Crude oil plummeted at the beginning of last week, with Brent crude oil and WITI crude oil having their largest single-day declines of more than 10% on July 5, falling below US$100/barrel. Voices of economic recession and sluggish demand in the United States have resurfaced. Barclays analyst Maneesh Deshpande recently commented: “Growth is slowing, and if we enter this situation, oil demand will fall. This is part of the reason why oil prices have fallen slightly. ”
Chart: WITI crude oil settlement price
The internal structure of oil-producing countries is stable
Since 2010, U.S. shale oil has made revolutionary technological progress. In 2016, the cost of U.S. shale oil has been significantly reduced. At the same time, the OPEC+ alliance has been established. The competition for crude oil market share among the United States, Saudi Arabia, and Russia has been fierce. Data shows that the United States, OPEC+ control Accounting for about 70% of the world’s oil production, oil-producing countries are also riddled with gangs, and the implementation of many policies will encounter many obstacles.
From China’s accession to the WTO to the 2008 financial crisis, it was a golden age for oil-producing countries. Emerging countries represented by China increased the scale of crude oil consumption rapidly, and crude oil continued to sing. However, after the 2008 financial crisis and the European debt crisis, new energy sources flourished. Development, new energy sources rely on subsidies and clean and green advantages to compete for the fossil energy stock market. Crude oil, coal, and natural gas have all been greatly impacted. With the commercialization of new energy in recent years, the market position of fossil energy has been continuously challenged, and it is only a matter of time before crude oil is replaced on a large scale.
Although the trend of crude oil being replaced is hard to change, the United States, Saudi Arabia, and Russia have never stopped competing for market share. The price war launched by Saudi Arabia after the new coronavirus epidemic and the sanctions on Russian crude oil caused by the Russia-Ukraine conflict have not affected the crude oil market structure. , due to pressure from all parties, Saudi Arabia had to stop the price war. After Europe and the United States imposed sanctions on Russian crude oil, Russia’s crude oil exports increased instead of decreasing.
Restarting nuclear energy in East Asia and Europe
Most of Russian crude oil exports go to India and China. Russia has implemented preferential policies for crude oil exports to India, so exports to India have grown the fastest. Data shows that India’s crude oil imports from Russia have increased from about 30,000 barrels per day in previous years to 4 More than 700,000 barrels per day per month.
Compared with the Iranian crude oil embargo, the attitudes of Europe and the United States are very mild. First of all, the United States is full of internal conflicts and has no time to take into account the chain of interests behind it. Secondly, Russia’s acceleration of crude oil exports is actually consistent with the interests of Europe and the United States. Finally, Europe and East Asia are very determined to develop alternatives to fossil fuels.
Whether it is scenery, geothermal, or petroleum and coal, many countries in East Asia and Europe need to rely on imports. However, to achieve green cleanliness and energy self-sufficiency, these countries can only rely on their own advantages in the field of nuclear power in the short term. Japan, South Korea and Europe have restarted nuclear energy. The latest statistics show that the number of nuclear power plants in the EU in 2021 will increase by 7% compared with 2020. According to the plan of the Ministry of Trade, Industry and Energy of South Korea, by 2030, the contribution rate of South Korean nuclear power in the energy structure will increase to more than 30%, and the import dependence of fossil fuels will be reduced from 81.8% to about 60%. At the same time, the Japanese industry will also There are plans to restart nuclear power plants.
We mentioned earlier that oil-producing countries have great internal conflicts, but when oil prices are challenged, oil-producing countries other than the United States tend to come together. If countries in East Asia and Europe achieve energy self-sufficiency, the relationship between Saudi Arabia and Russia will become closer, and the two countries will jointly regulate the pressure on the crude oil supply side.
Bearish on oil prices in the third quarter
What surprised the market most was the huge contrast between Citigroup and JPMorgan Chase’s analysis of oil prices. Citi analysts pointed out in the latest report that due to the economic recession, oil prices may fall to US$65/barrel before the end of the year, and may drop to US$45/barrel by the end of 2023. Analysts at JPMorgan Chase warned that global oil prices could reach $380 a barrel if U.S. and European sanctions prompt Russia to implement retaliatory production cuts.
There are deep divisions on oil prices on Wall Street, and both views are too extreme in our view. We believe that the United States has already sent a recession signal in the first quarter of this year, but we tend to favor a mild recession in the upcoming recession. The impact on the economy will be slow, relatively mild and long-lasting, and the Great Depression will not occur. At the same time, the possibility of Russia implementing retaliatory production cuts is also very low. Russia has not made retaliatory production cuts in the past, and the possibility of retaliatory production cuts in the future is even lower.
Currently, the logic of U.S. stocks and commodity trading runs counter to each other. The Fed’s failure to raise interest rates does not mean that the economy will not be in recession, nor does an economic recession completely mean that the Fed will stop raising interest rates. A left-footed, right-footed analysis will ignore many issues. The decline in demand can be achieved by adjusting production. The oil price controlled by the oil-producing countries only depends on the joint efforts of the oil-producing countries. When the oil-producing countries are profitable, internal differences will inevitably increase. A drop in oil prices is inevitable, but the speed Depends on the recession. Looking forward to the third quarter, oil prices will fluctuate downward, but in the short term, we should be wary of the last wave of gains after crude oil oversold. Investors can pay attention to the high-altitude opportunities of CME Group’s micro WTI crude oil futures (product code: MCL) from the end of July to early August.
The size of micro WTI crude oil futures is only one-tenth of the benchmark WTI futures contract, making it a larger��, a more accurate crude oil price exposure management tool, allowing traders to obtain the same transparency and price discovery functions as traditional WTI futures with lower margin requirements.
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