Yellen changed her tune!
After Yellen changed her tune, the main contract of WTI crude oil futures closed down 1.32% at US$69.96/barrel; the main contract of Brent crude oil futures closed down 1.02% at US$75.91/barrel. The main COMEX gold futures contract closed up 2.37% at $1,995.9 per ounce.
After oil prices break through and fall, how far can the rebound and recovery go?
Affected by the financial risks brought about by the banking crisis in Europe and the United States, the risk of global macroeconomic recession has increased, and panic over overseas systemic risks has spread to commodities. After last week’s sharp decline, the crude oil market gradually recovered its losses this week. As macro sentiment stabilizes, oil prices are in the process of repairing after excessive panic in the early macro sentiment. What worries the market is whether the foundation for crude oil’s rebound and recovery after breaking down is solid? What will the road to restoration look like? What puzzles the market is, in the game between macro and supply and demand, what impact will the macro level have on the crude oil market? Will OPEC+ production cuts continue?
The reporter learned that after the crises of Silicon Valley Bank and Credit Suisse last week, UBS acquired Credit Suisse for US$3.2 billion on Monday, and the impact of macro risk events has been gradually digested. The rebound in international oil prices in recent days is mainly due to the recovery of oversold conditions brought about by the release of macroeconomic sentiment.
In this regard, Zhang Zhengze, an analyst at the Guohai Liangshi Futures Research Institute, said that while the current round of oil prices broke through and fell, the near-term monthly difference was relatively resistant to falling, and the market was trading more macro-level bank credit risks that may trigger expectations of a U.S. economic recession. As market concerns about financial flows have cooled down, and the Federal Reserve has maintained its interest rate hike of 25bp, at least from the Federal Reserve level, it is believed that the current risks in the banking industry are relatively controllable, and oil prices have rebounded.
Oil prices took a sudden turn on Thursday, falling sharply from their highs. Market participants believe that the rebound for four consecutive trading days has released the need to repair oversold conditions. After closing the upper shadow line for two consecutive trading days, oil prices have insufficient energy to continue to rise.
For the current crude oil market, the game between the decline in demand in Europe and the United States and the improvement in demand brought about by China’s recovery is the main logic of its transactions.
“Affected by various factors such as financial risks in the European and American markets, interest rate hikes and tight liquidity, the future economic situation of the European market, led by Germany, is worrying. What follows is a contraction in economic activities, a decline in residents’ travel, and a decline in crude oil demand. Falling back. As China optimizes and adjusts its epidemic prevention and control measures, residents’ willingness to travel has increased significantly, and crude oil demand may have exceeded the level of 16 million barrels per day. This month, the three major institutions also raised their demand expectations for the Asian market.” Heng He Han, senior analyst of crude oil at Li Futures, said that from the current price difference level, it can also be found that with China’s liberalization, the increase in procurement and import of Asian crude oil markets has also led to the strengthening of Dubai’s monthly spread and the weakening of Brent-Dubai EFS. .
In addition, the fundamentals of downstream refined oil products will also provide certain support for crude oil. According to EIA data on Wednesday, we can see that crude oil storage was full, but gasoline was depleted by 6.39 million barrels, exceeding market expectations.
The reporter learned that this week’s EIA and API data showed that U.S. commercial crude oil inventories increased slightly, but refined oil products, including gasoline and refined oil, continued to be destocked significantly, which is bullish for the overall crude oil market.
“The current oil demand in the United States is still healthy. Although EIA data shows that U.S. crude oil commercial inventories have increased slightly, refined oil inventories have decreased significantly, resulting in an overall inventory decline. The total crude oil and refined oil inventories have decreased by 10.44 million barrels. The data performance is significantly better than The latest API data. The supply and demand aspects are building momentum for the recovery of oversold crude oil prices, and oil prices have also shown a continuous rebound trend.” Industry insiders said.
According to He Han, the current U.S. gasoline inventory has reached the lower edge of the five-year range. Coupled with the change in RVP rules in April, the high-octane components in the United States are generally tight and the peak season is expected to come. Gasoline cracking It will maintain a strong operation in the next two months, and the strength in the downstream will also prompt refineries to increase their operating rates to a certain extent, which will support crude oil.
From a macro policy perspective, the Federal Reserve raised interest rates by 25BP as scheduled, and the market interpreted the interest rate hike cycle as coming to an end.
“Maintaining the operation of raising interest rates by 25BP, at least from the Federal Reserve level, it believes that the current risks in the banking industry are relatively controllable. The logic of macro expectations that has recently led to an accelerated decline in oil prices will be difficult to sustain in the short term, and there is a need for oil prices to rebound and repair.” Zhang Zhengze said, but it will Later, Powell’s speech was hawkish, saying that inflation expectations are still set at 2%, and raising interest rates to combat inflation is still the consensus and top priority. This has caused risk assets to fall back after rising, and will limit the height of the rebound in oil prices. “Once oil prices continue to rebound and the market again trades the logic of raising interest rates to curb inflation, crude oil that belongs to the post-economic cycle will be the first choice for short selling, and the macro pressure on oil prices will further intensify.” Zhang Zhengze believes that the degree of recovery of the oil price rebound and Continuity may be limited.
According to Yang An, head of energy and chemicals at Haitong Futures, oil price fluctuations are still highly repetitive. Continuous rebounds have released oversold repair conditions. Subsequent oil prices will still fluctuate under the combined influence of the supply and demand level and the macro level. “Because oil prices have reachedDuring the decline, it will still be very difficult for oil prices to reverse the weak trend until the demand side continues to inject confidence into the market. “He said.
Similarly, An Ran, senior analyst at Huaan Futures, also believes that the international oil market will remain weak. The market’s bullish view on oil prices is mainly supported by the strong recovery of Chinese demand, but recovery expectations are currently overdrawn, and domestic refined oil prices have fallen into a downturn. “Currently, it is the off-season for seasonal demand for crude oil. The intensive maintenance of refineries is about to start, and the demand for refineries will decrease. In addition, there have been too many risk events in the U.S. banking industry recently, and the market has a strong risk aversion, which is not conducive to the trend of risk assets.” Enron said .
What will OPEC+ do next?
During the interview, the reporter learned that currently, concerns about banking system risks are still plaguing the market, and the risks have not been completely eliminated. Short-term international oil prices will still be in a game between macroeconomics and supply and demand. In addition to macroeconomic changes, the market’s biggest doubts are concentrated on Adjustments to the OPEC+ production reduction agreement.
It is understood that in October last year, OPEC+, formed by OPEC and allies led by Russia, agreed to significantly reduce production by 2 million barrels per day from November 2022 to the end of 2023. Russian Deputy Prime Minister Novak said on Tuesday that Russia will continue to reduce oil production by 500,000 barrels per day until the end of June.
OPEC+ will hold an online meeting of the Ministerial Committee, including Russia and Saudi Arabia, on April 3, followed by a ministerial plenary meeting in Vienna on June 4. After the recent plunge in oil prices, will OPEC+ take the next step?
“Russia this week stated that it is now close to its commitment to reduce production by 500,000 barrels per day. It will achieve the post-production level in the next few days and maintain this production level until the end of June; OPEC also continues to emphasize that it will adhere to its production reduction of 200 barrels per day. The agreement of 10,000 barrels per day until the end of this year has given some support to the global crude oil supply side.” Du Bingqin, an analyst at Everbright Futures, said that OPEC+ representatives recently stated that the drop in oil prices to a low of more than a year was due to the banking crisis. The risk impact is not due to the imbalance between supply and demand, so it is expected that the OPEC+ meeting in April will maintain the current production reduction baseline.
In Enron’s view, the key point that will affect international oil prices in the future is the supply side. The OPEC+ meeting in early April is of great significance. On the one hand, Iran and Saudi Arabia have resumed diplomatic relations, and the market will reprice geopolitical risks in the Middle East; on the other hand, after the international oil price plummeted, the news that Russia unilaterally cut production by 500,000 barrels per day did not boost the rise in oil prices. Representatives of oil-producing countries It said that the recent decline in oil prices is related to speculation in the financial market and has nothing to do with market fundamentals. “At present, the market tends to believe that OPEC+ will continue to maintain the production reduction agreement until the end of the year. It is recommended to pay attention to the production reduction statements of other OPEC members.” An Ran said.
“Whether OPEC+ will take the next step mainly depends on the absolute price level of crude oil.” Zhang Zhengze believes that under the background that Brent has not yet fallen below 70 US dollars per barrel, due to the dividends of last year’s high oil prices, major oil companies in the Middle East such as Saudi Arabia The fiscal break-even price of oil-producing countries has moved downwards, and further production cuts are unlikely. “But if demand weakens further and oil prices drop to around $65/barrel, or even lower, and in the context of U.S. shale oil still finding it difficult to increase production significantly, OPEC+ will have more momentum to support production cuts. “He said.
“From the perspective of OPEC+, this wave of crude oil price declines is mainly driven by market worries and panic caused by the financial crisis in the European and American banking systems. The fundamentals of crude oil have not changed much during this round of market conditions. “He Han believes that under such circumstances, OPEC+’s changes to the production reduction agreement will not have a significant impact on the focus of crude oil prices.
Affected by the end of crude oil, the price of aromatic chemicals will continue to be better than that of olefins. “On the one hand, the olefins system is facing continued pressure to expand production capacity. Due to the relatively concentrated upstream production capacity of the aromatics system, supply has tightened under the influence of poor profits, which has a significant boost to product prices; on the other hand, the demand for oil adjustment has been shared. There is pressure on the upstream raw material side, the domestic market prices of toluene and xylene are relatively strong, and there is certain cost support.” An Ran said.
At present, the elasticity of the supply side is low, and the main contradiction in the later trend is still the change of the demand side. As interest rates rise or remain high for a longer period of time, the actual demand for overseas refined oil products weakens, which leads to a weakening of crack spreads. The decline in refinery profits will in turn lead to a decline in refinery operating rates, which in turn drives the crude oil price Weaker demand weighed on oil prices. However, if the oil price gradually drops to the fiscal breakeven price of OPEC+ major oil-producing countries, the elasticity of the supply side will increase again, and the market will most likely see OPEC+ production cuts to support the bottom line.
“The conflict point in the global crude oil market still lies on the demand side. Major overseas institutions have previously raised their global oil demand forecasts to varying degrees, mainly due to optimistic expectations for China’s economic recovery. However, due to the weak overseas economy dragging down oil demand, the recent OPEC’s March monthly report did not make any adjustments to the growth rate of global crude oil demand this year. The IEA monthly report adjusted the growth rate of global oil demand from 2.3 million barrels/day in 2022 to 2 million barrels/day.” In Du Bingqin’s view In the future, the speed and degree of recovery of overall demand in the crude oil market remains to be seen.
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