SEB's Oil Market Report: Downside risk well into Q2

7/29/2019 SEB's Oil Market Report: Downside risk well into Q2

1/12

Oil Market ReportBrent downside risk well into Q2

15 MARCH 2013


2/12

2

SEB Oil Market Report

Crude oil market

While Brent has fallen below $110/b and previouslarge net long speculative positions have fallen backsharply, we still expect further downside in the price

over the next 1-2 months, albeit relatively brief andfairly transitory, due to seasonal weakness and highOPEC crude oil production, provided MENA risks donot escalate significantly.

In its March report, the International Energy Agency (IEA)cut its average 2013 call-on-OPEC forecast by 100 kb/dto 29.7 mb/d. Conversely, it estimated production of30.49 mb/d in February, up 150 kb/d from January andaround 1.3 mb/d above the call-on-OPEC for Q2-13. Thecartel must therefore cut production substantially goinginto Q2 unless it wishes global crude oil stocks toincrease. However, Saudi Arabia certainly does not want

an oil price of around $120/b, such as we saw earlier thisyear, as it would, on the one hand, stimulate further rapidincreases in US oil production and, on the other, hurt stillfragile global growth. Consequently, OPEC generally andSaudi Arabia in particular are likely to maintain highproduction to prevent the oil price rallying due to bullishequity markets and the US recovery.

This year we expect growth in oil production (or at leastoil capacity) to exceed consumption. The IEA anticipatesdemand rising by up to 820 kb/d y/y in 2013 due tocontinued weak global growth. On the other hand, non-

OPEC supply is projected to increase by 1.1 mb/d thisyear, with the US accounting for a substantial share. Inaddition, Iraq will continue to expand oil production.Overall, we forecast an improving OPEC reserve capacitybuffer in 2013. While IEA estimates suggest OPECsreserve capacity could rise towards 5 mb/d at the end ofthis year, the US Energy department is far more cautious,expecting OPEC reserve capacity of only 3.4 mb/d in2014. While the precise figure is difficult to project, bothagencies believe the buffer will increase during 2013. Ofcourse, the MENA region is extremely unstable atpresent, so any disruptions locally could rapidly exhaustmarket capacity.

Latest OECD composite leading indicators suggest itsgrowth will improve over the next six months, even in theEuro-zone. On the other hand, they also signal weakeractivity in both China and India. Slower economicexpansion in China, if it occurs, will certainly adverselyaffect the outlook for Brent.

(NYMEX/ICE, $/b, front month, daily closing)

70

75

80

85

90

95

100

105

110

115

120

125

130

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

NYMEXWTI

ICE Brent

(mb/d)

84,5

85,0

85,5

86,0

86,5

87,0

87,5

88,0

88,5

89,0

89,5

90,0

90,5

91,0

91,5

jul-10

sep-1

0

nov-1

0

jan-1

1

mar-

11

ma

j-11

jul-11

sep-1

1

nov-1

1

jan-1

2

mar-

12

ma

j-12

jul-12

sep-1

2

nov-1

2

jan-1

3

mar-

13

2011

2012

2013

Chart Sources: IEA, Bloomberg, SEB Commodity Research

2012

(mb/d)

Revision

(kb/d)

2013

(mb/d)

Revision

(kb/d)IEA 89.8 -40 90.6 -60EIA 89.12 -40 90.13 -80

OPEC 88.83 -20 89.67 -10

($/b) Q1 Q2 Q3 Q4 FullYear

2013 112 107.5 110 110 109.92014 - - - - 110.02015 - - - - 115.0


3/12

3


Crude oil

(NYMEX/ICE, $/b, front month, weekly closing) (NYMEX/ICE, %, daily closing, >0: contango,


4/12

4


Crude oil

(DOE, mb, weekly data) (mb, monthly data)

320

330

340

350

360

370

380

390

j f m a m j j a s o n d

5 year average

2012

2013

2525

2550

2575

2600

2625

2650

2675

2700

2725

2750

2775

2800

2825


5 year range, top

5 year range, bottom

2013

5 year average

(mb, monthly data) (mb, monthly data)

900

910

920

930

940

950

960

970

980

990

1000

1010

1020

1030

1040


5 year range, top


2013

5 year average

1175

1200

1225

1250

1275

1300

1325

1350

1375

1400


5 year range, top5 year range, bottom

2013

5 year average

(mb, monthly data) (kb/d, Bloomberg estimate, monthly data)

375

380

385

390

395

400

405

410

415

420

425

430

435

440


5 year range, top


2013

5 year average24000

25000

26000

27000

28000

29000

30000

31000

32000

33000

2007

2008

2009

2010

2011

2012

2013

OPEC-12 production

OPEC-11 production

Chart Sources: Bloomberg, IEA, SEB Commodity Research


5/12

5


European oil product markets

Refinery economics have deteriorated since the end ofFebruary with gasoline, the key driver behind the sharpupturn at the beginning of the year, once again

involved. Meanwhile, crack spreads in all otherproducts have posted smaller but divergent changes inrecent weeks. US refinery maintenance will peak thismonth, with activity expected to rise sharply in April.While European maintenance outages will stay highthis month, they are unlikely to peak until April.Consequently, we foresee little downside in currentregional refinery economics. Based on the latestinformation available Asian refinery activity will followa trajectory similar to the European.

Light ends: Naphtha and gasoline cracks have beenmoving in opposite directions lately with the former againhigh but the latter down sharply. A plentiful gasoline supply

on the US east coast has limited US demand for Europeanbarrels. In addition, low ethanol availability and the

Renewable Fuel Standard have collectively created aregulatory situation that limits US import demand. Goingforward, Easter holiday driving and maintenance could

support the crack despite high inventories. The switch tosummer specifications will occur in April, prompting refiners

to sell off surplus winter grade fuel. Naphtha appears tohave been running ahead of itself, given its still lowpetrochemical industry competitiveness compared to

propane, and reports that gasoline blenders have alreadystocked up. We question whether refinery maintenance can

support the crack at its current level.

Middle distillates: Middle distillate market activity remainsfairly low. However, with cracks neutral at the best, mostrefinery maintenance still to come and a late winter cold

snap in progress, downside risk is probably limited. Demandfor diesel is relatively healthy and may receive additional

support from Easter holiday driving. However, theregulatory situation discussed earlier concerning the USethanol shortage could increase US incentives to ship diesel

to Europe in coming months. Currently, the diesel market issufficiently strong and the jet fuel market weak enough to

justify refiners maximising diesel output. To some extent atleast, the jet fuel crack should find support in few arrivingarbitrage cargoes and the approaching travel season.

Heavy ends: Relative to crude oil, fuel oil prices havemoved steadily higher from low levels, particularly for highsulphur fuel oil, mainly due to the slightly strongerSingapore market. Despite high volumes of arbitrage

cargoes scheduled eastbound from Europe in March andApril, they are mainly intended for further processing rather

than end use. Moreover, given upcoming maintenance inboth Asia and Europe, the fuel oil crack appears on firmer

ground again.

($/t, daily closing)

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Naphtha

Gasoline


750

800

850

900

950

1000

1050

1100

1150

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Jet fuel

Diesel 10 ppm

Gasoil 0.1%


475

500

525

550

575

600

625

650

675

700

725

750

775

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

High sulphur fuel oil (3.5%)

Low sulphur fuel oil (1.0%)

Chart Sources: Bloomberg, SEB Commodity Research


6/12

6


Oil products

(DOE, mb, weekly data) (NYMEX, /gal, front month, daily closing)

110

120

130

140

150

160

170

180

190

200

210220

230

240


Gasoline 5 year average

Gasoline 2013

Distillate fuel oil 5 year average

Distillate fuel oil 2013

230

240

250

260

270

280

290

300

310

320

330

340

350

360

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Gasoline

Heating oil

(%, weekly data) ($/t, daily closing)

80

81

82

83

84

85

86

87

88

89

90

91


2008-2012 avg.

2013

750

775

800

825

850

875

900

925

950

975

1000

1025

1050

1075

1100

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

0

10

20

30

40

50

60

70

80

90

100

110ICE Gasoil 0.1% (left)Jet fuel premium (right)Diesel 10 ppm premium (right)

($/b, daily closing) ($/t, daily closing)

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Naphtha GasolineJet fuel Gasoil 0.1%Low sulphur fuel oil High sulphur fuel oilDiesel 10 ppm

-15-10-505

101520253035404550

5560657075

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13



7/12

7


Oil products

($/b, daily closing) (kt, monthly data)

-6-4-202468

10121416182022242628303234

36384042

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Asia (Minas)US (WTI)Europe (Brent)Persian Gulf (Dubai)

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180


5 year range, top


2013

5 year average

(kt, monthly data) (kt, monthly data)

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150


5 year range, top


2013

5 year average

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850


5 year range, top


2013

5 year average

(kt, monthly data) (kt, monthly data)

1100120013001400150016001700180019002000210022002300240025002600

27002800290030003100


5 year range, top


2013

5 year average

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050


5 year range, top


2013

5 year average

Chart Sources: Bloomberg, PJK International, SEB Commodity Research


8/12

8


Oil products

(DOE, mb/d, weekly data) (DOE, mb/d, weekly data)

13,6

13,8

14,0

14,2

14,4

14,6

14,8

15,0

15,2

15,4

15,6

15,8


5y avg.

2012

2013

8,4

8,5

8,6

8,7

8,8

8,9

9,0

9,1

9,2

9,3

9,49,5

9,6

9,7


5y avg.

2012

2013

(DOE, mb/d, weekly data) ($/t, daily closing)

4,0

4,2

4,4

4,6

4,8

5,0

5,2

5,4


5y avg.

2012

2013

-20

-16-12

-8-4

0

4

8

12

16

20

24

28

32

3640

44

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13


-25

-20

-15

-10

-5

0

5

10

15

20

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

apr-

12

ma

j-12

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-1

2

dec-1

2

jan-1

3

feb

-13

mar-

13

Heating oil/Gasoil

Jet fuel/Kerosene



9/12

9


Related energy markets

(NYMEX, $/MMBtu, front month, weekly closing) (ICE, front month, weekly closing)

1

2

3

4

5

6

7

8

9

10

1112

13

14

2007

2008

2009

2010

2011

2012

2013

3

4

5

6

7

8

9

10

11

12

13

14

15

2007

2008

2009

2010

2011

2012

2013

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85$/MMBtu (left axis)

GBp/therm (right axis)

(Nord Pool, /MWh, front quarter, weekly closing) (EEX, /MWh, front quarter, weekly closing)

20

25

30

35

40

45

50

55

60

65

70

75

80

2007

2008

2009

2010

2011

2012

2013

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

2007

2008

2009

2010

2011

2012

2013

(ECX ICE, /t, December current year, weekly closing) (CIF ARA steam coal, API#2, daily closing)

3

5

7

9

11

13

15

17

19

21

23

2527

29

31

33

35

2008

2009

2010

2011

2012

70

75

80

85

90

95

100

105

110

115

120

125

130

135

jan-1

0

mar-

10

ma

j-10

jul-10

sep-1

0

nov-1

0

jan-1

1

mar-

11

ma

j-11

jul-11

sep-1

1

nov-1

1

jan-1

2

mar-

12

ma

j-12

jul-12

sep-1

2

nov-1

2

jan-1

3

mar-

13



10/12

10


Market indicators

(weekly closing) (price index, weekly closing)

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

2007

2008

2009

2010

2011

2012

2013

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

2007

2008

2009

2010

2011

2012

2013

(monthly, PMIs >50 expansive) (monthly data)

34

36

38

40

42

44

46

48

50

52

54

56

58

2007

2008

2009

2010

2011

2012

2013

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

62

2007

2008

2009

2010

2011

2012

2013

US

Eurozone

ChinaReference

(%, y/y, monthly data) (monthly, 100 corresponds to long term trend growth in industrial production)

-22-20-18-16-14-12-10-8-6-4-20246810

1214161820

2007

2008

2009

2010

2011

2012

2013

US

EurozoneChina

93

94

95

96

97

98

99

100

101

102

103

104

2007

2008

2009

2010

2011

2012

2013

China

Eurozone

OECD

USA

Reference

Chart Sources: Bloomberg, OECD, SEB Commodity Research


11/12

11


COMMODITY RESEARCH DISCLAIMER

This statement affects your rightsThis report has been compiled by SEBs Commodity Research, a division within Skandinaviska Enskilda Banken AB (publ) (SEB),

to provide background information only. It is confidential to the recipient, any dissemination, distribution, copying, or other use ofthis communication is strictly prohibited.

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DisclosuresThe analysis and valuations, projections and forecasts contained in this report are based on a number of assumptions andestimates and are subject to contingencies and uncertainties; different assumptions could result in materially different results.The inclusion of any such valuations, projections and forecasts in this report should not be regarded as a representation or

warranty by or on behalf of the SEB Group or any person or entity within the SEB Group that such valuations, projections and

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12/12

www.seb.se

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47

Date post:	03-Apr-2018
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SEB's Oil Market Report: Downside risk well into Q2

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