Crude oil market sentiment reached its peak this week. my country’s SC crude oil futures will celebrate its 4th birthday in one month. On February 24, SC crude oil futures exceeded the 600 yuan/ton mark for the first time, setting a new high since its listing.
When it comes to the most eye-catching performance in the crude oil market, it comes from Brent crude oil futures. Brent crude oil futures have surged all the way, not only easily breaking through 100 US dollars per barrel, but also leaving WTI crude oil far behind, and competing with the Dubai market in the Middle East. The price difference of EFS has refreshed the largest value in many years. Even the following sub-bank contracts have been far away. The forward curve has become extremely steep. The direct trigger of all this is Russia’s official Ukraine has taken military action, and Western countries led by the United States have imposed severe sanctions on Russia. This has brought the impact of geopolitical events on oil prices to the extreme.
It can also be seen from the position structure announced at the weekend that funds are increasing their net long positions in the Brent contract and reducing their net long positions in WTI. This is in line with the changes in cross-regional strength of the crude oil market. The fighting between Russia and Ukraine continued over the weekend. Judging from the performance during the day and night on Friday, the risk premium brought about by the outbreak of the war quickly subsided from commodities. Will the crude oil market usher in a turning point after the climax?
Inventory growth exceeded expectations but did not attract market attention
Judging from the performance of oil prices, the war between Russia and Ukraine once pushed up oil prices sharply. Especially after Brent and WTI oil prices broke through the US$100/barrel mark, the market began to maintain expectations for US$120/barrel. However, as the United States and other After Western countries imposed sanctions that did not involve removing Russia from the SWIFT system and did not impose sanctions on Russian energy, the market’s assessment of the largest geo-risk premium seems to have begun to fall from its peak. Therefore, oil prices have fallen sharply from their highs, basically giving back the losses due to the Russia-Ukraine war. However, the tension in the spot market is still unresolved for the time being, especially considering that the situation in Russia and Ukraine is still unclear. Although there are no direct sanctions on Russian energy, buyers around the world are still unwilling to take risks and have suspended Russian crude oil. New shipping purchases, so although oil prices are high and there is adjustment pressure, the supply and demand level still needs time to ease, which will allow it to maintain a relatively strong pattern.
Last week, EIA data showed that crude oil inventories were significantly accumulated. Because Russia began to take comprehensive military actions against Ukraine, everyone temporarily ignored the factors affecting supply and demand.
At 00:00 Beijing time on Friday, data released by the U.S. EIA showed that U.S. commercial crude oil inventories excluding strategic reserves increased unexpectedly in the week ending February 18, and refined oil inventories and gasoline inventories were basically in line with expectations. Specific data shows that the EIA crude oil inventory changes in the United States in the week ending February 18 actually increased by 4.514 million barrels, which was expected to decrease by 1 million barrels, and the previous value increased by 1.121 million barrels. Gasoline inventories actually reported a decrease of 582,000 barrels, compared with an expected decrease of 1.5 million barrels, and the previous value decreased by 1.332 million barrels; refined oil inventories actually reported a decrease of 584,000 barrels, compared with an expected decrease of 1.7 million barrels, and the previous value decreased by 1.552 million barrels.
The EIA report showed that U.S. crude oil imports last week were 6.828 million barrels per day, an increase of 1.038 million barrels per day from the previous week, and crude oil exports increased by 415,000 barrels per day last week to 2.686 million barrels per day. U.S. domestic crude oil production remained unchanged at 11.6 million barrels per day. The increase in EIA crude oil inventories in the United States in the week to February 18 recorded the largest increase since the week of October 8, 2021. In addition, the U.S. Strategic Petroleum Reserve (SPR) inventory decreased by 2.444 million barrels last week to 582.4 million barrels, a decrease of 0.42%, the lowest since the week of September 6, 2002. After the outbreak of the Russia-Ukraine war, in order to alleviate the rising pressure on oil prices caused by the escalating situation between Russia and Ukraine, U.S. President Biden said that he is considering releasing more oil from the Strategic Petroleum Reserve (SPR) as needed and working with allies to ease the current supply tension. .
In order to ensure the stability of global energy supplies, U.S. State Department officials said on Friday that the Biden administration will not sanction Russian crude oil because it will harm American consumers. Amos Hochstein, the State Department’s senior energy security adviser, said subsequent sanctions would not target oil. If we target Russia’s oil and gas industry, and Russia’s energy agencies, because of Putin, energy prices will soar, Hochstein said. Maybe his product sales are cut in half, but the price is doubled. These remarks highlight the Biden administration’s sanctions style, which is trying to avoid affecting U.S. and European consumers; however, after the Russia-Ukraine war began, as some buyers and tanker companies were worried about the risk of sanctions against Russia, Russia’s Urals crude oil was lower than the benchmark Brent crude oil The spot discount has reached the largest level in history. Crude oil transportation costs have soared. The price of Urals crude oil is US$11.60 per barrel lower than the spot price of Brent crude oil in the spot market, marking the largest drop in the statistical history of this data at least 11 years ago. We are seeing a slowdown in Russian crude oil purchases and expect the supply-demand balance to tighten further until payment terms are clear.
Next week, March 2 will usher in the OPEC+ monthly meeting again. Judging from the statements of all parties, theThe company will stick to its plan to increase production by 400,000 barrels per day per month. A Russian oil source said OPEC+ had held some informal talks in which Moscow explained its position on Ukraine, while other OPEC+ producers appeared to take a neutral stance. A senior OPEC+ source dismissed suggestions that OPEC+ would end its production increase. Russian oil sources said Russia and Saudi Arabia have a close partnership, so cooperation will continue. Regarding the next meeting, no changes are expected at this time. Four other OPEC+ sources also said they expected no changes to the agreement. The reasons they cited included the need to maintain OPEC+’s cohesion and keep its course stable, as well as not to politicize the decision because OPEC+ is not a political organization. A source said that high oil prices will not change the relationship between the two countries. OPEC+ has reached an agreement and they will abide by it. Meanwhile, the International Energy Agency (IEA) pledged to help ensure global energy security during the crisis. Data released by oil services company Baker Hughes showed that the total number of oil rigs drilling in the United States increased by 2 to 522 in the week ended February 25. U.S. drilling companies have increased oil and natural gas drilling for eight consecutive weeks. According to monthly data, this has been the 19th consecutive month of increase, the longest level on record.
In addition, Iranian Foreign Minister Abdullahian said on February 23 that the ongoing negotiations between the relevant parties of the Comprehensive Plan of Action on the Iranian Nuclear Issue in Vienna, the Austrian capital, still have “some important issues” to be resolved. The Iranian nuclear negotiations have entered a critical stage, but there are still “Some very important questions.” Iran has made it clear that “Iran’s red line cannot be crossed.” Iran is generally optimistic about the negotiations, hoping that remaining key issues will be resolved “in a Western realist way” in the coming days.
The most exciting time for geopolitical factors has passed, but the impact will be difficult to eliminate in the short term.
The Russia-Ukraine war was still going on over the weekend. It was reported over the weekend that some EU countries agreed to increase sanctions to exclude Russia from the SWIFT system, but neither Germany, France nor the United States were willing to make this choice. French President Emmanuel Macron said the world must prepare for a “long-term” war in Ukraine. The geopolitical factor between Russia and Ukraine has most likely excited the market on Thursday. However, there may be recurrences surrounding this incident, and it is difficult for the game of interests of all parties to end immediately.
As for the supply of crude oil market, Russia’s crude oil pipeline transportation has not been affected so far. However, as the world’s second largest crude oil exporter, Wood Mackenzie said in a report that of Russia’s 4.6 million barrels per day of crude oil exports, As much as 2.3 million barrels per day are sold to the West, and crude oil supply by ship will inevitably be disrupted. It remains to be seen when it will return to normal. The sharp fluctuations in oil prices show that the current market fundamentals do not support oil prices remaining at a high level above US$100/barrel. As time goes by, changes on the supply side will continue to be the focus of the market. Investors are advised to remain patient and wait for changes.
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