Oil prices fell sharply last Friday night, and there was almost no resistance throughout the decline. Obviously, many funds were forced to stop losses and leave the market. The magnitude of the market correction exceeded the expectations of most investors. Single-day fluctuations of more than 10 US dollars are rare in history. Even under the impact of such extreme geopolitical factors this year, such fluctuations only occurred a few times in March. , and three months later, oil prices once again experienced fluctuations of US$10 in a single day, and it was a unilateral decline. There is no doubt that it triggered panic in the market. Will oil prices peak?
The crude oil market has become complicated again. Compared with the previous month’s rise, the market focus was on tight supply and refined oil products. This week we once again witnessed a tsunami-like impact of macro negative factors. Unexpected inflation brought about by the Federal Reserve. The 75 basis point interest rate hike, global economic recession and uncertainty risks have caused concerns, and investor expectations have changed significantly. The U.S. dollar surged sharply, and many risky assets such as stocks, commodities, and virtual currencies were sold off. According to the U.S. Commodity Futures Trading Commission (CFTC), hedge funds’ net long positions in 20 commodities decreased by 5% in the week of June 14. to a new low since September 2020. The Bloomberg Commodity Spot Index fell 6.39% this week, the largest weekly decline since March. Under this situation, oil prices have also fluctuated sharply from highs and fallen back. Because it is regarded as an important cause of inflation, the Biden administration in the United States has launched a series of measures including continuing to sell strategic crude oil and interviewing oil companies to request lower prices of gasoline and other products. A series of measures have been taken to try to cool down oil prices and ease market anxiety. The White House also said that Biden is open to the federal government’s “all reasonable use” of tools aimed at increasing production and reducing gas station costs. If it can help the United States improve its refining capacity, the president is willing to use a series of measures under the Defense Production Act to cool down oil prices and consider restricting fuel export options. Overall, although the U.S. government’s efforts have a certain effect, coupled with macro pressure, they continue to put pressure on the market. , U.S. gasoline futures prices fell nearly 8% in a single week. Crude oil fell by nearly $15 from its high point this week, and U.S. WTI crude oil led the global market in decline.
Such a sharp one-day drop in oil prices from high levels has caused concern among many investors. They need to see that this drop is affected by the cooling of risk appetite in the entire financial market and the pressure from the strong measures of the U.S. government. The poor market sentiment has made investment Investors have temporarily focused on some negative factors and have become cautious in betting on oil prices. However, the monthly spread structure of crude oil is still relatively strong and the forward curve is still steep. This shows that although the absolute price has corrected, the supply and demand level is still tight. At present, whether there is a way to completely solve the tight supply situation in the summer consumption season still remains a big challenge. It is difficult to change the current high oscillation trend. Oil prices will still have a stronger performance than other industrial products. It is not appropriate to chase short positions after a sharp drop.
Will the tight supply situation really improve?
The United States has accelerated its pace in the past two weeks, releasing strategic crude oil into the market at a rate of more than 1 million barrels per day. This week it once again tendered for the sale of 45 million barrels of strategic crude oil to the market. The International Energy Agency judged that due to the continued release of strategic crude oil, global crude oil has declined. Commercial stocks have rebounded, with global oil inventories observed in April rising by 77 million barrels after nearly two years of decline, and OECD industrial inventories rising by 42.5 million barrels, helped by nearly 1 million barrels/barrels released by governments. Daily inventory; EIA also judged that the seven consecutive quarters of destocking in the crude oil market have ended, and the crude oil market inventory will usher in the accumulation stage. OPEC also judged that the crude oil market began to recover in inventories in April. Preliminary data showed that the total OECD commercial oil inventories increased by 1.8 million barrels month-on-month to 2.628 billion barrels, a decrease of 287 million barrels from the same period last year and an average of 2.628 billion barrels from the same period last year. The level decreased by 332 million barrels, and EIA predicts that crude oil market inventories will not return to near the five-year average until the end of 2023. Summarizing the deductions of major institutions on the inventory change trend of the crude oil market, it can be seen that although the factors affecting both supply and demand are still changing significantly, the supply and demand of the crude oil market has entered a stage of gradual accumulation of inventories. This is the current level of inventory accumulation relative to the global level. Inventories at multi-year lows that are in urgent need of replenishment can easily be absorbed without putting great pressure on oil prices.
The oil production agreement launched by the OPEC+ alliance of oil producers at the beginning of the new crown epidemic is finally coming to an end. The future direction of the organization is a complex political issue. By August, all production cuts by the organization in 2020 will be restored. Representatives of the 23-nation alliance said they were now grappling with next steps; as U.S. President Joe Biden prepares to visit Saudi Arabia, OPEC’s de facto leader, U.S. officials are preparing for Saudi Arabia and its neighbor the United Arab Emirates to start in August. The move is paving the way for further increases in production levels, which it hopes will help cool oil prices above $110 a barrel. Persian Gulf oil exporters are still weighing their options as they seek assurances about regional security before producing oil at historically high levels.
After losing the vicious competitor of U.S. shale oil and Russian oil declining due to sanctions, the performance of Middle East oil exporting countries has…They enjoy the current oil prices very much and are unwilling to increase the amount of production that will actually damage oil prices. This makes their actual production recovery continue to lag behind planned production, leaving no chance for the supply and demand gap in the crude oil market to close. The actual production lags behind the plan. On the one hand, it is due to the inability of African countries including Libya, Nigeria, Angola, etc., especially Libya, which is relatively rich in resources. Although it is salivating in the face of high oil prices, it claims to import to increase production to 1.4 million barrels. /day, but in fact, due to the unstable domestic political situation and multiple conflicts, it has experienced several short-term sharp declines in production this year. In the past week, its oil minister claimed that crude oil production losses were caused by uncontrollable domestic factors. The output is 1.1 million barrels per day, while the output of Nigeria, Angola and other countries has been declining for many years due to constraints such as resources and aging equipment. The Middle East countries, led by Saudi Arabia, the United Arab Emirates, and Iraq, which have concentrated most of their idle production capacity, are returning production in an orderly manner without any pressure. Judging from the medium and long-term development vision of the Middle East countries, it is obvious that Saudi Arabia, the United Arab Emirates, Iraq, and even Iran, which is still under sanctions, hopes to further increase its production capacity and add more supply in the medium to long term. Judging from its development plan, the planned production development space of the four Middle East countries alone exceeds 10 million barrels per day. However, at present, The oil exporting countries that have the supply initiative firmly in their own hands will obviously fully evaluate their own interests and try their best not to destroy the current rare high-profit window. However, judging from the decision of OPEC at the June meeting, Saudi Arabia has a clear attitude Changes have led to the continuous promotion of OPEC’s production increase and the ceasefire in Yemen, two of Biden’s priorities. Recently, Biden has also stepped up the pace of diplomatic mediation and will meet with the Saudi Crown Prince for the first time in mid-July. If relations between the United States and Saudi Arabia resume easing. Saudi Arabia may turn to support increasing production to help the Biden administration control inflationary pressure. This is a factor that needs to be paid attention to in the future. Currently, it is estimated that several countries such as Saudi Arabia can realize about 1 million to 2 million barrels of idle production capacity within 1 to 2 months. However, there is still some room to increase production.
The EIA report showed that U.S. crude oil production reached 12 million barrels per day, the first time since April 2020. Commercial crude oil inventories excluding strategic reserves increased by 1.956 million barrels to 418.7 million barrels, an increase of 0.5%. Commercial crude oil imports excluding strategic reserves were 6.985 million barrels per day last week, an increase of 831,000 barrels per day from the previous week, the highest since the week of January 28, 2022. This week, the White House held an emergency meeting on refinery capacity today to try to find ways to lower gasoline prices. The United States has been releasing about 7 million barrels of oil per week. Even so, the entire oil market inventory still shows tight supply. The full-caliber U.S. oil market Inventories are far lower than the same period in previous years, which more directly shows that the improvement of the current tight supply in the oil market is by no means a problem that can be improved in the short term.
The crude oil processing volume in China’s market has continued to rebound after a continuous rebound, indicating that it has continued to fall again. At present, China’s crude oil processing volume is still far lower than the same period in previous years. The impact of the epidemic on the Chinese market has exceeded market expectations. At present, it seems that the recovery progress is not as good as expected. Although China’s temporary An additional 4.5 million tons of refined oil export quotas have been added, but the recovery of China’s refinery operating rates is still slow. Data shows that China’s refinery operations fell by 11% year-on-year. This is the biggest change in more than ten years, and this situation will continue. How long still needs to be further observed. At present, the weak performance of the Chinese market has a significant impact on the domestic market. The performance of refined oil products lags far behind the international market. The discount of SC crude oil futures to international oil prices has also reached a new low this year.
After the sharp drop in oil prices last Friday night, it has returned to the vicinity of the 60-day moving average, which is usually regarded as a watershed for the strength of price movements. The subsequent performance of oil prices will be very worthy of attention. Since the beginning of this year, the time for oil prices to be below the 60-day moving average has been very short. There is still a relatively high probability that oil prices will find support near the 60-day moving average. From the perspective of the supply and demand pattern of the crude oil market, the overall tightness is still the fundamental trend. The supply side is still fragile under the disturbance of geopolitical factors. However, it is not ruled out that there will be some unexpected supply due to the efforts of consumer countries. In addition, high oil prices will suppress demand. It will also be a factor worth paying attention to. From a macro perspective, market expectations have changed, risk appetite has cooled rapidly, and market confidence has been obviously hit. This is also a negative factor for oil prices. However, it can be seen that the European and American refined oil markets are still a big problem plaguing the market. The United States is in order to To cool down the domestic market, it began to consider controlling fuel exports. This also violated its original energy support commitment to the EU when it sanctioned Russia. If the European and American refined oil markets remain high, crude oil will hardly fall sharply. Generally speaking, the factors facing oil prices It gets complicated again. High range oscillation is still the biggest possibility for oil prices. It is not recommended to be overly bearish on oil prices at the current position.
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