In terms of oil prices, news of the deterioration of the situation in Russia and Ukraine came before the oil price closed last Saturday. There were concerns about sanctions on Russian supplies. U.S. oil WTI quickly stood at 94 US dollars per barrel, and the intraday increase expanded from 2% to a maximum of 5.3%, hitting a daily high. It reached a high level on September 30, 2014. Brent oil rose above US$95/barrel for the first time in 2014, with a maximum increase of 4.6%. The daily high of US$95.65/barrel was the highest since 2014.
As of the close on the 12th, WTI March crude oil futures closed up 3.58%, up 0.9% for the whole week and rising for eight consecutive weeks. Brent crude oil futures for April closed up 3.31% at $94.44 per barrel, up 1.3% for the week.
From a fundamental perspective, can the current high price of crude oil near US$95/barrel be sustained?
Yangtze Futures analyst Wang Haozheng said that the current rise in oil prices was driven by intensified geopolitical risks and was also inseparable from the support of supply and demand. At present, the trend of super-seasonal destocking in the oil market has not been reversed, so high oil prices are expected to continue.
According to Wang Haozheng, demand is currently on a gradual rise in the post-epidemic period. Although the epidemic is still serious in Europe and the United States, some countries represented by the United Kingdom and France have gradually lifted anti-epidemic measures. The increase in economic activities and residents’ travel has pushed the consumption of refined oil to further increase, and the cracked price difference of refined oil has remained at a high year-on-year level. On the supply side, U.S. production growth is slow, and the world’s main remaining production capacity is concentrated in OPEC+. Because some member countries lack upstream investment and find it difficult to increase production, OPEC+’s overall production increase is slower than planned, causing global oil inventories to continue to decline.
Li Jie, a senior researcher in the energy and chemical industry of CCB Futures, told reporters that the current main operating logic of the crude oil market is the resonance of low inventory + supply disruption + geo-premium, and the short-term forecast is still relatively strong. With the support of demand recovery and OPEC+ control of supply, global inventories will continue to be reduced in 2021. IEA data shows that global oil product inventories will drop by as much as 1.66 million barrels per day in 2021, with a cumulative reduction of nearly 600 million barrels throughout the year, which has fallen to the level at the beginning of 2018. , among which OECD oil product inventories are well below the five-year average. On the supply side, some small and medium-sized OPEC+ oil-producing countries have insufficient upstream investment, making it difficult for crude oil production capacity to grow rapidly, and actual production continues to be lower than OPEC+’s production quota. As of December 21, the average monthly production difference reached 550,000 barrels per day, equivalent to approximately 130 million barrels, exacerbating the market’s tight supply. The situation between Russia and Ukraine is tense. Russia, as the world’s third largest oil producer, is worried that supply may be tight if the situation worsens further, which supports the market’s bullish sentiment.
How will the situation between Russia and Ukraine affect oil price trends? In addition to the situation between Russia and Ukraine, what other information should we pay attention to in the future?
Wang Haozheng believes that the biggest impact of the situation in Ukraine on oil prices is the possibility of European and American sanctions on the Russian oil and gas industry. Russia’s oil output accounts for more than 10% of the world’s oil production. If the industry is sanctioned, the current supply shortage will be exacerbated. At the same time, we also need to pay attention to the direction of the Iranian nuclear negotiations. According to recent speeches by the Russian envoy and a U.S. State Department official, it is speculated that if the Iranian nuclear negotiations are reached in February, they are expected to take effect in April, and Iranian supply is expected to rebound; if they cannot be reached in February, they may not be reached for a period of time. Currently, Iran’s crude oil production is 1.3 million barrels per day lower than the production before US sanctions. Recovery will greatly improve the shortage of supply in the oil market.
“The situation between Russia and Ukraine further escalated last Friday night, and international oil prices rose sharply. The progress of the situation still needs to be paid attention to, but we must be alert to the risk of a sharp correction in oil prices caused by the conflict not being as good as expected. After the oil price hit a new high during the Spring Festival, the negotiation process on the Iranian nuclear agreement has accelerated. There have been several positive signals in the market before. On February 5, there was news in the market that the U.S. government would lift some sanctions in order to return to the Iran nuclear agreement. The U.S. later denied it. On February 7, CCTV reported that the U.S. expressed the possibility of negotiating with Iran. The parties have reached an agreement on the Iranian nuclear negotiations, provided that the agreement must be reached as soon as possible in the next few weeks. Calculated based on current production, Iran has 1.3 million barrels of daily surplus production capacity. We believe that as oil prices continue to hit new highs, there is a risk that Iranian supply will accelerate its return to the market. It cannot be ignored that all parties may reach a temporary agreement to ease the tight supply situation,” Li Jie said.
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