Analys

You borrowed our market share – Now we want it back

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9 månader sedan

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5 juni, 2024

From ”price over volume” to ”we want our market share back”. OPEC+ changed its wording big time last Sunday as it essentially shifted its strategy from ”price over volume” to instead ”price yes, but also volume”. OPEC+ has been regulating the supply oil oil since May 2020 when oil demand collapsed due to Covid-19. Since then the organisation has continuously been willing to adjust supply to whatever needed to balance the market. Oil market participants thus didn’t need to worry too much about changes in the outlook for global oil demand or non-OPEC+ supply growth as the oil cartel would adjust to balance the market whatever happened. That period has now come to an end. The oil price will now become much more sensitive to macro data related to economic growth and oil demand growth as well as changes in projections in non-OPEC+ production growth.

Bjarne Schieldrop, Chief analyst commodities, SEB

Little finesse when Saudi Arabia shifted from ”price” to ”volume” in 2014. Back in 2014 when Saudi Arabia decided that enough was enough in terms of losses in market share to booming US shale oil production it shifted tactics from ”price over volume” to ”market share” without much fines. Saudi Arabia then, without saying much, started to drop its Official Selling Prices sharply into the autumn of 2014. Finally in December 2014 it became official that OPEC would no longer shed market share to non-OPEC (essentially US shale) to defend the oil price.

This time however the shift in strategy is done with much more finesse and in a much more clever way. To start with OPEC+ is doing nothing what so ever in Q3-24. No change in production. As demand will seasonally rise a bit in Q3, this should ensure a fairly balanced market with no rise in inventories (maybe even a draw). At least according to estimated need for oil from OPEC+ (paper balances). The communicated plan is then to gradually add around 2 m b/d to the market from Q4-24 to Q3-25 with an increase of 750 k b/d already by January 2025. But the finesse is that the cartel is holding an open door to modify that plan by saying that ”if market circumstances do not allow it” they may not place the 2 m b/d of voluntary cuts back into the market from Q4-24 to Q3-25 anyhow. Anyhow they are making it clear that these volumes will eventually return to the market. And that is something which all non-OPEC+ producers will discuss at boardroom levels going forward.

IEA’s May report projects a decline in call-on-OPEC 2025 of 0.5 m b/d. Not acceptable for OPEC. The IEA, in its May report, is projecting that global demand will rise by 1.1 m b/d while non-OPEC supply will rise by 1.6 m b/d. The result is that OPEC will loose a market share of 0.5 m b/d in 2025 and thus have to cut the same to maintain market balance and prices. OPEC(+) is now saying that that is not a feasible path. They don’t want to cut yet more. Enough is enough.

No one believes that there is room for an additional 2 m b/d without crashing the price. No one believes that there is room in the global oil market for an additional 2 m b/d (the voluntary cuts) from OPEC+ from Q4-24 to Q3-25. At least not without crashing oil prices. The cartel probably doesn’t believe that either. And as a result it has left a backdoor open to modify their plans as they go by saying that they may modify these plans of added supply if market conditions do not allow the return of these volumes to the market.

The message is a warning shot to non-OPEC+ producers to scale back or face the consequences. The latest message from the cartel is a warning shot to non-OPEC+ producers. The market share that non-OPEC+ producers have grabbed since year 2020 is not for them to keep. The oil cartel want these volumes back. Preferably as fast as possible but with some levy with respect to time.

The cartel may hope to influence demand and non-OPEC+ supply for 2025. With its latest communication and actions the cartel may be hoping to modify the outcome for 2025 where the IEA is projecting that call-on-OPEC will decline by 0.5 m b/d. A little bit softer prices now, but no collapse, could help to ease inflation further, reduce interest rates faster, speed up global economic growth and thus potentially lift projected oil demand growth for 2025.

The messaging from the cartel will most likely also be widely discussed in non-OPEC+ oil producer boardrooms and not the least among shale oil producers. The natural conclusion they should arrive at is that they should ease back on production growth planes for 2025. Preferably by starting to shed some drilling and fracking activity already in H2-24.

So if as a result of all of this we get that global oil demand ends up growing 1.4 m b/d in 2025 rather than 1.1 m b/d in 2025 (IEA proj.) and non-OPEC+ production grows by 1.4 m b/d rather than by 1.6 m b/d (IEA proj.), then at least OPEC+ will be able to keep its market share in 2025 without further losses.

OPEC is now producing roughly 4 m b/d below normal production level. Not sustainable. Especially if it would need to cut yet further in 2025.

Call-on-OPEC projected to fall from 27.4 m b/d in 2024 to 26.9 m b/d in 2025

Effective OPEC+ spare capacity close to 6 m b/d sitting idele.

Relaterade ämnen:bjarne schieldrop oil seb analys

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Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

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Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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3 dagar sedan

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19 februari, 2025

Redaktionen

Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

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Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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5 dagar sedan

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17 februari, 2025

Redaktionen

Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.