Oil Market Report
Brent – downside risk well into Q2
15 MARCH 2013
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 priceover 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 wantan 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 OPEC’sreserve 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.
Crude oil price
(NYMEX/ICE, $/b, front month, daily closing)
707580859095100105110115120125130
j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2 n o v - 1 2 d e c - 1 2 j a n - 1 3 f e b - 1 3 m a r - 1 3
NYMEXWTIICE Brent
IEA global crude oil demand estimates
(mb/d)
84,585,085,586,086,587,087,588,088,589,089,590,090,591,091,5
j u l - 1 0 s e p - 1 0 n o v - 1 0 j a n - 1 1 m a r - 1 1 m a j - 1 1 j u l - 1 1 s e p - 1 1 n o v - 1 1 j a n - 1 2 m a r - 1 2 m a j - 1 2 j u l - 1 2 s e p - 1 2 n o v - 1 2 j a n - 1 3 m a r - 1 3
201120122013
Chart Sources: IEA, Bloomberg, SEB Commodity Research
Current global crude oil demand estimates
2012
(mb/d)
Revision
(kb/d)
2013
(mb/d)
Revision
(kb/d)
IEA
89.8 -40 90.6 -60
EIA
89.12 -40 90.13 -80
OPEC
88.83 -20 89.67 -10
SEB average Brent crude oil price forecast
($/b)
Q1
Q2
Q3 Q4
FullYear
2013
112 107.5 110 110 109.9
2014
- - - - 110.0
2015
- - - - 115.0
3
SEB Oil Market Report
Crude oil
Crude oil price
(NYMEX/ICE, $/b, front month, weekly closing)
12 month time spread
(NYMEX/ICE, %, daily closing, >0: contango, <0: backwardation)
3035404550556065707580859095100105110115120125130135140145150
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3
NYMEXWTIICE Brent-10-8-6-4-2024681012141618
j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2 n o v - 1 2 d e c - 1 2 j a n - 1 3 f e b - 1 3 m a r - 1 3
ICE BrentNYMEXWTI
Brent futures curve
(ICE, $/b)
WTI futures curve
(NYMEX, $/b)
9193959799101103105107109111113115117119
m a j - 1 3 a u g - 1 3 n o v - 1 3 f e b - 1 4 m a j - 1 4 a u g - 1 4 n o v - 1 4 f e b - 1 5 m a j - 1 5 a u g - 1 5 n o v - 1 5 f e b - 1 6 m a j - 1 6 a u g - 1 6 n o v - 1 6 f e b - 1 7 m a j - 1 7 a u g - 1 7 n o v - 1 7 f e b - 1 8 m a j - 1 8 a u g - 1 8 n o v - 1 8 f e b - 1 9 m a j - 1 9
13-01-1413-02-1413-03-1484858687888990919293949596979899100
a p r - 1 3 j u l - 1 3 o k t - 1 3 j a n - 1 4 a p r - 1 4 j u l - 1 4 o k t - 1 4 j a n - 1 5 a p r - 1 5 j u l - 1 5 o k t - 1 5 j a n - 1 6 a p r - 1 6 j u l - 1 6 o k t - 1 6 j a n - 1 7 a p r - 1 7
13-01-1413-02-1413-03-14
Speculative positions WTI
(NYMEX, lots, futures and options, vs. open interest, weekly data)
Benchmark spreads
(daily closing)
57911131517192123252729
j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2 n o v - 1 2 d e c - 1 2 j a n - 1 3 f e b - 1 3 m a r - 1 3
ShortLongNet-28-26-24-22-20-18-16-14-12-10-8-6-4-202468
j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2 n o v - 1 2 d e c - 1 2 j a n - 1 3 f e b - 1 3 m a r - 1 3
WTI minus BrentBrent minus DubaiBrent minus Urals
Chart Sources: Bloomberg, SEB Commodity Research
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SEB's Oil Market Report: Downside risk well into Q2
While Brent has fallen below 110 dollars per barrel and previous large net long speculative positions have fallen back sharply, SEB’s experts still expect further downside in the price over the next 1-2 months, albeit relatively…
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