Recently, in the atmosphere of tense relations between Russia and NATO, concerns about geopolitical risks have resurfaced, pushing oil prices up sharply. International oil prices have continued to rebound, almost recovering all the losses caused by the “Omicron” variant in late November.
Late last night, the U.S. Energy Information Administration (EIA) released data late at night showing that commercial crude oil inventories excluding strategic reserves fell by 3.576 million barrels to 420 million barrels, a decrease of 0.8%. U.S. Strategic Petroleum Reserve (SPR) inventories fell last week to their lowest level since November 2002. U.S. crude oil production rose last week to its highest level since May 2020.
After the data was released, Brent crude oil futures stood above $80 per barrel for the first time in more than a month, rising 1.6% on the day. WTI crude oil rose in the short term, standing above $77/barrel, up 1.30% during the day.
Financial blog Zero Hedge commented on this that after the release of the API crude oil report, crude oil prices rose to nearly a one-month high. The market is now betting that the Omicron variant will not undermine strong global demand. The EIA report also confirmed a significant decline in crude oil inventories, despite Cushing crude oil inventories rising for seven consecutive weeks. As vaccines are rolled out and global consumption recovers from the epidemic, crude oil prices are heading for their biggest annual gain in more than a decade.
As of morning’s close, WTI February crude oil futures closed up 0.76% at $76.56 per barrel. Brent crude oil futures for February closed up 0.37% at $79.23 per barrel. Both oil prices hit one-month highs.
Li Jie, a senior researcher in the energy and chemical industry of CCB Futures, analyzed the recent continued rebound in oil prices: First, preliminary research results on “Omicron” have been released by various countries, including the United States, the United Kingdom, South Africa and Scotland. Both indicate that Omicron is less likely to cause severe illness and hospitalization than the Delta variant. U.S. President Biden has previously stated that he is considering lifting the relevant travel ban, and this week more countries have followed suit. Market concerns about the worsening of the epidemic have subsided, and demand for jet fuel is expected to recover, supporting a rebound in oil prices. The situation in Libya has become turbulent again recently, and crude oil exports from two domestic ports have been declared to be affected by force majeure.
Secondly, the largest oilfield Sharara shut down production, which has caused 350,000 barrels of daily production to be offline. In 2020, due to the war, Libya’s crude oil production dropped from 1.1 million barrels per day to about 100,000 barrels per day. According to previous OPEC data, small and medium-sized oil-producing countries, including Nigeria and Angola, have also experienced crude oil production below OPEC quotas for a long time due to declining domestic capital expenditures and lack of maintenance of oil production facilities, which has largely offset the increase in production of other OPEC countries. Thanks to our efforts, market supply and demand have improved.
In addition, the negotiations on the Iran nuclear agreement are progressing slowly and have not yet achieved substantial progress. The eighth round of negotiations was restarted on the 27th. Market news said that the European Union, Iran, China, Russia and other parties evaluated the results of the seventh round of negotiations positively, while the United States, the United Kingdom, France, Germany and other parties showed frustration and pessimism. There was a large gap in expectations among the negotiating parties. Iran and the West still refuse to give in to each other on the issue of lifting sanctions and dismantling nuclear facilities, while the United States has increased sanctions on Iran while negotiating.
Zheng Mengqi, an energy researcher at Hizheng Futures, believes that under the current high oil prices, negative factors cannot be ignored.
“The supply side continues to grow, and demand growth slows down. The global crude oil market is changing from a tight balance of supply and demand to a loose balance, and the fundamentals of crude oil are weakening. Moreover, negotiations on the Iran nuclear agreement are still progressing. It is not ruled out that the United States will respond to high oil prices. Accelerate the negotiation process with Iran and increase market expectations for Iranian crude oil to return to the market.” Zheng Mengqi believes that this round of oil price increases is due to the decline in market liquidity around the holidays, the surge in European natural gas and electricity prices, and geopolitical risks. Rising, bulls are gaining momentum. However, the current crude oil price has risen to a relatively high level, and the risks are relatively high. Under low liquidity, once the bad news is released, the oil price will fall sharply.
“Whether it is the geopolitical risks speculated by bulls or the mild symptoms of Omicron, the market is taking a wait-and-see attitude, waiting for the deterministic results to come to fruition. Compared with the negative factors, the negative factors are more based on deterministic data , such as the rise in new confirmed cases and weak demand for jet fuel. Overall, the breakthrough increase in crude oil prices still needs to be driven by other substantial positive factors. Low inventories provide support below oil prices, and crude oil prices still mainly operate in oscillations. “Zheng Mengqi said.
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