has become obvious that Crown Prince Mohammed bin Salman, who has emerged as Saudi Arabia’s leading economic force, was the architect of the Saudi policy U-turn in Doha in 2016, leading up to the cut at the meeting in Vienna in November 2016. In our view, this was confirmed by the replacement of Ali al-Naimi, after two decades as oil minister, with the more politically-oriented Khalid al-Falih.

Prince Mohammed has put the divestment of Aramco at the top of his agenda, and that is the basis of Saudi policy and its willingness to cut production in return for a short-term rise in the oil price. The Aramco IPO should top the board’s agenda and will take place during the second half of 2018, according to al-Falih during a state visit to Russia earlier this autumn.

Costly mistake

The savvy players recognise the danger of cutting production. History is repeating itself. Higher prices have triggered a reverse in the US production drop, extending the time it takes for the market to balance, and pushing the volume share away from OPEC and toward two non-cut participants, the US and recently also Libya.

US shale flattening

In our model, which has served us well since the cycle collapse in 2014, we see around an 80-day lag from peak to trough in prices, before a new activity direction in rig count, and we see around 80 more days before an impact on production. In other words, a 160-day lag in production from a new price direction. After the recent oil price rally, rig counts will start to increase in our model, and early data are already confirming this new trend, which will have a negative impact on oil prices.

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Analys

Market Still Betting on Timely Resolution, But Each Day Raises Shortage Risk

Publicerat

25 minuter sedan

den

20 april, 2026

Redaktionen

Down on Friday. Up on Monday. The Brent June crude oil contract traded down 5.1% last week to a close of $90.38/b. It reached a high of $103.87/b last Monday and a low of $86.09/b on Friday as Iran announced that the Strait of Hormuz was fully open for transit. That quickly changed over the weekend as the US upheld its blockade of Iranian oil exports while Iran naturally responded by closing the SoH again. The US blew a hole in the engine room of the Iranian ship TOUSKA and took custody of the ship on Sunday. Brent crude is up 5.6% this morning to $95.4/b.

Bjarne Schieldrop, Chief analyst commodities, SEB

The cease-fire is expiring tomorrow. The US has said it will send a delegation for a second round of negotiations in Islamabad in Pakistan. But Iran has for now rejected a second round of talks as it views US demands as unrealistic and excessive while the US is also blocking the Strait of Hormuz.

While Brent is up 5% this morning, the financial market is still very optimistic that progress will be made. That talks will continue and that the SoH will fully open by the start of May which is consistent with a rest-of-year average Brent crude oil price of around $90/b with the market now trading that balance at around $88/b.

Financial optimism vs. physical deterioration. We have a divergence where the financial market is trading negotiations, improvements and resolution while at the same time the physical market is deteriorating day by day. Physical oil flows remain constrained by disrupted flows, longer voyage times and elevated freight and insurance costs.

Financial markets are betting that a US/Iranian resolution will save us in time from violent shortages down the road. But every day that the SoH remains closed is bringing us closer to a potentially very painful point of shortages and much higher prices.

The US blockade is also a weapon of leverage against its European and Asian allies. When Iran closed the SoH it held the world economy as a hostage against the US. The US blockade of the SoH is of course blocking Iranian oil exports. But it is also an action of disruption directed towards Europe and Asia. The US has called for the rest of the world to engaged in the war with Iran: ”If you want oil from the Persian Gulf, then go and get it”. A risk is that the US plays brinkmanship with the global oil market directed towards its European and Asian allies and maybe even towards China to force them to engage and take part. Maybe unthinkable. But unthinkable has become the norm with Trump in the White House.

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Analys

TACO (or Whatever It Was) Sends Oil Lower — Iran Keeps Choking Hormuz

Publicerat

4 veckor sedan

den

24 mars, 2026

Redaktionen

Wild moves yesterday. Brent crude traded to a high of $114.43/b and a low of $96.0/b and closed at $99.94/b yesterday.

US – Iran negotiations ongoing or not? What a day. Donald Trump announced that good talks were ongoing between Iran and the US and that the 48 hour deadline before bombing Iranian power plants and energy infrastructure was postponed by five days subject to success of ongoing meetings. Iranian media meanwhile stated that no meetings were ongoing at all.

Today we are scratching our heads trying to figure out what yesterday was all about.

Friends and family playing the market? Was it just Trump and his friends and family who were playing with oil and equity markets with $580m and $1.46bn in bets being placed by someone in oil and equity markets just 15 minutes before Trump’s announcement?

Was Trump pulling a TACO as he reached his political and economic pain point: Brent at $112/b, US Gas at $4/gal, SPX below 200dma and US 10yr above 4.4%?

Different Iranian factions with Trump talking with one of them? Are there real negotiations going on but with the US talking to one faction in Iran while another, the hardliners, are not involved and are denying any such negotiations going on?

Extending the ultimatum to attack and invade Kharg island next weekend? Or, is the five day delay of the deadline a tactical decision to allow US amphibious assault ships and marines to arrive in the Gulf in the upcoming weekend while US and Israeli continues to degrade Iranian military targets till then. And then next weekend a move by the US/Israel to attack and conquer for example the Kharg island?

We do not really know which it is or maybe a combination of these.

We did get some kind of TACO ydy. But markets have been waiting for some kind of TACO to happen and yesterday we got some kind of TACO. And Brent crude is now trading at $101.5/b as a result rather than at $112-114/b as it did no the high yesterday.

But what really matters in our view is the political situation on the ground in Iran. Will hardliners continue to hold power or will a more pragmatic faction gain power?

If the hardliners remain in power then oil pain should extend all the way to US midterm elections. The hardliners were apparently still in charge as of last week. Iran immediately retaliated and damaged LNG infrastructure in Qatar after Israel hit Iranian South Pars. The SoH was still closed and all messages coming out of Iran indicated defiance. Hardliners continues in power has a huge consequence for oil prices going forward. The regime has played its ’oil-weapon’ (closing or chocking the Strait of Hormuz). It is using it to achieve political goals. Deterrence: it needs to be so politically and economically expensive to attack Iran that it won’t happen again in the future. Or at least that the US/Israel thinks 10-times over before they attack again. The highest Brent crude oil closing price since the start of the war is $112.19/b last Friday. In comparison the 20-year inflation adjusted Brent price is $103/b. So Brent crude last Friday at $112.19/b isn’t a shockingly high price. And it is still far below the nominal high of $148/b from 2008 which is $220/b if inflation adjusted. So once in a lifetime Iran activates its most powerful weapon. The oil weapon. It needs to show the power of this weapon and it needs to reap political gains. Getting Brent to $112/b and intraday high of $119.5/b (9 March) isn’t a display of the power of that weapon. And it is not a deterrence against future attacks.

So if the hardliners remain in power in Iran, then the SoH will likely remain chocked all the way to US midterm elections and Brent crude will at a minimum go above the historical nominal high of $148/b from 2008.

Thus the outlook for the oil price for the rest of the year doesn’t depend all that much of whether Trump pulls a TACO or not. Stops bombing or not. It depends more on who is in charge in Iran. If it is the hardliners, then deterrence against future attacks via chocking of the SoH and high oil prices is the likely line of action. It is impacting the world but the Iranian ’oil-weapon’ is directed towards the US president and the the US midterm elections.

If a pragmatic faction gets to power in Iran, then a very prosperous future is possible. However, if power is shifting towards a more pragmatic faction in Iran then a completely different direction could evolve. Such a faction could possibly be open for cooperation with the US and the GCC and possibly put its issues versus Israel aside. Then the prosperity we have seen evolving in Dubai could be a possible future also for Iran.

Annons

So far it looks like the hardliners are fully in charge. As far as we can see, the hardliners are still fully in control in Iran. That points towards continued chocking of the SoH and oil prices ticking higher as global inventories (the oil market buffers) are drawn lower. And not just for a few more weeks, but possibly all the way to the US midterm elections.

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Analys

Oil stress is rising as the supply chains and buffers are drained

Publicerat

1 månad sedan

den

17 mars, 2026

Redaktionen

A brief sigh of relief yesterday as oil infra at Kharg wasn’t damaged. But higher today. Brent crude dabbled around a bit yesterday in relief that oil infrastructure at Iran’s Kharg island wasn’t damaged. It traded briefly below the 100-line and in a range of $99.54 – 106.5/b. Its close was near the low at $100.21/b.

No easy victorious way out for Trump. So no end in sight yet. Brent is up 3.2% today to $103.4/b with no signs that the war will end anytime soon. Trump has no easy way to declare victory and mission accomplished as long as Iran is in full control of the Strait of Hormuz while also holding some 440 kg of uranium enriched to 60% and not far from weapons grade at 90%. As long as these two factors are unresolved it is difficult for Trump to pull out of the Middle East. Naturally he gets increasingly frustrated over the situation as the oil price and US retail gas prices keeps ticking higher while the US is tied into the mess in the Middle East. Trying to drag NATO members into his mess but not much luck there.

When commodity prices spike they spike 2x, 3x, 4x or 5x. Supply and demand for commodities are notoriously inflexible. When either of them shifts sharply, the the price can easily go to zero (April 2022) or multiply 2x, 3x, or even 5x of normal. Examples in case cobalt in 2025 where Kongo restricted supply and the price doubled. Global LNG in 2022 where the price went 5x normal for the full year average. Demand for tungsten in ammunition is up strongly along with full war in the middle east. And its price? Up 537%.

Why hasn’t the Brent crude oil price gone 2x, 3x, 4x or 5x versus its normal of $68/b given close to full stop in the flow of oil of the Strait of Hormuz? We are after all talking about close to 20% of global supply being disrupted. The reason is the buffers. It is fairly easy to store oil. Commercial operators only hold stocks for logistical variations. It is a lot of oil in commercial stocks, but that is predominantly because the whole oil system is so huge. In addition we have Strategic Petroleum Reserves (SPRs) of close to 2500 mb of crude and 1000 mb of oil products. The IEA last week decided to release 400 mb from global SPR. Equal to 20 days of full closure of the Strait of Hormuz. Thus oil in commercial stocks on land, commercial oil in transit at sea and release of oil from SPRs is currently buffering the situation.

But we are running the buffers down day by day. As a result we see gradually increasing stress here and there in the global oil market. Asia is feeling the pinch the most. It has very low self sufficiency of oil and most of the exports from the Gulf normally head to Asia. Availability of propane and butane many places in India (LPG) has dried up very quickly. Local prices have tripled as a result. Local availability of crude, bunker oil, fuel oil, jet fuel, naphtha and other oil products is quickly running down to critical levels many places in Asia with prices shooting up. Oman crude oil is marked at $153/b. Jet fuel in Singapore is marked at $191/b.

Oil at sea originating from Strait of Hormuz from before 28 Feb is rapidly emptied. Oil at sea is a large pool of commercial oil. An inventory of oil in constant move. If we assume that the average journey from the Persian Gulf to its destinations has a volume weighted average of 13.5 days then the amount of oil at sea originating from the Persian Gulf when the the US/Israel attacked on 28 Feb was 13.5 days * 20 mb/d = 269 mb. Since the strait closed, this oil has increasingly been delivered at its destinations. Those closest to the Strait, like Pakistan, felt the emptying of this supply chain the fastest. Propane prices shooting to 3x normal there already last week and restaurants serving cold food this week is a result of that. Some 50-60% of Asia’s imports of Naphtha normally originates from the Persian Gulf. So naphtha is a natural pain point for Asia. The Gulf also a large and important exporter of Jet fuel. That shut in has lifted jet prices above $200/b.

To simplify our calculations we assume that no oil has left the Strait since that date and that there is no increase in Saudi exports from Yanbu. Then the draining of this inventory at sea originated from the Persian Gulf will essentially look like this:

The supply chain of oil at sea originating from the Strait of Hormuz is soon empty. Except for oil allowed through the Strait of Hormuz by Iran and increased exports from Yanbu in the Red Sea. Not included here.

Oil at sea is falling fast as oil is delivered without any new refill in the Persian Gulf. Waivers for Russian crude is also shifting Russian crude to consumers. Brent crude will likely start to feel the pinch much more forcefully when oil at sea is drawn down another 200 mb to around 1000 mb. That is not much more than 10 days from here.