Continuous major macro events last week impacted the financial market. The atmosphere in the crude oil market turned from the optimism of the previous week to hesitation, and the trend of crude oil prices was also relatively tangled. On Wednesday, the IEA report poured cold water on crude oil bulls. The IEA predicts that the crude oil market will be a year of surplus next year. With the growth of U.S. crude oil production and OPEC+ production, the demand side will be difficult to match the growth of supply. There is a high probability that the global crude oil market will Will enter a relaxed situation. The recent performance of Brent’s monthly spread can also reflect the pessimism of the physical market. Brent’s first monthly spread and the January-March spread are close to flat. The BACK structure has been flattened during the recent sharp drop in oil prices. If the excess situation predicted by the IEA comes true, then the monthly spread structure will completely change.
On Wednesday night, the Federal Reserve meeting affected global financial markets. Before the Federal Reserve meeting, global markets were “on tenterhooks.” The market expected that the Federal Reserve would continue to be hawkish with a high probability, which would have a considerable suppressive effect on global commodity prices. Therefore, even though the EIA inventory data was significantly bullish that night, oil prices performed very cautiously. However, after the Federal Reserve meeting, the market sentiment suddenly changed. The U.S. dollar index fell, and U.S. stocks and crude oil began to rise. The market actually went into a “carnival” after this risk event. After all, the interest rate hike expectations were only expectations. The liquidity that has been released is negligible, and the market is still trading inflation and the brief calm before the Federal Reserve officially raises interest rates.
Taken together, after various risk events temporarily subsided, the crude oil market also returned to a brief period of calm. In the next period of time, you need to be cautious whether you are long or short. As seasonal weakness still exists, the future market is likely to maintain a oscillating downward pattern.
Interest rate hike expectations strengthen, crude oil inventories decline
As for the Federal Reserve, the Fed’s latest policy statement abandoned the wording that inflation is “temporary.” Instead, the Fed admitted that price increases have exceeded the 2% target “for some time” and that its inflation target has been achieved, saying that it will be in March next year. It ended the coronavirus pandemic-era bond-buying program in March and doubled the pace of tapering to $30 billion per month, paving the way for three interest rate hikes before the end of 2022. Traders expect that due to the impact of the epidemic, the Federal Reserve will raise interest rates for the first time in May next year, which is two months later than the previously expected March. The market predicts that interest rates will need to be raised from the current near-zero level to 0.90% by the end of 2022. In 2023 and 2024, interest rates will reach 1.6% and 2.1% respectively, close to but never exceeding the level that the Federal Reserve considers to limit economic activity. level.
At the same time, Powell said at a press conference after the meeting that “the economy no longer needs increasing policy support and we are making rapid progress toward achieving full employment.” The scenario outlined by the Fed is a “soft landing” that policymakers hope to see, in which inflation gradually slows over the next few years and unemployment remains low while the economy grows.
Although the epidemic is still continuing and the Omicron mutant strain has increased the uncertainty of the economic process, Powell said that it is still unclear the impact of the Omicron mutant strain on inflation, economic growth or employment, but “one After waves of epidemics, people are learning to coexist with the virus.” The mainstream market interpretation believes that although the Fed’s hawkish attitude this time was full, Powell also expressed confidence in the U.S. economy, so the market did not see the big fluctuations expected by traders. Before the meeting, the U.S. dollar index rose, crude oil prices fell, and U.S. stocks After the meeting, the U.S. dollar index suddenly fell, crude oil prices rose, and U.S. stocks rose.
The EIA data before the Federal Reserve meeting was actually quite positive. Among them, U.S. crude oil inventories fell sharply by 4.58 million barrels, gasoline inventories fell by 710,000 barrels, refined oil inventories fell by 2.85 million barrels, and full-caliber inventories fell by 8 million barrels. This is better than API data. too much. However, after the release of such positive data, crude oil prices did not respond significantly, and the market was waiting for the final decision of the Federal Reserve meeting.
In addition, EIA data shows that demand for U.S. gasoline products reached a record 23.2 million barrels per day, crude oil exports increased by 1.375 million barrels per day, and U.S. Strategic Petroleum Reserve crude oil inventories fell to the lowest level since December 2002 in the past week. The recovery of gasoline demand and the increase in crude oil exports caused U.S. crude oil inventories to fall sharply last week. From a seasonal perspective, U.S. crude oil inventory levels have entered a seasonal decline stage at the end of the year, but this round of decline will not last long. From January to April next year, crude oil inventories will still enter a storage accumulation cycle.
The global epidemic and the Iranian nuclear issuecertainty
From the perspective of the global epidemic, the growth in the number of newly diagnosed people around the world seems to have entered a stable range. Based on the past two-month cycle, the current time has reached a high point in the number of new cases of the epidemic. The number of newly confirmed cases will gradually enter a downward trend. If extrapolated according to this theory, the disruption of the global epidemic may be coming to an end. However, the impact of the Omicron mutant strain is currently inconclusive. According to currently known information, the Omicron mutant strain spreads faster than the previous strain, so we need to beware of this new mutation. The virus strain suddenly spreads on a large scale, but the probability seems to be relatively low at present.
After experiencing the big crash at the end of November, the crude oil market’s immunity to the epidemic has further improved. If the epidemic really enters a downward channel, then the hype of the epidemic in the later period will come to an end, and the market focus will gradually shift to the Federal Reserve’s interest rate hikes and the Iranian nuclear issue. Agreements and demand come up seasonally.
Regarding the issue of the Federal Reserve raising interest rates, it is now certain that there will be three rate hikes next year. However, judging from the performance of the market on Wednesday, U.S. stocks and crude oil turned from falling to rising, and the U.S. dollar index turned from rising to falling. The market seems to be trading for a comprehensive recovery of the U.S. economy. The market also believes that the U.S. economy will have a “soft landing,” so it is optimistic about oil prices. The impact is not significant for the time being. But if the Fed really enters the channel of raising interest rates, it may be a different matter.
Regarding the Iran nuclear agreement, the latest news is that the Houthi armed forces in Yemen have once again come out to “make trouble.” According to CCTV News, on the evening of December 15, local time, the Houthi armed forces in Yemen launched five missiles into southern Saudi Arabia, accurately hitting the fighter jet tarmac at the King Khalid Military Base. Saudi Arabia denied this. On the evening of December 15, the multinational coalition led by Saudi Arabia issued a notice stating that it successfully intercepted two ballistic missiles coming from Yemen. The multinational coalition command said the coalition intercepted the missile on its way to the southern Saudi city of Abha.
Judging from the current information, the disputes in the Middle East seem to be intensifying. At a time when negotiations on the Iran nuclear agreement are confusing, any disturbance in the Middle East will cause excessive market tension. However, we believe that there will be no geopolitical events in the Middle East that are enough to cause oil prices to surge, so the market will most likely return to a rhythm dominated by fundamentals in the future.
Fundamentally, more and more institutions are beginning to believe that next year will be a year of surplus in the crude oil market. With the gradual increase in OPEC+ production and the increase in U.S. crude oil production, the global supply side is growing steadily. However, due to the continued epidemic Interference, the demand side does not grow linearly and steadily, so there is a possibility of oversupply. This month’s IEA report also holds this view. The IEA predicts that if OPEC+ continues to maintain the current production increase policy, there will be a surplus of 1.7 million barrels per day in the first quarter of next year and a surplus of 2 million barrels per day in the second quarter of next year. . Compared with this year’s increase of 1.5 million barrels per day, global oil supply will increase by 6.4 million barrels per day next year, and the market will enter a stage of oversupply. At the same time, the IEA also lowered its oil demand forecast for next year by 100,000 barrels per day.
Overall, after experiencing the sharp decline caused by the impact of the Omicron mutant strain at the end of November, it seems difficult for the crude oil market to experience such a negative impact again. There is no risk of a rapid rise or fall in oil prices. After this risk event gradually comes to light, the market will most likely return to calm. However, as the current seasonality is not strong, crude oil prices are expected to maintain weak oscillations, waiting for new market variables to emerge.
</p
