Analys

Still upside to crude oil spot prices into Q2-17 but softer again in H2-17

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7 mars, 2017

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We expect front month Brent crude to head higher in Q2-17 to average $57.5/b but to toutch above $60/b at times.

Refineries will move back into operation consuming more oil. OPEC is delivering on cuts and inventories will decline.

US crude production is now growing (marginally, annualized) as fast as it did between 2012 and May 2015.

We expect OPEC to end cuts after H1-17 as mission is accomplished: Inventories are steady or declining and spot crude oil prices are equal to or higher than longer dated contracts. Not much more OPEC can do.

We expect the front month Brent crude oil price to fall back in H2-17 in the face of strongly rising US shale oil production and reviving OPEC production.

Brent crude front month price to average $52.5/b in Q4-17 toutching $50/b at times.

Higher than expected US shale oil rig additions since the start of the year has softening our projected deficit in 2019. However, we still see a substantial inventory draw below normal in 2019.

From the news flow:

Exxon will use 50% of its drilling budget for 2017 on US onshore drilling with its production there growing 20% pa to 2025
Libya’s crude oil production falls back again as clashes re-erupt
IEA: OPEC will increase its production capacity by 2 mb/d from 2016 to 2022 with Iraq lifting production to 5.4 mb/d in 2022

Ch1: Global refinery maintenance increased strongly in Q1-17 – Refineries soon to resume activity
A large increase in global refinery maintenance in Q1-17 left a comparble volume to be stored rather than processed

Ch2: Weekly inventories have rissen strongly in Q1-17 – Soon to decline.
OPEC also produced at record high level in Nov and Dec which has hit the market in Q1-17 along with several months of natural lag in the supply chain between production and consumption. Both helping to drive weekly inventory data up strongly in Q1-17

Ch3: OPEC delivers on cuts.
OPEC is delivering on its promises to cut. So when refineries move back on-line after maintenance and we also have the Nov and Dec OPEC production blob cleared out the the market we will see inventories starting to decline in Q2-17.

Ch4: Crude oil forward curve soon to move fully into backwardation
The forward crude curves will then move fully into backwardation with also the very front end of the curve (which is still in contango) moving into backwardation.
This is likely to lead front end Brent crude oil price up towards the $60/b mark with our expectation for an average Brent 1mth price of $57.5/b during Q2-17 touching $60/b at times.

Ch5: Speculators are bullish awaiting that last move into full backwardation
And speculators are bullish accordingly – close to record high net long speculative position in WTI

Annons

Ch6: US oil rig count moves higher and higher and higher
But US oil rigs are constantly added to the market and at a higher rate than we had expected.

Ch7: More US shale oil rigs have been activated versus what we had expected
More shale oil rigs have been added into activity in the US shale oil space versus what we had expected

Ch8: Helping to shift US crude oil production growth back into full pre-2015 growth level again
US crude oil production is now on rising trend again adding on average 30 kb/d w/w since the start of the year.
That is equal to a marginal, annualized growth rate of 30 kb/d/week * 52 week = 1560 kb/d/year (1.5 mb/d marginal, annualized growth rate).
That is back to the growth rate seen between 2012 to June 2015.

Ch9: More shale oil rigs than expected means higher forecasted US crude oil production than expected
This impacts our projected US crude oil production for 2017, 2018 and 2019 lifting it higher

Ch10: With US crude oil production now expected to lift to close to 13 mb/d at the end of 2019

Ch11: Global supply/demand balance still in deficit next three years but not much deficit in 2018 any more
Almost constantly weakening and softening our projected supply/demand balance for the nearest three years.
With our view now that there will be almost no deficit in 2018.
But still a solid deficit and inventory draw coming in 2019 as cuts in investments in conventional supply since 2014 starts to hit the market.
Little conventional legacy investments to add additional supply in 2019 and thus little to counter natural declines in existing conventional production in 2019.

Ch12: End of year OECD inventories to draw substantially below normal in 2019
End of year OECD stocks still to draw substantially below a normal of 2700 million barrels in 2019.
But stocks are likely to end the year above normal for both 2017 and 2018.
Thus few pressure points in the global supply/demand balance during 2017 and 2018 as current elevated oil inventories provides a nice cushion

Ch13: End of year OECD inventories to stand some 200 mb below normal in December 2019
The year 2019 still looks like the year when things could happen to the oil price on the upside.
As end of year OECD inventories could draw down some 200 million barrels below normal
Unless of course demand growth weakens, US shale oil production accelerates even more or oil companies accelerate in-field drilling thus countering conventional declines.

Ch14: Projected call on OPEC has declined since the start of February along with higher US crude oil production projections
As we steadily adjust our US crude oil production higher for 2017, 2018 and 2019 along with higher than expected additions of US shale oil rigs
The need for oil from OPEC declines comparably for the years to come
How far down is OPEC willing to let it slide? Probably not below 33 mb/d for 2018.

Ch15: Softer supply/demand balance naturally means softer prices
In a dynamic crude oil price forecasting frame the forecasted crude oil price declines along with with a softening forward looking supply/demand balance
(Prices in graph are mathematically extended from the $80/b forecasted at the start of February and are not new price forecast assessments)

Ch16: Longer dated market prices have deteriorated since the start of the year
Longer dated contracts like Brent crude December 2020 have deteriorated since the start of the year
Probably reflecting the acceleration in US shale oil rig additions in Q1-17
In late February the contract traded at its lowest level since April 2016.

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

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SEB Råvarubrev 7 mars 2017

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OPEC+ in a process of retaking market share

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Oil prices are likely to fall for a fourth straight year as OPEC+ unwinds cuts and retakes market share. We expect Brent crude to average USD 55/b in Q4/25 before OPEC+ steps in to stabilise the market into 2026. Surplus, stock building, oil prices are under pressure with OPEC+ calling the shots as to how rough it wants to play it. We see natural gas prices following parity with oil (except for seasonality) until LNG surplus arrives in late 2026/early 2027.

Ole R. Hvalbye, Analyst Commodities, SEB

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OPEC+ is in a process of unwinding voluntary cuts by a sub-group of the members and taking back market share. But the process looks set to be different from 2014-16, as the group doesn’t look likely to blindly lift production to take back market share. The group has stated very explicitly that it can just as well cut production as increase it ahead. While the oil price is unlikely to drop as violently and lasting as in 2014-16, it will likely fall further before the group steps in with fresh cuts to stabilise the price. We expect Brent to fall to USD 55/b in Q4/25 before the group steps in with fresh cuts at the end of the year.

Bjarne Schieldrop, Chief analyst commodities, SEB

Natural gas market: Winter risk ahead, yet LNG balance to loosen from 2026
The global gas market entered 2025 in a fragile state of balance. European reliance on LNG remains high, with Russian pipeline flows limited to Turkey and Russian LNG constrained by sanctions. Planned NCS maintenance in late summer could trim exports by up to 1.3 TWh/day, pressuring EU storage ahead of winter. Meanwhile, NE Asia accounts for more than 50% of global LNG demand, with China alone nearing a 20% share (~80 mt in 2024). US shale gas production has likely peaked after reaching 104.8 bcf/d, even as LNG export capacity expands rapidly, tightening the US balance. Global supply additions are limited until late 2026, when major US, Qatari and Canadian projects are due to start up. Until then, we expect TTF to average EUR 38/MWh through 2025, before easing as the new supply wave likely arrives in late 2026 and then in 2027.

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Analys

Manufacturing PMIs ticking higher lends support to both copper and oil

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4 dagar sedan

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1 september, 2025

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Price action contained withing USD 2/b last week. Likely muted today as well with US closed. The Brent November contract is the new front-month contract as of today. It traded in a range of USD 66.37-68.49/b and closed the week up a mere 0.4% at USD 67.48/b. US oil inventory data didn’t make much of an impact on the Brent price last week as it is totally normal for US crude stocks to decline 2.4 mb/d this time of year as data showed. This morning Brent is up a meager 0.5% to USD 67.8/b. It is US Labor day today with US markets closed. Today’s price action is likely going to be muted due to that.

Improving manufacturing readings. China’s manufacturing PMI for August came in at 49.4 versus 49.3 for July. A marginal improvement. The total PMI index ticked up to 50.5 from 50.2 with non-manufacturing also helping it higher. The HCOB Eurozone manufacturing PMI was a disastrous 45.1 last December, but has since then been on a one-way street upwards to its current 50.5 for August. The S&P US manufacturing index jumped to 53.3 in August which was the highest since 2022 (US ISM manufacturing tomorrow). India manufacturing PMI rose further and to 59.3 for August which is the highest since at least 2022.

Are we in for global manufacturing expansion? Would help to explain copper at 10k and resilient oil. JPMorgan global manufacturing index for August is due tomorrow. It was 49.7 in July and has been below the 50-line since February. Looking at the above it looks like a good chance for moving into positive territory for global manufacturing. A copper price of USD 9935/ton, sniffing at the 10k line could be a reflection of that. An oil price holding up fairly well at close to USD 68/b despite the fact that oil balances for Q4-25 and 2026 looks bloated could be another reflection that global manufacturing may be accelerating.

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Analys

Crude stocks fall again – diesel tightness persists

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1 vecka sedan

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29 augusti, 2025

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U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.

Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.

Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).

Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.

On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.