Analys
More US shale oil – But it will be needed

Price action – Buying now may be as good as it gets in H1-17
The front month Brent crude oil contract lost 2.4% yesterday with a close of $53.64/b. The longer dated contracts also lost some territory but not as much. Thus the front end of the curve pushed lower as the overly brave bulls who charged into the new year with record high net long WTI speculative positions took cover and shed some of their long specs. Last night the US EIA lifted its US crude oil production forecast for 2017 which also helped to push down the price. At the low Brent traded down to $53.58/b and thus just below the technical level of $53.63/b which we envisioned it would breach in this highly speculatively driven sell-off. We think that few envision that Brent crude at sub-$50/b is a viable price in H1-17 amid OPEC production cuts tightening up the market. If last night’s low of $53.58/b turns out to be the low point remains to be seen. However, we do think that buying in the territory between the current price of $53.88/b (this morning) and down to $50/b is probably as good as it gets for buyers in H1-17. Thus it comes back to this itching decision: Buy now at $53.88/b or hold out for possibly yet lower prices? This evening we have the US EIA’s oil inventory data at 16:00 CET and preliminary data points to no optimism for the bulls this time. The US API last night indicated that US oil inventories last week developed as follows: Crude: +1.5 mb, Gasoline: +1.7 mb and Distillates: +5.5 mb. So up across the board. On Friday we are probably going to see the first weekly rig count which was not impacted and overshadowed by the Christmas holidays. Also it is going to be now a full 6 weeks since OPEC decided to cut production back in Nov 30th and as such the effect of higher prices should start to filter through to higher rig counts. Thus still some bearish events which might hit the oil price bearishly. However, since the start of the year we have seen some increasing instability in both Libya and Nigeria which quickly could turn expectations for higher production to disappointment and thus higher prices.
The US EIA lifts projected US crude production yet higher – Will be the norm in H1-17
The US EIA yesterday released its January Short Term Energy Outlook (STEO) with yet another solid revision higher for its forecasted US crude oil production. For 2017 it lifted its predicted US crude production by 230 kb/d to 9.01 mb/d on average. Going back to July 2016 it has thus lifted its 2017 prognosis by 810 kb/d. Back in July 2016 it probably assumed no additions of US shale oil rigs for H2-16. A total of 170 rigs were however added into the market and volume productivity also continued to rise at an annual pace of 20%. In our US crude oil model, if we keep the latest updated shale oil volume productivity fixed at latest updated level and move the 170 shale oil rigs added in H2-16 in and out of our model we get a delta production of 502 kb/d of additional US shale oil crude production for 2017 delivery. Back in 2016 we stated that September 2016 probably would be the low point for US crude oil production. That is now also the forecast from the US EIA.
Our calculated return for a new shale oil well investment show that the annual, 3 year return, all money back after 3 years, no tail production profits had an average return of 1.2% in H1-16, 11.3% return in H2-16. Since OPEC decided to cut it has however averaged 16.7% boosting the incentive to invest yet further.
For H1-17 we expect 30 rigs per month or a total of 180 rigs for the half year to be added to the market as oil prices stay at $55-60/b during the period. In our view +180 rigs for H1-17 is a cautious estimate given that profitability for new shale oil investments will be substantially higher in H1-17 than in H2-16. We calculate that the extra 180 rigs in H1-17 will add 209 kb/d to our supply forecast for 2017 and 886 kb/d to our supply forecast for 2018. Only by bringing no additional rigs going forward do we get a US crude oil supply forecast on par with the latest US EIA forecast. As such we expect 30 rigs to be added each month through H1-17 and following we expect the US EIA to lift its 2017 and 2018 US crude oil production every month accordingly. Thus the relentless increase in US EIA’s forecasted US crude production which we experienced through H2-16 is set to continue also in H1-17. As far as we can see the US EIA hardly assumes any additional US shale oil rigs to be added into the market in H1-17 versus what is already active at the moment. We calculate every 30 shale oil rigs added and activated in H1-17 will add approximately 150 kb/d to the US 2018 crude production.
We expect to see constant revisions higher for US shale oil production in H1-17 by the EIA. This is not necessarily so bad because we think the oil will be needed. But the market will not need more rigs in H2-17 and the oil price has to adjust lower in H2-17 in order to avoid yet more rigs into the market.
Selected graphs and tables
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
OPEC+ in a process of retaking market share

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.

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.

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.
Analys
Manufacturing PMIs ticking higher lends support to both copper and oil

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.
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.

Analys
Crude stocks fall again – diesel tightness persists

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.


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