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Analys

Speculative appetite is ticking higher

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Brent crude hurt by fear of higher for longer US rates and lukewarm Chinese economy. Brent crude traded between USD 81.72/b and USD 84.08/b last week and sold off 1.8% Friday to Friday with a close of the week of USD 82.08/b. Optimism for oil was tempered on Friday by strong US payrolls data which together with surprisingly high US PCE inflation the week before indicates that the US Fed may have to keep rates higher for longer and hurt the economy and oil demand in the end. Brent crude sold off early this morning dipping down to USD 81.35/b with concerns over the strength China’s economy this year as there has been limited signals coming out of the National People’s Congress with respect to stimulus. Chinese iron ore has sold off 4.6% as a result and probably smitten over to oil as well. Brent crude is however off the lows and trading at USD 82.2/b at the moment of writing.

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

Bearish concerns are fading as inventories ticks lower and market is trusting OPEC+ resilient. It has been popular to be sensibly concerned about the global economy, about oil demand, about OPEC+ resilience and about US shale oil discipline. There has thus been limited conviction for quite some time that Brent crude would manage to stay at USD 80/b level or higher. But total commercial US crude and product stocks have ticked lower and lower so far this year and are now down 28 m b since the end of 2023. Global  floating stocks are down 11 m b so far this year as well. This points to a global market running a deficit. Net long speculative positions have moved steadily higher since mid-December 2023 in a reflection of this together with receding fear that the US and the global economy will fall apart in 2024. News this morning (Bloomberg) that 16 million barrels worth of a Brent crude June call option with strike USD 95/b is underpinning increasing conviction for the upside in oil prices.It is basically a conviction founded on 1) US shale oil production growth will be muted in 2024; 2) Global demand will grow at a fairly normal pace and 3) That OPEC+ will control the market and keep the balance on the tight side thus drawing inventories lower and the price gradually higher.

US Shale oil consolidation is at the very foundation of growing bullish views. Speculative convictions for higher prices are not based on a rallying, robust global economy but more that the global economy is not going to fall apart. But the absolute, most important basis for Brent crude prices at USD 80/b or higher is the consolidation of US shale oil with close to zero growth from Dec-23 to Dec-24 and limited growth in the years to come. This again hands the power in the oil market back to OPEC+ and OPEC+ knows it. This was very well explained by FT’s ’Energy Source’ on 15 Feb this year: ”Shale’s new era spells higher oil prices” where Conrad Gibbins at Jefferies states: ”…we’re headed towards higher oil prices. It’s not a question of if, it’s a question of when”.

Total US crude and products incl. SPR has declined into the new year.

Total US crude and products incl. SPR has declined into the new year.
Source: SEB graph and calculations, Blrg data, US EIA

Total US commercial crude and product stocks have declined into the new year and are now well below last year same time.

Total US commercial crude and product stocks have declined into the new year and are now well below last year same time.
Source: SEB calculations and graph, Blbrg data, US EIA

Net long speculative positions in Brent and WTI ticking gradually higher

Million barrels of oil per day
Source: SEB graph, Blbrg data

Analys

Crude oil comment: Balancing act

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Brent crude prices have experienced a decline this week, falling by approximately USD 1.80 per barrel from Monday’s opening, settling at USD 74.80 this morning. This marks one of the lowest price levels of 2025 to date, with an intraday dip reaching USD 74.15 per barrel on February 4th.

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

As highlighted in our previous report, crude oil prices are currently caught in a delicate balance between rising concerns over global demand growth and the potential for supply disruptions. On one side, fears surrounding an escalating trade war, with its negative impact on global growth, are putting downward pressure on the market. The persistent uncertainty surrounding tariffs and trade tensions – particularly between major economies – has raised expectations of a slowdown in business investment and consumer spending, which could dampen oil demand. Consequently, bearish sentiment is gaining traction.

On the other hand, the threat of supply disruptions, particularly from Iran, introduces an element of volatility that could quickly reverse market sentiment. This week, President Trump’s new actions aimed at intensifying pressure on Iran have raised expectations of a significant drop in the country’s oil exports. While such a move was anticipated, it still brings a fresh layer of uncertainty, further complicating the market’s outlook.

In essence, the market is now navigating between concerns about weakening global oil demand due to trade tensions and the possibility of sudden disruptions to Iranian oil supplies.

US Data (see attached data package):
U.S. oil production growth significantly slowed in the first eleven months of 2024, with crude and condensate output averaging 13.2 million barrels per day (b/d) – a modest increase from 12.9 million b/d in the same period in 2023 (+0.3 million b/d). However, this marks a sharp deceleration compared to previous years, where growth in 2023 and 2022 stood at 0.9 million b/d and 0.7 million b/d, respectively.

As global oil prices returned to pre-Ukraine war levels, U.S. producers shifted their focus from expanding output to managing costs. Inflation-adjusted front-month U.S. crude futures averaged USD 76 per barrel in 2024, down from USD 80 in 2023, reducing the incentive for further production increases. In line with this, the number of active oil rigs has also decreased, falling to 491 per week in 2024, down from 549 in 2023.

With OPEC+ partners, including Saudi Arabia, postponing planned production increases, U.S. commercial crude inventories dropped below the ten-year seasonal average by mid-2024. By January 2025, the inventory deficit had widened to 24 million barrels, or -5% below the average.

We anticipate that a further inventory depletion, which, coupled with expected sanctions on rival producers in Russia, Iran, and Venezuela, has driven a modest rise in futures prices so far in 2025.

The latest data from the EIA for the week ending January 31, 2025, presents a mixed picture. U.S. crude oil refinery inputs averaged 15.3 million b/d, a slight increase of 159 thousand b/d from the previous week.

Refinery runs also increased, with utilization partially recovering from the significant decline the prior week, rising back to 84.5% following the winter storm disruption. However, gasoline and distillate production both decreased, with gasoline output averaging 9.2 million b/d and distillates 4.6 million b/d. On the import side, crude oil imports rose by 467 thousand b/d to 6.9 million b/d, while gasoline and distillate imports remained modest.

Of greater significance, commercial crude oil inventories increased more than expected by 8.7 million barrels (API = 5 mb), bringing total crude stockpiles to 423.8 million barrels. Despite this, inventories remain 5% below the five-year average for this time of year. In contrast, distillate (diesel) inventories fell sharply by 5.5 million barrels (API = -7 mb), now standing 12% below the five-year average. Gasoline inventories saw a modest increase of 2.2 million barrels (API = 5.4 mb), slightly above the five-year average. Overall, total commercial petroleum inventories decreased by 2.7 million barrels during the week.

Given this backdrop, we continue to see Brent crude prices balancing between concerns over weaker global oil demand due to trade tensions and the potential for sudden disruptions in Iranian oil supplies. Our forecast for Brent crude at USD 75 per barrel for 2025 remains intact, reflecting this ongoing volatility.

USD DOE Inventories
US Crude and products
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Analys

Crude oill comment: Caught between trade war fears and Iranian supply disruption risk

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Brent turned higher yesterday as Trump ramps up pressure on Iran. Slightly lower this morning. Brent traded as low as USD 74.15/b (-2.4%) yesterday but managed to close with a gain of 0.3% at USD 76.2/b Trump signed action for harder sanctions/pressure towards Iranian oil exports. This morning Brent is trading down 0.3% at USD 76/b. The almost linear downward trend since the recent peak in mid-January seems to have faded a bit with price action now a little more sideways it seems.

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

Crude oil caught between trade war fears and Iranian supply disruption risks. Trump tariff chaos and trade war is no good for global growth and oil demand growth. Business investments and consumer spending will likely fall in the face of these highly erratic and growth negative actions. The oil bears naturally crawl out in response. But supply disruptions as so often before can then rapidly and suddenly turn everything around. Yesterday Trump signed actions for harder pressure on Iran with the potential to drive its exports significantly lower. That Trump would try to drive Iranian oil exports lower has been our expectation all along. The oil market is now caught between increasing fears that an escalating trade war will damage global oil demand growth on the one hand and possible sudden disruption of Iranian oil exports.

Longer dated prices offer good buy-in value. At least in a three-year backward-looking perspective. Longer dated prices are pushed down towards the low points over the past three years and offer good buying opportunity for oil consumers in a backward-looking perspective. However, how it is all going to pan out in the end: Trump trade war damaging global growth driving the oil price lower or Trump disrupting Iranian oil exports driving the oil price higher. Or both but with the effect that oil price continues sideways.

Front-month Brent crude in a sharp downward trend since its recent peak in mid-January. Sideways price level in the autumn was around USD 72-73/b with lows down at USD 70/b.

Front-month Brent crude in a sharp downward trend since its recent peak in mid-January.
Source: Bloomberg

Front-month Brent crude is no longer in overbought territory. Challenging support of 50 and 100 dma

Front-month Brent crude is no longer in overbought territory. Challenging support of 50 and 100 dma
Source: Bloomberg

ICE Gasoil swaps. Deferred contracts offer good value for consumers. At least in a three-year backward-looking perspective.

ICE Gasoil swaps. Deferred contracts offer good value for consumers. At least in a three-year backward-looking perspective.
Source: SEB graph and highlights, Bloomberg data
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Analys

The Damocles Sword of OPEC+ hanging over US shale oil producers

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Lower as OPEC+ sticks to plan of production hike while Trump-Tariff-Turmoil creates growth concerns. Brent crude traded up at the start of the day yesterday along with Trump-tariffs hitting Mexico and Canada. These were later called off and Brent ended down 1% at USD 75.96/b. OPEC+ standing firm on its planned 120 kb/d production hike in April also drove it lower. Brent is losing another 1% this morning down to USD 75.2/b. The Trump-Tariff-Turmoil is no good for economic growth. China now hitting back by restricting exports of critical metals. Fear for economic slowdown as a consequence of Trump-Tariffs is the biggest drag on oil today.

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

The Damocles Sword of OPEC+. OPEC+ decided yesterday to stick with its plan: to lift production by 120 kb/d every month for 18 months starting April. Again and again, it has pushed the start of the production increase further into the future. It could do it yet again. That will depend on circumstances of 1) Global oil demand growth and 2) Non-OPEC+ supply growth. All oil producers in the world knows that OPEC+ has a 5-6 mb/d of reserve capacity at hand. It wants to return 2-3 mb/d of this reserve to the market to get back to a more normal reserve level. The now increasingly standing threat of OPEC+ to increase production in ”just a couple of months” is hanging over the world’s oil producers like a Damocles Sward. OPEC+ is essentially saying: ”Produce much more and we will do too, and you will get a much lower price”.  

If US shale oil producers embarked on a strong supply growth path heeding calls from Donald Trump for more production and a lower oil price, then OPEC+ would have no other choice than to lift production and let the oil price fall. Trump would get a lower oil price as he wishes for, but he would not get higher US oil production. US shale oil producers would get a lower oil price, lower income and no higher production. US oil production might even fall in the face of a lower oil price with lower price and volume hurting US trade balance as well as producers.

Lower taxes on US oil producers could lead to higher oil production. But no growth = lots of profits. Trump could reduce taxes on US oil production to lower their marginal cost by up to USD 10/b. It could be seen as a 4-year time-limited option to produce more oil at a lower cost as such tax-measures could be reversed by the next president in 4 years. It would be very tempting for them to produce more.

Trump’s energy ambition is boe/d and not b/d and will likely be focused on nat gas and LNG exports. Strong US energy production growth will likely instead be focused on increased natural gas production and a strong rise in US LNG exports. Donald Trump has actually said ”3 m boe/d” growth and not ”3 m b/d” (boe: barrels of oil equivalents). So, some growth in oil and a lot of growth in natural gas production and exports will easily fulfill his target.

Brent crude historical average prices for the 1mth contract and the 60mth contract (5yr) in USD/b and the spread between them. When the market is tight there is a spot premium (orange) on top of the longer dated price. When the market is in surplus there is a discount in the spot price versus the 5yr. We have now had 5 consecutive years with backwardation and spot premiums between USD 11/b and USD 28/b (2022). Now the spot premium to 5yr is at USD 8/b. If market turns to surplus in mid-2025 and inventories starts to rise, then this USD 7/b premium will fall to zero or maybe even turn negative if the surplus is significant. This will depend on global oil demand growth, US shale oil discipline and decisions by OPEC+ in response to that.

Brent crude historical average prices for the 1mth contract and the 60mth contract (5yr) in USD/b and the spread between them.
Source: SEB calculations and graph, Bloomberg data

US production in November averaged 13.3 mb/d and was only 0.33 mb/d above its pre-Covid high in December 2019. Growth over the past 12mths has definitely slowed down.

US production in November averaged 13.3 mb/d and was only 0.33 mb/d above its pre-Covid high in December 2019.
Source: SEB graph, Bloomberg data
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