Recently, WTI crude oil has fluctuated widely around US$90. Domestic refined oil products have experienced “four consecutive declines”. OPEC+ has been very restrained in increasing production. The economies of developed countries in the United States and Europe are weak. The market is increasingly worried about the global economic recession and slowdown in energy demand. , casting a shadow over oil prices.
The pointing effect of EIA is weakened
EIA crude oil inventories announced overnight increased by 5.458 million barrels in the week of August 5, but EIA gasoline inventories decreased by 4.978 million barrels. The trends in crude oil inventories and gasoline inventories are inconsistent with each other. When demand recovers, people are willing to ignore the increase in EIA gasoline inventories and are more willing to pay attention to EIA crude oil inventories. When demand peaks, people are willing to pay attention to the increase in EIA crude oil inventories rather than the increase in EIA crude oil inventories. Willing to pay attention to changes in EIA gasoline inventories.
Chart: EIA crude oil inventory changes
This seems to make the barrel theory temporarily invalid. In fact, it is not the case. The barrel theory is still valid, but investors have set their sights on longer-term market conditions. At the sensitive time of data release, EIA crude oil inventories are of great concern, and the forward market is constantly corrected in terms of trends. The forward market is obviously not reflected by EIA crude oil inventories.
The forward market is a linear extrapolation of the current environment by market traders, rather than the real future. Therefore, the indicative effect of current high-frequency data is easily ignored, and the risk of recession is amplified. Although energy accounts for a large proportion of the CPI, when crude oil fell to around 90 US dollars, the CPI in the United States still increased significantly. This shows that the decline in oil prices did not break the inflation spiral in the United States. Even if the oil price peaks, the CPI will remain at three to four levels. With the price running at a high level in the quarter, it is expected that the factor driving CPI in this stage will come from housing.
Erik Norland, executive director and senior economist at CME Group, said that the cost of buying a home in the United States has soared 21% in the past 12 months, and rents, although slower than other price increases, are also continuing to rise. “Rising rents could push inflation higher than investors expect,” he estimated.
Oil-producing countries “cannot afford” oil prices
Objectively speaking, Europe is currently in an unprecedented energy crisis. The water levels of the Rhine and Elbe rivers have dropped. The originally relatively energy-efficient river transportation has been affected. Spain’s hydropower may be cut in half and France’s nuclear power cooling water is restricted. Although France has approved the transfer of five nuclear power plants to rivers. The temperature of the discharged cooling water has increased, but nuclear power plants on the French Mediterranean coast still face considerable challenges. The originally hot and rainless summer climate has been taken to the extreme.
However, the impact of the European energy crisis has been fully accounted for in the first and second quarters. The energy crisis in Europe does not mean that it can reverse the downward trend of prices in the entire energy market. Among all oil-producing countries, only the United States continues to increase production. Drilling rig data released by Baker Hughes shows that the total number of oil rigs in the United States was 598 in the week as of August 5, a decrease of 7 from last week and an increase of 211 from the same period last year. The total number of natural gas drilling rigs increased by 4 to 161, an increase of 58 rigs compared with the same period last year.
Other oil-producing countries are less willing to increase production. According to reports, the OPEC+ alliance agreed to increase production by 100,000 barrels per day in September, the smallest increase in the history of the organization. Correspondingly, OPEC+ previously agreed to increase daily production by more than 600,000 barrels in July and August. Russia’s actions on Nord Stream Line 1 did not save oil prices. The short-term market pricing power is temporarily controlled by the demand side of crude oil. Crude oil is near the platform on the eve of the outbreak of the Russia-Ukraine conflict. U.S. oil falling below $90 will be an important sign that oil prices will open up downward space.
Chart: US WTI crude oil spot price
According to the current development trend, OPEC+’s price support may ultimately end in failure. Except for regions outside Europe, concerns about energy shortages are gradually weakening, and the main line of transactions has begun to shift downstream. As residential stimulation in the United States and Europe has stopped and demand has declined, the petrochemical industry is likely to enter a passive destocking phase in the next year, further strengthening the logic of weakening demand for crude oil.
Oil price downside risks increase
In the torn industrial chain, the trend of weaponization of energy resources is very obvious. The United States’ provision of energy to Europe has a similar and homologous purpose to the Marshall Plan after World War II. Whether it can provide sufficient energy supply determines the attitude of Western European countries. It also determines the direction of the situation in Eastern Europe.
Out of its own economic considerations, the United States is also motivated to lower oil prices to prevent excessive inflation from eroding the already precarious economic growth. Whether the United States has entered a recession is not the focus of traders. The economic performance after excluding inflation factors is what the market will see in the third quarter. The focus of the game.
If we look at the results of current market transactions, the Fed will raise interest rates for the last time in the first quarter of next year at most, and then it will switch to an interest rate cut cycle. We judge that the interest rate hike is coming to an end, but the interest rate cut will not come too early, and the Fed may still The Fed will continue to adopt the method of not renewing bonds upon maturity to reduce liabilities in order to maintain the stability of the bond market. The Fed’s rash start of a new round of easing may bring unnecessary consequences to itself.To avoid trouble, the U.S. economic recession will be prolonged in the future, and oil prices are easy to fall but difficult to rise. Investors can pay attention to CME Group’s micro WTI crude oil futures (product code: MCL) short order opportunities.
The micro WTI crude oil futures contract is a smaller and more precise crude oil price exposure management tool. Its size is only one-tenth of the benchmark WTI futures contract. Investors can obtain more precise risks through a smaller trading size. Manage exposure and get the same transparency and price discovery capabilities as the benchmark WTI futures contract while reducing margin requirements.
On the first anniversary of the listing of the micro WTI crude oil futures contract (listed on July 12, 2021), the trading volume has exceeded 25 million contracts, and the average daily trading volume has remained above 100,000 contracts in the past five months. The trading volume from the Asia-Pacific region continues Increase.
</p
