In the month of November that just ended, my country’s crude oil demand declined due to the impact of the epidemic. SC crude oil experienced the largest monthly decline in two and a half years, leading global oil prices to fall significantly. After the decline in November, the global crude oil market is turning to a bear market structure. After SC and WTI crude oil began to show discounts at the end of November, the front-month contract of Brent crude oil also began to show discounts on December 2. Obviously, The continued weakening of the monthly spread structure of the world’s major crude oil futures markets means that investors have a pessimistic outlook for the crude oil market.
Against the background of the U.S. dollar rising and falling, and gold, silver, copper and other commodities generally rebounding, oil prices still fell on Friday night, showing that the current market confidence is still insufficient, which seems to remind OPEC that it must be at the meeting on December 4 Make decisions that can boost market confidence, otherwise oil prices will continue to fall.
Investors slash net long positions in crude oil
The response of funds to this is particularly obvious. In the past three weeks, speculators have continued to significantly reduce their net long positions in crude oil, especially the net long position in Brent crude oil, which has dropped sharply from 230,000 lots to 99,000 lots, a drop of up to 55%. A new low in the past two years. Substantial adjustments to positions in the short term are usually caused by extreme or unexpected sudden changes. Obviously, during the decline in oil prices in November, investors’ expectations for the future of oil prices have undergone a huge change, from early optimistic expectations on the supply side to realistic demand. The weakness formed a strong contrast. Market confidence was hit and the flight of long positions further impacted oil prices. This amplified the panic in the market and pushed oil prices to plummet.
The rebound process after oversold in the past few days shows that funds are still cautious, and the lack of confidence has become a major test for the current oil price. Although the weak demand side is the main reason for the sharp drop in oil prices, demand recovery requires a process, and the recovery of market confidence requires more efforts from the supply side. OPEC+ has made an effort to reduce production by 2 million barrels per day in the early stage, but now it seems that this is not enough. , it is clear that the market needs more additional stimulus, and the market will provide the answer in the next few days.
Weak demand limits oil price performance
Changes in supply and demand in the crude oil market in November left many investors scrambling, as can be seen from the significant changes in speculative net long positions in Brent and WTI crude oil. At the beginning of November, the market logic was still focused on supply-side tensions, and the market was relatively optimistic about oil price expectations, because with the subsequent OPEC+ 2 million barrels/day production cut, the subsequent launch of US strategic crude oil coming to an end, and the imminent entry into the implementation phase of Russian oil sanctions, The crude oil market will return to supply shortages from continued accumulation of storage, which has also attracted speculative bulls to continue to accumulate long positions. According to data tracking from three parties, OPEC+ crude oil production dropped by nearly 1 million barrels per day in November from the previous month. Saudi Arabia took the lead in reducing production by nearly 470,000 barrels per day. Iraq and Kuwait also took actual production reduction actions. The overall production reduction was well implemented. It can be seen that OPEC Trying to keep oil prices up. It can be seen from EIA’s weekly data tracking that the overall inventory of the U.S. oil product market is currently at a multi-year low, and the overall inventory of oil has declined overall, especially the decline in crude oil inventories has exceeded expectations.
However, as time goes by, there are still unexpected changes in the market, and the demand side once again shows lower performance than market expectations. More and more data show that the demand in the oil market is weak, and the demand from the two major crude oil consuming countries of the United States and China is low. In line with market expectations, weak demand has led to accumulation of refined oil inventories. U.S. gasoline and diesel consumption data show that refined oil consumption has been at multi-year lows for several consecutive weeks, and gasoline and diesel inventories have become even more obvious. China has ushered in the second wave of the epidemic this year, which has suppressed demand. Although it has increased exports, data from tripartite agencies show that China exported 2.38 million tons of diesel in November, which was the highest level in 19 months and higher than 10 The 1.06 million tons in March increased by 125%, but high-frequency data still confirmed that the Chinese market’s refined oil inventory is very obvious, and domestic demand has declined significantly. Such changes obviously did not occur to many investors and institutions who were optimistic about the market. The supply side did not experience the expected tension, and the weak demand side severely dampened market confidence. Consumers, including China, slowed down their purchasing pace. This made it difficult to find buyers in the spot market for a while. During this period, there were new concerns, including OPEC, which may consider The false news of increased production and the impact of the European Union on the excessively high price limit of Russian crude oil caused market confidence to continue to be eroded. Finally, there was a large flight of funds in late November. The net long position of Brent crude oil fell by nearly 40% in 2 weeks. Net long orders were reduced by nearly 100,000.
Next, the market will continue to pay close attention to whether there are positive changes on both sides of supply and demand. The first is the demand level. China has begun to re-optimize prevention and control measures. Key cities have emphasized the further optimization of public transportation management measures and logistics measures to ensure smooth flow. Next, they are waiting for the turning point of the epidemic to appear. The recovery of China’s demand is especially important for the crude oil market. The key is that this possibility is increasing and the market has high expectations for it. The second is the OPEC+ meeting on December 4 and the G7 ban on Russian oil on December 5. The EU’s price limit measures for Russian oil are also advancing. At present, it seems that the OPEC+ meeting will most likely continue the previous agreement and maintain 2 million barrels/barrel. Japan’s production reduction plan, if additional production reductions are considered, it will undoubtedly be a shot in the arm for oil prices. From the current market rumorsJudging from the latest information, OPEC+ may maintain a flexible decision, closely observe the actual impact of Western countries’ ban on Russia on the market, and introduce measures to stabilize the market at any time. In addition, regarding Russian price limits, Poland also agreed with the EU to lower the upper limit of Russian oil prices to US$60/barrel, which means that the price limit agreement has been reached and the written process will follow. Poland said that the EU Unification Agreement will be officially announced on Sunday. After this news, oil prices fell by US$1.5/barrel. At present, Russia has expressed a tough stance on this, saying that it will not sell crude oil to any country or company that signs a price ceiling agreement. Whatever the price ceiling is, it will have a certain impact on Russian crude oil supply. Weak demand has suppressed the performance of oil prices, which has led to a lack of market confidence. The supply and demand aspects of the crude oil market are expected to remain tight.
The crude oil market is weakening as a whole and gradually entering a bear market. Brent crude oil has dropped to a minimum of around US$80 per barrel, and market confidence has fallen to the lowest level this year. December is very critical for the crude oil market. The subsequent development of the epidemic in China and the optimization of prevention and control measures will have an impact on oil demand. Whether OPEC+ can continue to strongly maintain the stability of the oil market is the core factor that determines the recovery of market confidence.
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