The much-watched OPEC+ ministerial meeting was held as scheduled yesterday.
Representatives of the meeting said that OPEC+ agreed to increase production by 100,000 barrels per day in September. The meeting believed that “long-term underinvestment” has led to low idle production capacity; “severely restricted” idle production capacity must be used with caution. It is reported that OPEC+ will hold its next meeting on September 5.
According to reports, the OPEC+ alliance agreed to increase production by 100,000 barrels per day in September, the smallest increase in the organization’s history. Correspondingly, OPEC+ previously agreed to increase daily production by more than 600,000 barrels in July and August.
Affected by the news of “the smallest production increase in history”, international benchmark Brent crude oil and WTI crude oil immediately rose by more than 1%.
Shortly afterwards, the U.S. Energy Information Administration (EIA) released data on changes in crude oil inventories for the week of July 29. Data show that U.S. commercial crude oil inventories were 426.6 million barrels in the week of July 29, an increase of 4.467 million barrels from the previous month, and an expected decrease of 1.5 million barrels.
In addition, in the week of July 29, U.S. crude oil imports were 1.18 million barrels per day, a new high since July 2020. The four-week average gasoline demand in the United States fell to 8.59 million barrels per day, the lowest since February.
The data released by the EIA this time triggered rising market concerns. The international benchmark Brent crude oil and WTI crude oil immediately plummeted, performing a “big change” in the market. As of the close, international benchmark Brent crude oil and WTI crude oil fell by 2.72% and 3.1% respectively.
The picture shows the intraday performance of WTI crude oil
Affected by the sudden plunge of crude oil last night, many varieties of the domestic commodity market turned negative midway. The overall market fell more than rose, showing a dismal performance. As of the close, there were 25 products with a decline of more than 1%. Among them, iron ore, coking coal, coke, crude oil, and pulp fell by more than 2%. Only a few products such as Shanghai tin and asphalt closed slightly higher.
Demand “cools”, crude oil leads commodity decline
In recent times, the performance of crude oil has been weaker than that of other industrial products such as copper and steel. In the early rebound of commodities, crude oil has shown a weak oscillation pattern. Yang An, head of energy and chemical research at Haitong Futures, said that the current upward momentum of crude oil is gradually fading, and the very strong monthly difference structure of international oil prices against the background of early supply constraints is also continuing to weaken. In the later period, once the supply and demand situation shows signs of further deterioration, oil prices are likely to Will lead the decline in commodities.
Yang An believes that the weakening of oil prices is directly related to the decline in market demand in Europe and the United States. “The cooling of the demand side has led to a sharp drop in the price of refined oil products. Currently, the cracking profits of refined oil products in the European and American markets have fallen sharply from their high levels. High inflationary pressure in Europe and the United States has forced countries to increase their interest rate hikes. While liquidity is tightening and accelerating, economic downward pressure is gradually increasing. Increase, which has begun to affect crude oil demand, and the latest EIA data has lowered the crude oil demand growth forecast from 3.6 million barrels per day at the beginning of the year to 2.2 million barrels per day.”
Zheng Mengqi, an energy and chemical researcher at Hizheng Futures, believes that after Biden’s visit to the Middle East in mid-July, neither Saudi Arabia nor the United States immediately announced an increase in crude oil production. From mid-July to the announcement of the results of this meeting, there was greater uncertainty, superimposed on Libya. Crude oil production gradually rebounded to 1.2 million barrels per day, causing the early oil price oscillation to run weakly.
“Currently, the long and short factors affecting the crude oil market are ebbing and flowing. The weight of the impact on oil prices at the macro level is increasing. The pressure of economic recession and the tightening of liquidity to control inflation are negative for the commodity market, including crude oil. The crude oil market Demand-side performance is worse than expected, further dragging down oil prices.” Yang An said.
OPEC+ has relatively limited room to increase production in the future
“This OPEC meeting has attracted great attention from the market.” Yang An said that on the one hand, August was the first time that OPEC’s new Kuwaiti secretary-general took up his duties; on the other hand, OPEC+’s final production decision is the focus of market attention. Oil prices are currently at a very critical position. OPEC+’s production decision has a significant impact on oil prices. The demand side of the crude oil market has performed weaker than expected. OPEC+ is relatively cautious in increasing production, but considering the demands and efforts of consumer countries represented by the United States, OPEC+ may need to increase production to meet demand, but maintaining oil prices at a relatively reasonable price is also an important factor for oil exporting countries to consider, so they are increasing production while minimizing the pressure on oil prices from supply.
OPEC+ reached a resolution to increase production by 100,000 barrels per day in September. Yang An said that compared with the previous regular increase of 400,000 barrels per day per month, the market can easily digest this increase.
Jin Yunli, a crude oil researcher at Chuangyuan Futures, said that OPEC+ decided to increase production by 100,000 barrels per day in September. The increase in production is limited and has little significance in alleviating supply tensions. According to the 2020 production reduction plan, by the end of August this year, OPEC+ should theoretically make up for the production reduction quota of 9.7 million barrels per day, bringing production back to the baseline of 45.485 million barrels per day. However, judging from the implementation of the production reduction so far, OPEC+ daily There is still a gap of more than 2 million barrels between production and the benchmark. Excluding the impact of sanctions on Russia, the daily output of other countries is also more than 1 million barrels behind. Even if the calculation�There are still doubts whether the increase in production can be implemented, so the symbolic significance of this increase in production is greater than the practical significance.
An Ziwei, a senior analyst at Orient Securities Derivatives Research Institute, said that OPEC+ agreed to increase production slightly by 100,000 barrels per day in September, which will be distributed among member countries in proportion. The symbolic significance of OPEC+’s decision is expected to be greater than the actual effect of increasing production, which is in line with previous market expectations. As the demand outlook weakens, OPEC+ remains cautious about releasing limited spare capacity, despite continued external pressure from the United States to increase production ahead of the meeting.
From the perspective of production capacity, An Ziwei analyzed that OPEC+’s effective idle production capacity continues to decline, and most countries have already experienced production increase bottlenecks. Saudi Arabia and the United Arab Emirates are one of the few countries in the alliance that still have a certain scale of idle production capacity. The total nominal idle production capacity is expected to be close to 2.5 million barrels per day, the relatively limited idle production capacity also increases the difficulty for both countries to quickly increase production in the short term. “From the perspective of maintaining the unity of the alliance, the possibility of a single country significantly increasing production without other allies is low. The results of this meeting further clarify that OPEC+ has relatively limited room for future production increases, and the possibility of maintaining a gradual and flexible release of remaining idle production capacity is higher. .”
Liu Shunchang, an energy and chemical analyst at Nanhua Futures, said that the 100,000 barrels/day increase in production in September was significantly lower than the 648,000 barrels/day in July and August. In the short term, OPEC+’s increase in production is less than expected, which is bullish for oil prices, but the intensity is bullish. It will not be very high, because this OPEC+ meeting only decided the production policy for September, and the production in October and subsequent months will have to wait for the next meeting, and the pressure on the current crude oil demand side continues to increase. In addition, we need to pay attention to whether the United States will respond accordingly, especially when US President Biden visited the Middle East in mid-July.
Chen Tong, a senior analyst at Yide Futures, said that the OPEC+ production increase plan was significantly lower than market expectations. On the one hand, it reflects that the recent significant decline in crude oil prices has made oil-producing countries more cautious. On the other hand, it also shows the availability of OPEC’s remaining production capacity. Already very limited.
“The crude oil market is in a pattern where reality is strong but expectations are weakening.” Chen Tong said that on the macro front, the radical tightening policies adopted by major Western central banks have restricted economic activities, and expectations of a global economic recession continue to rise. European governments have also eased restrictions on Russian oil trade. In terms of supply and demand, as the growth rate of oil product demand begins to slow down, and the production of North America and OPEC+ gradually returns, the gap between supply and demand is expected to narrow in the fourth quarter.
Dong Dandan, chief executive of CITIC Futures Energy, said that the limited increase in OPEC+ production highlights the fact that global crude oil supply is still difficult to significantly increase for the time being. Russia is deeply mired in the conflict between Russia and Ukraine, and the United States is also slow to increase shale oil production due to supply chain problems. The only ones that have high hopes for the market are Saudi Arabia and the United Arab Emirates from OPEC. At this meeting, they announced that they would only increase production by 100,000 barrels per day, which shocked the market. Supply concerns have reignited.
Analysts: Not optimistic about the medium to long term
Regarding the market outlook, Dong Dandan believes that crude oil as a whole will be treated with an oscillatory approach. Taking WTI as an example, $90-$110 may be the oscillation range in the next few months. The biggest resistance to crude oil’s rise comes from the macroeconomic downturn. Germany’s PMI fell below the 50 mark in July, and the U.S. PMI hit its lowest level since July 2020, approaching the line between prosperity and contraction. The increase in crude oil supply is limited, and whether crude oil declines depends on the speed and extent at which demand declines.
Yang An said that OPEC+’s final decision to increase production by 100,000 barrels per day will, to a certain extent, alleviate the downside risk of oil prices breaking through during the crisis. At present, oil prices have been continuously trading sideways against the support near the lower edge of the high range, and are relatively weak in form. If the supply side puts further pressure on oil prices, it is likely to be the “last straw” that crushes oil prices, causing oil prices to break out of the breakthrough position. Downtrend. On the one hand, this supply-side action is in response to the United States’ call for an increase in production, but in essence it is more of an attempt to delay the weakening of oil prices. Overall, oil prices are still facing pressure from the macro level and lower-than-expected demand in the market outlook. The mid- to long-term outlook is still not optimistic, and the probability of a downward trend in oil prices is relatively high.
Yan Lili, a crude oil analyst at Xinhu Futures, said that at present, the global economic downturn has put pressure on demand for petroleum products. The United States has entered the second half of the peak gasoline consumption season, and it is difficult to see a major increase in consumption. Affected by the epidemic and high temperatures, China’s consumption is also relatively average. India has entered the off-season for consumption. On the supply side, Libyan production has returned to the previous level of 1.2 million barrels per day. U.S. shale oil is growing slowly but has entered the hurricane season. OPEC+ has limited increment. Russia’s crude oil production in July was 10.76 million barrels per day, but there is still a certain amount in the later period. of uncertainty. The monthly spread is weakening, the crack spread is weakening, oil prices may fluctuate greatly, and the center of gravity shifts downward.
Zheng Mengqi said that the U.S. non-farm employment data will be released this Friday and the U.S. CPI will be released next Wednesday. The current inflationary pressure is relatively high. If the CPI continues to grow significantly and the job market remains strong, the possibility of the Federal Reserve expanding the interest rate hike in September will increase. big. Recently, according to CME FED WATCH, although the probability of the Federal Reserve raising interest rates by 50 basis points in September is still relatively high, the probability of a 75 basis point increase is rising slightly. “Crude oil demand is expected to weaken amid expectations of higher interest rates and an economic recession.”
In the short term, Zheng Mengqi believes that OPEC+ continues to increase production slightly, demand remains resilient, inventories are at relatively low levels, and oil prices have some support. In the medium to long term, as the Federal Reserve sharply raises interest rates to suppress inflation, the risk of economic recession increases, demand is expected to weaken, and the conflict between refined oil products eases, the center of gravity of crude oil prices will gradually shift downward. After entering the fourth quarter, we need to consider whether the energy crisis caused by the Russia-Ukraine conflict and natural gas will recur.
Jin Yunli said that overall, the expectation of economic recession will continue to disturb, and the weakening manufacturing PMI data will put pressure on the demand outlook of the oil industry. The price difference between near and far months has narrowed in the near future, and the rebound of oil prices may be limited. In the later period, attention will be paid to the change in the term structure. As well as the emergence of an inflection point in U.S. crude oil inventories, oil prices are expected to remain oscillating.
��Interest rates are raised to suppress inflation, the risk of economic recession is rising, demand is expected to weaken, and the conflict between refined oil products has eased, and the center of gravity of crude oil prices will gradually shift downward. After entering the fourth quarter, we need to consider whether the energy crisis caused by the Russia-Ukraine conflict and natural gas will recur.
Jin Yunli said that overall, the expectation of economic recession will continue to disturb, and the weakening manufacturing PMI data will put pressure on the demand outlook of the oil industry. The price difference between near and far months has narrowed in the near future, and the rebound of oil prices may be limited. In the later period, attention will be paid to the change in the term structure. As well as the emergence of an inflection point in U.S. crude oil inventories, oil prices are expected to remain oscillating.
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