Följ oss

Analys

Trade war and Nopec-shake, but market looks like tightening

Publicerat

den

SEB - analysbrev på råvaror

SEB - Prognoser på råvaror - CommodityBrent crude sold off 1.7% yesterday with a close of $61.63/bl but has rebounded 0.4% today trading at $61.8/bl. The sell-off came on the back of a 0.9% decline in S&P 500 and a marginally stronger dollar with DXY now just 0.9% below the highs from late 2018. The clear driver for the sell-off in both crude and equities was the signal from Donald Trump that there will be no trade deal between China and the US before the March 1 deadline runs out. The consequence of this is that tariffs on about $200bn worth of goods from China will increase from 10% to 25% from March 1. It definitely took the air out of growth hopes both for economics and for oil.

Bjarne Schieldrop, Chief analyst commodities at SEB

Bjarne Schieldrop, Chief analyst commodities, SEB

US Nopec legislation (“No Oil Producing and Exporting Cartels Act 2019”) moved forward in the US. The bill was approved by the House judiciary committee on Thursday and is now ready for a full House vote. It will also need to be approved by the US Senate. Given Donald Trump’s known hostile stance towards OPEC it now looks like a very good chance that the bill will actually be voted through without being vetoed down by the President (George W Bush did that last time the bill was promoted). The prospect of a passage of Nopec legislation has added bearish pressure to Brent crude.

We don’t think that OPEC intervention matters all that much in the medium to longer term. After all, it is not low cost OPEC oil which sets the marginal cost of oil in the global market. It is the higher non-OPEC marginal cost which sets the global oil price over time. OPEC can never escape from this fact.

OPEC intervention is however a very important short term oil price driver. It is no doubt that the boost in production by OPEC+ from May to November last year helped to drown the global market in oil and crash the oil price from October to December. It is likewise just as clear that the revival in oil prices since December low of just below $50/bl to a recent high of $63.63/bl has the fingerprint of production cuts agreed by OPEC+ in December all over it.

So if the US Nopec legislation is voted through and becomes law it could definitely be bearish for oil prices right here and now given that OPEC+ is in the midst of tactical production cuts right this moment. The Nopec law will enable the US to prosecute OPEC members for price manipulation and potentially confiscate oil assets in the US belonging to such OPEC members. Whether OPEC members in general and Saudi Arabia specifically would cave in if Nopec becomes law remains to be seen. Qatar however left OPEC in December after 57 years in the group presumably due to the risk of Nopec becoming law.

It is Saudi Arabia which really is the captain of the OPEC ship. It is also Saudi Arabia who really moves supply up and down and moves the market with the other members just pitching in a little. The Nopec legislation could end tactical, cooperative production cuts and increases orchestrated by OPEC. It should probably not hinder Saudi Arabia to move production up and down on its own in order to address tactical turns and imbalances in the global oil market.

The Nopec legislation is however right in the face of Saudi Arabia. If Nopec becomes law it must be very damaging to the long lasting relationship between the US and Saudi Arabia. How can they go on being best palls if the US kills off OPEC as an organisation we wonder? This may be the next step in the geopolitical changes taking place in the Middle East. The US needs the Middle East less due to close to self-sufficiency of oil. China and India needs it more and more along with their rapidly rising oil imports and Russia is eager to get closer ties and influence in the region. Thus geopolitical changes could be the biggest fall-out.

OPEC’s true value strategy is not primarily about holding back supply tactically from existing production capacity from time to time even though this is primarily what the oil market is focusing on. The true strategy for OPEC is to make sure that they do not over-invest in their own low cost oil assets over time. It is about making sure that the global oil price balances on the higher non-OPEC marginal cost and not through over-investments within OPEC ends up balancing on low cost OPEC oil.

Thus OPEC needs to make sure that if global oil demand grows with some 1.4 m bl/d per year, then production growth from OPEC should be materially less than that. Achieving that is not about holding back production in existing capacity. It is about making sure that upstream investments in OPEC are not too high. The true OPEC strategy is thus about investment discipline over time and not about production discipline from existing capacity. On this more strategic issue it is not so clear that Nopec legislation will have all that much impact.

The amount of fossil fuels in the world is in a human perspective more or less infinite. It is all over the place. We are not running out. The price of oil is about how much oil we have above ground and not about how much is in the ground. Thus discipline on investments is OPEC’s true strategy.

As of right now OPEC+ continues to firm up the global market with its tactical tightening agreed upon in December. In addition we are losing volumes in Venezuela and Iran while general Haftar is fighting over the Sharara oil field in Libya.

Our view is that the situation in Venezuela will get worse before it gets better. US sanctions are biting and a visible reflection of that could be the softer shipping rates for Caribbean to the US Gulf trades since early January. I.e. it looks like shipments of oil out of Venezuela are declining further due to US sanctions. There may be a regime shift from Maduro to Guaido sometime in the future but we find it hard to imagine that Maduro will give up easily as he is backed by China and Russia. Even after a potential shift it will take time to revive confidence to international investors (debt holders) and oil service companies as well as all the oil service personnel which has fled the country. Money, people, competence and companies needs to move back to the country and then the oil industry needs to be revived. It is hard to see a strong revival in oil production in Venezuela this year.

Iran is definitely a sad, sad story and US shale oil production boom is bad, bad news for the Iran. Donald Trump handed out handsome oil import waivers to international buyers in Q4-18 in order to avoid a spike in the oil price. However, every additional barrel of oil produced in the US enables the US to reduce the Iran waivers just as much. Thus the more you are bullish US crude production, the more you should expect to see further declines in Iran oil exports along with smaller and smaller US waivers being handed out. Thus more US oil probably means comparably less oil out of Iran. Unfortunately for Iran.

The global economy is of great concern with continued US-China trade war (no resolution by March 1) and weakening outlook in general driving the outlook for global oil demand growth in 2019 lower. Global refining margins have moved down to very weak and painful levels at which refineries becomes increasingly likely to reduce their refining utilization. We are also moving towards the spring (March, April) refinery turnarounds where refineries are taken off-line for maintenance and summer tuning. This should lead to a temporary softer crude market with somewhat weaker crude spot dynamics over the next couple of months which might weight bearishly on crude prices. I.e. crude prices could be more bearishly sensitive to ingredients like a stronger dollar and/or equity sell-offs.

In total and on balance, it still looks like the crude oil market is on a tightening path due to both voluntary and involuntary cuts by OPEC+. Set-backs in the oil price rally since late December is however clearly a risk with Nopec, US-China trade war, global growth concerns, weak refinery margins, US dollar strength and potential sell-offs in the S&P 500 as the main concerns.

Annons

Gratis uppdateringar om råvarumarknaden

*

Analys

Oil gains as sanctions bite harder than recession fears

Publicerat

den

SEB - analysbrev på råvaror

Higher last week and today as sanctions bite harder than recession fears. Brent crude gained 2% last week with a close on Friday of USD 73.63/b. It traded in a range of USD 71.8-74.17/b. It traded mostly higher through the week despite sharp, new selloffs in equities along with US consumer expectations falling to lowest level since 2013 (Consumer Conf. Board Expectations.) together with signals of new tariffs from the White House. Ahead this week looms the ”US Liberation Day” on April 2 when the White House will announce major changes in the country’s trade policy. Equity markets are down across the board this morning while Brent crude has traded higher and lower and is currently up 0.5% at USD 74.0/b at the moment.

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

New US sanctions towards Iran and Venezuela and threats of new sanctions towards Russia. New sanctions on Venezuela and Iran are helping to keep the market tight. Oil production in Venezuela reached 980 kb/d in February following a steady rise from 310 kb/d in mid-2020 while it used to produce 2.3 mb/d up to 2016. Trump last week allowed Chevron to import oil from Venezuela until 27 May. But he also said that any country taking oil or gas from Venezuela after 2 April will face 25% tariffs on any goods exported into the US. Trump is also threatening to sanction Russian oil further if Putin doesn’t move towards a peace solution with Ukraine.

The OPEC+ to meet on Saturday 5 April to decide whether to lift production in May or not. The OPEC+ Joint Ministerial Monitoring Committee will meet on Saturday 5 April to review market conditions, compliance by the members versus their production targets and most importantly decide whether they shall increase production further in May following first production hike in April. We find it highly likely that they will continue to lift production also in May.

OPEC(+) crashed the oil price twice to curb US shale, but it kicked back quickly. OPEC(+) has twice crashed the oil price in an effort to hurt and disable booming US shale oil production. First in 2014/15/16 and then in the spring of 2020. The first later led to the creation of OPEC+ through the Declaration of Cooperation (DoC) in the autumn of 2016. The second was in part driven by Covid-19 as well as a quarrel between Russia and Saudi Arabia over market strategy. But the fundamental reason for that quarrel and the crash in the oil price was US shale oil producers taking more and more market share.

The experience by OPEC+ through both of these two events was that US shale oil quickly kicked back even bigger and better yielding very little for OPEC+ to cheer about.

OPEC+ has harvested an elevated oil price but is left with a large spare capacity. The group has held back large production volumes since Spring 2020. It yielded the group USD 100/b in 2022 (with some help from the war in Ukraine), USD 81/b on average in 2023/24 and USD 75/b so far this year. The group is however left with a large spare capacity with little room to place it back into the market without crashing the price. It needs non-OPEC+ in general and US shale oil especially to yield room for it to re-enter. 

A quick crash and painful blow to US shale oil is no longer the strategy. The strategy this time is clearly very different from the previous two times. It is no longer about trying to give US shale oil producers a quick, painful blow in the hope that the sector will stay down for an extended period. It is instead a lengthier process of finding the pain-point of US shale oil players (and other non-OPEC+ producers) through a gradual increase in production by OPEC+ and a gradual decline in the oil price down to the point where non-OPEC+ in general and US liquids production especially will gradually tick lower and yield room to the reentry of OPEC+ spare capacity. It does not look like a plan for a crash and a rush, but instead a tedious process where OPEC+ will gradually force its volumes back into the market.

Where is the price pain-point for US shale oil players? The Brent crude oil price dropped from USD 84/b over the year to September last year to USD 74/b on average since 1 September. The values for US WTI were USD 79/b and USD 71/b respectively. A drop of USD 9/b for both crudes. There has however been no visible reaction in the US drilling rig count following the USD 9/b fall. The US drilling rig count has stayed unchanged at around 480 rigs since mid-2024 with the latest count at 484 operating rigs. While US liquids production growth is slowing, it is still set to grow by 580 kb/d in 2025 and 445 kb/d in 2026 (US EIA).

US shale oil average cost-break-even at sub USD 50/b (BNEF). Industry says it is USD 65/b. BNEF last autumn estimated that all US shale oil production fields had a cost-break-even below USD 60/b with a volume weighted average just below USD 50/b while conventional US onshore oil had a break-even of USD 65/b. A recent US Dallas Fed report which surveyed US oil producers did however yield a response that the US oil industry on average needed USD 65/b to break even. That is more than USD 15/b higher than the volume weighted average of the BNEF estimates.

The WTI 13-to-24-month strip is at USD 64/b. Probably the part of the curve controlling activity. As such it needs to move lower to curb US shale oil activity. The WTI price is currently at USD 69.7/b. But the US shale oil industry today works on a ”12-month drilling first, then fracking after” production cycle. When it considers whether to drill more or less or not, it is typically on a deferred 12-month forward price basis. The average WTI price for months 13 to 24 is today USD 64/b. The price signal from this part of the curve is thus already down at the pain-point highlighted by the US shale oil industry. In order to yield zero growth and possibly contraction in US shale oil production, this part of the curve needs to move below that point.

The real pain-point is where we’ll see US drilling rig count starting to decline. We still don’t know whether the actual average pain-point is around USD 50/b as BNEF estimate it is or whether it is closer to USD 65/b which the US shale oil bosses say it is. The actual pain-point is where we’ll see further decline in US drilling rig count. And there has been no visible change in the rig count since mid-2024. The WTI 13-to-24-month prices need to fall further to reveal where the US shale oil industry’ actual pain-point is. And then a little bit more in order to slow production growth further and likely into some decline to make room for reactivation of OPEC+ spare capacity.

The WTI forward price curve. The average of 13 to 24 month is now USD 64.3/b.

The WTI forward price curve. The average of 13 to 24 month is now USD 64.3/b.
Source: SEB graph and highlights, Bloomberg data

The average 13-to-24-month prices on the WTI price curve going back to primo January 2022. Recently dropping below USD 65/b for some extended period.

The average 13-to-24-month prices on the WTI price curve going back to primo January 2022. Recently dropping below USD 65/b for some extended period.
Source: SEB graph and highlights, Bloomberg data
Fortsätt läsa

Analys

Brent Edges Lower After Resisting Equity Slump – Sanctions, Saudi Pricing in Focus

Publicerat

den

SEB - analysbrev på råvaror

Brent has defied bearish equities for three days but is losing its stamina today. Brent gained 0.3% yesterday with a close of USD 74.03/b, the highest close since 27 February and almost at the high of the day. It traded as low as USD 73.23/b. Brent has now defied the equity selloff three days in a row by instead ticking steadily higher. A sign of current spot tightness. This morning however it is losing some of its stamina and is down 0.5% at USD 73.7/b along with negative equities and yet higher gold prices.

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

The new US Iran sanctions is creating frictions in getting its oil to market and helps keeping oil market tight. Part of the current tightness is due to the new US sanctions on Iran which. Ships containing 17 mb of its oil now sits idle east of Malaysia waiting (Bloomberg) for ship-to-ship transfers with China teapot refineries the normal final destination. But the latest US sanctions has probably made these refineries much more cautious. More friction before Iranian oil is reaching its final destination if at all. Tighter market.

Lower Saudi OSPs for May is expected. A signal of a softer market ahead as OPEC+ lifts production. Saudi Aramco is expected to reduce it official selling price (OSPs) for Arab Light to Asia for May deliveries by USD 2/b. A measure to make its oil more competitive in relative to other crudes suppliers. It is also a sign of a softer market ahead. Naturally so since OPEC+ is set to lift production in April and also most likely in May. If Saudi Aramco reduces its OSPs to Asia for May across its segments of crudes, then it is a signal it is expecting softer oil market conditions. But news today is only discussing Arab Light while the main tightness int the market today is centered around medium sour crude segment. A lowering of the OSPs for the heavier and more sour grades will thus be a more forceful bearish signal.

Front-end backwardation may ease as the Brent May contract rolls off early next week. The Brent May future will roll off early next week. It will be interesting to see how that affects the front-end 1-3mth backwardation as it is shifted out into summer where a softer market is expected.

Brent is boring like crazy with 30dma annualized volatility of just 21%. Waiting for something to happen.

Brent is boring like crazy with 30dma annualized volatility of just 21%. Waiting for something to happen.
Source: SEB graph and calculations, Bloomberg data

Brent crude has defied three days of bearish equity markets and ticked higher instead. Caving in a bit this morning with yet another day of bearish equities and bullish gold.

Brent crude has defied three days of bearish equity markets and ticked higher instead. Caving in a bit this morning with yet another day of bearish equities and bullish gold.
Source: Bloomberg graph with SEB highlights.
Fortsätt läsa

Analys

Crude inventories fall, but less than API signal

Publicerat

den

SEB - analysbrev på råvaror

Last week, U.S. crude oil refinery inputs averaged 15.8 million barrels per day, an increase of 87k bl/day from the previous week. Refineries operated at 87% of their total operable capacity during the period. Gasoline production declined, averaging 9.2 million barrels per day (m bl/d), while distillate (diesel) production also edged lower to 4.5 m bl/d.

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

U.S. crude oil imports averaged 6.2 m bl/d, up 810k barrels from the prior week. Over the past four weeks, imports have averaged 5.7 m bl/d, representing an 11% YoY decline compared to the same period last year.

Where we place most of our attention – and what continues to influence short-term price dynamics in both WTI and Brent crude – remains U.S. crude and product inventories. Total commercial petroleum inventories (excl. SPR) rose by 3.2 m bl, a relatively modest build that is unlikely to trigger major price reactions. Brent crude traded at around USD 73.9 per barrel when the data was released yesterday afternoon (16:30 CEST) and has since slid by USD 0.4/bl to USD 73.5/bl this morning, still among the highest price levels seen in March 2025.

Commercial crude oil inventories (excl. SPR) fell by 3.3 m bl, contrasting with last week’s build and offering some price support, though the draw was less severe than the API’s reported -4.6 m bl. Crude inventories now stand at 433.6 m bl, about 5% below the five-year average for this time of year. Gasoline inventories declined by 1.4 m bl (API: -3.3 m bl), though they remain 2% above the five-year average. Diesel inventories fell by 0.4 m bl (API: -1.3 m bl), leaving them 7% below seasonal norms.

Over the past four weeks, total products supplied – a proxy for U.S. demand – averaged 20.2 m bl/d, up 0.5% compared to the same period last year. Gasoline supplied averaged 8.9 m bl/d, down 0.2%, while diesel supplied came in at 3.9 m bl/d, up 1.8%. Jet fuel demand also showed strength, rising 3.9% over the same four-week period.

USD DOE Inventories
US Crude Inventories exkl SPR in million barrels
Fortsätt läsa

Centaur

Guldcentralen

Fokus

Annons

Gratis uppdateringar om råvarumarknaden

*

Populära