SEB: Oil market report - Preparing for the worst

8/3/2019 SEB: Oil market report - Preparing for the worst

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Oil Market ReportPreparing for the worst

2 FEBRUARY 2012


2/12

2

SEB Oil Market Report

Crude oil market

The current oil price includes little or no Iranian-related risk premium. Ahead of the EU import bandate (July 1) we expect it to remain at or above its

current level, given the ease with which Iran canslow or disrupt oil supplies through the Strait ofHormuz or to Europe at short notice. At present,OPEC is producing above its December target andthere are good reasons to expect it will continue todo so. High production levels are increasing themarkets ability of withstand major supply shocksand making it easier for countries worldwide to jointhe Iranian oil embargo, a development clearly tothe advantage of many OPEC countries. Supplydisruption risk is currently offset by high OPECproduction.

Current OPEC output is estimated at 30.9 mb/d, some0.9 mb/d above the target set in December 2011.Thereare several reasons why it is in Saudi Arabias interest tomaintain high production going forward.

Firstly, Saudi Arabia is no friend of Iran and fears thepossibility of it possessing nuclear arms. Obviously, theyare keen to support efforts to impose an oil embargo.Success may either weaken Iran or cause the currentregime to fall, both positive outcomes for Saudi Arabia.By maintaining high production Saudi Arabia reassuresoil consumers that supply is and will remain readily

available, making it easier for major net oil importerssuch as India, China and South Korea to support theembargo.

Secondly, Saudi Arabia wishes to ensure global oil stocksare replenished following last years draw down so the oilmarket is best placed to withstand possible new oilsupply disruptions and price spikes later this year.Current concerns include Iran and potentially Iraq,Nigeria and Sudan.

Thirdly, increased supply could result in a lower oil price,directly affecting the already weak Iranian economywhile avoiding exerting similar pressure on Saudi Arabia.

However, we do not believe increased OPEC productionwill result in lower oil prices at present, at least whilesupply disruption risk from Iran continues to dominatemarket sentiment. Little is needed for it to drive oil priceshigher. Effective action may include slowing the flow ofoil through the Strait of Hormuz by, for example,searching oil tankers for drugs. While high OPECproduction is helping protect the oil market againstsupply disruptions it is also ensuring the cartels reservecapacity remains low, at currently 3.3 mb/d. In our view,

current price risk is skewed to the upside.

Crude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, daily closing)

65

70

75

80

85

90

95

100

105

110

115120

125

130

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

NYMEXWTI

ICE Brent

IEA gIEA gIEA gIEA global crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimates(mb/d)

79

80

81

82

83

84

85

86

87

88

89

90

91

92

jan-0

9

apr-

09

jul-09

okt-09

jan-1

0

apr-

10

jul-10

okt-10

jan-1

1

apr-

11

jul-11

okt-11

jan-1

2

2009 2010 2011 2012

Chart Sources: IEA, Bloomberg, SEB Commodity Research

MonthlyMonthlyMonthlyMonthly global crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimates

2011

(mb/d)

Revision

(kb/d)

2012

(mb/d)

Revision

(kb/d)IEA 89.0 -30 90.0 -220EIA 88.11 -20 89.38 -140

OPEC 87.84 +40 88.90 +30

SEBSEBSEBSEB averageaverageaverageaverage Brent crudeBrent crudeBrent crudeBrent crude oiloiloiloil price forecastprice forecastprice forecastprice forecast

($/b) Q1 Q2 Q3 Q4 FullYear

2012 110 110 115 120 1142013 - - - - 120


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Crude oilCrude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, weekly closing)

12 month12 month12 month12 month time spreadtime spreadtime spreadtime spread(NYMEX/ICE, %, daily closing, >1: contango,


4/12

4


Crude oilUS crude oil inventoriesUS crude oil inventoriesUS crude oil inventoriesUS crude oil inventories(DOE, mb, weekly data)

OOOOECDECDECDECD totaltotaltotaltotal industry oil stocksindustry oil stocksindustry oil stocksindustry oil stocks(mb, monthly data)

310

320

330

340

350

360

370

380

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

5 year average

2011

2012

c

2500

2525

2550

2575

2600

2625

2650

2675

2700

2725

2750

2775

2800


5 year range, top

5 year range, bottom

2011

5 year average

OECDOECDOECDOECD EuropeEuropeEuropeEurope industry oil stocksindustry oil stocksindustry oil stocksindustry oil stocks(mb, monthly data)

OECDOECDOECDOECD North AmericaNorth AmericaNorth AmericaNorth America industry oil stocksindustry oil stocksindustry oil stocksindustry oil stocks(mb, monthly data)

890

900

910

920

930940

950

960

970

980

990

1000

1010

1020


5 year range, top


2011

5 year average

1175

1200

1225

1250

1275

1300

1325

1350

1375

1400


5 year range, top


2011

5 year average

OECDOECDOECDOECD Asia &Asia &Asia &Asia & OceaniaOceaniaOceaniaOceania industry oil stocksindustry oil stocksindustry oil stocksindustry oil stocks(mb, monthly data)

OPEC productionOPEC productionOPEC productionOPEC production(kb/d, monthly data)

375

380

385390395400

405

410415

420425430

435440

445450455

460

465


5 year range, top


2011

5 year average

24000

26000

28000

30000

32000

34000

jan-0

8

mar-

08

ma

j-08

jul-08

sep-0

8

nov-0

8

jan-0

9

mar-

09

ma

j-09

jul-09

sep-0

9

nov-0

9

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

OPEC-12 production

OPEC-11 production

Chart Sources: Bloomberg, IEA, SEB Commodity Research


5/12

5


European oil product markets

After hitting multi-year lows in late 2011 refineryeconomics have improved, supported by refineryclosures in the Atlantic basin, strong Asian demand for

heavy products, colder weather in Europe and shut inNorth African light end supplies. While Petroplus,Europes largest independent refiner, has been the mostprominent victim of both adverse refinery economicsand the credit crunch, several US refineries have alsoshut down production temporarily. European refineries inparticular have been plagued by Asian competition, highmaintenance costs, and a structural mismatch betweenoutput and the present demand profile, i.e. inadequateproduction of middle distillates. More closures may benecessary to restore market equilibrium. Meanwhile, theproblem is exacerbated by weak demand due to slowEuropean growth, while a potential Iranian crude importembargo may result in price-discounted sales of crude toAsian competitors. Further, the Iranian issue couldgenerate more volatility affecting the entire l complex.

Light ends: The light end of the barrel has performedbest so far this year. The naphtha market tightenedrapidly in January as bad weather prevented shipmentsfrom the Algerian refinery in Skikada. Panic buying andshort covering sent prices higher though the situationnow looks likely to stabilise. Inventories are currently atmulti-year lows however. The stronger gasoline market isalso a bullish influence on its naphtha counterpart as

feedstock demand increases. According to CFTC dataspeculators are increasingly bullish towards gasolinewith Atlantic basin refinery closures, upcoming refinerymaintenance and increasing US and Middle Easterndemand all price supportive.

Middle distillates: At present, middle distillates are theweakest part of the barrel. Despite the colder weather,prices have remained largely unchanged with consumersnot yet needing to restock. Compared to light distillatesinventories are normal to high. US and European refineryclosures have been generally supportive and refinery

margins remain healthy. Despite continued relativelyweak European demand, we see risks for an increasinglytight global diesel market going forward. US implieddemand for heating oil has been strong since year-end.

Heavy ends: Seemingly limitless Asian demand for highsulphur fuel oil almost closed the high-low spread onseveral occasions in January, reducing Europeaninventories to seasonal multi-year lows. The big questionnow is whether demand will remain strong also after theChinese New Year. The heavy end of the barrel is alsosupported by Sudanese heavy sweet crude supplydisruptions. In Europe demand for high sulphur fuel oil

has weakened since Petroplus used it as feedstock.Cheap US natural gas maintains bearish pressure on lowsulphur fuel oil prices.

European lEuropean lEuropean lEuropean lightightightight endendendend benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

600

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

Naphtha

Gasoline

European mEuropean mEuropean mEuropean middleiddleiddleiddle distillatedistillatedistillatedistillate benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

Jet fuel

Diesel 10 ppm

Gasoil 0.1%

EuropeanEuropeanEuropeanEuropean fuel oilfuel oilfuel oilfuel oil benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

350

375

400

425

450

475

500

525

550

575

600

625

650675

700

725

750

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

High sulphur fuel oil (3.5%)

Low sulphur fuel oil (1.0%)

Chart Sources: Bloomberg, SEB Commodity Research


6/12

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Oil productsUSUSUSUS ggggasoline and distillate inventoriesasoline and distillate inventoriesasoline and distillate inventoriesasoline and distillate inventories(DOE, mb, weekly data)

US producUS producUS producUS product benchmarkst benchmarkst benchmarkst benchmarks(NYMEX, /gal, front month, daily closing)

120

130

140

150

160

170

180

190

200

210

220

230

240


Gasoline 5 year average

Gasoline 2012

Distillate fuel oil 5 year average

Distillate fuel oil 2012

180190200210220230240250260270280290300310320330

340350360

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

Gasoline

Heating oil

US refinery utilizationUS refinery utilizationUS refinery utilizationUS refinery utilization(%, weekly data)

ICE Gasoil andICE Gasoil andICE Gasoil andICE Gasoil and European premiumsEuropean premiumsEuropean premiumsEuropean premiums to Gasoilto Gasoilto Gasoilto Gasoil($/t, daily closing)

81

82

83

84

85

86

87

88

89

90

91


2007-2011 avg.

2012

550

600

650

700

750

800

850

900

950

1000

1050

1100

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

-20

-10

0

10

20

30

40

50

60

70

80

90

100

110

ICE Gasoil 0.1% (left)

Jet fuel premium(right)Diesel 10 ppmpremium(right)

EuropeanEuropeanEuropeanEuropean productproductproductproduct crackscrackscrackscracks($/b, daily closing)

European lEuropean lEuropean lEuropean lowowowow ---- hhhhighighighigh sulphursulphursulphursulphur fuel oilfuel oilfuel oilfuel oil differentialdifferentialdifferentialdifferential($/t, daily closing)

-25

-20

-15

-10

-5

0

5

1015

20

25

30

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

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

-15-10-505

101520253035404550

5560657075

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

Chart Sources: Bloomberg, SEB C ommodity Research


7/12

7


Oil productsRegional 3Regional 3Regional 3Regional 3----2222----1 cracks1 cracks1 cracks1 cracks($/b, daily closing)

European naphtha stocksEuropean naphtha stocksEuropean naphtha stocksEuropean naphtha stocks(kt, monthly data)

-6-4-202468

1012141618202224262830

32343638

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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

Asia (Minas)US (WTI)Europe (Brent)

Persian Gulf (Dubai)

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160


4 year range, top


2012

4 year average

European gasoline stocksEuropean gasoline stocksEuropean gasoline stocksEuropean gasoline stocks(kt, monthly data)

European jet fuEuropean jet fuEuropean jet fuEuropean jet fuel stocksel stocksel stocksel stocks(kt, monthly data)

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150


4 year range, top


2012

4 year average

100

150

200

250

300350

400

450

500

550

600

650

700

750

800

850

900


4 year range, top


20124 year average

European gasoil stocksEuropean gasoil stocksEuropean gasoil stocksEuropean gasoil stocks(kt, monthly data)

European fuel oil stocksEuropean fuel oil stocksEuropean fuel oil stocksEuropean fuel oil stocks(kt, monthly data)

1000110012001300140015001600170018001900200021002200230024002500260027002800290030003100


4 year range, top


2012

4 year average

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050


4 year range, top


2012

4 year average

Chart Sources: Bloomberg, PJK International, SEB Commodity Research


8/12

8


Oil productsUS implied crude oil demandUS implied crude oil demandUS implied crude oil demandUS implied crude oil demand(DOE, mb/d, weekly data)

US impliedUS impliedUS impliedUS implied gasolinegasolinegasolinegasoline demanddemanddemanddemand(DOE, mb/d, weekly data)

13,5

13,8

14,0

14,3

14,5

14,8

15,0

15,3

15,5


5y avg.

2011

2012

8,5

8,7

8,9

9,1

9,3

9,5

9,7


5y avg.

2011

2012

US impliedUS impliedUS impliedUS implied distillatedistillatedistillatedistillate demanddemanddemanddemand(DOE, mb/d, weekly data)

Gasoline arbitrageGasoline arbitrageGasoline arbitrageGasoline arbitrage Rotterdam to New YorkRotterdam to New YorkRotterdam to New YorkRotterdam to New York($/t, daily closing)

4,0

4,2

4,4

4,6

4,8

5,0

5,2

5,4

5,6


5y avg.

2011

2012

-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

Middle distillateMiddle distillateMiddle distillateMiddle distillate arbitragearbitragearbitragearbitrage Rotterdam to New YorkRotterdam to New YorkRotterdam to New YorkRotterdam to New York($/t, daily closing)

-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

Heating oil/Gasoil (Rotterdam to New York)

Jet fuel/Kerosene (Rotterdam to NewYork)



9/12

9


Related energy marketsUS natural gas priceUS natural gas priceUS natural gas priceUS natural gas price(NYMEX, $/MMBtu, front month, weekly closing)

UKUKUKUK natural gas pricenatural gas pricenatural gas pricenatural gas price(ICE, front month, weekly closing)

2

3

4

5

6

7

8

9

10

11

12

13

14

2007

2008

2009

2010

2011

2012

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

2007

2008

2009

2010

2011

2012

10

20

30

40

50

60

70

80

90$/MMBtu (left axis)

GBp/therm (right axis)

Nordic power priceNordic power priceNordic power priceNordic power price(Nord Pool, /MWh, front quarter, weekly closing)

Continental power priceContinental power priceContinental power priceContinental power price(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

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2007

2008

2009

2010

2011

2012

EUA priceEUA priceEUA priceEUA price(ECX ICE, /t, Dec. 11, weekly closing)

CoalCoalCoalCoal pricepricepriceprice(CIF ARA steam coal, API#2, daily closing)

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

2007

2008

2009

2010

2011

2012

65

70

75

80

85

90

95

100

105

110

115

120

125

130

135

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

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



10/12

10


Market indicatorsMSCI WorldMSCI WorldMSCI WorldMSCI World equity market indexequity market indexequity market indexequity market index(weekly closing)

UBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCI commodity market indexcommodity market indexcommodity market indexcommodity market index(price index, weekly closing)

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

2005

2006

2007

2008

2009

2010

2011

2012

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

2005

2006

2007

2008

2009

2010

2011

2012

JPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMI(monthly, PMIs >50 expansive)

Regional PMI:sRegional PMI:sRegional PMI:sRegional PMI:s(monthly data)

32

34

36

3840

42

44

46

48

50

52

54

56

58

2005

2006

2007

2008

2009

2010

2011

2012

30

35

40

45

50

55

60

65

mar-

06

jun-0

6

sep-0

6

dec-0

6

mar-

07

jun-0

7

sep-0

7

dec-0

7

mar-

08

jun-0

8

sep-0

8

dec-0

8

mar-

09

jun-0

9

sep-0

9

dec-0

9

mar-

10

jun-1

0

sep-1

0

dec-1

0

mar-

11

jun-1

1

sep-1

1

dec-1

1

US

Eurozone

China

Reference

Regional industrial productionRegional industrial productionRegional industrial productionRegional industrial production growthgrowthgrowthgrowth(%, y/y, monthly data)

OECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicators(monthly, 100 corresponds to long term trend growth in industrial production)

-25

-20

-15

-10

-5

0

5

10

15

20

25

mar-

06

jun-0

6

sep-0

6

dec-0

6

mar-

07

jun-0

7

sep-0

7

dec-0

7

mar-

08

jun-0

8

sep-0

8

dec-0

8

mar-

09

jun-0

9

sep-0

9

dec-0

9

mar-

10

jun-1

0

sep-1

0

dec-1

0

mar-

11

jun-1

1

sep-1

1

dec-1

1

US

Eurozone

China

8889

9091

92

93

94

9596

9798

99

100101

102103

104105

2005

2006

2007

2008

2009

2010

2011

China

Eurozone

OECD

USA

Reference

Chart Sources: Bloomberg, OECD, SEB Commodity Research


11/12

11


DISCLAIMER & CONFIDENTIALITY NOTICE

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska EnskildaBanken AB (publ) (SEB).

Opinions contained in this report represent the banks present opinion only and are subject to change without notice. All

information contained in this report has been compiled in good faith from sources believed to be reliable. However, norepresentation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents andthe information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of thisdocument is urged to base his or her investment decisions upon such investigations as he or she deems necessary. Thisdocument is being provided as information only, and no specific actions are being solicited as a result of it; to the extentpermitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this documentor its contents.

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic andother European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets)for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange,Deutsche Brse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden;

it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designatedinvestment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEBconducts operations.

SEB Merchant Banking. All rights reserved.

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47


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www.seb.se

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