Oil Market Report: Product supply increasing again

7/30/2019 Oil Market Report: Product supply increasing again

1/12

Oil Market ReportProduct supply increasing again afterpre-winter refinery maintenance

22 NOVEMBER 2012


2/12

2

SEB Oil Market Report

Crude oil market

Since its first release in July 2011, the IEA 2012 global oildemand forecast has been progressively reduced by1.4 mb/d. Given current high macroeconomicheadwinds and/or uncertainties affecting all majorregional markets, it is hard to imagine the situationchanging in the foreseeable future. In addition,expected long-term supply continues to increase astight US oil production has exceeded expectations.Taking mainly these factors into account we recentlylowered our Brent crude oil price forecast with riskskewed to the downside. Nevertheless, we stillanticipate record high global oil consumption in 2012.While marginal unconventional barrels remainexpensive to produce, middle distillate marketscontinue tight, geopolitical risk is extraordinarily high,and oil producers retain strong incentives to defendprices. Given all these factors, a deep, prolongeddownturn in the oil market appears neither imminentnor likely unless the risk of a global recession increasessignificantly.

While most recent data suggest the oil market was relativelybalanced in Q3-12, there appears to be an oversupply of

around 1 mb/d in the current quarter, partly due to lowerconsumption as a result of Hurricane Sandy and reactivation

of North Sea production following maintenance. Overall,current OECD industry oil stocks are well above their fiveyear average due to high North American and Asian crude

oil stocks. Conversely, global oil product stocks are belownormal.

The International Energy Agencys (IEA) World EnergyOutlook was optimistic regarding tight US oil production,

which it now expects will increase from approximately 1mb/d in 2011 to over 4 mb/d by the mid-2020s. As a result,

the US may replace Saudi Arabia as the worlds largest oilproducer by around 2020 and become virtually energy self-

sufficient by the mid-2030s. Furthermore, North Americacould become a net exporter by around 2030. However,considering the novelty of tight oil production considerable

uncertainty still surrounds these projections, e.g. regardingnon-US potential and the life span of such resources.

Geopolitical conditions in the MENA region continue todeteriorate, Gaza being the latest example and a source of

significant market turbulence since the present conflictbegan. At the time of writing a ceasefire has at least

postponed an Israeli ground invasion though the situationwill probably remain tense until a more far reaching peaceagreement is in place. Meanwhile, the civil war in Syria is

increasingly impacting surrounding countries, such asTurkey, Lebanon and Israel. Other conflicts also remain

unresolved, including Iran, Egypt and Bahrain, and couldrevive at any time even though attention is currentlyfocused elsewhere.

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

65

70

75

80

85

90

95

100

105

110

115120

125

130

jan-10

feb-10

mar-1

0

apr-10

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-10

nov-1

0

dec-10

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

NYMEXWTI

ICE Brent

(mb/d)

79

80

81

82

83

84

85

86

87

88

89

90

91

92

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

2010 2011 2012 2013

Chart Sources: IEA, Bloomberg, SEB Commodity Research

2012

(mb/d)

Revision

(kb/d)

2013

(mb/d)

Revision

(kb/d)IEA 89.6 -80 90.4 -70EIA 89.05 -40 89.94 -70

OPEC 88.80 -10 89.57 -20

($/b) Q1 Q2 Q3 Q4 FullYear

2012 - - - 110 111.72013 105 105 110 110 107.52014 - - - - 110.02015 - - - - 115.0


3/12


4/12


5/12

5


European oil product markets

Most European refineries are now back online afterpre-winter maintenance despite restart delaysoccurring. Production at Asian and Middle Eastern

refineries has also largely resumed with the US alsoalmost back to normal. Over the last two months, oilproduct cracks have mainly trended lower in all partsof the barrel, in most cases from high levels. Europeantemperatures remain relatively warm, depressing oilproduct demand, which is good news for the still tightmiddle of the barrel. Although refineries are back inproduction, easing worst fears of a middle distillatecrunch, it is still too early to assume the threat haspast. This part of the barrel will remain sensitive andshould be monitored closely, particularly given itspotential impact on overall oil sector sentiment.

Light ends: With high stock levels and good physical supplythe naphtha market appears to have passed its peak inrelatively strength this time around. Off driving seasondemand from gasoline blenders is weak while

petrochemical demand is low due to economic headwindsand consumers seeking to reduce stocks before the yearend. However, flow to Asia, where demand is stronger, and

still high propane prices offer support. As we expected, withthe strong market seasonally over-extended, falls in

gasoline cracks in October were inevitable. AlthoughEuropean inventories remain low, their US counterpartshave normalised. Meanwhile, relatively stronger US demand

continues to pull barrels out of Europe. A more robust Asian

market may also help drive the current crack rebound.

Middle distillates: Relatively soft demand, inboundarbitrage cargoes and refineries coming back online have

cooled the overheated diesel market which seems to haveweathered the eye of the storm. For now at least, the focus

has switched to the jet fuel market which has tightenedgradually since refineries began maximising diesel

production. Demand is good, stocks are low and futurearbitrage inflow appears limited as Asia is prioritising itskerosene output ahead of winter. With European oil product

stocks for heating purposes still low, the big test for middledistillates will probably occur when temperatures first fall

sharply. We expect the middle part of the barrel to remainrelative strong, at least for now.

Heavy ends: Fuel oil remains the weakest link in productmarkets. However, after more than two months of falling

cracks relative downside may well be more limited. Plentifulsupply and weak demand are weighing on the Europeanmarket while so far supportive flow to Asia need not

necessarily continue given strong local supply andmoderate demand. Lower relative prices may however

stimulate some feedstock demand. The high-low spread hasnarrowed on better European LS supply.

($/t, daily closing)

600

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

jan-1

0

feb-1

0

mar-10

apr-10

maj-1

0

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-10

dec-1

0

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

Naphtha

Gasoline


550

600

650

700

750

800

850

900

950

1000

1050

1100

1150

jan-10

feb-10

mar-1

0

apr-1

0

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-1

0

nov-1

0

dec-10

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

Jet fuel

Diesel 10 ppm

Gasoil 0.1%


350375400425450475500525550575600625650675700725750775800

jan-10

feb-10

mar-1

0

apr-10

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

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

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)

110

120

130

140

150

160

170

180

190

200

210220

230

240

j f m a m j j a s o n d

Gasoline 5 year average

Gasoline 2012

Distillate fuel oil 5 year average

Distillate fuel oil 2012

180190200210220230240250260270280290300310320330

340350360

jan-10

feb-10

mar-1

0

apr-10

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

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

Gasoline

Heating oil

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

81

82

83

84

85

86

87

88

89

90

91

92

93


2007-2011 avg.

2012

550

600

650

700

750

800

850

900

950

1000

1050

1100

jan-10

feb-1

0

mar-1

0

apr-10

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-10

nov-1

0

dec-10

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

2-20

-10

0

10

20

30

40

50

60

70

80

90

100

110

ICE 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-

10

feb-10

mar-1

0

apr-1

0

maj-1

0

jun-

10

jul-10

aug-1

0

sep-1

0

okt

-10

nov-1

0

dec-1

0

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

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

-15-10-505

101520253035404550

5560657075

jan-10

feb-10

mar-1

0

apr-10

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

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



7/12

7


Oil products

($/b, daily closing) (kt, monthly data)

-6-4-202468

10121416182022242628303234

36384042

jan-10

feb-10

mar-1

0

apr-1

0

maj-1

0

jun-10

jul-10

aug-10

sep-10

okt-1

0

nov-1

0

dec-10

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

Asia (Minas)US (WTI)Europe (Brent)

Persian Gulf (Dubai)

20

30

40

50

60

70

80

90

100

110

120

130

140150

160

170

180


4 year range, top

4 year range, bottom

2012

4 year average

(kt, monthly data) (kt, monthly data)

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150


4 year range, top


2012

4 year average

100

150

200

250

300350

400

450

500

550

600

650

700

750

800

850

900


4 year range, top


2012

4 year average

(kt, monthly data) (kt, monthly data)

1000110012001300140015001600170018001900200021002200230024002500260027002800290030003100


4 year range, top


2012

4 year average

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050


4 year range, top


2012

4 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)

13,4

13,6

13,8

14,0

14,2

14,4

14,6

14,8

15,0

15,215,4

15,6

15,8


5y avg.

2011

2012

8,5

8,7

8,9

9,1

9,3

9,5

9,7


5y avg.

2011

2012

(DOE, mb/d, weekly data) ($/t, daily closing)

4,0

4,2

4,4

4,6

4,8

5,0

5,2

5,4

5,6


5y avg.

2011

2012

-24-20-16-12-8

-404

81216202428

32364044

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


-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

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

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

2007

2008

2009

2010

2011

2012

10

20

30

40

50

60

70

80

90$/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

2009

2010

2011

2012

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2007

2008

2009

2010

2011

2012

(ECX ICE, /t, Dec. 11, weekly closing) (CIF ARA steam coal, API#2, daily closing)

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

2007

2008

2009

2010

2011

2012

70

75

80

85

90

95

100

105

110

115

120

125

130

135

apr-10

maj-1

0

jun-1

0

jul-10

aug-10

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-11

feb-1

1

mar-11

apr-11

maj-1

1

jun-11

jul-11

aug-11

sep-1

1

okt-11

nov-1

1

dec-1

1

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



10/12

10


Market indicators

(weekly closing) (price index, weekly closing)

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

2005

2006

2007

2008

2009

2010

2011

2012

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

2005

2006

2007

2008

2009

2010

2011

2012

(monthly, PMIs >50 expansive) (monthly data)

32

34

36

3840

42

44

46

48

50

52

54

56

58

2005

2006

2007

2008

2009

2010

2011

2012

30

35

40

45

50

55

60

65

mar-06

jun-06

sep-0

6

dec-0

6

mar-07

jun-07

sep-0

7

dec-0

7

mar-08

jun-08

sep-0

8

dec-0

8

mar-09

jun-09

sep-0

9

dec-0

9

mar-10

jun-10

sep-1

0

dec-1

0

mar-11

jun-11

sep-1

1

dec-1

1

mar-12

jun-12

sep-1

2

US

Eurozone

ChinaReference

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

-25

-20

-15

-10

-5

0

5

10

15

20

25

mar-0

6

jun-06

sep-06

dec-06

mar-0

7

jun-07

sep-07

dec-07

mar-0

8

jun-08

sep-08

dec-08

mar-0

9

jun-09

sep-09

dec-09

mar-1

0

jun-10

sep-10

dec-10

mar-1

1

jun-11

sep-11

dec-11

mar-1

2

jun-12

sep-12

US

Eurozone

China

93

94

95

96

97

98

99

100

101

102

103

104

2005

2006

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

Oil Market Report: Product supply increasing again

Documents

Transcript of Oil Market Report: Product supply increasing again