SEB’s Oil Market Report: Currency or fundamentals?

7/29/2019 SEBs Oil Market Report: Currency or fundamentals?

1/12

Oil Market ReportCurrency or fundamentals?

5 FEBRUARY 2013


2/12

2

SEB Oil Market Report

Crude oil market

Brent crude has rallied too far on hopes of acontinued global economic recovery and a strongEURUSD. OPEC production cuts have been lagging

seasonally falling demand with output still around30.5 mb/d, above the estimated Q1-13 call on OPECbelow 30 mb/d. Several sources suggest Libyan oilproduction fell sharply in January. If so, it may havebeen a key factor driving the Brent crude pricehigher last month.

Between November 1 last year and February 1, the frontmonth Brent crude contract rose from $108.17/b to$116.76/b. China does not face a hard landing, the Euro-zone is not breaking up, the US has not fallen off thefiscal cliff (yet) and equity markets have experienced aJanuary rally stronger than anything posted in over 10

years. Of course, these factors justify a higher oil price.However, has it risen too much? Further, did OPEC cutproduction too far at the end of last year and going into aseasonally weak H1-13 fearing overproduction? In ourview, these reductions have not been excessive.Available estimates suggest OPEC production hit a 15month low of 30.48 mb/d in January. While modestcompared to last year, output remains 0.5 mb/d abovethe estimated call on OPEC for Q1-13 and nearly 1.4mb/d above the projected call for Q2-13.

The currency effect appears to have had a significant

bearing on the latest crude oil price gains. Adjusting forthe 5% EURUSD appreciation which occurred betweenNovember 1 last year and last Friday, arguably had it notbeen for the stronger EURUSD the price may have beenaround $110.7/b on February 1. However, this is notentirely accurate as the greenback, from the widerperspective of the USD index, depreciated little over theperiod.

Several sources now suggest Libyan oil production fell bya substantial 320 kb/d in January to a 12-month low ofonly 1.1 mb/d. This is highly consistent with the fact thatthe Brent Dubai spread has rallied to levels unseensince the Libyan crisis in 2011, and backwardation in theBrent crude oil curve has strengthened even further.

We see little upside in the Brent crude price above$116/b barring supply disruptions in the MENA region ora further rally in EURUSD. Developments in Libya shouldbe closely monitored, especially given its closerelationship to the European crude oil market and itspotentially swift impact on prices there. Indications ofrebounding Libyan production could quickly drive theBrent crude price lower again. Due to continuedimprovements in macro data as well as changes in the

EURUSD we raise our price forecast to $110/b in Q1-13and $107.5/b in Q2-13.

(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

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-09

okt-09

jan-10

apr-10

jul-10

okt-10

jan-11

apr-11

jul-11

okt-11

jan-12

apr-12

jul-12

okt-12

jan-13

2010

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 +170 90.8 +240EIA 89.17 +130 90.11 +110

OPEC 88.80 +/-0 89.55 -10

($/b) Q1 Q2 Q3 Q4 FullYear

2013 110 107.5 110 110 109.42014 - - - - 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

2012

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


2012

5 year average

1175

1200

1225

1250

1275

1300

1325

1350

1375

1400


5 year range, top


2012

5 year average

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

375

380

385

390

395

400

405

410

415

420

425

430

435440

445

450


5 year range, top


2012

5 year average

24000

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 in Europe have improvedsignificantly so far this year, bringing considerablerelief to refiners. In February cracks were stronger in all

parts of the barrel led by gasoline, which itself beganto rebound in January. Support has also been providedby an additional refinery closure in the Atlantic basin(Hess Corporations Port Reading facility in New Jerseyproducing 70 kb/d) and disruptions in Libya (strike atRas Lanuf) and the UK (fire at Stanlow). With lowrefinery utilization ahead as facilities switch fromwinter to summer configuration, cracks may very wellstay high enough to satisfy refiners.

Light ends: In addition to the aforementioned supplyissues, a sharp rebound in US implied demand, pushinginventories back toward their five-year average, hasboosted gasoline market sentiment. Demand is also healthy

in Europe and Asia. Furthermore, European inventories havefallen below their five-year range, helped by recent

substantial shipments to West Africa and the Middle East.With refinery maintenance and then driving season not thatfar away, the crack has good potential to remain strong.

Further, gasoline also supports the naphtha market throughblending demand while petrochemical industry

requirements are low, e.g. due to propanes relativecheapness. In the short-term, petrochemical demand islikely to remain poor due to maintenance. Consequently,

naphtha appears vulnerable, a view further supported bythe fact that European inventories stand well above their

five-year average, while Asian demand is being met byplentiful arrivals.

Middle distillates: A winter with no serious cold spells willsoon end. With forecasts also relatively warm middle

distillate sentiment is subdued. Weak demand and incomingarbitrage cargoes have led to increases in European diesel

inventories, a fairly common situation at this time of yearthough. Still, refinery maintenance is likely to providesupport before demand accelerates once again with the

advent of the driving season. Despite weak Europeandemand jet fuel prices are supported by still low inventories

and limited supplies. Asian kerosene requirements forwinter heating are however likely to have peaked, removingone source of support. The high jet fuel premium and very

low diesel premium (to gasoil) simplify choices for refinersseeking to remain in maximum jet mode.

Heavy ends: The upcoming Chinese New Year (withcelebrations likely to last for up to two weeks from February

10) weighs on the fuel oil market. Both feedstock demandand bunker demand are weak. Currently, plentiful cargoes

arriving in Asia at the beginning of the year are making itdifficult for arbitrage to work. Consequently, European

inventories remain high. Utility demand is however sound inparts of Asia and South America, in particular supportinglow sulphur fuel oil. Due to more limited supply during the

approaching maintenance period, downside risk is probablyrelatively limited in spite of plentiful supply at the moment.

($/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

Naphtha

Gasoline


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

Jet fuel

Diesel 10 ppm

Gasoil 0.1%


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

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)

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

Gasoline

Heating oil

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

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

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-

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

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



7/12

7


Oil products

($/b, daily closing) (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

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

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


-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

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

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



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

3840

42

44

46

48

50

52

54

56

58

60

62

2007

2008

2009

2010

2011

2012

2013

US

Eurozone

China

Reference

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

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

101214161820

2007

2008

2009

2010

2011

2012

US

EurozoneChina

93

94

95

96

97

98

99

100

101

102

103

104

2007

2008

2009

2010

2011

2012

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.

Good faith & limitationsOpinions, projections and estimates contained in this report represent the authors present opinion and are subject to changewithout notice. Although information contained in this report has been compiled in good faith from sources believed to be reliable,

no representation or warranty, expressed or implied, is made with respect to its correctness, completeness or accuracy of thecontents, and the information is not to be relied upon as authoritative. To the extent permitted by law, SEB accepts no liabilitywhatsoever for any direct or consequential loss arising from use of this document or its contents.

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

forecasts or their underlying assumptions and estimates will be met or realized. Past performance is not a reliable indicator offuture performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or relatedinvestment mentioned in this report. This document does not constitute investment advice and is being provided to you without

regard to your investment objectives or circumstances. Anyone considering taking actions based upon the content of thisdocument is urged to base investment decisions upon such investigations as they deem necessary. This document does notconstitute an offer or an invitation to make an offer, or solicitation of, any offer to subscribe for any securities or other financial

instruments.

Conflicts of InterestSEB has in place a Conflicts of Interest Policy designed, amongst other things, to promote the independence and objectivity ofreports produced by its Research departments, which are separated from the rest of SEB business areas by information barriers; as

such, research reports are independent and based solely on publicly available information. Your attention is drawn to the fact thata member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a)

may be represented on the board of directors or similar supervisory entity of the companies mentioned herein (b) may, to theextent permitted by law, have a position in the securities of (or options, warrants or rights with respect to, or interest in thesecurities of the companies mentioned herein or may make a market or act as principal in any transactions in such securities (c)

may, acting as principal or as agent, deal in investments in or with companies mentioned herein, and (d) may from time to timeprovide investment banking, underwriting or other services to, or solicit investment banking, underwriting or other business from

the companies mentioned herein.

RecipientsIn the UK, this report is directed at and is for distribution only to (I) persons who have professional experience in matters relatingto investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (The

Order) or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred toas relevant persons. This report must not be acted on or relied upon by persons in the UK who are not relevant persons. In the

US, this report is distributed solely to persons who qualify as major U.S. institutional investors as defined in Rule 15a-6 under the

Securities and Exchange Act of 1934. U.S. persons wishing to effect transactions in any security discussed herein should do so bycontacting Skandinaviska Enskilda Banken AB (publ) (SEBAB). SEBAB accepts responsibility for the content of this report in

connection with its distribution in the US. The distribution of this document may be restricted in certain jurisdictions by law, andpersons into whose possession this documents comes should inform themselves about, and observe, any such restrictions.

The SEB Group: members, memberships and regulators

Skandinaviska Enskilda Banken AB (publ) is incorporated in Sweden, as a Limited Liability Company. It is regulated byFinansinspektionen, and by the local financial regulators in each of the jurisdictions in which it has branches or subsidiaries,including in the UK, by the Financial Services Authority; Denmark by Finanstilsynet; Finland by Finanssivalvonta; Germanyby Bundesanstalt fr Finanzdienstleistungsaufsicht and Norway by Finanstilsynet. In the US, SEBAB is a U.S. broker-dealer,registered with the Financial Industry Regulatory Authority (FINRA). SEBAB is a direct subsidiary of SEB. SEB is active onmajor Nordic and other European Regulated Markets and Multilateral Trading Facilities, in as well as other non-Europeanequivalent markets, for trading in financial instruments. For a list of execution venues of which SEB is a member or

participant, visit http://www.seb.se.


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

SEB’s Oil Market Report: Currency or fundamentals?

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