Last week, the IEA released its monthly report for February. The report showed that the supply situation in the crude oil market was tight. In December 2021, OECD oil inventories fell by 60 million barrels. This is a huge supply gap. Although there are factors of year-end adjustment data, it is still far beyond the Market expectations, as described by Bosoni, director of the IEA’s Petroleum Industry and Markets Department, are that the oil market is surprisingly tight, and oil prices have rebounded from intraday lows under this boost.
In the early hours of last Saturday, the geopolitical conflict in Ukraine escalated sharply. The United States clearly stated that Russia would invade Ukraine as soon as next week. U.S. National Security Advisor Sullivan stated that if Russia “invades”, the United States is ready to respond decisively at any time, and the United States will continue to reduce its presence in Ukraine. The activities of the Ukrainian Embassy in Kiev suggest that any Americans in Ukraine should leave as soon as possible in the next 24-48 hours; the British Foreign, Commonwealth and Development Office stated that it currently advises British citizens not to travel to Ukraine, and the EU has begun to withdraw from Ukraine Non-essential workers.
There are various signs that direct friction and conflict between Russia and Ukraine, or even war, are becoming a high probability event, at least according to this logic of oil prices. On the last trading day last week, the stock market fell sharply, copper plummeted, and the VIX index, which measures market panic, hit its highest level this month. Affected by investors’ risk aversion, the U.S. ten-year Treasury bond yield once fell to 1.934%, giving up most of the previous day’s gains. However, oil prices became a contrarian and rose sharply, with Brent crude oil reaching a maximum of 96 US dollars/barrel, just a stone’s throw away from the US$100/barrel mark. Oil prices have risen sharply in recent months, and the difference between the crude oil forward curve and the monthly difference has risen sharply. It is obvious that investors are highly uneasy about the conflict between Russia and NATO, which has seriously affected global energy security.
The monthly reports of the three major institutions all revised upward their demand forecasts, boosting oil prices.
The IEA stated in its monthly report that it has raised its 2022 demand forecast by 800,000 barrels per day due to the revision of historical data. The IEA believes global oil demand will increase by 3.2 million barrels per day this year, reaching 100.6 million barrels per day. OPEC judged in its monthly report that it will maintain the forecast for global crude oil demand growth in 2022 at 4.2 million barrels per day, but also emphasized that as the economy rebounds, oil demand is expected to rise. The U.S. Energy Administration raised the growth rate of U.S. crude oil demand to 880,000 barrels per day.
Relative to strong demand expectations, the three major supply-side institutions all believe that the crude oil market will be oversupplied again in 2022. The IEA raised its forecast for U.S. oil supply growth in 2022 by 240,000 barrels per day to 1.2 million barrels per day. Non-OPEC+ oil-producing countries may increase supply by 2 million barrels per day in 2022. The EIA short-term energy outlook report also The growth rate of U.S. crude oil production in 2022 is raised to 770,000 barrels/day, and U.S. crude oil production is expected to be 11.97 million barrels/day in 2022, compared with the previous expectation of 11.80 million barrels/day. If OPEC+ completely withdraws its production cuts, OPEC will increase supply by 4.3 million barrels per day. Global oil output is expected to increase by 6.3 million barrels per day in 2022, and the crude oil market will once again experience oversupply.
However, the IEA also highlighted that OPEC+’s daily output in January was 900,000 barrels below target, and that in December last year’s daily output was 790,000 barrels below target. If the gap between OPEC+’s output and its target level continues to widen, supply Tensions will rise. If the oil-producing countries with idle production capacity in the Middle East fill the part of the country that will use up the idle production capacity, it is expected to reduce market risks, and the idle production capacity is expected to be almost entirely concentrated in Saudi Arabia, followed by the United Arab Emirates. The IEA judges that increasing production will sacrifice effective idle production capacity. At the cost, OPEC+’s effective spare capacity may drop from 5.1 million barrels per day to 2.5 million barrels per day by the end of this year.
In its short-term energy outlook, the U.S. Energy Agency judged that as oil production growth from OPEC+, the United States, and other non-OPEC countries exceeds global oil consumption growth, this dynamic will lead to increasing global oil inventories from the second quarter of 2022 to the end of 2023, with expected prices Downward pressure will emerge mid-year.
In terms of inventory, the latest EIA weekly report data showed that due to the cold weather, U.S. crude oil and refined products were fully destocked. As of the week of February 4, EIA crude oil inventory changes actually reported a decrease of 4.756 million barrels, and an expected increase of 1.5 million barrels. The previous value decreased by 1.047 million barrels. In addition, the U.S. EIA gasoline inventories actually reported a decrease of 1.644 million barrels for the week ending February 4, which was expected to increase by 1.5 million barrels, and the previous value increased 2.119 million barrels; the U.S. EIA refined oil inventories actually announced a decrease of 930,000 barrels for the week ending February 4. barrels, expected to decrease by 1.5 million barrels, compared with a decrease of 2.41 million barrels from the previous value. The EIA crude oil inventory decline in the United States in the week to February 4 was the largest since the week of September 10, 2021. The commercial crude oil inventory in the United States excluding strategic reserves in the week to February 4 was the largest since the week of October 5, 2018. The lowest, EIA gasoline inventories in the United States fell the most in the week to February 4, the largest decline since the week of October 22, 2021, the first decline in seven weeks.
It is worth noting that the incentive effect of high oil prices on the supply side is becoming more and more obvious. The number of oil rigs in the United States has increased by the most in four years, and shale oil exploration has accelerated. The number of oil rigs in U.S. basins has increased by the most in four years last week, indicating that crude oil The surge comes as shale oil drilling is booming again. Data released by Baker Hughes on Friday showed that the number of U.S. oil rigsThe number of units increased by 19 units per week, the largest increase since February 2018, and the total number reached 516 units. In fact, as early as the beginning of the month, U.S. independent producer ConocoPhillips warned of the risk of runaway growth in shale oil. CEO Ryan Lance said the lessons of past shale oil booms that triggered damaging price wars with OPEC countries were “right in the back of our minds.” His comments came after Exxon Mobil and Chevron announced plans to increase shale oil production in the U.S. West Texas and southeastern New Mexico by 25% and 10% respectively in 2022.
Geopolitical events have become the core engine driving up oil prices
In recent times, the main driving force for the rise in oil prices has been frequent geopolitical events. The rise in oil prices from the Spring Festival to the present can be attributed almost entirely to the rising tensions in Ukraine. The reason why the whole market is so concerned about the geopolitical conflict between Russia and Ukraine is mainly because of Russia’s involvement in the conflict. irreplaceable position in the energy market.
As we all know, many people blame the European natural gas crisis in 2021 on Russia’s insufficient gas supply to Europe. Russia is also one of the countries with the highest crude oil production in the world and the most important crude oil exporter, and has a decisive impact on the global crude oil market. Currently, global crude oil inventories are at a seven-year low, crude oil supply is tight, and market concerns are at a high level. Once the situation gets out of control, it may have a huge impact on the crude oil market and may cause dramatic changes that subvert the global structure. Judging from the current situation, the United States does not want to solve the problem for Ukraine, but has ulterior motives. The fermentation of geopolitical events between Russia and Ukraine will undoubtedly divert market attention in stages and will naturally ease inflationary pressure in the United States. If a war breaks out, the U.S. government will blame Russia’s “aggression” for popular dissatisfaction with the government’s control of inflation, which caused oil prices to spiral out of control.
Historically, geopolitical factors or wars in energy-producing countries usually lead to short-term increases in oil prices. However, the extent and time of the increase must be specifically analyzed based on the impact of geopolitical conflicts. Judging from the current research on the impact of geopolitical factors on oil prices, and Not every geopolitical conflict or war will trigger a sharp rise in oil prices. In fact, the geopolitical risk events that have occurred in the Middle East in the past 30 years have only had a short-term impact on oil prices. Since 1990, five wars including the Gulf War and the Iraq War have occurred. Half a year later, oil prices were almost always lower than before the war.
Of course, the impact of these conflicts is not comparable to this potential crisis. Prior to this, US President Biden said: “This is not like we are facing a terrorist organization. We are facing one of the most powerful militaries in the world. The current situation is extraordinary and the situation may soon change.” It will become crazy.” Biden said in an interview, “Once the United States and Russia exchange fire, it will be a world war.” This is likely to trigger a series of chain reactions, and perhaps this is why the market is excited about it . Will the oil price break through 100 US dollars/barrel or even go to 120 US dollars/barrel? We may become witnesses of history.
Recently, the net long position of crude oil funds has been declining. Excessively high oil prices have restricted the interest in capital allocation. The net long position of the Brent Crude Oil Fund has declined for four consecutive weeks. The net long position of the WTI Crude Oil Fund, which has a stronger speculative atmosphere, has also not increased. Continue to chase gains as oil prices rise. Obviously, compared with the target price of US$100/barrel brought about by speculations such as geopolitical factors, professional institutions are cautious, and the risk-benefit ratio of continuing to buy at the current position makes them prohibitive.
At present, even if geographical factors are not taken into account, the tight supply situation in the spot market in February will be difficult to alleviate, which will keep oil prices strong in the short term. In recent days, the data released by the three major institutions have all raised the demand growth. After experiencing the impact of the Omicron epidemic, the market’s confidence in the return of crude oil demand has been further strengthened, but what makes the market uncertain is how the crude oil supply side will ultimately perform in 2022. Geographical factors, Iranian sanctions, the pace of the Fed’s liquidity tightening, and the negative feedback of high oil prices on the market will all take time to give answers. Against the background of high oil prices, supply growth potential and macro-tightening measures to control inflation in European and American countries may put pressure on oil prices at any time. Investors must be cautious when choosing trading opportunities.
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