At the turn of 2022 and 2023, Andurand, the founder of the well-known crude oil hedge fund, expressed his latest views on crude oil. He adheres to his consistent bullish stance, but the current crude oil market trend is somewhat different from Andurand’s prediction. International Oil prices are fluctuating sideways and showing an overall downward trend. What are the opportunities for crude oil next?
Figure 1: International crude oil trends
Türkiye earthquake has limited impact on oil prices
The market has been hotly discussing the earthquake in Turkey recently. It should be noted here that Turkey is not a major crude oil producer, nor is it the center of international crude oil trade. Therefore, the impact of the earthquake on the supply of international crude oil market is relatively limited.
Because Turkey is located at the intersection of Eurasia, the export ports of important oil-producing countries such as Saudi Arabia and Iran are also in its surrounding areas. But now, the earthquake in Turkey has little impact on the route from the Persian Gulf to Western Europe, so we There is reason to believe that the impact of the Turkish earthquake on crude oil transportation will also be very limited.
In addition, Turkey is an important crude oil consumer but not a major crude oil producer. Turkey’s crude oil imports mainly come from countries such as Iraq, Russia and Iran. Among them, Iraq is Turkey’s largest crude oil supplier, accounting for about 30% of Turkey’s crude oil imports. In addition, Turkey also imports crude oil from countries such as Azerbaijan, Libya and Nigeria. Since Turkey’s consumption volume is small, it is difficult to have a large impact on the entire crude oil consumption market.
We believe that although natural disasters, geopolitical risks and other factors around the world may have an impact on crude oil prices, the earthquake in Turkey will have a smaller impact on crude oil prices. Currently, the international crude oil market is oversupplied, and prices are subject to large fluctuations due to the impact of the epidemic and economic recovery. Considering that we are currently in the off-season for crude oil demand, and none of the traditional “big” consumers of crude oil have much demand for crude oil, it is difficult for the earthquake in Turkey to have an effective impact on the crude oil market. The earthquake in Turkey may cause some market sentiment fluctuations, but overall it will have a relatively small impact on the international crude oil market.
The United States has a strong will to lower oil prices
In fact, in addition to the United States, Russia and OPEC have reduced crude oil production. Among OPEC countries, the most significant reduction in production recently is Iraq. Data shows that Iraq’s crude oil production fell by 100,000 barrels/day month-on-month to 4.33 million barrels/day. On the same day, it was far below the monthly production quota stipulated in the OPEC+ production reduction agreement. Coupled with Russia’s plan to reduce crude oil production in March by 500,000 barrels per day, global crude oil supply is shrinking.
UAE Energy Minister Mazrouei said on Monday that the oil market is currently stable and he believes there is no need to convene an OPEC+ oil-producing group meeting in advance. According to Refinitiv data, Russia’s fuel exports fell by about 10% from February 1 to 12 due to the embargo, tanker shortages and bad weather. Russia plans to sell more than 80% of its oil exports and 75% of its petroleum product exports to “friendly” countries in 2023.
With the development of shale oil extraction technology, the United States has become one of the world’s largest crude oil producers. The growth of its production has had an important impact on global crude oil supply. However, the shale oil revolution has also created a lot of excess production capacity in the United States. In 2020, against the background of shrinking global demand, the United States shut down some shale oil wells. In the context of the Russia-Ukraine conflict and production reductions by oil-producing countries in 2022, U.S. shale oil cannot provide sufficient production capacity.
Now that the market has returned to calm, the need to increase the number of oil wells has decreased, and the White House plans to sell an additional 26 million barrels of crude oil from the Strategic Petroleum Reserve. We believe that this move is mainly to curb domestic inflation in the United States. Data show that in January, the U.S. CPI was 6.4% year-on-year and the core CPI was 5.6% year-on-year. It has dropped significantly compared with the past few months, but it is still at a relatively high level compared with before the epidemic, and the ceiling for interest rate hikes is close. By lowering oil prices, It is increasingly urgent to reduce inflation.
Figure 2: U.S. CPI year-on-year
Domestic demand is worth looking forward to
As travel in various countries gradually normalizes, market demand for oil and petroleum products is gradually recovering. In terms of demand, the United States, China and Europe are the main crude oil consumers. China is one of the world’s largest crude oil importers and consumers. Crude oil consumption The crude oil consumption accounts for a large proportion globally. We believe that the main increase in global crude oil consumption comes from China.
Authoritative departments predict that China’s crude oil consumption is expected to continue to grow in the future. On the one hand, as China’s economy develops, the demand for energy in industry and transportation will continue to increase. On the other hand, China is promoting the development of clean energy, but this requires a long transformation period, during which fossil energy will continue to account for a large proportion. This is an indisputable fact. During the transformation process,Crude oil consumption still cannot be underestimated.
Overall, crude oil has many benefits worth looking forward to, but it is still in a volatile range in the short term. Investors can pay attention to the opportunities of selling high and buying low in WTI crude oil futures (CL).
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