Commodities
Oil market weekly highlights The rally in oil prices took a breather last week as more negative data reinforced the soft outlook for growth this year and there were few oil-specific catalysts to shift markets. Brent fell marginally over the week after touching 2019 highs of USD 68.69/b. The international benchmark ended the week at USD 67.03/b, down 0.2%. WTI fared better, closing the week up just shy of a gain of 0.9% at USD 59.04/b after earlier rising above USD 60/b. WTI failed to close above the USD 60/b handle which would appear to be the next psychological barrier for the US grade to push through. Weak factory data in the Eurozone and US along with a more dovish Fed set up a poor headline demand story for crude in 2019. We noted in previous reports that any boost to commodities from the Fed holding rates steady (and consequently leading to a lower USD) would be ephemeral as any easing of monetary policy would reflect central banks trying to soften a slowdown in growth. With OPEC choosing to skip its April meeting we expect production patterns to follow a similar path as they’ve already done so far in 2019 with relative over-compliance from Saudi Arabia to make up for others missing their targets.
Commodities 24 March 2019
The relative out-performance of WTI to Brent showed up in time spreads last week. Backwardation in WTI Dec spreads widened at a faster pace compared with Brent with WTI Dec 19/20 closing at USD 2.28 (up nearly 15% w/w) while in Brent the same spread gained just 0.5% to close at USD 1.9/b. The contango at the front of the WTI curve continued to weaken last week, compressing five weeks in a row for the 1-2 month spread. Meanwhile backwardation in Brent in the same spread widened by USD 0.16/b last week to close a little under USD 0.3/b. The sustained backwardation in Brent and pending shift in the curve in WTI has drawn speculators into the market over the last few weeks. Net length held by managed money in WTI positions rose by more than 50k contracts last week while in Brent speculative positioning rose by 15.9k lots. With broader economic data coming in more negatively and volatility still surrounding the outcome of Brexit there may be an element of profit taking from recent highs in oil that could see positions pared down as we head to month- and quarter-end. The US drilling rig count fell a fifth week running, losing nine rigs last week. The rig count has fallen by more than 60 rigs since the start of 2019 and is only 20 rigs higher than it was a year ago. The Dallas Fed’s energy survey will be released in the middle of the week and will give an indication at which price point exploration and development companies, particularly in the Permian, are using to plan capital spending and maintenance expenditure. Thanks to productivity gains, capex plans have been held around USD 50/b for the last three years. If those capex breakeven levels are sustained into 2019, current WTI pricing still provides some headroom for production to keep growing this year.
Weak economic data poses downside risk for oil
Edward Bell Commodities Analyst +971 4 230 7701 [email protected]
90
0
80
-2
70
-4
60
-6
50
-8
40
-10
30
-12
Brent (lhs) Source: EIKON, Emirates NBD Research.
WTI (lhs)
WTI/Brent (rhs)
Brent forward curve
61.00
68.00
60.00
67.00
59.00
66.00
(USD/b)
(USD/b)
WTI forward curve
58.00 57.00
65.00 64.00
56.00
63.00
55.00
62.00
54.00
61.00 1
3
5
7
9
11
13
15
17
19
21
23
1
3
5
7
9
WTI (USD/b)
13
15
17
19
21
23
Brent (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Source: EIKON, Emirates NBD Research. Note: USD/b.
WTI time spreads
Brent time spreads
0.3
0.30
0.2
0.25
0.1
0.20
(USD/b)
(USD/b)
11
0 -0.1 -0.2
0.15 0.10 0.05
-0.3
0.00 1
3
5
7
9
11
13
15
17
19
21
23
1
Months forward
WTI December spreads
5
7
9
11
13
15
17
19
21
23
Months forward
WTI spreads: m/m (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
3
Brent spreads: m/m (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Brent December spreads
5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00
6.00 5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00
WTI Dec 19/20
WTI Dec 20/21
Source: EIKON, Emirates NBD Research. Note: USD/b.
Brent Dec 19/20
Brent Dec 20/21
Source: EIKON, Emirates NBD Research. Note: USD/b.
Page 2
WTI net length managed money
160 140 120 100 80 60 40 20 0
20 15 10 5 0 -5 -10 -15 -20 -25
600 400 200
('000 contracts)
US drilling rig count
0 -200 -400
Rig count: annual change (lhs)
WTI: managed money long
Rig count: weekly change (rhs)
WTI: managed net long
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research. Note: NYMEX futures and options only.
US drilling rig count (1 year)
Brent net length managed money
900 880 860 840 820 800 780 760 740 720 700
800 600
('000 contracts)
400 200 0 -200 -400
Brent: managed money long US oil rig total
Brent: managed money short
Brent: managed net long
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research. Note: ICE only.
US drilling rig count (5 year)
Net length managed money/open interest 25
(% of open interest)
1800 1600 1400 1200 1000 800 600 400 200 0 Mar-14
WTI: managed money short
Mar-15
Mar-16
Mar-17
US oil rig total
Source: EIKON, Emirates NBD Research.
Mar-18
Mar-19
20 15 10 5 0 2014
2015
2016
Brent net length
2017
2018
WTI net length
Source: EIKON, Emirates NBD Research. Note: NYMEX and ICE.
Page 3
Total inventories: US
North America prices
1300
20.00 15.00 10.00 5.00 (5.00) (10.00) (15.00) (20.00) (25.00)
(m bbl)
1250 1200 1150 1100
Total inventories
Five-year average
Source: EIKON, Emirates NBD Research. Note: crude and products.
North Sea prices
Jul-18
Sep-18
Nov-18
Jan-19
5 year average
Total inventories: Singapore
Brent
Forties
Oseberg
Ekofisk
Troll
Urals NWE
Source: EIKON, Emirates NBD Research. Note: USD/b.
Dubai prices 90
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 -0.2 -0.4
(USD/b)
80 70 60 50 40
Total
5 year average
Source: EIKON, Emirates NBD Research. Note: products only.
Dubai 1m
Mar-19
Feb-19
Jan-19
Dec-18
Oct-18
Nov-18
Jan-19
Sep-18
Nov-18
Aug-18
Sep-18
Jul-18
Jul-18
Jun-18
May-18
May-18
30
(USD/b)
May-18
Source: EIKON, Emirates NBD Research. Note: products only.
(m bbl)
Bakken
Mars
4.00 3.00 2.00 1.00 (1.00) (2.00) (3.00) (4.00) (5.00)
Total
53 51 49 47 45 43 41 39 37 35 Mar-18
Alaska
Apr-18
48 46 44 42 40 38 36 34 32 30 Mar-18
WTI Midland
Source: EIKON, Emirates NBD Research. Note: USD/b
Mar-18
(m bbl)
Total inventories: ARA
LLS
1m-3m spread (rhs)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Page 4
(USD/g)
RBOB futures
Singapore gasoline
2.4
100
2.2
90
2
80
1.8
70
1.6
60
1.4
50
1.2
40
14 12 10 8 6 4 2 0 -2 -4
1
Singapore gasoline 92 RBOB 1st future
Source: EIKON, Emirates NBD Research
(USD/g)
ULSD futures
Singapore gasoline Brent crack (USD/b)
Source: EIKON, Emirates NBD Research
Singapore gasoil
2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1
110 100 90 80
70 60 50 Mar-18
ULSD 1st future
Source: EIKON, Emirates NBD Research.
(USD/tonne)
Low sulphur gasoil futures 800 750 700 650 600 550 500 450 400 350 300
May-18
Jul-18
Sep-18
Nov-18
Gasoil 0.5%
Gasoil 0.25%
Gasoil 0.05%
Gasoil 10ppm
Jan-19
Source: EIKON, Emirates NBD Research
Singapore fuel oil 85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00
Low sulphur gasoil 1st future
Source: EIKON, Emirates NBD Research
FO 180
FO 380
Source: EIKON, Emirates NBD Research
Page 5
Singapore/BFO crack gasoline
Singapore/Dubai crack gasoline
20
20
15
15 10
10
5 5
0
0 -5 Mar-18
-5 May-18
Jul-18
Sep-18
92 gasoline crack/BFO
Nov-18
Jan-19
-10 Mar-18
95 gasoline crack/BFO
Nov-18
95 gasoline crack/Dubai
Singapore/Dubai crack gasoil
24
24
19
19
14
14
9
9
Sep-18
Nov-18
Jan-19
4 Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
0.5% gasoil crack/BFO
0.25% gasoil crack/BFO
0.5% gasoil crack/Dubai
0.25% gasoil crack/Dubai
0.05% gasoil crack/BFO
10ppm gasoil crack/BFO
0.05% gasoil crack/Dubai
10ppm gasoil crack/Dubai
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research.
Singapore/BFO crack fuel oil
Singapore/Dubai crack fuel oil
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15 Mar-18
Jan-19
Source: EIKON, Emirates NBD Research.
Singapore/BFO crack gasoil
Jul-18
Sep-18
97 gasoline crack/Dubai
Source: EIKON, Emirates NBD Research
May-18
Jul-18
92 gasoline crack/Dubai
97 gasoline crack/BFO
4 Mar-18
May-18
May-18
Jul-18
FO 380 crack/BFO
Sep-18
Nov-18
Jan-19
FO 180 crack/BFO
Source: EIKON, Emirates NBD Research
-15 Mar-18
May-18
Jul-18
FO 380 crack/Dubai
Sep-18
Nov-18
Jan-19
FO 180 crack/Dubai
Source: EIKON, Emirates NBD Research.
Page 6
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Page 8
Commodities 24 March 2019
The relative out-performance of WTI to Brent showed up in time spreads last week. Backwardation in WTI Dec spreads widened at a faster pace compared with Brent with WTI Dec 19/20 closing at USD 2.28 (up nearly 15% w/w) while in Brent the same spread gained just 0.5% to close at USD 1.9/b. The contango at the front of the WTI curve continued to weaken last week, compressing five weeks in a row for the 1-2 month spread. Meanwhile backwardation in Brent in the same spread widened by USD 0.16/b last week to close a little under USD 0.3/b. The sustained backwardation in Brent and pending shift in the curve in WTI has drawn speculators into the market over the last few weeks. Net length held by managed money in WTI positions rose by more than 50k contracts last week while in Brent speculative positioning rose by 15.9k lots. With broader economic data coming in more negatively and volatility still surrounding the outcome of Brexit there may be an element of profit taking from recent highs in oil that could see positions pared down as we head to month- and quarter-end. The US drilling rig count fell a fifth week running, losing nine rigs last week. The rig count has fallen by more than 60 rigs since the start of 2019 and is only 20 rigs higher than it was a year ago. The Dallas Fed’s energy survey will be released in the middle of the week and will give an indication at which price point exploration and development companies, particularly in the Permian, are using to plan capital spending and maintenance expenditure. Thanks to productivity gains, capex plans have been held around USD 50/b for the last three years. If those capex breakeven levels are sustained into 2019, current WTI pricing still provides some headroom for production to keep growing this year.
Weak economic data poses downside risk for oil
Edward Bell Commodities Analyst +971 4 230 7701 [email protected]
90
0
80
-2
70
-4
60
-6
50
-8
40
-10
30
-12
Brent (lhs) Source: EIKON, Emirates NBD Research.
WTI (lhs)
WTI/Brent (rhs)
Brent forward curve
61.00
68.00
60.00
67.00
59.00
66.00
(USD/b)
(USD/b)
WTI forward curve
58.00 57.00
65.00 64.00
56.00
63.00
55.00
62.00
54.00
61.00 1
3
5
7
9
11
13
15
17
19
21
23
1
3
5
7
9
WTI (USD/b)
13
15
17
19
21
23
Brent (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Source: EIKON, Emirates NBD Research. Note: USD/b.
WTI time spreads
Brent time spreads
0.3
0.30
0.2
0.25
0.1
0.20
(USD/b)
(USD/b)
11
0 -0.1 -0.2
0.15 0.10 0.05
-0.3
0.00 1
3
5
7
9
11
13
15
17
19
21
23
1
Months forward
WTI December spreads
5
7
9
11
13
15
17
19
21
23
Months forward
WTI spreads: m/m (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
3
Brent spreads: m/m (USD/b)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Brent December spreads
5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00
6.00 5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00
WTI Dec 19/20
WTI Dec 20/21
Source: EIKON, Emirates NBD Research. Note: USD/b.
Brent Dec 19/20
Brent Dec 20/21
Source: EIKON, Emirates NBD Research. Note: USD/b.
Page 2
WTI net length managed money
160 140 120 100 80 60 40 20 0
20 15 10 5 0 -5 -10 -15 -20 -25
600 400 200
('000 contracts)
US drilling rig count
0 -200 -400
Rig count: annual change (lhs)
WTI: managed money long
Rig count: weekly change (rhs)
WTI: managed net long
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research. Note: NYMEX futures and options only.
US drilling rig count (1 year)
Brent net length managed money
900 880 860 840 820 800 780 760 740 720 700
800 600
('000 contracts)
400 200 0 -200 -400
Brent: managed money long US oil rig total
Brent: managed money short
Brent: managed net long
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research. Note: ICE only.
US drilling rig count (5 year)
Net length managed money/open interest 25
(% of open interest)
1800 1600 1400 1200 1000 800 600 400 200 0 Mar-14
WTI: managed money short
Mar-15
Mar-16
Mar-17
US oil rig total
Source: EIKON, Emirates NBD Research.
Mar-18
Mar-19
20 15 10 5 0 2014
2015
2016
Brent net length
2017
2018
WTI net length
Source: EIKON, Emirates NBD Research. Note: NYMEX and ICE.
Page 3
Total inventories: US
North America prices
1300
20.00 15.00 10.00 5.00 (5.00) (10.00) (15.00) (20.00) (25.00)
(m bbl)
1250 1200 1150 1100
Total inventories
Five-year average
Source: EIKON, Emirates NBD Research. Note: crude and products.
North Sea prices
Jul-18
Sep-18
Nov-18
Jan-19
5 year average
Total inventories: Singapore
Brent
Forties
Oseberg
Ekofisk
Troll
Urals NWE
Source: EIKON, Emirates NBD Research. Note: USD/b.
Dubai prices 90
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 -0.2 -0.4
(USD/b)
80 70 60 50 40
Total
5 year average
Source: EIKON, Emirates NBD Research. Note: products only.
Dubai 1m
Mar-19
Feb-19
Jan-19
Dec-18
Oct-18
Nov-18
Jan-19
Sep-18
Nov-18
Aug-18
Sep-18
Jul-18
Jul-18
Jun-18
May-18
May-18
30
(USD/b)
May-18
Source: EIKON, Emirates NBD Research. Note: products only.
(m bbl)
Bakken
Mars
4.00 3.00 2.00 1.00 (1.00) (2.00) (3.00) (4.00) (5.00)
Total
53 51 49 47 45 43 41 39 37 35 Mar-18
Alaska
Apr-18
48 46 44 42 40 38 36 34 32 30 Mar-18
WTI Midland
Source: EIKON, Emirates NBD Research. Note: USD/b
Mar-18
(m bbl)
Total inventories: ARA
LLS
1m-3m spread (rhs)
Source: EIKON, Emirates NBD Research. Note: USD/b.
Page 4
(USD/g)
RBOB futures
Singapore gasoline
2.4
100
2.2
90
2
80
1.8
70
1.6
60
1.4
50
1.2
40
14 12 10 8 6 4 2 0 -2 -4
1
Singapore gasoline 92 RBOB 1st future
Source: EIKON, Emirates NBD Research
(USD/g)
ULSD futures
Singapore gasoline Brent crack (USD/b)
Source: EIKON, Emirates NBD Research
Singapore gasoil
2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1
110 100 90 80
70 60 50 Mar-18
ULSD 1st future
Source: EIKON, Emirates NBD Research.
(USD/tonne)
Low sulphur gasoil futures 800 750 700 650 600 550 500 450 400 350 300
May-18
Jul-18
Sep-18
Nov-18
Gasoil 0.5%
Gasoil 0.25%
Gasoil 0.05%
Gasoil 10ppm
Jan-19
Source: EIKON, Emirates NBD Research
Singapore fuel oil 85.00 80.00 75.00 70.00 65.00 60.00 55.00 50.00 45.00 40.00
Low sulphur gasoil 1st future
Source: EIKON, Emirates NBD Research
FO 180
FO 380
Source: EIKON, Emirates NBD Research
Page 5
Singapore/BFO crack gasoline
Singapore/Dubai crack gasoline
20
20
15
15 10
10
5 5
0
0 -5 Mar-18
-5 May-18
Jul-18
Sep-18
92 gasoline crack/BFO
Nov-18
Jan-19
-10 Mar-18
95 gasoline crack/BFO
Nov-18
95 gasoline crack/Dubai
Singapore/Dubai crack gasoil
24
24
19
19
14
14
9
9
Sep-18
Nov-18
Jan-19
4 Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
0.5% gasoil crack/BFO
0.25% gasoil crack/BFO
0.5% gasoil crack/Dubai
0.25% gasoil crack/Dubai
0.05% gasoil crack/BFO
10ppm gasoil crack/BFO
0.05% gasoil crack/Dubai
10ppm gasoil crack/Dubai
Source: EIKON, Emirates NBD Research.
Source: EIKON, Emirates NBD Research.
Singapore/BFO crack fuel oil
Singapore/Dubai crack fuel oil
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15 Mar-18
Jan-19
Source: EIKON, Emirates NBD Research.
Singapore/BFO crack gasoil
Jul-18
Sep-18
97 gasoline crack/Dubai
Source: EIKON, Emirates NBD Research
May-18
Jul-18
92 gasoline crack/Dubai
97 gasoline crack/BFO
4 Mar-18
May-18
May-18
Jul-18
FO 380 crack/BFO
Sep-18
Nov-18
Jan-19
FO 180 crack/BFO
Source: EIKON, Emirates NBD Research
-15 Mar-18
May-18
Jul-18
FO 380 crack/Dubai
Sep-18
Nov-18
Jan-19
FO 180 crack/Dubai
Source: EIKON, Emirates NBD Research.
Page 6
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