On March 9, external market time, crude oil prices, which had been soaring all the way before, suffered a heavy fall. Ukrainian President Zelensky reiterated his willingness to consider making some compromises to end the war with Russia, and the UAE Ambassador to Washington, United States Yousuf Al Otaiba said in a statement to the British and American media that the UAE favors increasing oil production and will encourage OPEC to consider more Increase production quickly. The UAE is the first OPEC member to support excessive production increases since the outbreak of the Russia-Ukraine conflict. It is reported that the UAE did not consult with other OPEC+ members on this decision.
During the American session, the main WTI crude oil contract fell by more than 16%, and Brent crude oil fell by more than 17%. At the end of the day, U.S. crude oil WTI recorded $108.70/barrel, down $15.00/barrel; May Brent crude oil fell by more than 17%. : 111.14 down 16.84. Brent had its largest one-day decline in history, while U.S. crude oil had its second-largest one-day decline in history, second only to the negative oil price on April 20, 2020. On March 10, Beijing time, China’s crude oil futures fell by the limit at the opening, and the settlement price of the main contract fell by 41.1 yuan to 805.0 yuan/barrel.
Zhongyu Information Energy Industry Research Group believes that Ukraine may make compromises to quell the war, which has cooled down the market’s frenzied speculation. However, the statements of UAE officials overnight may be the more important factor causing market panic. This is mainly because the UAE Such a move may shake the foundation of international oil prices. The news just broke that day that the leaders of Saudi Arabia and the United Arab Emirates refused to answer Biden’s call. Suddenly the UAE stated that it would call for an increase in production, which shocked the market. Especially with the recent sudden increase in OPEC’s production increase, the UAE’s change of stance touched the nerves of the market. .
In its preliminary analysis, the Zhongyu Information Energy Industry Research Group made the following judgments on the rapid decline in oil prices:
“There are many factors that affect the decline of oil prices, and they are often the result of the synergy of multiple factors. However, the conditions that can promote the rapid and sustained decline of oil prices are not common. There are only two extreme situations that can achieve such results. One is supply and demand disorder, and the other is Liquidity has dropped sharply. Short-term demand collapse and sudden supply surges will lead to disruptions in supply and demand fundamentals. For example, the global travel blockade and regional movement controls caused by the COVID-19 epidemic quickly caused a demand gap, and dominant products Oil countries take the initiative to suppress oil prices.”
There is no doubt that demand destruction is happening. The impact of rising oil prices is being felt in the global market. Governments are taking measures to reduce consumer pressure. Japan has continuously raised gasoline subsidies. The Brazilian government has allowed national oil companies to adjust their price calculation methods for the first time. To ease the impact of high oil prices, the Turkish government has canceled the fuel price increase measures that will be implemented on Thursday. Currently, Chinese consumers are also paying attention to whether the government will intervene in the refined oil price adjustment window that opened on March 17. According to current oil price estimates , the final range of this round of price adjustment may be around 1,250 yuan/ton, which will be the largest price adjustment range since the implementation of the current mechanism. But demand destruction often takes time to feedback upstream, so what is the main reason for this collapse? It is more likely to be the fear of a disorderly increase in production by the alliance of oil-producing countries. Several oil price collapses in history have been accompanied by the shadow of the need for core oil-producing countries to increase production or launch a price war.
We believe that the core driving force for crude oil futures to escape from the ultra-low oil price range and rise to the high oil price range is the long-lasting joint production control of OPEC+. It promptly closed the demand hole caused by the impact of the epidemic and promoted the rapid recovery of oil prices to a safe area, highlighting the oil price Cartel control over the oil world. The UAE and Saudi Arabia are both core members of the GCC and have long maintained close ties in political, religious, military and other aspects. However, the UAE has formulated ambitious oil expansion plans with international partners in recent years and launched a regional crude oil futures contract design with the intention of rapid expansion. Converting reserves into actual cash flow, the Middle East’s largest oil producer is one of the few OEPC+ members with spare capacity, and the UAE has a history of creating disagreements within the alliance of oil producers.
Since the second quarter of 2020, as oil prices have gradually recovered to a safe zone, the alliance of oil-producing countries has tried to absorb more dividends from rising oil prices by increasing production. On December 3, 2020, OPEC+ decided to slowly relax production restrictions starting in January 2021. , will slightly reduce the previous coordinated production reduction of 7.7 million barrels per day to 7.2 million barrels per day, and will hold monthly meetings to adjust production policies at any time based on actual market developments, which actually further strengthens intervention in the oil market. OPEC+ still maintains restraint on increasing production despite the rapid recovery of oil prices. Its core appeal is of course to hope that oil prices will rise further. However, due to the sluggish recovery of the North American shale oil industry and the limited expansion of supply from other oil-producing countries, OPEC+ has more time to free up. Large operating space.
Precisely because the output constraints of the OPEC+ production reduction alliance are the core driver of the recovery in oil prices, changes in its output policy are bound to cause high tension in the oil market. When oil prices returned to a safe zone and showed strong follow-up momentum, differences within the production reduction alliance began to emerge. ��The member states represented by the United Arab Emirates have resolved to push for a larger production increase, which highlights the urgent desire of oil producing countries to seize oil price dividends after the oil crisis is resolved. The UAE took the lead in demanding an increase in production baseline at the OPEC+ monthly meeting at the end of June 2021, while Iraq also sought higher production quota space, which directly led to the shelving of the established moderate production increase plan. Since then, the UAE and the Saudi-led OPEC organization have After weeks of arduous negotiations, a new production agreement was finally reached on July 19, external time. After the output agreement was reached, oil-producing countries such as the United Arab Emirates were given the opportunity to readjust their production baselines, which also saved the internal unity of the oil-producing alliance. Since then, although oil prices have still experienced periodic fluctuations, the overall trend has still been unilaterally upward. .
Zhongyu Information Energy Industry Research Group believes that the sharp drop in crude oil on March 9 during the external trading time actually highlighted the high volatility characteristics of the trading market that are divorced from fundamentals. When the market begins to break away from pure trading fundamentals, emotional drivers and algorithms The transaction will lead to large price fluctuations, and the international oil market is in this state. But the current sharp drop in oil prices is of course not caused by direct demand destruction. The impact of demand on oil prices takes time to transition. The main reason for this drop in oil prices is the potential fear of OPEC+ loosening production control. As the UAE states that it will continue to abide by production rules and the market continues to price in the risk of the Russian energy embargo, short-term oil prices are expected to correct upwards. The Brent crude oil benchmark price may eventually remain in the range of 115 to 120 US dollars per barrel this month, or even There is still a possibility of breaking through the previous high.
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