Oil Market Report
Driving season has arrived
19 JUNE 2012
2
SEB Oil Market Report
Crude oil market
We see only limited oil price downside potential duringthe next six months. Seasonal demand will increaseand the Iranian oil embargo will have most effect fromJuly 1. As a result, we expect a substantial reduction incurrent OPEC overcapacity. The cartel will obviouslywish to avoid a repetition of 2009 when the oil pricecollapsed to an average of $62.7/b. Consequently, inthe event of a hard landing in China or the Eurozoneunravelling we believe OPEC will cut productionextremely rapidly to avoid a similar decline. While thecartel is able to protect against downside price actionit is powerless to prevent price increases if existingcapacity is exhausted. We expect the risk of a hardlanding in China to decrease over the next half yearalthough the Eurozone will continue to feed volatilityinto global markets and the oil price.
Saudi Arabia has achieved its oil price target of $100/bthrough verbal action, record high production over morethan three months (a post-1980 high) and substantialpremium reductions vs. benchmarks to sell its output in themarket. In reaching its target, it received considerablesupport from seasonal demand weakness, generallydeteriorating financial markets and a stronger USD. Oilstocks have been replenished after last year’s drawdownfollowing supply disruptions in Libya, with the oil marketnow more resilient in the event of oil supply shocks. WithSaudi Arabia now satisfied with the price, it can begincutting output slowly to both stabilize the market and showits willingness to comply with the 30 mb/d productionceiling reiterated at OPEC’s June meeting. Nevertheless,Saudi Arabia will probably continue to produce whatever isnecessary to replace lost Iranian supply.Where to now? Saudi Arabia has three major objectives: 1)Ensure the oil price remains sufficiently high to enable astrong and steady flow of capital to new global oilproduction capacity and to its own public finances; 2)Ensure the oil price stays low enough to avoid negativeeffects on already weak global growth; 3) Ensure the oilprice remains low enough to maximise the effect ofsanctions against Iran. The first objective implies SaudiArabia does not want a repeat of 2009. Given recent strongcost inflation in upstream oil and gas activities we do notbelieve it wishes the Brent crude price to move below$90/b. The second objective suggests it does not wantprices higher than $110-120/b until global macroeconomicconditions have stabilized. Finally, the third objectiveimplies it would probably prefer a Brent crude price at $95/brather than $105/b.We expect more bullish oil market sentiment in H2-12 dueto seasonally higher demand and the full impact of theIranian oil embargo. However, due to the recentmacroeconomic downturn we lower our respective Q2-12and Q3-12 average Brent price forecasts from $115/b to$110/b and our Q4-12 estimate from $120/b to $115/b.
Crude oil priceCrude oil priceCrude oil priceCrude oil price
(NYMEX/ICE, $/b, front month, daily closing)
65707580859095100105110115120125130
j a n - 1 0 f e b - 1 0 m a r - 1 0 a p r - 1 0 m a j - 1 0 j u n - 1 0 j u l - 1 0 a u g - 1 0 s e p - 1 0 o k t - 1 0 n o v - 1 0 d e c - 1 0 j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2
NYMEXWTIICE Brent
IEA gIEA gIEA gIEA global crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimates
(mb/d)
7980818283848586878889909192
j a n - 0 9 a p r - 0 9 j u l - 0 9 o k t - 0 9 j a n - 1 0 a p r - 1 0 j u l - 1 0 o k t - 1 0 j a n - 1 1 a p r - 1 1 j u l - 1 1 o k t - 1 1 j a n - 1 2 a p r - 1 2
2009 2010 2011 2012
Chart Sources: IEA, Bloomberg, SEB Commodity Research
MonthlyMonthlyMonthlyMonthly global crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimates
2011
(mb/d)
Revision
(kb/d)
2012
(mb/d)
Revision
(kb/d)
IEA
89.1 -90 89.9 -60
EIA
87.98 +60 88.78 +100
OPEC
87.79 +20 88.69 +20
SEB averageSEB averageSEB averageSEB average Brent crude oil price forecastBrent crude oil price forecastBrent crude oil price forecastBrent crude oil price forecast
($/b)
Q1
Q2
Q3 Q4
FullYear
2012
(118) 110 110 115 113
2013
120 - - - 120
3
SEB Oil Market Report
Crude oil
Crude 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, >0: contango, <0: backwardation)
102030405060708090100110120130140150
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
NYMEXWTIICE Brent
-10-8-6-4-2024681012141618
j a n - 1 0 f e b - 1 0 m a r - 1 0 a p r - 1 0 m a j - 1 0 j u n - 1 0 j u l - 1 0 a u g - 1 0 s e p - 1 0 o k t - 1 0 n o v - 1 0 d e c - 1 0 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
ICE BrentNYMEXWTI
Brent futures curveBrent futures curveBrent futures curveBrent futures curve
(ICE, $/b)
WTI futures curveWTI futures curveWTI futures curveWTI futures curve
(NYMEX, $/b)
87899193959799101103105107109111113115117119
a u g - 1 2 n o v - 1 2 f e b - 1 3 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
12-04-1812-05-1812-06-18
828384858687888990919293949596979899100101102103104105106
j u l - 1 2 o k t - 1 2 j a n - 1 3 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
12-04-1812-05-1812-06-18
Speculative positions WTISpeculative positions WTISpeculative positions WTISpeculative positions WTI
(NYMEX, lots, futures and options, weekly data)
Benchmark spreadsBenchmark spreadsBenchmark spreadsBenchmark spreads
(daily closing)
050000100000150000200000250000300000350000400000450000
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
ShortLongNet
-28-26-24-22-20-18-16-14-12-10-8-6-4-202468
j a n - 1 0 f e b - 1 0 m a r - 1 0 a p r - 1 0 m a j - 1 0 j u n - 1 0 j u l - 1 0 a u g - 1 0 s e p - 1 0 o k t - 1 0 n o v - 1 0 d e c - 1 0 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
WTI minus BrentBrent minus DubaiBrent minus Urals
Chart Sources: Bloomberg, SEB Commodity Research
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SEB report: Limited downside to oil prices next six months
SEB’s experts see only limited downside potential to the oil price during the next six months. Seasonal demand will increase and the Iranian oil embargo will have most effect from 1 July. As a result, they…
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