In recent times, international crude oil prices have continued to rise, arousing great concern in the market. Market participants generally believe that the recent rise in oil prices is mainly affected by intensified geopolitical risks, easing of COVID-19 epidemic measures, and insufficient production in oil-producing countries.
A fuel tanker explosion and an airport construction fire occurred in Abu Dhabi, the capital of the United Arab Emirates, on January 17. Outsiders believe that as the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), the UAE’s crude oil supply faces a real risk of disruption. In addition, an oil pipeline connecting Iraq and Turkey was temporarily interrupted due to an explosion on January 19, and tensions between Russia and Ukraine have not yet eased, which also heightened market concerns about oil supply disruptions.
Zheng Mengqi, an energy and chemical researcher at Hizheng Futures, told reporters that with the restoration of crude oil supply from Libya and Kazakhstan, geopolitical risks have fallen slightly. The IEA proposed in its latest monthly report that the crude oil market may experience a large surplus in the first quarter of 2022 and in the future, and both EIA and API data show a slight increase in crude oil inventories and a substantial increase in gasoline inventories. In the past, gasoline stocks were greatly accumulated but crude oil continued to be destocked. Now both terminals and crude oil are in stockpiles. Bulls are relieved and oil prices have fallen back.
“Some changes in the current fundamentals are worthy of attention.” Zhong Meiyan, director of energy and chemical research at Everbright Futures, told reporters that the U.S. EIA crude oil inventory announced on Thursday increased by 515,000 barrels, which is expected to decrease by 1.75 million barrels, and the previous value decreased by 4.553 million barrels. EIA gasoline inventories increased by 5.873 million barrels, which is expected to increase by 2.6 million barrels, and the previous value increased by 7.961 million barrels; EIA refined oil inventories decreased by 1.431 million barrels, which was expected to decrease by 1.3 million barrels, and the previous value increased by 2.537 million barrels. The crude oil side has exceeded expectations, and the gasoline side has continued to exceed expectations. Refined oil has been destocked, and full-bore oil inventories have increased by nearly 5 million barrels. In addition, geopolitical supply concerns have faded, supplies from Libya have resumed, and the possibility of an escalation of the Russia-Ukraine conflict has declined.
From the supply side, OPEC has always maintained excessive production reductions, and the implementation rate of production reductions has remained at 120% for three consecutive months, mainly due to the limited capacity of countries such as Nigeria and Angola to increase production. In the week ending January 7, U.S. crude oil production was 11.7 million barrels per day, a decrease of 100,000 barrels per day from last week, but still a relatively high level since May 2020. According to Bloomberg data, the 13 OPEC countries increased production by 167,000 barrels per day in December last year to 27.882 million barrels per day. Among them, the three production reduction exemption countries, Libya, Iran and Venezuela, have different situations. Since the beginning of this year, Libyan production has gradually recovered. However, in late December last year, Libyan crude oil production was reduced due to pipeline maintenance. Last week, Libyan Sharara and Elephant oil fields resumed production, and oil production will increase to about 1 million barrels per day. Then they encountered adverse effects. It is expected that Its crude oil exports in January will be much lower than last November. Iran and Venezuela have been sanctioned by the United States, making it difficult to increase actual production. In December last year, Iran increased production slightly by 8,000 barrels per day, and Venezuela increased by 20,000 barrels per day.
Zhong Meiyan believes that overall, the number of active drilling rigs, a leading indicator of U.S. crude oil production, has resumed its recovery. Coupled with supply disruptions from OPEC member states and ongoing geopolitics, the prospects for Iran’s nuclear negotiations are unclear. Earlier, the January monthly report released by the EIA lowered the average annual crude oil production increase in the United States in 2022 to 600,000 barrels per day. The increase in crude oil supply in the main production areas in the first quarter may still be relatively limited.
“Recently, crude oil has been greatly affected by supply cuts in countries such as Libya and Nigeria. Although it has eased at present, the impact on Libyan crude oil exports still exists. In terms of inventory, EIA data shows that the destocking of US crude oil continues and European crude oil inventories are at low levels. Demand On the other hand, demand for jet fuel is still supported, and refinery operating rates in Europe and the United States remain high. Therefore, the impact on the short-term supply side is greater, and crude oil will maintain high oscillations,” Zheng Mengqi said.
It is reported that Bank of America stated in its 2022 “Commodity Outlook” report in the fourth quarter of last year that inflation should support commodity prices next year. Strong demand, lower inventories and efforts to decarbonize the economy will all play a role in supporting commodity prices. Brent crude oil prices could hit $120/bbl by the middle of next year, while U.S. natural gas prices should fall below $4/MMBtu.
Previously, Goldman Sachs, the “standard bearer of crude oil,” had already declared that $100/barrel was on the target list; Goldman also raised its 2023 Brent oil price forecast from $85/barrel to $105/barrel.
Morgan Stanley also followed suit, predicting that Brent crude oil prices will rise to US$100/barrel by the third quarter of 2022, compared with the previous forecast of around US$90/barrel.
After the U.S. Energy Information Administration and Bloomberg lowered their 2022 OPEC production capacity forecasts by 800,000 barrels per day and 1.2 million barrels per day respectively, JPMorgan Chase expects oil prices to rise by up to $30; it also predicts that oil prices will “overshoot” in 2022 to US$125/barrel and reaching US$150/barrel in 2023.
How long will high oil prices last? Will oil prices exceed US$100/barrel? Analysts and experts currently have different opinions.
The International Energy Agency recently released a report stating that as major oil-producing countries expand production, crude oil production will gradually catch up with demand, supply tensions are expected to ease, and the upward trend in oil prices will also slow down. The report believes that if OPEC and non-OPEC oil-producing countries continue to gradually withdraw from the production reduction plan, the global average daily increase in crude oil production in 2022 is expected to reach 6.2 million barrels.
UAE Minister of Energy Mazrouei told the media on the 19th that he will work hard to complete OPEC and non-EuropeanThe oil-producing countries of Ukraine set production increase targets last year and are not worried about the “short-term” rise in crude oil prices.
Li Junhao, an economist at Oversea-Chinese Banking Corporation in Singapore, believes that the possibility of Brent crude oil futures prices rising to US$100 per barrel before the end of this year is increasing. “Supply continues to fail to keep up with demand, making the situation particularly tight.”
Energy columnist Tsvetana Paraskova wrote that growing geopolitical risks, coupled with the obvious limitations on the ability of OPEC and non-OPEC oil-producing countries to increase production, mean that the market remains bullish on international oil prices.
Wu Bingbing, director of the Institute of Arab and Islamic Culture at Peking University, pointed out that in the medium to long term, the world is advancing the “double carbon” action, and investment in the upstream development of traditional fossil energy has been declining, resulting in production capacity being restricted, which in turn has led to a decline in market supply. The relative contraction, combined with rising oil consumption growth expectations, may bring a window period for international energy prices to rise.
Currently, the world economy is still struggling to recover from the impact of the epidemic and faces many challenges such as inflation. As an important industrial raw material, the impact of higher oil prices on the economy cannot be ignored.
Zhang Longxing, director of the Oil Products Division of the Shanghai Oil and Gas Trading Center, believes that for China, rising international energy prices will lead to increased imported inflationary pressure, increase production costs in manufacturing and other fields, and thus weaken the competitiveness of these industries.
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