Recently, the emergence of the new coronavirus mutant strain “Omicron” has caused a familiar scene in the financial market – crude oil plummeted. Looking back at the many global financial market fluctuations in history, crude oil was always the first to collapse, and then spread to other assets.
Analysts said that global financial market fluctuations, especially financial crises, usually lead to a sharp drop in commodity prices. Crude oil, as a representative product on the consumer side, is more responsive and has a more obvious decline. However, compared with the previous round of financial market fluctuations, crude oil has a more sensitive response and a more obvious decline. , the macro background of this round of oil price decline has changed.
Oil prices plummet
Since last Friday, international oil prices and most major global stock indexes have fallen sharply. Careful investors compared the financial market conditions after the emergence of the “Omicron” strain with the emergence of the new coronavirus pneumonia epidemic in early 2020 and found that metal assets have withstood the test this time and the price was not significantly affected, while crude oil Then it collapsed again.
Wenhua Finance data shows that since November 26, the main contract of U.S. crude oil futures has fallen by about 15%. At the same time, some important financial market indicators such as U.S. stocks, VIX index, U.S. bond yields, and U.S. dollar index have experienced changes.
Industry insiders said that global financial market fluctuations, especially financial crises, usually lead to a sharp drop in commodity prices. As a major energy commodity, crude oil demand will be directly affected once the economy weakens and output is blocked.
“From an event-driven perspective, when news of this new variant of the epidemic spread, due to the uncertainty of the new variant, investors compared it with the first outbreak of the epidemic in early 2020, which caused psychological panic and led to risky assets. For example, the stock market and commodities have fallen sharply.” Yuan Tao, chief economist of Melya Futures, told a reporter from China Securities Journal that the epidemic directly hits the consumer side of the real industry, and crude oil is directly affected; while the stock market belongs to the investment side. affected indirectly.
Li Yansen, a macroeconomic researcher at the Founder Medium-Term Futures Research Institute, told a reporter from China Securities Journal: “The fluctuations in the prices of major asset classes also reflect changes in short-term market risk aversion. The plunge in crude oil may reflect more of the market’s response to new mutant strains of the virus, the U.S. Be wary of risk factors such as strategic oil reserves. In this sense, the plunge in crude oil prices is indeed one of the warning indicators for financial markets.”
Obvious characteristics of leading the decline
Looking back at the financial market fluctuations caused by the last round of the COVID-19 epidemic, oil prices led the decline with obvious characteristics. Wenhua Finance data shows that under the trend of first falling and then rising in 2020, the domestic commodity price index still gained 12.11% last year, while the oil futures sector fell by 21.16% during the same period; the main U.S. crude oil futures contract during the same period The decrease was 20.90%.
“From a long-term perspective, in the face of financial market fluctuations, especially financial crises, in most cases the price decline of different types of commodities is basically the same, but crude oil is often the commodity type with the largest decline, even during the 2020 epidemic. There is an extreme situation where futures prices are negative.” Li Yansen explained to a reporter from the China Securities Journal that this is mainly because the upstream supply of crude oil is relatively more rigid under the oligopoly and does not respond promptly to economic shifts and weakening demand, and the crude oil market has With stronger financial attributes, a sharp drop in oil prices can easily cause sudden changes in market sentiment, resulting in results similar to a “short stampede”.
Li Yansen said: “After all, we have experienced nearly two years of fighting the epidemic, countries have certain response experience, and the existing vaccines can also play a certain role. Therefore, the impact of the mutated virus strain on the financial market is more structural, such as the impact on the short-term economy. The pessimistic expectations led to an increase in the decline in oil prices, but metal prices generally did not fluctuate much.”
In addition, from the perspective of investment games, Yuan Tao believes that the combination of loose liquidity and economic stabilization and recovery has led to relatively large cumulative increases in European and American stock markets and commodity prices since this year. Under pressure from high inflation, the Federal Reserve may be forced to end its easy monetary policy next year. Multiple factors have led to short-term profit-taking by crude oil bulls.
Monetary policy outlook remains variable
Comparing the performance during the initial outbreak of the COVID-19 epidemic in 2020, after the news of the new strain “Omicron” appeared, the macro background of the sharp drop in oil prices has changed.
“Although for short-term investors, these two oil price drops are relatively similar, from a macro cycle perspective, when the epidemic first broke out in early 2020, it was in the early stages of a long-term economic downturn; and the current period after the resumption of production and work Small cycle decline stage.” Yuan Tao analyzed.
Li Yansen said that the global economy is currently under growth pressure as at the beginning of 2020. The logic and performance of the later impact of the epidemic may be similar, that is, it will accelerate the process of the global economy rising and falling. “If the impact of the epidemic on the economy is greater than expected, major economies, especially the United States, will tightenThe pace of monetary policy will slow. “Li Yansen said.
OPEC’s production increase plan leaves a “back door”, Brent oil price rebounded from daily low to nearly 5 US dollars above 70 mark
U.S. oil rose $1.8, or 2.75%, in late trading on Thursday (December 2) to close at $67.37 per barrel. The benchmark crude contract fluctuated in a wide range of $5 after OPEC+ unexpectedly stuck to its plan to slowly increase production. Crude oil futures were back on track by the close, but uncertainty surrounding the Omicron variant, efforts by governments to contain new waves of infections, and expectations for increased supply kept traders on their toes.
OPEC+ agreed to move forward with plans to increase output in January and signaled they could revisit output decisions at any time once the risk the omicron strain poses to demand becomes clearer. OPEC+ agreed on Thursday to add 400,000 barrels per day of crude oil to global markets in January as planned, several unnamed representatives said. However, they also left a “back door”, that is, if the market changes, they can temporarily adjust the output policy. The draft communiqué shows that “it is still in session and we will continue to monitor the market closely and make immediate adjustments if necessary to observe the further development of the epidemic.”
The White House said on Thursday it welcomed the decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to gradually increase oil production, but added that the United States had no plans to reconsider its decision to release crude oil reserves. Biden administration officials have been publicly pressuring OPEC+ members for weeks to increase oil production to help lower U.S. energy prices. Concerns about inflation have become a political issue for Biden.
White House Press Secretary Psaki said: “We appreciate the close coordination in recent weeks with our partners Saudi Arabia, the United Arab Emirates and other OPEC+ producers to help combat price pressures. We welcome today’s decision and follow our recent coordinated release of While maintaining the Strategic Petroleum Reserve, we continue to increase crude oil production by 400,000 barrels per day.” Asked whether Washington would reconsider its decision to release reserves, Psaki made clear: “We have no plans to reconsider.”
Goldman Sachs analysts said Thursday’s decision by OPEC+ to increase production as planned will not undermine the ongoing structural bull market and oil prices are still expected to rise. The bank believes there are “very clear upside risks” to its forecast for Brent crude to average $85 a barrel in 2023. U.S. shale oil producers will remain cautious on spending plans for 2022 due to the recent fall in oil prices. As shale oil production growth slows, OPEC’s spare production capacity will decrease faster than if the organization decided to suspend production increases. That will be especially true if there is no deal to allow more Iranian oil to enter the market next year.
Analysts also noted that the recent decline in oil prices over concerns that omicron variants would hurt demand has been overdone, and that current price levels offer “attractive opportunities” for reinvestment. In the short term, the market will need more information about the toxicity of the latest variant for oil prices to begin to rebound; and may need more evidence of tightness in the physical market to push oil prices above $80.
JP Morgan Global Equity Research said that due to a gap in OPEC+ production caused by production capacity, oil prices are expected to exceed US$125 per barrel next year and exceed US$150 in 2023. As the actual production potential of OPEC+ is discovered, it should push up the risk premium on oil prices. OPEC+ will slow the pace of promised production increases in early 2022 and believes that the group is unlikely to increase supply unless oil prices are well supported. The bank predicts that global oil demand will reach 99.8 million-101.5 million barrels per day in 2022-23.
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