Analys
The crude oil market in June – Less of a crowded place


Saudi Arabia today reduced its official selling prices (OSPs) to Asia in June and crude oil prices are bouncing 6-9% on the back of that news. It signals that Saudi Arabia sees the June crude oil market as less of a crowded place and that it will be easier for the producer to place its desired volumes into the market. In a slight parallel to this we think that it is unlikely to be a wall of surplus oil banging on the door of Cushing Oklahoma in June of a comparable magnitude of May. There is probably a limited risk for a repetition of the crash to -$40/bl for the WTI June contract when it rolls off in only 9 trading days on May 19.

Crude oil prices have today been trading a little higher and a little lower until they jumped up 6-9% as Saudi Arabia increased its official selling prices for June versus other benchmarks. Higher official selling prices (OSPs) signals that Saudi Arabia no longer is seeking to push oil into the market at almost any price.
We all know that Saudi Arabia is cutting production down to 8.5 m bl/d but what this is saying is that Saudi sees the June crude oil market as less of a crowded place than before. It will need to work less hard to get oil out the door in June in the amounts it desires.
The WTI May contract crashed oil prices on April 20th. Then prices fumbled around for a week or so before a rally kick-started at the very end of April on the back of emerging signs of demand recovery, cuts by OPEC+ and declines by non-OPEC+ producers. On Tuesday the Brent front-month contract closed above $30/bl for the first time since 13th April before taking a little breather yesterday.
It is now only 9 trading days left until the WTI June contract rolls off and expires on May 19. Attention is again coming back to what happened on April 20 when the WTI May contract expired and traded down to -$40/bl before closing at -$37/bl. The market is concerned that we might get the same kind of end-of-contract disturbances for the June contract as we got for the May contract.
If so, it is highly unlikely that we would see -$40/bl again since the market now is prepared and knows such an event might happen. It is still possible that the WTI June contract could come under intense selling pressure over the coming 9 trading days as long positions move to exit.
The special thing about the WTI contract is of course that it is based and priced in-land in Cushing Oklahoma in the US. It is land-locked with flows in and out of the storage hub going by pipelines. If inventories in Cushing are full and pipes out of Cushing are full then prices can crash.
Inventories in Cushing Oklahoma have been on a continuous rise for 9 weeks. Inventories there have risen 28 m bl over this period and as of last week they stood at 65.5 m bl which is slightly below the total capacity of 76.1 m bl and on par with levels in 2016 and early 2017. Last week inventories rose by 2.1 m bl in the hub. In all practical terms the hub is now more or less full.
The number of open positions in the WTI June contract yesterday stood at 239 m bl with a comparable amount of long versus short positions. If the 239 m bl long-side of this equation decides to take these contracts to delivery in June the holders of these contracts will actually receive physical volumes in the Cushing Oklahoma physical location.
When the WTI May contract crashed to -$40/bl on April 20 there was an open position of 109 m bl at the start of the trading day. There were basically no buyers for the long positions who wanted and needed to exit since inventories were more or less fully booked for May with nowhere to take physical delivery.
At the moment we see that Cushing inventories are close to full and still rising though the growth rate in inventories is slowing since we are moving towards total capacity.
The WTI June contract however is about June and not about May. The question is thus what are the storage needs in June? How are the bookings in June? Will surplus oil just continue to flush into Cushing also in June with all pipes in and out of the hub clogged by surplus? Probably not.
Delivered oil products in the US last week stood at 25% below last year which is equal to a decline of close to 5 m bl/d. This is terribly bad, but still better than a YoY decline of 6 m bl/d in mid-April.
But demand in the US is on its way back and demand will by June most definitely be better than it is now. Maybe down only 2-3 m bl/d YoY (which is still exceptionally weak).
Supply in the US and Canada is however declining rapidly and is expected to be down by 3.5 to 4.5 m bl/d versus pre-Corona levels already in the Month of May. It turns out that shutting down a shale oil well is easy, quick and is not damaging to the overall production of the well when it is opened at a later stage.
So, if US demand is back up to within 2-3 m bl/d versus normal in June and supply in the US and Canada is down by 3.5 to 4.5 m bl/d already in May, then there shouldn’t be a massive wall of oil banging on the door of Cushing Oklahoma to get in in June as was the case in May. As such bookings for Cushing Oklahoma inventory in June should be much less strained in June than in May even if we still see rising inventories there right now.
This lowers the risk significantly for a price crash repetition on the 19th of May when the June contract rolls off comparable to what happened to the WTI May contract on the 20th of April.
US Cushing Oklahoma oil inventories rose another 2.1 m bl/d last week to 65.5 m bl which is on par with levels from 2016 and 2017 and only about 10 m bl below max storage capacity of 76.1 m bl. Inventories are in all practical terms full.

Analys
Brent crude is now trading below its nominal 2018-19 average in EUR/barrel terms

Brent crude gained a meager 0.65% yesterday with a close of USD 66.55/b. That was not much given that US equity markets rallied 2% yesterday with Nasdaq now is almost back to its pre ”Liberation Day” level. Brent crude is trading unchanged this morning with little impulse to do anything it seems.

Equity markets have gotten a boost along with easing US tariff rhetoric. The Brent crude oil price has however not gotten the same rebound and is today still trading USD 8.5/b lower than its USD 75/b level from 2 April.
Two factors at hand here: Expectations of softer growth and more oil from OPEC+. One is that global growth in 2025 will still take a hit with softer growth and thus softer oil demand growth due to the US tariff-turmoil. Even if rhetoric has eased. The second is that OPEC+ has upped its production plans with a softer market as a result going forward. The latter message to the market happened almost at the same time as the ”Liberation Day” on 2 April.
Spot market still as tight as it was on 2 April. Still, the front-end market is more or less equally tight today as it was on 2 April. The average Brent, WTI and Dubai 1-3mth time-spread is USD 1.4/b today versus USD 1.5/b on 2. April.
The market setup/pricing is thus that the market is still tight, but that surplus will come. Either because global growth will slow due to US Tariff-turmoil or because OPEC+ will add more barrels.
Will OPEC+ resolve its internal quarrels? Worth remembering on the latter is that the latest more aggressive OPEC+ production growth plan is due to internal quarrels over quota breaches by Iraq and Kazakhstan. OPEC+ could potentially ease those growth plans just as quickly if the internal quarrel is resolved.
Brent crude in EUR/barrel is now trading at the nominal level from 2018-2019. That is nominal! Not taking account of any kind of inflation which cumulatively is up 20-30% since primo 2018. The average, nominal Brent crude oil price in 2018-2019 was EUR 59.1/b. The front-month Brent crude oil price is now EUR 58.4/b. And Brent forward 36mth is only EUR 55.5/b and in real terms one could subtract some 5-10% for the next three years from that nominal forward price. Quite sweet for consumers!
Brent has rebounded along with equities (here US Russel 2000 index in orange), but the rebound in oil has become more hesitant the latest days. Brent still trading USD 8.5/b below its pre ”Liberation Day” of USD 75/b
Brent crude forward curves. Today versus 2 April (’Liberation Day’). Still a tight current market but now with expectation that surplus is coming.
The Brent crude oil price versus the average Brent, WTI and Dubai 1-3mth time-spread. The latter is today on par with where it was on 2 April while the Brent 1mth price is down USD 8.5/b.
Brent crude in EUR/b is down to its 2018-2019 nominal price level. Not bad for euro-based oil consumers!!
Yearly averages for Brent crude in EUR/barrel. The Brent 1mth in EUR/barrel is today trading below its nominal average from 2018-2019 of EUR 59.1/b. And 36mth forward Brent is trading at only EUR 55.5/b. And that is nominally both ways. Add in some 20-30% inflation since primo 2018 and 5-10% additional inflation next three years. Think real terms!
Analys
OPEC+ tensions resurface: Brent slides to $66.6

Brent crude prices have lost the positive momentum seen from Monday evening through midday yesterday. The price initially bottomed out at USD 65.7 per barrel on Monday afternoon, before climbing steadily by USD 3 to USD 68.7 on Wednesday morning. However, that upward momentum quickly reversed course. Brent tumbled nearly USD 3.4, hitting a weekly low of USD 65.3 per barrel before recovering some losses. As of this morning, it trades at USD 66.6 – a reflection of continued and substantial volatility.

Market fundamentals have largely remained in the background, with tariff rhetoric still dominating headlines. However, yesterday’s drop was clearly driven by the supply side of the equation, after reports emerged that several OPEC+ members are pushing for an accelerated oil output increase in June.
The timing of this move – amid global trade uncertainty and softening demand – may seem counterintuitive. But internal rifts within OPEC+ appear to be taking precedence. In May, Saudi Arabia already surprised the market with an output hike aimed at disciplining quota violators. That move failed to restrict Kazakhstan, the group’s largest overproducer, and has now triggered discussions of yet another sizeable production boost in June.
A later statement from Kazakhstan’s energy ministry, pledging renewed compliance, may have helped lift crude prices slightly this morning.
The next OPEC+ meeting is set for May 5, with the proposed June output hike expected to top the agenda. The group will likely choose between a scheduled, incremental increase of 138,000 barrels per day, or a more aggressive jump of 411,000 barrels per day – equivalent to ish three months’ worth of increases rolled into one. The latter scenario would put downward pressure on oil prices and highlight deepening tensions within OPEC+, while also exacerbating concerns in a market already clouded by weak demand expectations.
Although the final decision on volumes remains unclear, OPEC+ has demonstrated it still has pricing power, and that it can pull prices lower quickly if it chooses to do so.
________
US DOE DATA
U.S. refinery activity picked up in the week ending April 18, with crude inputs rising by 326,000 barrels per day to a total of 15.9 million. Utilization rates also climbed to 88.1%. Gasoline output strengthened to 10.1 million barrels per day, while distillate fuel production edged lower to 4.6 million.
Crude imports declined by 412,000 barrels per day to 5.6 million last week. Over the past month, import volumes have averaged 6.1 million barrels per day – down 6.8% compared to the same period a year ago. Gasoline and distillate imports came in at 858,000 and 97,000 barrels per day, respectively.
Inventories were mixed. Crude oil inventories (excl. SPR) rose slightly by 0.2 million barrels to 443.1 million, still 5% below the five-year average. Gasoline inventories posted a sharp draw of 4.5 million barrels and are now 3% under seasonal norms. Diesel inventories dropped by 2.4 million barrels, leaving levels 13% below the five-year average. Propane inventories rose by 2.3 million but remained 7% under typical levels. Total commercial petroleum inventories saw a net decline of 0.7 million barrels on the week.
Product demand was generally stable. Total products supplied averaged 19.9 million barrels per day over the last four weeks, up 0.4% year-on-year. Gasoline demand slipped by 0.4%, while distillates and jet fuel rose sharply, by 12.8% and 13.8%, respectively.


Analys
Nam, nam, nam. Give me more 36mth forward Brent crude in EUR/barrel

Brent carried higher by relief rally across markets as Trump backs away from sacking Powel. Brent crude rose 1.8% ydy to USD 67.44/b with an intraday high of USD 68.04/b. The gain was driven by a relief rally across markets as it became clear that Trump would not try to force out Powel from his role as chair of the US Fed. US equities rallied more than 2.5% as a result and pulled oil along upwards in relief. The gains continue this morning both in equities and oil with the latter up 1.2% to USD 68.25/b.

Forward oil in euro looks very appealing for consumers. Even after recent oil price gains. A weaker USD and a lower oil price at the same time recently has strongly lifted the appeal for oil purchases by non-US denominated oil consumers. The euro has rallied against the USD. On Monday Brent closed at EUR 57.57/b while the 3yr forward Brent price closed at a nominal EUR 53.95/b when the forward fx rate is applied. But this is nominal three years forward basis. If we also assume that Eurozone inflation will average 2% pa. for the next three years, then the real forward euro price for oil is even lower. The price for Brent crude today is EUR 60.1/b for the front-month while the 36mth contract is EUR 55.1/b when the forward eurusd rate of 1.2 is applied. If we also assume a 2% annual inflation for three years then the real forward price is only EUR 51.9/b. Compare this to the average nominal price of Brent crude from 2015 to 2019, the shale oil boom-years, when Brent crude only averaged USD 58.5/b and EUR 51.3/b. This period was the tragic oil-years when US shale oil companies were chasing volumes rather than profits with many of them going bankrupt as a result. Even after the recent rally in Brent crude oil prices, the forward 36mth price in EUR is still relatively cheap in historical terms and especially so when the 36mth real forward price is taken into account.
The 36mth real forward price for Brent crude in EUR/b is almost down to the ”valley of death” period from 2015 to 2019 when Brent crude nominally averaged USD 58.5/b and EUR 51.3/b. That was the period when US shale oil producers aimed for volume over profits which led many of them to bankruptcy.

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