Analys

Trump holds the key for commodities

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7 år sedan

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31 augusti, 2018

SHB Handelsbanken - Tradingcase råvaror - Analys

In a summer when investors have been caught off guard by everything from emerging market woes and the dollar’s tailwind to a brewing trade war, commodity markets have once again appeared in the crosshairs in terms of market turbulence. This time, it is not China, OPEC or oil which are central to crisis, but rather it is the USD-financed emerging markets and their mined metal and soft commodity production. We do not think the emerging markets crisis will be a China crisis and we believe that copper and zinc are set to rebound.

Starting point is Trump’s politics

MSCI and S&P500

Three major President Trump-related developments are having a significant impact on the commodity universe right now. First, the US decision to leave the Iran agreement and impose sanctions in two stages against Tehran laid the ground for a more direct market pricing of any similar actions against other countries.

Second, sanctions were imposed on Russia, and and most recently, US import tariffs on steel and aluminium were doubled on Turkey.

Third, on top of sanctions, developments in the trade war stalled during the summer and the positions of the various sides appeared to become locked.

These developments served to illustrate the US approach to emerging markets, in our view, and changed market pricing, kicking off a divergence between the pricing of US assets and those of emerging markets.

Turkey will not spread to Asia

If the Turkish currency crisis is not staved off, the risk of a financial system meltdown and, ultimately, a government debt default is high. But even though Spanish banks are vulnerable, Turkey’s problems should not hurt the overall eurozone economy to a significant degree. Euro weakness and European stock market declines due to the escalation of Turkey’s crisis therefore seem to be overdone. However, Turkey is far from out of the woods yet and the situation might need to worsen still to convince Turkey to adopt a painful, but more sustainable, path toward regaining financial markets’ trust. Other emerging markets with similar challenges, such as South Africa, Argentina and Pakistan, also face tough times ahead.

China stands out

CDS

What ties the affected emerging market countries together this time is expensive USD financing. China is not among them. This is can be seen clearly by studying developments in the cost of credit default swaps, or CDS.

China has barely moved while Turkey and Argentina have gone through the roof. Among the worst hit are Brazil, South Africa and Russia. These countries have also seen their currencies underperform along with their local equity markets.

As currencies have fallen, investors have started to anticipate an increase in the export of commodities to secure income. We have seen agricultural commodities trading lower, as seasonal stockpiles are expected to be shipped at a higher rate than normal.

Numbers point to a brighter future

The idea that fear is stronger than greed is relevant here, in our view. We think the first phase of President Trump’s threatening of the emerging markets is over. Running the numbers on the impact of tariffs still points to a bright future. It is hard to prove that tariffs will take a meaningful toll on growth in consumption, we believe. The impact on corporate investment is more difficult to judge. Typically, there are many negative assumptions made ahead of investments decisions. After President Trump’s “flip flop” policies, there is scope for many more multinational companies. Our base case is that President Trump will sign a deal with China in November, in time to influence the midterm elections. In such a scenario, we think base metals would recover, especially copper. Within base metals, it is clear that those more exposed to the Asian construction sector, e.g. copper and zinc, have been the greatest losers, while nickel has done much better, supported by a larger share of demand coming from the US and Europe, posting positive data during the summer.

Oil is all about Iran

Annons

The first phase of the new US sanctions against Iran came into force in August. Among other things, this means that Iran cannot use USD. However, sanctions on oil exports will not come into effect until November. These sanctions will probably not hit the country as hard as the previous ones, as they do not have the support of the rest of the world.

Oil prices rose after, among other things, the French oil company Total announced at the OPEC meeting in June that it had already stopped buying oil from Iran. This decision was a typical action in line with American sanctions, whereby a company safeguards its activities in the US and prioritises trade with the US as the larger market. President Trump also always has the option of taking sanctions against Iran to the next level. As with the last occasion that the US used sanctions against Iran, the country could forbid all companies that trade with Iran from having access to the huge US market, and prevent dollar funding. This makes the US sanctions very effective.

In the first half of the year, leaders from the EU tried to get the US to remain in the Iran agreement and presented a series of measures to instead put pressure on Iran, including closing down the missile programme. The Trump administration considered the measures to be insufficient, and chose to withdraw from the agreement. Now, the administration has urged Iran to return to the negotiating table to formulate a more comprehensive agreement than the previous one; however, Iran has stated that the US must first revert to the agreement before negotiations can recommence.

In our view, the current sanctions are fully accounted for in the oil price and a certain amount of ‘over-compliance’, such as in the example of Total, is also priced in. However, what has not been included in the oil price, in our view, is the reality of President Trump taking a step further and cutting off Iran from the global economy completely. In that case, for example, China would not be able to import oil from Iran. The latest decrease in the oil price (from around USD 78/barrel in early July to USD 72) can mainly be attributed to the escalating trade war between the US and China, in our view, but this does not mean that the situation with Iran has become any less significant.

Sparkling electricity market

Power markets have surged during the summer as because of weak hydro supply and high temperatures (Nordic reservoirs now 18% below seasonal norm). Prices also supported by strong fuels complex and Emission Rights hitting a 7-year high EUR 19.33 at the time of this being published.

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Analys

Soon into the $50ies/b unless OPEC+ flips to production cuts

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3 veckor sedan

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13 november, 2025

Redaktionen

Brent crude fell 3.8% yesterday to $62.71/b. With that Brent has eradicated most of the gains it got when the US announced sanctions related to oil sales by Rosneft and Lukeoil on 22 October. Just before that it traded around $61/b and briefly touched $60.07/b. The US sanctions then distorted the reality of a global market in surplus. But reality has now reemerged. We never held much belief that 1) The sanctions would prevent Russian oil from flowing to the market via the dark fleet and diverse ship to ship transferee. Russia and the world has after all perfected this art since 2022. Extra friction in oil to market, yes, but no real hinderance. And 2) That Trump/US would really enforce these sanctions which won’t really kick in before 21 November. And post that date they will likely be rolled forward or discarded. So now we are almost back to where we were pre the US sanctions announcement.

Bjarne Schieldrop, Chief analyst commodities, SEB

OPEC revising (and admitting) that the global oil market was running a surplus of 0.5 mb/d in Q3-25 probably helped to drive Brent crude lower yesterday. The group has steadfastly promoted a view of very strong demand while IEA and EIA have estimated supply/demand surpluses. Given OPEC’s heavy role in the physical global oil market the group has gotten the benefit of the doubt of the market. I.e. the group probably knows what it is talking about given its massive physical presence in the global oil market. The global oil market has also gotten increasingly less transparent over the past years as non-OECD increasingly holds the dominant share of global consumption. And visibility there is low.

US EIA report: US liquids production keeps growing by 243 kb/d YoY in 2026. Brent = $55/b in 2026. The monthly energy report from the US energy department was neither a joy for oil prices yesterday. It estimated that total US hydrocarbon liquids production would grow by 243 kb/d YoY to 2026 to a total of 23.8 mb/d. It has upped its 2026 forecast from 23.4 mb/d in September to 23.6 mb/d in October and now 23.8 mb/d. For now prices are ticking lower while US EIA liquids production estimates keeps ticking higher. EIA expects Brent to average $55/b in 2026.

IEA OMR today. Call-on-OPEC 2026 at only 25.4 mb/d. I.e. OPEC needs to cut production by 3.7 mb/d if it wants to balance the market. The IEA estimated in its Monthly Oil Market Report that a balanced oil market in 2026 would require OPEC to produce only 25.4 mb/d. That is 3.7 mb/d less than the group’s production of 29.1 mb/d in October.

OPEC+ now has to make some hard choices. Will it choose market share or will it choose price? Since August there has been no further decline in US shale oil drilling rig count. It has instead ticked up 4 to now 414 rigs. A lower oil price is thus needed to drive US production lower and make room for OPEC+. Down in the 50ies we need to go for that to happen. We think that first into the 50ies. Then lower US oil rig count. Then lastly OPEC+ action to stabilize the market.

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Analys

Trump’s China sanctions stance outweighs OPEC+ quota halt for Q1-26

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1 månad sedan

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3 november, 2025

Redaktionen

Easing last week and lower this morning as Trump ”non-enforcement of sanctions towards China” carries more weight than halt in OPEC+ quotas in Q1-26. Brent crude calmed and fell back 1.3% to $65.07/b last week following the rally the week before when it touched down to $60.07/b before rising to a high of $66.78/b on the back of new US sanctions on Rosneft and Lukeoil. These new sanctions naturally affect the biggest buyers of Russian crude oil which are India and China. Trump said after his meeting last week with Xi Jinping that: ”we didn’t really discuss the oil”. China has stated explicitly that it opposes the new unilateral US sanctions with no basis in international law. There is thus no point for Trump to try to enforce the new sanctions versus China. The meeting last week showed that he didn’t even want to talk to Xi Jinping about it. Keeping these sanctions operational on 21 November onwards when they kick into force will be an embarrassment for Donald Trump. Come that date, China will likely explicitly defy the new US sanctions in yet another show of force versus the US.

Halt in OPEC+ quotas shows that 2026 won’t be a bloodbath for oil. Though still surplus in the cards. Brent crude started up 0.4% this morning on the news that OPEC+ will keep quotas unchanged in Q1-26 following another increase of 137k b/d in December. But following a brief jump it has fallen back and is now down slightly at $64.7/b. The halt in quotas for Q1-26 doesn’t do anything to projected surplus in Q1-26. So rising stocks and a pressure towards the downside for oil is still the main picture ahead. But it shows that OPEC+ hasn’t forgotten about the price. It still cares about price. It tells us that 2026 won’t be a bloodbath or graveyard for oil with an average Brent crude oil price of say $45/b. The year will be controlled by OPEC+ according to how it wants to play it in a balance between price and volume where the group is in a process of taking back market share.

Better beyond the 2026 weakness. Increasing comments in the market that the oil market it will be better later. After some slight pain and surplus in 2026. This is definitely what it looks like. The production forecast for non-OPEC+ production by the US EIA is basically sideways with no growth from September 2025. Thus beyond surplus 2026, this places OPEC+ in a very comfortable situation and with good market control.

US IEA October forecast for US liquids and non-OPEC+, non-US production. No net production growth outside of OPEC+ from September 2025 to end of 2026. OPEC+ is already in good position to control the market. It still want’s to take back some more market share. Thus still 2026 weakness.

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Analys

OPEC+ quotas looks set to rise and US oil sanctions looks set to be toothless

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1 månad sedan

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2 november, 2025

Redaktionen

Down this morning with concerns that US won’t enforce Russian oil sanctions towards China. Brent crude closed up 0.7% yesterday to a close of $65.0/b after having traded in a fairly narrow range of $64.06 – 65.15/b. This morning it is down 0.1% at $64.7/b while the ICE Gasoil crack is down 1% as reports from Trump’s high level talks with Xi Jinping sows doubts about the enforcement of the new US sanctions towards Russia’s Lukoil and Rosneft.

Concerns that US sanctions will create significant friction in crude and product markets. Much focus in the oil market yesterday was on whether the recent new sanctions on Rosneft and Lukeoil would have a material impact on the supply/demand balance in the global oil market. Total CEO, Patrick Pouyanne, said that the market was underestimating the sanctions with three Indian refineries accounting for half of India’s Russian crude oil imports now placing crude oil orders elsewhere. FGE added that there would be massive trade friction over the coming 6-8 weeks with 800k b/d of products and 1m b/d of crude at risk of being stranded at sea in November and December. While Brent crude traded to an intraday low of $60.07/b on 20 October, it is currently only up $3.4/b since its lowest recent close of $61.3/b on 17 October. That is not much in the scale of things. Maybe the market is underestimating the problem as argued by Total and FGE. But Russia and its shadow fleet companions have been hard at work avoiding western sanctions since 2022. Today they are experts at this. Ship to ship transfers of crude to hide that the oil is coming from Russia. Blending Russian crude into other streams. And if Russian crude oil is cheap then there is a lot of profits on the table for willing hands.

But it is highly unlikely that the US will enforce Russian oil sanctions when it comes to China. Both crude oil and gasoil are down this morning in part because Trump said about his meeting with Xi Jinping that ”we really didn’t discuss the (Russian) oil”. China is one of the biggest buyers of Russian crude oil. Not discussing the new US sanctions with China is a clear signal that these sanctions won’t be enforced. China has been standing up against the US this year on any issue of importance. China’s Foreign Ministry spokesperson Guo Jiakun stated right after the new sanctions were announced that China “oppose unilateral sanctions which lack a basis in international law and authorization of the UN Security Council”. China won’t be bullied by over something as important as its oil purchases. If Trump tried to push the issue on sanctions on Russian oil versus China he would lose. He would get nowhere. So sensibly enough he didn’t lift the topic at the high level meeting. So China will likely pick up Russian crude cargoes who no one else dare to touch. Naturally at a bargain as well. If at all, the new sanctions are not in effect anyhow before 21 November. And as it said in the sanctions: ”may” and ”run the risk of” be prosecuted. Donald Trump thus stands free to not enforce the new sanctions. And how can he enforce them versus India if he can’t/won’t enforce them versus China. Again, as we said on 24 October: ”Sell the (sanctions) rally..”.

OPEC+ likely to lift its December quotas by 137k b/d on 2 November. OPEC+ will on 2 November discuss what it wants to do with its quotas for December. We expect the group to lift its quotas with an additional 137k b/d as it has done the last couple of meetings.

Crude oil at sea rose 69m b over week to 26 October and is up 253m b since mid-August.