Last night and this morning, crude oil rose sharply again!
Shortly after the U.S. stock market opened, WTI crude oil once stood at $93 per barrel, the first time since November 7 last year. Brent crude oil’s intraday gains expanded to 2.00%. Early this morning, WTI crude oil futures hit $94/barrel, up 3.99% during the day.
As of this morning’s close, WTI November futures closed up 3.64% at $93.68 per barrel. Brent November futures rose 2.75% to US$96.55 per barrel.
On the news, the weekly inventory report released by the U.S. Energy Information Administration (EIA) on Wednesday showed that U.S. crude oil inventories fell unexpectedly more than expected last week, and crude oil inventories in the Cushing area, the main delivery location, continued to decrease significantly.
Specifically, crude oil inventories decreased by 2.169 million barrels, with an expected decrease of 900,000 barrels. Crude oil inventories in Cushing, the main delivery place for WTI crude oil futures, decreased by 943,000 barrels, compared with the previous decrease of 2.064 million barrels. Crude oil inventories in Cushing have fallen in 12 of the past 13 weeks. The Strategic Crude Reserve (SPR) decreased by 250,000 barrels.
Financial blog Zerohedge commented that crude oil inventories in Cushing are about to hit bottom. For operational reasons, there will always be a need to store some oil in the Cushing area, much like the U.S. SPR Strategic Petroleum Reserve. U.S. crude oil production remains at cycle highs, close to pre-COVID-19 levels, but the number of rigs continues to decline.
In addition, according to CCTV News yesterday, on September 25, local time, a drone attack occurred in southern Saudi Arabia near the border with Yemen. Two Bahraini soldiers were killed in the multinational coalition fighting the Houthi rebels in Yemen. The Saudi Foreign Ministry issued a statement on the 26th condemning the attack, but did not criticize the Houthis by name.
The Bahrain military issued a statement on the evening of the 25th, accusing the Houthi armed forces of launching a drone attack in southern Saudi Arabia that day, which resulted in the death of two Bahraini soldiers. The Bahrain military participates in the Saudi-led multinational coalition against the Houthi armed forces. Multinational coalition spokesman Turki al-Malki said the Houthis also attacked a power distribution station and a police station in southern Saudi Arabia. Houthi armed spokesman Mohammed Abdul-Salam responded on the 26th that the multinational coalition killed 12 Houthi armed personnel in the border area between Yemen and Saudi Arabia last month.
Looking at the fundamentals of crude oil, according to Li Yunxu, an analyst at SDIC Essence Futures, on the demand side, this month’s IEA and EIA monthly reports reduced demand expectations for 2023 and 2024 by an average of 310,000 barrels/day and 430,000 barrels/day, respectively. Concerns about negative feedback from the demand side in oil prices have already been reflected. Looking at weekly data, EIA data shows that the U.S. refinery operating rate increased from 93.1% to 93.7% in a single week. Autumn maintenance began in September, and a seasonal decline in operating rate in the later period is still inevitable. U.S. gasoline inventories increased by 5.561 million barrels in a single week, and apparent gasoline demand dropped sharply to 8.307 million barrels per day. In addition to the subsidence of the seasonal peak season, U.S. gasoline demand performance in the past two months has been significantly weaker than expected, and the negative feedback from high prices may still be reflected. , the weekly gasoline crack spread continued to fall. In China, Longzhong data showed that China’s single-week refinery operating rate further increased from 74.47% to 75.23%, continuing to hit the highest level during the year. However, the increase in travel demand after the epidemic was fully released, and further upward space may be relatively limited in the future. IEA Month The report specifically pointed out that China’s oil demand growth rate will drop from 11% in 2023 to 4% in 2024, and the increase will mainly be contributed by chemical raw materials such as naphtha and LPG.
On the supply side, Saudi Arabia’s extension of additional production cuts until the end of the year is still the main line of current market transactions. Looking at weekly data, the previously announced U.S. production forecast continues to be raised by 100,000 barrels per day to 12.9 million barrels per day. Baker Hughes data also shows that the number of active oil and gas rigs in the United States has increased for two consecutive weeks. In this month’s monthly report, IEA, EIA, and OPEC still mainly raised their global non-OPEC supply expectations for 2023. The IEA specifically pointed out in this monthly report that from this year to August, OPEC+ is considering increasing Iran’s production by 600,000 barrels/barrel. Under the daily scenario, a total supply reduction of 2 million barrels per day was also achieved, but non-OPEC+ countries such as the United States increased production by as much as 1.9 million barrels per day.
Looking forward to the market outlook, Li Yunxu said that in terms of crude oil, the current focus of market transactions is still on Saudi Arabia extending its additional production cuts until the end of the year, and the supply shortage in the fourth quarter is relatively clear. On the other hand, forward demand expectations have been lowered under high oil prices, and the increase in production of non-OPEC+ supplier countries has accelerated, forming a negative feedback on fundamentals. It is expected that oil prices will gradually enter a period of high oscillation, and the monthly positive pattern will continue. In terms of fuel oil, the trend of cracking spreads has been weak this month. Overseas gasoline and diesel cracking spreads have peaked and fallen, which is conducive to the contraction of the high-low sulfur spread. However, the continued rise in oil prices has passively widened the high-low sulfur spread. Currently, the far-month high-low sulfur spread has returned to the high level of the oscillation range. It is expected that supply factors will still limit its rebound space. Pay attention to the pace of oil prices to stop rising, and the strategy is still to focus on rising and narrowing the low-sulfur price difference on rallies.
Chen Tong, an energy and chemical analyst at Yide Futures, believes that Russia’s previous relaxation of the export ban dispelled concerns about tightening supply of high-sulfur fuel. In addition, under the continued influence of the monsoon rainy season in Bangladesh, the high temperature in summer has weakened and the demand for power generation has decreased. In September, Bangladesh plans to reduce the use of high-sulfur fuel oil by one-third. The summer peak of power generation demand in the Middle East has ended, and it is expected that more high-sulfur resources will be exported to Singapore in the future. The high-sulfur fuel oil market continues to face a pattern of increasing supply and decreasing demand. It is expected that the premium from reduced supply from Russia will subside, and high-sulfur fuel oilThe cracking spread will undergo a new round of bottoming process. In terms of low sulfur, the arbitrage inflow of low-sulfur fuel oil from the Western Hemisphere will increase in early October. 135,400 tons of low-sulfur fuel oil from the Al-Zour refinery in Kuwait is scheduled to arrive in Singapore on October 6. However, the downstream terminal demand performance is mediocre, and the fundamental pressure on the low-sulfur fuel oil market is still obvious. The Russian government has said the measures to restrict diesel exports are temporary but has not set an end date for the ban. If the export restriction period exceeds the 2 to 4 weeks expected by the market, the strength of the diesel market will support the low-sulfur cracking spread, and investors are advised to pay close attention to the progress of the event.
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