Global crude oil supply and demand shift to tight situation
Last week, crude oil prices rose sharply overall after OPEC+ unexpectedly announced production cuts. WTI crude oil returned to above US$80/barrel for the first time in one month, with an intraday high of US$81.81/barrel; Brent crude oil returned to above US$85/barrel for the first time in one month, with an intraday high of US$86/barrel. SC crude oil closed at 589.5 yuan/barrel last week, a weekly increase of more than 10%.
In terms of news, in early April, many OPEC+ oil-producing countries, including Russia, Saudi Arabia, and the United Arab Emirates, successively announced that they would cut production from May until the end of this year. Among them, Saudi Arabia and Russia each reduced production by 500,000 barrels per day, and OPEC+ combined to reduce production by more than 1.6 million barrels per day. “Although many members of OPEC+ cannot reach the target production stipulated in the production reduction agreement, the oil-producing countries that announced increased production cuts this time were able to achieve the target line in the early implementation of production policies. Russia took the initiative to reduce production by 500,000 barrels per day. , the market has priced it earlier. In addition to Russia, the total production cuts of other countries such as Saudi Arabia and the United Arab Emirates have reached more than 1.1 million barrels per day. The market demand for OPEC crude oil has increased significantly, and the supply and demand of crude oil has changed from the previous loose pattern. The shift to a tight situation, combined with the strengthening of seasonal demand in the United States and the gradual improvement of domestic demand, has allowed oil prices to rise.” said Zheng Mengqi, energy and chemical researcher at Hizheng Futures.
Fawad Razaqzada, a senior analyst at Jiasheng Group, told a reporter from Futures Daily that in the short term, market concerns about the supply side of crude oil will overshadow the demand side, thus having more impact on oil prices. On the supply side, OPEC+’s sharp production cuts have fueled speculation that oil prices will reach 2022 levels and bring new inflationary shocks to the world economy.
In addition, regarding whether the previously weak U.S. employment data will have a greater impact on WTI crude oil, Lazazada believes that its impact will be minimal. He said that although previously weakening U.S. employment data has once again raised concerns about a slowdown in the U.S. economy, the latest U.S. non-farm payrolls report shows that the job market is still quite healthy.
Overall, taking into account the significant production cuts by OPEC+ on the supply side, the supply and demand margins of the crude oil market have improved, and the domestic and foreign crude oil price centers have moved higher than before. However, the reporter found that compared with foreign oil prices, the strength of crude oil in the intraday session this week was more obvious.
In this regard, Zheng Mengqi analyzed that on the supply side, recent news said that Russia reduced its daily oil production in March by about 700,000 barrels. This data is inconsistent with Russia’s seaborne exports and supply data to domestic refineries in March, which increases Russia’s Uncertainty about the actual amount of oil extracted. In terms of price, the EU previously set a price ceiling for Russian crude oil exports of US$60/barrel. Recently, as some OPEC+ members voluntarily cut production by more than 1.6 million barrels/day, oil prices have risen sharply. As buyers compete to buy, the price of Urals crude oil has risen beyond the price. upper limit. In addition, Saudi Arabia also raised the price of light oil sold to Asia in May by 30 cents/barrel. “In the context of my country’s largest sources of crude oil imports being Saudi Arabia and Russia, Saudi Arabia has raised the OSP of light oil sold to Asia, and at the same time, Russia’s supply has declined, which has also led to a relatively strong internal crude oil trend.”
Can crude oil continue to break upward?
It is worth noting that the international crude oil futures market was closed for one day last Friday due to Good Friday, and the impact of the March non-farm payrolls report released on that day may be reflected in the market on Monday.
According to statistics from the U.S. Department of Labor, in March, the U.S. seasonally adjusted non-farm payrolls added 236,000 people, compared with the expected 239,000 and the previous value of 311,000, which was the smallest increase since December 2020 and lower than market expectations; The annual average hourly wage rate in the United States was 4.2%, compared with the expected 4.30% and the previous value of 4.60%. In addition, the number of new non-agricultural jobs in January was revised from 504,000 to 472,000; the number of new non-agricultural jobs in February was revised from 311,000 to 326,000. After the revision, the number of new jobs in January and February The total is 17,000 lower than before the revision. The unemployment rate fell to 3.5%, below expectations of 3.6%. Zheng Mengqi believes that the new non-agricultural data shows that the pace of hiring in the U.S. job market has slowed down, but it is generally in line with expectations. Next, we need to continue to pay attention to the release of the Federal Reserve meeting minutes on Thursday, the banking crisis, OPEC+ production cuts, high inflation, etc., which may increase the follow-up Uncertainty about the Fed’s interest rate adjustment path.
“From the current point of view, macro risks have eased. The U.S. non-farm payrolls increased by 236,000 people in March, which was basically in line with expectations, and the unemployment rate was 3.5%, which was better than expected. As the Federal Reserve raised interest rates to curb demand, the March non-farm payrolls data showed that the U.S. labor market continues to strengthen. The signs are fading, which may affect the pace of subsequent aggressive interest rate hikes by the Federal Reserve. At the same time, from the spot market, Saudi Aramco raised the official selling price of its flagship product Arabian Light Crude Oil sold to the Asian market in May by US$0.3 per barrel, marking the third consecutive time. Prices have been raised in three months; and from the perspective of premiums and discounts, the spot market is still relatively confident in demand in the short term. Therefore, we believe that the current oil price may fluctuate upward, and Brent oil will further test the pressure of the previous high of US$90/barrel.” Everbright said Zhong Meiyan, director of energy and chemical research at the Futures Research Institute.
In the short term, according to Lazazada, OPEC+ production cuts are expected to tighten the oil market, which may provide further support for oil prices.
Zhong Meiyan said that the current expected contraction in crude oil supply has changed the short-term balance sheet of the oil market. Except for the announcement of production reduction plans by many OPEC+ countries in early April, oil exports from northern Iraq to Turkey have not yet fully recovered.The resumption of operations has resulted in several oil fields in the semi-autonomous Kurdistan Region remaining closed and will also reduce the short-term supply of crude oil by approximately 450,000 barrels per day. It is expected that the overall crude oil balance sheet in April will show a tight balance between supply and demand. The support effect of the bottom of oil prices has emerged. Demand will increase in the second quarter of this year compared with the first quarter. Starting from April, the monthly crude oil balance sheet may have a shortage of 600,000 barrels per day. Oil prices The realization of the production reduction will be priced in pulse method.
In the future, Zhong Meiyan believes that we need to pay attention to the mismatch between the marginal amount of crude oil supply contraction and the change in the marginal amount of demand. Currently, its demand is resilient. Among them, the demand performance in the United States is outstanding. Judging from the crude oil production derived demand data, it has reached a new high in the same period in recent years, reaching 19.88 million barrels/day, a slight increase of 1.28 million barrels/day from last week. Domestically, the performance of refined oil products may be differentiated. With the May Day holiday approaching, car travel radius is expected to increase, and the gradual rise in temperature will increase gasoline consumption. In terms of diesel, the operating load of outdoor oil-consuming units such as industrial and mining, infrastructure construction in the north is relatively stable, while the operating load of outdoor oil-consuming units in the south is relatively stable. Diesel consumption may be suppressed to a certain extent due to the rainy season in some areas. Coupled with the arrival of the fishing moratorium, diesel demand is expected to be stable and may decline. Therefore, China’s processing level will continue to recover moderately.
The above-mentioned interviewees all believe that the demand side of crude oil is expected to recover well. Therefore, subsequent oil prices will once again face huge pressure, which will be the focus of the crude oil market in the future. “Specifically, for example, if the crude oil supply from non-OPEC countries increases sharply, this situation is possible, but oil-producing countries other than OPEC+ will take some time to increase production. And if these countries significantly increase oil production, OPEC+ will start again Losing market share, then this may trigger another crude oil supply war between Europe’s OPEC+ and non-OPEC countries such as the United States and Canada,” Lazazada said.
Zheng Mengqi also believes that there are many variables on the crude oil supply side in the future, such as OPEC+ production policy adjustments and the United States will release 26 million barrels of strategic oil reserves in the second quarter. At the same time, we should also pay attention to the high inflation rate of the Federal Reserve on the macro level and whether the banking crisis is still likely to spread. Overall, OPEC+ production cuts have supported oil prices on the supply and demand side, and the Fed’s continued interest rate hikes will be a periodic negative for oil prices.
In addition, what has attracted much market attention is how much U.S. crude oil production can increase in the future after OPEC+ countries jointly reduce production. As early as January 25, E1A released a relevant report stating that U.S. crude oil production will continue to hit new highs from 2023 to 2024. It is expected that the average U.S. crude oil production will reach 12.4 million barrels per day in 2023, and will reach 12.8 million barrels per day in 2024. barrel/day.
In this regard, Lazazada believes that from the actual situation, in terms of the number of drilling rigs, according to EIA data, the total number of drilling rigs in the seven major production areas in the United States has shown a downward trend. As of February 2023, the number of drilling rigs in the seven major production areas The total number is 708 units, a decrease of 5 units from January. Generally speaking, regardless of the data trends in the total number of drilling rigs or the oil production per unit of drilling rigs, the United States’ ability to increase oil production is relatively limited in the short term.
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