Since the end of December 2021, the international oil market has increased by more than 10 US dollars per barrel in about half a month, once again breaking a new high since the end of 2014. As of early morning closing this morning, New York February crude oil futures rose 1.79% to US$86.96/barrel; Brent March crude oil futures rose 1.06% to US$88.44/barrel.
On Wednesday, the International Energy Agency (IEA) said that global oil market conditions appeared to be tighter than expected, and unexpectedly, the Omicron strain had little impact on demand but caused supply disruptions.
The IEA said in its monthly report that global market supply is decreasing this year and oil demand has been slightly raised from last month and is expected to reach 99.7 million barrels per day, about 200,000 barrels per day higher than in 2019. In December 2021, the IEA expected oil demand in 2022 to be roughly equivalent to pre-pandemic levels.
The IEA has raised its global daily oil demand forecast by 200,000 barrels/day in both 2021 and 2022. Global oil demand will increase by 5.5 million barrels/day in 2021 and 3.3 million barrels/day in 2022.
The IEA said that the number of new coronavirus infections has hit another record, but this time, the impact on oil consumption demand is smaller.
In addition, another factor that the IEA predicts higher oil demand is the global energy crunch and soaring natural gas prices. The IEA said soaring natural gas prices have led to increased demand for oil, adding to the trend that increased oil demand by 100,000 barrels per day last month.
Meanwhile, oil supplies are constrained, with OPEC+ struggling to resume suspended production, while producers elsewhere have encountered a series of disruptions that have reduced spare capacity. Last month, global oil supply increased by 130,000 barrels per day to 98.6 million barrels per day.
In the early morning of January 20, the United States released the latest API crude oil inventory data. Data show that U.S. API crude oil inventories increased by 1.404 million barrels in the week of January 14, Cushing crude oil inventories decreased by 1.496 million barrels, gasoline inventories increased by 3.463 million barrels, and distillate inventories decreased by 1.179 million barrels.
“The international oil market continues to rise, mainly due to favorable support from both the supply and demand sides, which provides momentum for upward price growth. On the supply side, the geopolitical atmosphere is tightening, the situation in Kazakhstan is turbulent, and the market is worried about the political situation in Ukraine. There are expectations for tighter supply, which is The oil market has brought support. On the demand side, low crude oil inventories in the United States coupled with natural gas supply problems in Europe mean that demand for crude oil is still improving in winter. Crude oil remains high in the short term and is easy to rise but difficult to fall,” said Liu Jiao, an analyst at Huishang Futures.
According to Zhong Meiyan, energy and chemical director of Everbright Futures, supply fragility has boosted the rise in oil prices. From Ecuador to Libya, OPEC supply has insufficient potential to increase production, causing the market to still worry about the supply side. In December, OPEC overall increased production by only 90,000 barrels. /day. Geopolitical factors triggered risk sentiment in the oil market. On Monday, Houthi militants in Yemen claimed to launch a drone attack on the United Arab Emirates, causing explosions and fires in the suburbs of the capital Abu Dhabi, killing three people. A violent explosion and fire broke out in the oil pipeline between Iraq and Turkey on Tuesday night. Fortunately, it did not last long and began to gradually recover on Wednesday afternoon.
“These factors have caused oil prices to accelerate upward in the past three trading weeks. At present, we need to pay attention to the spillover effect of funds. The rise in oil prices is more about dealing with the ‘strong reality’ of high inflation in the United States. Interest rate hikes cannot be realized in a short time, creating a policy vacuum period. .” Zhong Meiyan said.
According to EIA data, as of December 2021, the global crude oil supply gap is still 2.81 million barrels per day, and the pattern of tight supply and strong demand continues. Liu Jiao believes that global oil demand will still be dominated by recovery in 2022, and the market is generally optimistic about the demand outlook. Although there are disturbances from macro factors, geopolitical tensions have escalated again, and the short-term supply tightening pattern is difficult to change.
“Currently, the overall fundamentals of crude oil are still in a tight balance. OPEC’s steady increase in production is expected, but slow increase in production is reality, so there is a certain gap in expectations, and supply is still fragile. The resilience of demand is reflected in the fact that inflation caused by loose liquidity remains at a high level. Still high, economic growth is still improving. Verification on the data side requires looking at inventories. Currently, crude oil and refined oil inventories are split. The inflection point of U.S. refined oil inventories is ahead of the inflection point of crude oil inventories. However, it is necessary to pay attention to the impact of winter weather factors and natural gas prices. The fermentation of oil prices will be the factor that makes it difficult for oil prices to fall in the short term.” Zhong Meiyan said.
Looking forward to the market outlook, Zhong Meiyan predicts that the first quarter will show a structure of first high and then low, currently pointing to the line of 90 US dollars per barrel. March may be the market turning point. The weakening of the demand margin and the repair of supply will cause the balance sheet to shift from tight to loose. As a result, oil prices are also facing downward pressure.
“Taken together, the tight supply and demand situation is likely to continue, and crude oil demand is still expected to improve in winter. As long as risk appetite does not cool down, there is still a possibility of a short-term rise. If the international oil market wants to turn around, it still needs to wait for new negative news. Guidance, it is easy to rise but difficult to fall in the near future.” Liu Jiao said.
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