The bulk commodity market has entered a recovery period of oscillation and rebound. The turbulent prices have stunned many investors, while the crude oil market is facing a more complicated situation, which is very obvious from the recent trend of oil prices. The supply and demand situation of the crude oil market itself is changing, and data on the demand side continue to put pressure on the market. This is the main reason for the downward shift in the center of gravity of oil prices. The supply side also switches from time to time between rising and easing concerns under the influence of geopolitical factors, which affects the rhythm of oil price fluctuations. Disturbance, generally speaking, the crude oil market’s own supply and demand driving force for upward oil prices is getting weaker and weaker. At the macro level, the European Central Bank started to raise interest rates for the first time in 11 years, and the rate hike exceeded expectations by 50 basis points. This will take the market some time to digest the resulting systemic impact on the financial market. In addition, the U.S. dollar has fallen back this week, and the rebound and recovery of commodities is also stumbling. The swing in market sentiment has also affected the rhythm of oil prices, which is also an important reason for the increased difficulty in judging short-term oil prices.
The overall core factors affecting oil prices are relatively clear. As peak season demand has been falsified, European and American refined oil cracking profits have shown a sharp decline from highs. This has greatly alleviated the market anxiety caused by insufficient supply in the early stage and cooled the market. Not just increased supply, the impact of weaker-than-expected demand is equally powerful, making investors cautious in their expectations. From the perspective of commodities, as central banks around the world increase their efforts to raise interest rates, liquidity tightens and economic downward pressure, the overall downward trend in commodity prices is the general trend. The logic of the change in oil prices in the third quarter is relatively clear, but Due to geopolitical factors and the potential European energy crisis in autumn and winter, the supply side may still give some uncertainties to oil prices. Therefore, there is a high probability that oil prices will fluctuate throughout the process. This is a risk point that investors need to pay attention to.
Expectations for peak demand season failed, oil prices stalled
It does not take too long for the market strength to change. The plummeting market that started in June can turn the entire commodity into a short market. For crude oil, looking back at the continuous rise from the end of April to early June, the core driving force behind it is investors’ high expectations for the recovery of crude oil market demand, and the time is about to enter the traditional peak season of consumption in the northern hemisphere, and refined oil products Supply continues to be tight, and gasoline and diesel inventories in Europe and the United States continue to decline, pushing oil prices upward. However, as the CPI data for May released in June showed that inflationary pressures in European and American markets continued to exceed market expectations, the Federal Reserve announced unconditional control of inflation and began to raise interest rates significantly. Under the pressure of tight liquidity and economic recession, the collapse of the commodity market also impacted When it comes to the crude oil market, what really loosens the bull market pattern of oil prices is that the downward pressure on the economy and high oil prices have begun to suppress the performance of the demand side. During the traditional peak consumption season that began in July, U.S. gasoline consumption data showed an astonishing plunge, significantly lower than the same period in previous years. Such data was undoubtedly not expected by the market before. The EIA Energy Outlook report lowered the forecast for crude oil demand in 2022 from an increase of 3.6 million barrels/day to the latest 2.2 million barrels/day, and significantly raised the accumulation forecast for 2022 by 300,000 barrels/day to 740,000 barrels/day. , the increased excess volume is mainly concentrated in the third and fourth quarters. At the same time as it raised its accumulation forecast, EIA also revised its judgment on oil prices. The average WTI value in 2022 was lowered by US$4/barrel to US$98/barrel. EIA made such an adjustment based on recent high-frequency data showing that gasoline consumption in the U.S. market is far less than expected, and the entire oil product market is showing signs of accelerating inventory accumulation beyond expectations.
The EIA weekly report shows that in the week ended July 15, the change in U.S. crude oil inventories decreased by 446,000 barrels; gasoline inventories increased by 3.498 million barrels, an increase of 71,000 barrels was expected, and the previous value increased by 5.825 million barrels; refined oil inventories decreased by 1.295 million barrels , expected to be 1.169 million barrels. Among them, gasoline data is the focus of the market. In the previous week, gasoline inventories increased significantly by 5.82 million barrels, and gasoline demand fell 14% on a weekly basis, hitting the lowest level in the same period in nearly 20 years. Data this week showed that gasoline consumption has rebounded month-on-month, but is still significantly lower than consumption in the same period last year. The EIA monthly report emphasized that the possibility of weak economic activity will lead to lower than expected energy consumption, and high prices will cause U.S. gasoline consumption from July to October to be lower than previously expected. Now it seems that this judgment is gradually becoming a reality.
On Thursday, the news that U.S. President Biden tested positive for COVID-19 attracted attention. In fact, the global epidemic has resurfaced significantly in the past period, with the daily number of new cases worldwide rising from 500,000 half a month ago to 1 million. Although the impact of the epidemic has weakened, it is still a factor that currently plagues the economy and the oil market. The WHO has warned of the risk of a resurgence of COVID-19 in autumn and winter.
Interest rate hike VS recession, European and American central banks face difficulties
On Friday, the United States and Europe released a series of PMI data. The initial value of France’s manufacturing PMI in July was 49.6, a new low since November 2020. Germany’s manufacturing PMI also unexpectedly contracted in July. law��Manufacturing activity shrank in both countries, as did Germany’s services sector and France’s service sector growth slowed, further suggesting that the euro zone’s top two economies may be heading into recession. The preliminary manufacturing PMI value of the Eurozone in July was recorded at 49.6, a new low since June 2020. The preliminary value of the Markit manufacturing PMI in the United States in July was recorded at 52.3, a new low since August 2020. The preliminary value of the Markit service industry PMI in the United States in July was recorded at 47, a new low since June 2020. This is obviously not a good sign. In order to deal with high inflation, the European Central Bank had to raise interest rates by 50 basis points more than expected overnight and end the negative interest rate policy. However, a sharp increase in interest rates has raised borrowing costs, suppressed the willingness of enterprises to expand production, and in turn may suppress employment, and consumer demand may face further squeeze. Judging from the purpose of the European Central Bank’s interest rate hike, on the one hand, it is to control inflationary pressure, and on the other hand, it is to try to save the euro’s decline. However, the European Central Bank raised interest rates more than expected, and the tightening of liquidity and downward pressure on the economy cannot be ignored. Moreover, Europe’s poor economic performance is difficult to bring confidence to the market.
Financial markets will also face the impact of the Federal Reserve’s July interest rate meeting next week, so investors will soon shift their attention to the Fed’s actions. The U.S. dollar index has fallen back recently, and traders have reduced their bets on the Federal Reserve’s aggressive 100 basis point interest rate hike in July. Federal Reserve policymakers signaled on Friday they may stick with a 75 basis point rate hike at their July 26-27 meeting, with high inflation readings suggesting a larger rate hike may be needed later this year. However, the preliminary US PMI value for July shows that the US economy is deteriorating worryingly. Excluding months during the COVID-19 lockdown, output is falling at a rate not seen since the 2009 global financial crisis, with survey data showing GDP is down about 1% on an annual basis. As the cost of living rises, interest rates rise and the economic outlook grows gloomier, U.S. manufacturing has ground to a halt and the services sector’s rebound from the pandemic has reversed course.
The Federal Reserve will choose to raise interest rates by another 75 basis points instead of 100 basis points at next week’s meeting to curb high inflation, a survey showed, as economists believe the chance of the U.S. economy falling into recession next year has risen to 40% , the probability of a recession within two years is 50%. This proportion has increased significantly from 25% and 40% in June. Compared with raising interest rates by 100 basis points, raising interest rates by 75 basis points is a less hawkish option, but it is also the Fed’s most aggressive rate hike route in decades, which undoubtedly intensifies people’s concerns about economic recession. The survey believes that slowing economic growth and inflation may force the Federal Reserve to scale back interest rate hikes at future meetings.
A strong majority expects the Fed to raise interest rates by 50 basis points in September and then only 25 basis points at its November and December meetings, essentially unchanged from the last poll. The U.S. GDP growth forecast for this year has been significantly reduced to 2.0% from 2.6% last month. By 2023 (when the market expects the Fed’s interest rate hikes to have a full impact on the economy), the U.S. GDP growth forecast will almost be halved to 1.2%.
The power of crude oil’s own supply and demand to push prices upward is gradually weakening, while macro factors are gradually increasing their impact on oil prices. Poor economic data in the European and American markets and slowing inflation may force the Federal Reserve to scale back the scale of interest rate hikes at future meetings. The US dollar is at a high The pullback gave commodities a breather. Although the recent rebound in commodities has been very tortuous, the overall rebound has entered a recovery stage. Commodities have gradually stabilized the situation and started to make an upward attack in the second half of this week. The improvement in the overall market sentiment has alleviated the downward pressure on oil prices caused by poor demand performance, allowing oil prices to continue to oscillate near the lower edge support of the high range. The focus on the next operating rhythm of oil prices and commodities will focus on next week’s Federal Reserve interest rate meeting. The results and subsequent expected changes to the market at the macro level.
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