Recently, international oil prices have fluctuated greatly and have continued to weaken in recent days.
Yesterday, the decline in international oil prices further expanded, with WTI crude oil falling 6%, falling to US$103/barrel, a new low since May 12. Expectations of U.S. policies to suppress oil prices and market concerns about high oil prices suppressing demand have caused oil prices to experience a periodic high decline.
Bloomberg data shows that the energy ETF (XLE) fell 17% last week, and its put option trading volume rose to more than 800,000 lots, a record high. The last two times such new highs in put volume occurred were in 2008 and 2014. The collapse of energy stocks reflects a major shift in market expectations for future fundamentals of energy companies and a sharp rise in demand for trading hedging.
“The commodity market is different from the stock market. The stock market will trade more at the level of expectations, while the commodity market will return to the level of current reality and fundamentals after repairing valuations by trading expectations.” Zhang Zhengze, a researcher at Hailiangshi Futures, said that stock market prices play a leading role in commodity market prices and indicate changes in the crude oil market’s forward expectations.
Citibank said on Wednesday that oil prices could fall back by the end of the year or even later, but the process could be bumpy. The bank expects oil prices should fall back to $80 a barrel in the fourth quarter, but could soar this summer. The rally in recent months has been fueled by the Russia-Ukraine conflict and supply struggling to keep up with growing demand after years of underinvestment. The main reason for oil prices above $100/barrel is the sharp decline in U.S. oil production from 2020 to 2021, coupled with the foreign policy initiatives of Iran and Venezuela that have suppressed oil exports.
“Europe and the United States have always had different attitudes towards sanctions on Russian oil.” An Ran, an analyst at Hua’an Futures, said that on the one hand, the conflict between Russia and Ukraine has entered a stalemate stage, and Europe is counting on economic means such as comprehensive sanctions to force Russia to compromise on the Ukraine issue; On the other hand, the United States hopes to temporarily exclude the energy sector from sanctions to ease the current tight supply situation in the international oil market.
The increase in U.S. fuel exports to Europe has caused the U.S. domestic refined oil inventories to continue to decline. High gasoline and diesel prices have caused serious social inflation problems. The Biden administration has repeatedly called on oil-producing countries such as Saudi Arabia and domestic shale oil companies to increase production, with little effect. The harm and inhibitory impact of high oil prices on U.S. economic growth has already emerged.
Today, the United States will still introduce a number of policies to suppress oil prices. It will not only extend the energy trading licenses between domestic companies and the Russian Central Bank, but also propose gasoline tax reduction policies in an attempt to alleviate the pressure of rising oil prices.
Currently, the sharp fluctuations in crude oil prices also indicate that there are large differences in the market. During the interview, a reporter from Futures Daily learned that as far as the crude oil market is concerned, the biggest difference lies in the strong reality of refined oil products and the weak expectations of economic growth.
According to Liu Shunchang, an energy and chemical analyst at Nanhua Futures, the current cracking of U.S. refined oil products is still at a historical high. The United States is in the peak summer gasoline consumption season. The reality of low gasoline inventories shows that refined oil consumption has a certain degree of resilience, which is an important factor supporting oil prices. At the same time, the rapid decline in economic growth expectations has lowered market expectations for future crude oil demand.
In fact, at the current time point, most of the early bullish indicators in the crude oil market have undergone major changes. In addition to macro-level pressures, there are also marginal changes on the supply side of crude oil.
The reporter learned that OPEC+ will end the production restriction policy since the 2020 epidemic in August. A new round of production policies is being negotiated. The OPEC meeting will be held again on June 30. Saudi Arabia’s attitude is the key.
News this week revealed that the probability of further production increases has increased. “The current focus on the supply side of the market has shifted from the EU’s sanctions on Russia to how much OPEC will increase production. If Saudi Arabia and the United Arab Emirates continue to increase their efforts to increase production, oil prices will face greater downward pressure.” Liu Shunchang said.
“We believe that the so-called bullish indicator turns, especially the bullish indicator turn on the supply side, are still at the level of possible expectations. In fact, there is no obvious turning signal.” Zhang Zhengze said that the original bullishness on the supply side was due to the low production efficiency of OPEC+ and the It is difficult for U.S. shale oil to increase its volume significantly, and the current so-called shift in the market is more reflected in OPEC+.
In his view, there has been a lot of news about production increase expectations in the market recently, but the reason for OPEC+’s low production increase efficiency, apart from the subjective wishes of a few countries, is mainly due to the low number of drilling rigs due to low capital expenditures since 2020. “Although the number of oil rigs in OPEC countries has increased recently as oil prices continue to rise, considering that it takes at least 8 months for conventional oil wells to drill rigs and produce oil, it will be difficult to see a significant increase in OPEC output this year. Larger.”
Although OPEC oil-producing countries may increase production, Enron believes that the tight supply of crude oil has not eased. “On the one hand, the summer consumption peak season is coming. As long as the United States has not suspended fuel exports, low refined oil inventory reserves will still be a hidden danger of brewing an energy crisis.” In Enron’s view, the current oil price drop is more of a technical correction and Risk avoidance situation�Due to multiple resonances, long-term insufficient investment in upstream capital expenditures is the core factor leading to the gap in crude oil supply. At the same time, European and American sanctions on Russia have not softened, and there is great uncertainty in the recovery of crude oil production in Iran, Libya, and Venezuela. High oil prices or will continue.
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