Credit Suisse
Raising Oil Price Forecast into Improving 2H18 forcast
Set-Up
■ Raising our near-term oil price deck. We are raising our 2018-19 Brent/WTI price forecasts ($/Bbl) to $71/$66 from $60/$56 and to $70/$65 from $60.75/$58.00, respectively. Following 1Q18 prices coming in ~$10/Bbl above our prior forecasts in a largely balanced market in 1Q18 (albeit under-supplied seasonally adjusted), we see the market tightening into the rest of the year with global inventory draws resuming in 2Q18 and larger draws averaging ~1.0 MMBbld in 2H18 enabling OECD commercial inventories to reach normal levels this year (vs. both 5-year and 7-year average levels). With inventory levels back to normal and our forecast of a roughly balanced market in 2019, we forecast Brent/WTI prices will remain strong in 2019, though roughly level with 4Q18 as we assume bullish sentiment moderates with OPEC barrels returning to the market.
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Also raising our long-term (2020+) Brent/WTI price forecasts ($/Bbl) to $65/$60 from $60/57.
Given our assumption that the market needs non- OPEC production (excluding the US and FSU) to remain flat over the longer-term to maintain a balanced market, we believe the higher Brent/WTI price of $65/$60 per Bbl is required to incentivize a pick-up in major capital project sanctions necessary to offset base depletion. We see Brent-WTI premium settling at $5/Bbl, higher than our prior forecast of $3/Bbl albeit now largely in line with futures strip prices.
Modest revisions to global supply/demand forecasts, but overall 2018- 19 forecasted market balances little changed. However, we now see a quicker than expected return to normal inventories (defined as the 5-year average), as the 4Q17 inventory draw was greater than expected & we see a seasonally lower inventory build of 0.2 MMBbld in 1Q18. Our 2018 YoY global demand growth forecast of 1.5 MMBbld is at the low end of the IEA/EIA/OPEC’s forecasts range of 1.5-1.8 MMBbld, while our non-OPEC supply growth forecast of 2.0 MMBbld is mixed vs. the agencies’.
■ We see oil price risk tilted to the upside. Despite robust US shale growth, we estimate the market is under-supplied by ~0.5 MMBbld in 2018, enabling dynamics for continued strong US growth and a return of OPEC barrels in 2019 to balance the market. We also see more upside risks to oil prices than downside risks, including: 1) lower Iranian production if President Trump does not extend sanctions waivers in May; 2) continued declines in Venezuelan output softening any potential supply growth when OPEC ends the production cut agreement; 3) more downside than upside to Libyan and Nigerian production; and 4) growing oil and natural gas basis putting lofty US Permian growth targets at risk in 2019. Downside risks include: 1) abnormally high speculative net length in crude oil futures & options contracts; 2) slowdown in global GDP; 3) OPEC compliance falls apart; and 4) threat of renewables (longer term).
Global Oil
Re: Global Oil
On Friday, JPMorgan said global oil prices may jump further following a three-year record high: https://www.investing.com/analysis/crud ... -200305604
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Global Oil
This week could prove pivotal for crude oil as it surges to new highs
The long era of too much oil sloshing around the world and low prices is coming to an end, just as global events are heating up crude prices.
On Friday, President Donald Trump ordered U.S. forces to join France and Britain in launching targeted strikes in Syria, in retaliation for an attack on civilians that employed chemical weapons. With other parts of the world already in turmoil, fallout from Syria could upend the dynamic, as the peak summer season for oil demand approaches, keeping oil prices in a new, elevated range.
"Syria is a client state of Russia and Iran," said John Kilduff, energy analyst at Again Capital. In his speech, Trump singled out both countries for their support of Syrian President Bashar Assad.
"We wait to see if her enablers step up and respond on Syria's behalf," he said — just as Russia warned of "consequences" for the U.S.-led attack.
Gasoline prices are also vulnerable. They are already expected to hit a four-year high this summer.
"The supply cushion is gone. There was a security cushion, and that's gone," said Daniel Yergin, vice chairman of IHS Markit. "A lot of things are happening at the same time."
Brent crude, the international benchmark, was up 7.8 percent in the past week and was trading near $73 a barrel in the futures market for the first time since December 2014. "It's probably in an orbit around $70," said Yergin, adding the floor could be high $60s to low $70s for Brent.
Prices jumped this week after Trump said the U.S. would respond militarily to Syria's use of chemical weapons on its citizens last Saturday, killing dozens and wounding hundreds more. That sparked a blunt response from Russia, which warned the U.S. against the strike.
While industry analysts aren't calling for sharply higher prices, they say the market is vulnerable to more erratic pricing because global supply has drained dramatically over the last year as demand has grown.
"As the inventory overhang drains, we're vulnerable to a super spike again," said Kilduff. "That would only be if there were losses of significant size in any major oil-producing countries, particularly in the Middle East."
The long era of too much oil sloshing around the world and low prices is coming to an end, just as global events are heating up crude prices.
On Friday, President Donald Trump ordered U.S. forces to join France and Britain in launching targeted strikes in Syria, in retaliation for an attack on civilians that employed chemical weapons. With other parts of the world already in turmoil, fallout from Syria could upend the dynamic, as the peak summer season for oil demand approaches, keeping oil prices in a new, elevated range.
"Syria is a client state of Russia and Iran," said John Kilduff, energy analyst at Again Capital. In his speech, Trump singled out both countries for their support of Syrian President Bashar Assad.
"We wait to see if her enablers step up and respond on Syria's behalf," he said — just as Russia warned of "consequences" for the U.S.-led attack.
Gasoline prices are also vulnerable. They are already expected to hit a four-year high this summer.
"The supply cushion is gone. There was a security cushion, and that's gone," said Daniel Yergin, vice chairman of IHS Markit. "A lot of things are happening at the same time."
Brent crude, the international benchmark, was up 7.8 percent in the past week and was trading near $73 a barrel in the futures market for the first time since December 2014. "It's probably in an orbit around $70," said Yergin, adding the floor could be high $60s to low $70s for Brent.
Prices jumped this week after Trump said the U.S. would respond militarily to Syria's use of chemical weapons on its citizens last Saturday, killing dozens and wounding hundreds more. That sparked a blunt response from Russia, which warned the U.S. against the strike.
While industry analysts aren't calling for sharply higher prices, they say the market is vulnerable to more erratic pricing because global supply has drained dramatically over the last year as demand has grown.
"As the inventory overhang drains, we're vulnerable to a super spike again," said Kilduff. "That would only be if there were losses of significant size in any major oil-producing countries, particularly in the Middle East."
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Global Oil
But they think $70 Brent is the limit (average for 2018). https://oilprice.com/Energy/Oil-Prices/ ... an-70.htmldan_s wrote:On Friday, JPMorgan said global oil prices may jump further following a three-year record high: https://www.investing.com/analysis/crud ... -200305604
In the $80 call by JPM, they think it will be very short. "Still, JPMorgan strategists see a higher oil price that could last three to six months before the U.S. shale respond."
The old "shale will turn on the spigots" at higher oil prices and cause a glut again.
Re: Global Oil
There is a problem with the super light shale oil:
Martijn Rats, CFA – Morgan Stanley
April 16, 2018 9:00 PM GMT
There is a growing mismatch between the quality of crude oil produced by US E&Ps, and the types that are typically processed by US refiners. This has consequences for both oil markets and oil equities, which we discuss in this report.
US production is growing but only in super-light grades: US production rose 1.2 mb/d exit-to-exit in 2017 - an impressive amount. However, all of this growth came from grades that are not just 'light' but 'super-light', i.e. API gravity above 40.
There was no production growth in grades with API gravity below that.
Domestic refiners, however, cannot take much more of this and are close to hitting the 'shale wall': US refiners are designed for a heavier crude slate than shale. On average, they process grades with API gravity ~32. Taking in more super-light shale would reduce overall refinery utilization. To work around this, US refiners have so far accommodated shale by blending it with super-heavy grades. These, however, are increasingly hard to get. Hence, growing production means growing exports but this runs into a number of difficulties: The addressable market for super-light crudes outside the US is relatively modest - just 15 mb/d, we estimate. The seaborne market of API 40+ crudes is outright small - just 6 mb/d.
So far, US shale exports are disproportionally going to Europe, where the outlook for long-term oil demand growth is modest at best. In Asia, where the outlook for oil demand is the strongest, shale oil still has to fight for market share.
On top, many shale grades have lower middle distillate yields, where demand growth is strongest: As API gravity goes above 40, and especially above 45, middle distillate yields start to fall off. Of all oil products, we expect middle distillate demand to be the strongest - and the crack spread the highest. Super-light shale only supplies reduced amounts of middle distillates.This is bullish for Brent crude oil...:
In the report MS says CLR and PXD are well positioned to deal with this problem.
Send me and email and I will send the full MS report on this topic.
Martijn Rats, CFA – Morgan Stanley
April 16, 2018 9:00 PM GMT
There is a growing mismatch between the quality of crude oil produced by US E&Ps, and the types that are typically processed by US refiners. This has consequences for both oil markets and oil equities, which we discuss in this report.
US production is growing but only in super-light grades: US production rose 1.2 mb/d exit-to-exit in 2017 - an impressive amount. However, all of this growth came from grades that are not just 'light' but 'super-light', i.e. API gravity above 40.
There was no production growth in grades with API gravity below that.
Domestic refiners, however, cannot take much more of this and are close to hitting the 'shale wall': US refiners are designed for a heavier crude slate than shale. On average, they process grades with API gravity ~32. Taking in more super-light shale would reduce overall refinery utilization. To work around this, US refiners have so far accommodated shale by blending it with super-heavy grades. These, however, are increasingly hard to get. Hence, growing production means growing exports but this runs into a number of difficulties: The addressable market for super-light crudes outside the US is relatively modest - just 15 mb/d, we estimate. The seaborne market of API 40+ crudes is outright small - just 6 mb/d.
So far, US shale exports are disproportionally going to Europe, where the outlook for long-term oil demand growth is modest at best. In Asia, where the outlook for oil demand is the strongest, shale oil still has to fight for market share.
On top, many shale grades have lower middle distillate yields, where demand growth is strongest: As API gravity goes above 40, and especially above 45, middle distillate yields start to fall off. Of all oil products, we expect middle distillate demand to be the strongest - and the crack spread the highest. Super-light shale only supplies reduced amounts of middle distillates.This is bullish for Brent crude oil...:
In the report MS says CLR and PXD are well positioned to deal with this problem.
Send me and email and I will send the full MS report on this topic.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group