Unlikely that Saudi switches from ”price” to ”volume” any time soon

Small gains with low conviction this morning. But we don’t think Brent can resist the upside. Brent crude rebounded 0.9% ydy with a close at USD 77.99/b following the sharp selloff last week on signals that a ceasefire in Gaza could be in the cards. This morning Brent crude is inching higher by 0.2% to USD 78.1/b without great conviction early in the morning it seems. Shanghai and Hong Kong equities are however up 3-4% this morning and industrial metals follows suites with some positive backdrop. The Chinese equity gains this morning may be more due to Chinese government technical measures to stem the equity market route than from real growth fundamentals. The general view of SEB’s Chief Asia Strategist, Eugenia Victorino, is however that the Chinese government these days has shifted fully to growth focus. Positive surprises from China are in the cards for 2024 in her view. While oil seems a little bewildered on where to go this morning, we think it won’t be able to resist the upside. The selloff last week on the possible ceasefire in Gaza followed by hopeful qualm in the Red Sea, Houthis, Hezbollah, Hamas, Iran, the lot seems way premature in our view.

Bjarne Schieldrop, Chief analyst commodities, SEB

No Chance that Saudi/OPEC+ will fold their cards now that we see emerging signs of global revival. The great concern now for a long time has been that the incredible rise in interest rates (US+++) would lead to a recession which would kill oil demand cyclically and possible force Saudi/OPEC+ to fold their cards, increase production, let the oil price fall and thus reduce US shale oil production to a more suitable level.

The latest manufacturing PMIs are however very interesting reading. India is of course full steam ahead at 56.5. But suddenly South Korea has moved up above the 50-line to 51.2. SEB’s prior economist in Norway, Stein Bruun, used to say that South Korea manufacturing PMI is the ”Canary in the coal mine” as the whole world needs manufactured sub-components from the country. So when the world starts to accelerate it will be visible in South Korea to start with. US ”new orders” has jumped to 52.5, the global PMI has lifted to 50.0 and the EU is ticking higher (still below 50) month by month as the cost of natural gas now has come down just an inch from the real average price from 2010-2019.

These emerging signs of improvements is essentially what Saudi/OPEC+ has been hoping for and dreaming about: Global economic acceleration. It almost seems too good to be true amid high interest rates, geopolitical turmoil, EU energy crisis and Chinese property market problems. Still, that is what the PMIs seems to indicate.

There is no chance in h*** that Saudi/OPEC+ will cave in and switch from ”price over volume” to ”volume over price” with emerging signs on the horizon of a global revival. It implies a stronger demand impulse down the road. And if you look upon the world economy with the eyes of an optimist your take would probably be: Chinese policy has shifted focus to growth, Biden is stimulating the h*** out of the US economy with his infrastructure stimulus package (to be re-elected), the EU is crawling out of the woods as nat gas prices have come down towards the real, 2010-2019 average level, India marches on, inflation globally is fading and interest rate cuts are coming. 

I.e. the risk for a sudden drop in the oil price as a consequence of a possible shift from price to volume by Saudi/OPEC+ seems highly unlikely at present.

Global manufacturing PMIs

Source: SEB graph, Blbrg data

Speculators tend to build long positions when global manufacturing accelerates and reduce when it contracts. Net long specs will likely be in for an upturn if global manufacturing starts to expand again.

Source: SEB graph and calculations, Blbrg data

Is Biden stimulating his way to re-election? Projection for US cement consumption to 2027 gives a great reflection of the incredible magnitude of Biden’s infrastructure package.

Source: SEB graph, FT.com

Saudi Arabia Official Selling prices. Only marginal changes for March.

Source: SEB graph, Blbrg data

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