Concerns about the new strain “Omicron” triggered panic selling in financial markets. U.S. crude oil futures plunged more than $10 per barrel on Friday, their biggest one-day drop since April 2020. New York crude oil fell below $70/barrel for the first time since the end of September, a drop of 13.04%, returning to 3 months ago overnight; Brent crude oil approached 70 yuan/barrel, a drop of 11.27%; the main Shanghai crude oil futures contract fell to its limit yesterday night. It fell 8.01% to 464.1 yuan/barrel.
Despite the widespread sell-off on Friday, market participants pointed to the shortened first trading day after Thanksgiving and thin trading, which magnified losses amid panic. A commodity investment hedge fund manager said: “On November 26, WTI crude oil futures fell sharply and rapidly, mainly during the European trading hours, because Europe is experiencing a new round of epidemics, which has led to European investment institutions’ concerns about new coronavirus variants. There is a higher level of panic, but this also creates specific dip-taking profit opportunities.”
“This kind of panic will not last long.” Jim Ming, general manager of Guolian Futures Research and Development Department, believes that once the sentiment turns stable, most institutional investors will support the continued rise of oil prices based on the fundamentals of crude oil supply shortage. Judging from historical rules, systemic risks cause the market to have a lasting and trend-oriented collapse, while the impact of emergencies on the market is difficult to change the existing trend. “It is recommended that investors should not panic this week, be calm when encountering problems, and just trade according to the plan, including risk control. The best strategy is to observe and wait for the market to stabilize.”
“In fact, the deterioration of crude oil fundamentals cannot be ignored. The United States, India, Japan, South Korea, and the United Kingdom collaborate to release strategic oil reserves. OPEC believes that if 66 million barrels of additional crude oil enter the market in these two months, in January next year The excess production in February and February will increase by 1.1 million barrels/day to 2.3 million barrels/day and 3.7 million barrels/day respectively. In its monthly report, OPEC predicted that crude oil demand will fall in the first quarter of next year. Therefore, the crude oil market will have excess supply and demand. .” Zheng Mengqi, an energy researcher at Hizheng Futures, told the Futures Daily reporter that under the impact of the “Omicron virus” mutant virus, concerns about declining crude oil demand have intensified. In addition, the Federal Reserve has reduced its bond purchases, and the market has strong expectations for an early interest rate hike. During the Thanksgiving holiday, market liquidity was poor and speculative buying left the market. Near the end of the year, domestic import demand declined, support weakened significantly, and oil prices fell sharply.
The current focus of the crude oil market is the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting on November 30. As oil prices continue to fall and the United States jointly sells reserves, OPEC+ may abandon its plan to increase production by 400,000 barrels per day in the first quarter of next year. According to the supply and demand balance calculated by OPEC+, if OPEC+ wants to maintain high oil prices, it does not rule out the possibility of increasing production cuts, similar to Saudi Arabia’s unilateral production cut of 1 million barrels per day from February to April this year. In addition, the “Omicron” mutant strain will also affect the Federal Reserve’s expectations for interest rate hikes, and the possibility of the dollar continuing to strengthen will decrease.
Zhong Meiyan, energy and chemical director of Everbright Futures, believes that there are two main focuses of the crude oil market in the near future: the joint release of strategic oil reserves by consumer countries and OPEC+’s response to this. On the one hand, the United States, India, and Japan will release 59.2 million barrels of oil reserves. The U.S. Department of Energy recently announced that the 32 million barrels of crude oil released from the Strategic Petroleum Reserve (SPR) will be delivered from January to April 2022, with early delivery accepted at the end of December. Notification of the release of up to 18 million barrels of the Strategic Petroleum Reserve SPR will be announced no earlier than December 17, 2021. Biden has repeatedly emphasized that the currently high energy prices will be reduced to ease domestic inflationary pressure. On the other hand, OPEC members plan to meet on December 1, and the OPEC+ meeting will be held on December 2. Against the background of the release of strategic oil reserves by consuming countries, the supply glut may intensify starting next year, leading to the possibility that OPEC+ will reduce crude oil supply at the January meeting. Assuming that OPEC+ lowers the production increase quota, the current panic market sentiment will be alleviated.
It is understood that U.S. net crude oil imports increased, commercial crude oil inventories increased slightly and refined oil inventories decreased. Data from the U.S. Energy Information Administration shows that as of the week of November 19, U.S. crude oil inventories were 434.02 million barrels, an increase of 1.02 million barrels from the previous week; U.S. gasoline inventories totaled 211.393 million barrels, a decrease of 600,000 barrels from the previous week; distillate oil storage Inventories were 121.717 million barrels, a decrease of 1.97 million barrels from the previous week. Crude oil inventories are 11.2% lower than the same period last year; about 7% lower than the same period in the past five years; gasoline inventories are 8.15% lower than the same period last year; about 6% lower than the same period in the past five years; distillate inventories are 14.66% lower than the same period last year, 14.66% lower than the same period last year. The same period over the past five years has been about 8% lower.
“The game from oil-producing countries to consuming countries will be affected by the epidemic, which will lead to market divergence and declining risk appetite when oil prices are at high levels. Oil prices face the risk of marginal weakening of the macro environment and attenuation of liquidity in the market outlook, and prices will The weak operation continues. In the short term, we need to pay attention to the extent of the spread of panic. It is expected that most energy products will follow the decline on Monday.” Zhong Meiyan said.
Zheng Mengqi believes that the current uncertainty is relatively high. Although the impact of this “Omicron virus” is relatively large, the actual harm of the mutant virus has not yet been determined.��Prevention and control capabilities have also improved significantly compared with last year. After oil prices fall to a platform, they will maintain a wide oscillation trend. However, due to the sharp decline in crude oil prices, the energy and chemical sector will follow suit and weaken due to the impact of cost. Among them, asphalt, fuel oil, and low-sulfur fuel oil, which are highly related to crude oil, are expected to decline relatively significantly.
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