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

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SEB - analysbrev på råvaror
SEB - Prognoser på råvaror - Commodity

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.

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

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.

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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.

US Cushing Oklahoma oil inventories
Source: SEB, Bloomberg, US DOE

Analys

OPEC+ in a process of retaking market share

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SEB - analysbrev på råvaror

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
Ole R. Hvalbye, Analyst Commodities, SEB

Oil market: Q4/25 and 2026 will be all about how OPEC+ chooses to play it
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
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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SEB - analysbrev på råvaror

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.

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

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.

US manufacturing PMI by S&P rose to 53.3 in August. It was published on 21 August, so not at all newly released. But the US ISM manufacturing PMI is due tomorrow and has the potential to follow suite with a strong manufacturing reading.

US manufacturing PMI by S&P
Source: Bloomberg
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Analys

Crude stocks fall again – diesel tightness persists

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SEB - analysbrev på råvaror

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.

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

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.

US DOE Inventories
US Crude inventories
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