oil market report: crude oil in the middle of this year's soft spot

7/28/2019 Oil Market Report: Crude oil in the middle of this year's soft spot

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Oil Market ReportCrude oil in the middle of this years soft spot

10 APRIL 2013


2/12

2

SEB Oil Market Report

Crude oil market

Brent crude is currently trading a dollar below ourQ2 average forecast of $107.5/b. Currently in theseasonally weakest part of the year with OPEC

production still high at 30.5 mb/d we expect theBrent price to continue to test the downside overthe coming weeks, based on still soft demand, withthe call-on-OPEC down to around 29 mb/d duringthe current quarter, and continued high carteloutput. In addition there are also signs suggestingincreasing production from several sources towardsthe middle of the year. However, considerableuncertainty surrounds these projected increases,although if they do occur they could certainlyincrease bearish pressures. With demand returningand growth solidifying, our price outlook for H2-13 ishowever still unchanged at $110/b.

With markets increasingly optimistic concerning growthand recovery prospects, Brent crude was forced up to$120/b in early February. Subsequently however, it fellback due to continued high OPEC production during aseasonally weak period against a background of fairlyweak global demand. Indicating an improving supply /demand balance, backwardation in the Brent crude oilcurve has fallen sharply, with one year backwardationnow down to only 3% and the front month actually incontango vs. the second. Recently resumed productionfrom the North Sea Buzzard field (out for almost a year)

has also helped undermine the market balance andsoften Brent crude prices, especially as the fieldproduces Fortis crude which normally sets the Brentcrude price. Further, the likely removal of a South Koreantax break, which has supported the country's imports ofNorth Sea Fortis crude since November 2011, by July isalso eroding the bull-sentiment in Brent.

In addition, several countries project increasedproduction towards the middle of this year, with Yemen,South Sudan and Libya all promising higher output bythen. Repeatedly, such hikes have been prevented byrebel groups blowing up oil pipelines, creatingsubstantial uncertainty over whether or not they willactually occur with rebel attacks potentially reducingproduction instead.

Bullishly, Iranian nuclear negotiations are leadingnowhere with the latest talks in Kazakhstan producing noagreement whatsoever. Nor were any further discussionsscheduled. Instead Iran celebrated its National NuclearTechnology Day a few days afterwards by opening newuranium facilities. If talks break down completely the USis likely to implement new sanctions fairly rapidly.

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

70

75

80

85

90

95

100

105

110

115

120

125

130

jan-11

feb-11

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-1

1

dec-11

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-1

2

dec-12

jan-13

feb-13

mar-1

3

apr-13

NYMEXWTI

ICE Brent

IEA global crude oil demand estimates(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-10

jan-11

mar-1

1

maj-1

1

jul-11

sep-1

1

nov-11

jan-12

mar-1

2

maj-1

2

jul-12

sep-1

2

nov-12

jan-13

mar-1

3

2011

2012

2013

Chart Sources: IEA, Bloomberg, SEB Commodity Research

Current global crude oil demand estimates2012

(mb/d)

Revision

(kb/d)

2013

(mb/d)

Revision

(kb/d)IEA 89.8 -40 90.6 -60EIA 89.04 -80 90.00 -130

OPEC 88.83 -20 89.67 -10

SEB average Brent crude oil price forecast($/b) Q1 Q2 Q3 Q4 Full

Year2013 112 107.5 110 110 109.92014 - - - - 110.02015 - - - - 115.0


3/12

3


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

12 month time spread(NYMEX/ICE, %, daily closing, >0: contango,


4/12

4


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

OECD total industry oil stocks(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

OECD Europe industry oil stocks(mb, monthly data)

OECD North America industry oil stocks(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

OECD Asia & Oceania industry oil stocks(mb, monthly data)

OPEC production(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

US refineries roared back into action in March as theirmaintenance periods came to unusually early ends, afact also reflected in strong WTI performance vs. Brent.

We expect European and Asian refinery activity tonormalize during April. Overall, European cracks haverecovered slightly since mid-March, despite the periodbeing dominated by a tug-of-war between reducedsupply (due to refinery maintenance) and weakdemand generally. Abnormally low temperaturesfinally seem to be loosening their grip on continentalEurope following a late winter cold snap that had littleimpact on middle distillate sentiment. With mostcracks either weak or neutral, and the driving andagricultural seasons just around the corner, we seegood prospects for stable or improving refineryeconomics going forward.

Light ends: Light distillate cracks diverged dramaticallyduring the second half of March, with gasoline recovering

previously lost ground and naphtha once again falling backafter outrunning fundamentals at the beginning of the year.As feedstock for the petrochemical industry, naphtha

already suffers from a pricing disadvantage, as well as weakdemand for gasoline blending, with stocks already

apparently full up ahead of the driving season. With boththe European and Asian petrochemical industries going intomaintenance at the same time as refineries are coming back

on-stream, we see little reason to expect much short-termstrength in the naphtha market. However, relatively low

inventories and the upcoming driving season could boostthe market in the medium-term. Despite poor demand,

good US and European inventory levels and turbulencecaused by the switch from winter to summer grade gasoline,the gasoline market is currently supported by imminent

increases in demand from drivers and solid demand fromWest Africa and South America.

Middle distillates: As both the driving and agriculturalseasons approach, increasing temperatures leave little

downside in middle distillate cracks, which have recentlyreceived support from the late winter cold snap and refinery

maintenance. Though refinery economics still favour dieselover jet, the diesel crack is holding its ground due to lowinventories and an imminent pickup in expected demand.

The jet market also awaits a seasonal upturn in demand,while Asian refineries are switching back from kerosene as

the heating season comes to an end. With substantialquantities of jet set to arrive in Europe during April, most islikely to end up in contango storage plays.

Heavy ends: Currently, in an otherwise lacklustre fuel oilmarket, Asian demand shows signs of improvement.Despite several cargoes headed east in March more appear

needed, which could help maintain control of already highEuropean stocks. However, limited Chinese middle distillaterequirements are currently dampening feedstock demand.

Meanwhile, with both bunker and global utilities demandgenerally poor, downside risks appear to dominate fuel oil

cracks, at least in the short-term.

European light end benchmarks($/t, daily closing)

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

jan-1

1

feb-1

1

mar-11

apr-11

maj-1

1

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-11

dec-1

1

jan-1

2

feb-1

2

mar-12

apr-12

maj-1

2

jun-1

2

jul-12

aug-1

2

sep-1

2

okt-12

nov-12

dec-1

2

jan-1

3

feb-1

3

mar-13

apr-13

Naphtha

Gasoline

European middle distillate benchmarks($/t, daily closing)

750

800

850

900

950

1000

1050

1100

1150

jan-11

feb-11

mar-1

1

apr-1

1

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-1

1

nov-1

1

dec-11

jan-12

feb-12

mar-1

2

apr-1

2

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-1

2

nov-1

2

dec-12

jan-13

feb-13

mar-1

3

apr-1

3

Jet fuel

Diesel 10 ppm

Gasoil 0.1%

European fuel oil benchmarks($/t, daily closing)

475

500

525

550

575

600

625

650

675

700

725

750

775

jan-11

feb-11

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

mar-1

3

apr-13

High sulphur fuel oil (3.5%)

Low sulphur fuel oil (1.0%)

Chart Sources: Bloomberg, SEB Commodity Research


6/12

6


Oil productsUS gasoline and distillate inventories(DOE, mb, weekly data)

US product benchmarks(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-11

feb-11

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

mar-1

3

apr-13

Gasoline

Heating oil

US refinery utilization(%, weekly data)

ICE Gasoil and European premiums to Gasoil($/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-11

feb-1

1

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-1

1

dec-11

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-1

2

dec-12

jan-13

feb-13

mar-1

3

apr-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)

European product cracks($/b, daily closing)

European low - high sulphur fuel oil differential($/t, daily closing)

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

jan-

11

feb-11

mar-1

1

apr-1

1

maj-1

1

jun-

11

jul-11

aug-1

1

sep-1

1

okt

-11

nov-1

1

dec-1

1

jan-

12

feb-12

mar-1

2

apr-1

2

maj-1

2

jun-

12

jul-12

aug-1

2

sep-1

2

okt

-12

nov-1

2

dec-1

2

jan-

13

feb-13

mar-1

3

apr-1

3

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

-15-10-505

101520253035404550

5560657075

jan-11

feb-11

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

mar-1

3

apr-13



7/12

7


Oil productsRegional 3-2-1 cracks($/b, daily closing)

European naphtha stocks(kt, monthly data)

-6-4-202468

10121416182022242628303234

36384042

jan-11

feb-11

mar-1

1

apr-1

1

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-1

1

nov-1

1

dec-11

jan-12

feb-12

mar-1

2

apr-1

2

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-1

2

nov-1

2

dec-12

jan-13

feb-13

mar-1

3

apr-1

3

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

European gasoline stocks(kt, monthly data)

European jet fuel stocks(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

European gasoil stocks(kt, monthly data)

European fuel oil stocks(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 productsUS implied crude oil demand(DOE, mb/d, weekly data)

US implied gasoline demand(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

US implied distillate demand(DOE, mb/d, weekly data)

Gasoline arbitrage Rotterdam to New York($/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

812

16

20

2428

32

36

40

44

jan-11

feb-11

mar-1

1

apr-11

maj-1

1

jun-11

jul-11

aug-1

1

sep-1

1

okt-11

nov-11

dec-1

1

jan-12

feb-12

mar-1

2

apr-12

maj-1

2

jun-12

jul-12

aug-1

2

sep-1

2

okt-12

nov-12

dec-1

2

jan-13

feb-13

mar-1

3

apr-13

Middle distillate arbitrage Rotterdam to New York($/t, daily closing)

-25

-20

-15

-10

-5

0

5

10

15

20

jan-11

feb-1

1

mar-11

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-11

okt-11

nov-1

1

dec-11

jan-12

feb-1

2

mar-12

apr-12

maj-1

2

jun-12

jul-12

aug-12

sep-12

okt-12

nov-1

2

dec-12

jan-13

feb-1

3

mar-13

apr-13

Heating oil/Gasoil

Jet fuel/Kerosene



9/12

9


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

UK natural gas price(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)

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

Continental 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

2013

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

2007

2008

2009

2010

2011

2012

2013

EUA price(ECX ICE, /t, December current year, weekly closing)

Coal price(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

maj-1

0

jul-10

sep-1

0

nov-10

jan-1

1

mar-11

maj-1

1

jul-11

sep-1

1

nov-11

jan-1

2

mar-12

maj-1

2

jul-12

sep-1

2

nov-12

jan-1

3

mar-13



10/12

10


Market indicatorsMSCI World equity market index(weekly closing)

UBS Bloomberg CMCI commodity market index(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

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

Regional PMI:s(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

3840

42

44

46

48

50

52

54

56

58

60

62

2007

2008

2009

2010

2011

2012

2013

US

Eurozone

China

Reference

Regional industrial production growth(%, y/y, monthly data)

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

-22-20-18-16-14-12-10-8-6-4-202468

101214161820

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


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12/12

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SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47

oil market report: crude oil in the middle of this year's soft spot

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