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Commodity Strategy Comment — OPEC and non-OPEC tighten their belts

Focusing on details was never likely at the spring OPEC meeting in Vienna. The group decided to extend the current cut by nine months. Instead of concentrating on specifics, the meeting and press conference seemed to be arranged to create the impression of a strong alliance between the world's two largest crude oil producers, Saudi Arabia and Russia.

Martin Jansson, Strategist | nija03@handelsbanken.se

Commodity Strategy Comment — The last hurrah from Vienna

We see a close to 100% probability of an extension of oil production cuts from OPEC at the upcoming OPEC meeting in Vienna on May 25. For H2 2017, we see compliance with proposed cuts as a much more difficult issue than the deal itself. We think there is a 95% probability that Russia will sign on for a new six-month production cut period, but we see only a 30% probability that Russia will keep compliance for that period. Oil cuts during H2 2017 will come at a high cost due to seasonally higher production. We believe the next big price turn will come from non-compliance from Russia in particular but also other OPEC countries, as growing US production shows evidence of the futility of subsidising growth there by keeping production off stream. Saudi Arabia seems assured that production cuts at any price are the right way to go; it seems to us that the longer OPEC tries to keep production down, the more such measures backfire. 

Martin Jansson, Strategist | nija03@handelsbanken.se

Commodity Bulletin — At the peak of a mini-cycle

Optimism is growing
Global optimism, coupled with strong economic data, has spilt over into an expectation of a self-fulfilling global recovery. We see three driving forces behind the pick-up in global economic activity since last au-tumn. The first two relate to stimuli from central banks' monetary policy and the expansive policy in China. The third is the recovery on the commodity markets - particularly for the price of oil. The optimism since the US election in November last year has generally been regarded as a "Trump trade". We believe, however, that the stronger economic sta-tistics are largely an effect of the three factors men-tioned above, rather than of President Trump. Togeth-er, these three driving forces have been strong enough to lift the economy and growth expectations, but the effect will subside later in 2017, and it will probably be difficult for President Trump to compen-sate for this.

OPEC to extend the agreement?
The half-yearly OPEC meeting in Vienna was a show of strength from the slumbering cartel. No sooner have the fuel pumps been cut off than the focus is on the group extending the agreement at the next meeting on May 25. The market expects an extension, but we argue that a surprise departure from the agreement is actually not that unlikely. We believe that the oil price will approach USD 40, regardless of the outcome of the OPEC meeting.

Base metals to follow China's mini-cycle
It looks as if China's 2016 recovery will be further maintained. The latest data harvest points to at least another six months of strong activity.

Martin Jansson, Strategist | nija03@handelsbanken.se

Råvaruplanket — april 6, 2017

Optimismen spirar
Global optimism i kombination med goda ekonomiska data har spillt över till en förväntan om en självuppfyllande global återhämtning. Vi ser tre drivkrafter till att den globala ekonomiska aktiviteten tagit fart igen sedan i höstas. De första två gäller centralbankers stimulativa penningpolitik samt den expansiva politiken i Kina. Den tredje är återhämtningen på råvarumarknaderna, i synnerhet för oljepriset.
Optimismen efter det amerikanska valet i november förra året har allmänt betraktats som en "Trump trade". Vi tror dock att bättre ekonomisk statistik i hög grad är en effekt av de tre ovannämnda faktorerna, snarare än Trump. De här tre drivkrafterna har tillsammans haft kraft att lyfta ekonomin och tillväxtförväntningarna, men effekten kommer att avta längre fram under 2017 och Trump ser ut att få svårt att kompensera för det.

OPEC förlänger avtalet?
Det halvårsvisa OPEC-mötet i Wien gav ett styrkebe-sked från den slumrande kartellen. Knappt har pumparna strypts fören marknadens fokus ligger på om gruppen förlänger avtalet vid nästa möte den 25e maj. Marknaden tror på en förlängning men vi argumenterar för att ett överraskande uppbrott från avtalet inte är så osannolikt ändå. Oljepriset tror vi kommer närma sig USD 40 oavsett OPEC-mötets utfall.

Basmetallerna följer Kinas minicykel
Kinas återhämtning under 2016 ser ut att hålla i sig allt längre. Senaste dataskörden indikerar åtminstone ytterligare sex månader med stark aktivitet.

Commodity Strategy Comment — OPEC puts shale on safe ground

We revise our full-year crude oil price forecast from USD 60/bbl to USD 40/bbl. After six days of oil price declines, we believe it is clear the market has realised that activity gains among US shale producers will challenge this year's oil market balance. Over the last three months, shale has beaten our most optimistic scenario. OPEC has done what we expected it to do by cutting production, but it cannot continue intervene when shale producers counteract that cut in less than 12 months, particularly given that it took one year for OPEC to achieve agreement.

Martin Jansson, Strategist | nija03@handelsbanken.se

Reflections from IP Week in London —

The atmosphere was far more upbeat at this year's International Petroleum Week, given the sharp oil price increase since the previous IP gathering, with levels now considered healthy for the industry. Expectations are divided between three views: 1) the market will continue to trend toward USD 65 per barrel, which is the long-term cost trend and also the acquisition policy of many companies; 2) fall back to the marginal cost of production at USD 50, balancing around inventory held; or 3) hover between the two depending on the strength of one's belief in the first two views. Few believe in oil breaking out of this price range in the short to medium term, so OPEC has clearly given the industry some time to breathe. However, the short-lived price recovery is already in danger as OPEC and Russia fail to deliver on agreed cuts and as US shale oil roars back to life.

Martin Jansson, Strategist | nija03@handelsbanken.se