This week, against the background of the frequent emergence of various influencing factors, crude oil prices have shown an unusually strong pattern. Although the market does not lack negative factors, but with continuous supply-side disturbances, oil prices still go their own way, and the bulls are like “heaven” With the mentality of “no fear, no fear”, crude oil prices have also risen from a low of US$77/barrel at the beginning of the week to a maximum of US$83/barrel, with the largest increase in a single week being close to US$6/barrel.
Looking back at this week’s market trends, the trends of U.S. stocks and copper and other commodities have shown an oscillating pattern. Oil prices can stand out, which shows that the current market optimism is in place. The market has noticed the potential insufficient production capacity of OPEC+. Even OPEC+ plans every month. Increase production by 400,000 barrels, but there is still a large gap between actual production and quota production. The market generally believes that previously expected supply issues will be pushed back, which is also the main reason for the recent strong performance of crude oil prices.
The Fed’s hawkish remarks once significantly cooled the financial market’s risk appetite, but it did not scare away crude oil bulls. Even after the Dow Jones index surged higher and fell, it still failed to stop the crude oil bulls from continuing to charge, despite the tightening of liquidity and rhythm. Speed up expectations, but the current market is not too panicked. Before seeing the Fed take serious action, the market will remain at the level of expectations. Expectation management seems to be a common method of the Fed, and investors have adapted to this.
Saudi Arabia lowered its official price for sales to Asia and Europe this week. The official price in Asia was reduced by US$1.1/barrel, and the official price in Europe was slightly lowered. Even though Saudi Arabia released expectations of a drop in spot prices, the market still did not buy it, and oil prices remained unchanged. Strong.
This week’s EIA data is also more negative. Crude oil inventories fell by 2.1 million barrels, gasoline inventories increased by 10 million barrels, refined oil inventories increased by 4.4 million barrels, and full-bore inventories increased by more than 12 million barrels. This is much worse than the API data. However, such poor data did not cause crude oil prices to fall sharply, because investors paid more attention to supply-side setbacks such as civil unrest in Libya and Kazakhstan, which pushed oil prices to remain strong.
The speed of the spread of the global epidemic also surprised us this week. According to WIND data, the number of newly confirmed cases in a single day worldwide has jumped to 2.6 million, an increase of 2 million from a month ago. The number of newly confirmed cases in a single day in the United States has jumped to 760,000, an increase of 680,000 from a month ago. This is “terrifying” The slope was unprecedented, but hospitalization and death rates did not increase significantly. Even so, we are still worried about the crazy spread of the epidemic. After all, the time from Delta to Omicron is not long, so the rapid spread of the epidemic has also given the market more uncertainty and potential threats.
This week’s rise in crude oil prices has also significantly pushed up the strength of monthly differentials. Among them, WTI crude oil monthly differentials were once stronger than Brent crude oil. This shows that in addition to short-term disturbances on the supply side, the power of macro funds is also important in this round of price increases. factor. However, compared with the last time crude oil exceeded 80 US dollars per barrel, the strength of the monthly difference this time is slightly insufficient, so this also adds a bit of uncertainty to the later price trend.
Taken together, the strong counter-seasonal rise in crude oil prices in the first week of the New Year somewhat surprised the market. But at present, there are doubts about how much room for crude oil prices to rise. It seems difficult for oil prices to do much in the atmosphere of expectations of oversupply and tightening liquidity. Supply-side disturbances such as Libya and Kazakhstan are all short-term factors, unless a real conflict breaks out between Russia and Ukraine. Judging from the meeting between Putin and Biden , the game between the United States and Russia has not yet reached this level. However, geopolitics is an unpredictable category. Judging from the current game, it seems that there will be no “fish or die” situation. Therefore, there will be many variables in oil prices in the future, and it will be more difficult to operate. Positions need to be treated with caution.
Bulls Ignore U.S. Bears
This week’s EIA data can be described as very negative. The large increase in refined oil inventories indicates that market demand is beginning to weaken, but the market chooses to ignore it. If placed in a normal time period, oil prices are expected to be affected and weaken. However, U.S. crude oil inventories have been on a downward trend. Judging from the inventory trends throughout 2021, the crude oil side has been destocked at a relatively large rate, which also laid the foundation for strong oil prices in 2021. At present, this trend of destocking is still continuing, but crude oil inventories have been transformed into refined oil inventories.
The increase in refined oil inventories is also in line with seasonal trends. Compared with the fourth quarter of previous years, the increase in refined oil inventories in the fourth quarter of 2021 is not large. The market is still looking forward to the steady recovery of global demand in the post-epidemic era. From the perspective of global gasoline and diesel demand, the current market has roughly returned to the level before the epidemic. Therefore, although the new coronavirus is still spreading rapidly, the market has not seen a significant decline in demand. In this case, the epidemic will not fundamentally change the fundamental trend of crude oil.
U.S. crude oil production has recently remained at 11.8 million barrels per day, which is 1.3 million barrels per day lower than the historical peak of 13.1 million barrels per day. But when we look back at history, we can find that in the early stages of rising crude oil prices, U.S. crude oil production did not grow very fast. The last time U.S. crude oil production remained at 11.8 million barrels per day.As recently as November 2018, the price of crude oil was around US$80/barrel, which was basically consistent with the current market. After October 2018, crude oil prices began to decline, but U.S. crude oil production continued to increase steadily. Until March 2020, crude oil prices fell from around US$80/barrel to around US$50/barrel.
This also means that if crude oil prices continue to remain high, the United States will still have the motivation to continue to increase production. When the United States is facing high inflation, Biden hopes to suppress crude oil prices, so Biden will most likely not limit the increase in U.S. crude oil production. , non-OPEC+ still has enough motivation to increase production.
Geopolitics and OPEC+ production
Geopolitics has been the focus of market attention recently. After the civil strife in Kazakhstan, the market is worried that its crude oil production will be fundamentally affected. It is also worried that the geopolitical game surrounding Central Asia will become more intense. The market is in geopolitical panic. China continues to push up oil prices. Judging from the current known news, Russian peacekeeping troops have been stationed in Kazakhstan to help stabilize the domestic situation. Therefore, the situation in Kazakhstan is not enough to affect oil prices in the long term. However, we do not rule out the possibility that similar geopolitics will continue to spill over. Geopolitical factors may become the biggest uncertainty in 2022.
Supply-side concerns are mainly reflected in a Reuters report. On January 6, a Reuters survey first released OPEC production data for December 2021. Compared with November production, December production increased by only 70,000 barrels/barrel. day, far below the production limit of 253,000 barrels per day. As a result, OPEC’s production reduction implementation rate also increased from 120% in November to 127%, which was interpreted by the market as OPEC’s insufficient production capacity.
The largest increase in production in December 2021 was from Saudi Arabia, which increased production in accordance with its commitments in the agreement. Secondly, there is Angola, but Angola has maintained a high production reduction implementation rate in recent times, with a production gap of nearly 300,000 barrels per day in November. The largest decline in production was in Libya, with a drop of 100,000 barrels per day. Due to force majeure at two Libyan terminals, crude oil exports were blocked and production was also affected to a certain extent. This was followed by Nigeria, where force majeure also led to a decline in crude oil production.
If we use various force majeure to infer that OPEC+ production capacity is insufficient, it is obviously far-fetched. According to Bloomberg data, OPEC+ currently has 5 million barrels of idle production capacity. Therefore, there is no problem of insufficient production capacity, but the core countries in the Middle East want to As for the problem of not wanting to put it into production, the lack of production capacity currently mentioned in the market is more like a gimmick. The actual situation will not be known until the OPEC+ monthly report is released in January.
In the past week, the decline in production in Libya and the civil unrest in Kazakhstan have given rise to market speculation. Oil prices have hit a seven-week high and have entered the high oscillation zone of oil prices in October last year. If there are no major negative effects or a major change in market sentiment, oil prices will Do not rule out consolidating at a high level for a period of time.
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