Recently, international oil prices have continued to rebound due to continued tensions between the United States and Russia and supply disruptions in Libya. Oil prices continued their gains on Tuesday, with WTI crude oil and Brent crude oil both hitting one-month highs during the session. In terms of internal trading, the performance of domestic commodity futures was divided yesterday, with most energy and chemical sectors rising, while coal futures fell across the board.
Since late December, both internal and external crude oil futures have experienced a strong rebound. The price of the main contract of Brent crude oil futures has risen from US$72/barrel to around US$79/barrel, and the price of the main contract of WTI crude oil futures has increased from US$69/barrel. To around US$75/barrel, the price of the main domestic crude oil futures contract also rose from 454.4 yuan/barrel to 494 yuan/barrel.
Regarding the recent rise in crude oil prices, Liu Shunchang, an energy and chemical analyst at Nanhua Futures, believes that this is mainly affected by the supply side and geopolitics. On the evening of December 20, due to the turbulent domestic political situation in Libya, the largest oil field in Libya was forced to close and the two major oil ports suspended exports. Libyan crude oil production dropped by 300,000 barrels per day. Supply disruptions in Libya are still continuing, supporting oil prices. In addition, the dispute between Russia and NATO has strengthened the market’s concerns about the supply side of crude oil.
Zheng Mengqi, an energy researcher at Hizheng Futures, analyzed that the current round of sharp rise in crude oil prices can be divided into two waves: the first wave is mainly due to speculation about the substitution of oil and gas brought about by the surge in natural gas and electricity prices in Europe, and the energy crisis. With the increase in electricity and natural gas prices, oil prices fell slightly; the second wave was caused by rising geopolitical risks between Russia and NATO. “Not only is the oil and gas substitution effect caused by the shortage of natural gas supply, but also if geopolitical risks break out, Russia’s crude oil production ranks among the top three in the world, accounting for about 10% of global crude oil supply, that is, crude oil supply of about 10 million barrels per day will be affected.”
Looking forward to the market outlook, Liu Shunchang believes that crude oil does not have the basis for a sustained sharp rise for three reasons: First, the global crude oil balance sheet will shift from the current short supply to oversupply. Although the current market is increasingly worried about the supply side of crude oil, the crude oil balance sheet will shift towards oversupply. The general trend of change remains unchanged; secondly, Brent crude oil has currently risen to around US$79/barrel. If it exceeds US$80/barrel, US political intervention will be significantly enhanced. US President Biden is expected to make another speech or Measures should be taken to limit the upside of oil prices; thirdly, market expectations for the Fed’s tightening of monetary policy are still advancing, the probability of raising interest rates in March 2022 has risen to around 60%, and the US dollar is still in a strong stage. “On the whole, the probability of a sustained surge in oil prices is small, with short-term oscillations and medium-term downward pressure still continuing. Pay attention to the key resistance level of Brent crude oil at US$80/barrel.” Liu Shunchang said.
Zheng Mengqi believes that the current geopolitical risks mainly remain at the level of expectations and have a greater impact on oil prices. Currently, the fundamentals of crude oil are also weakening. Demand growth is slowing down and supply is increasing. The crude oil market has gradually turned from a gap in supply and demand to a surplus, and the Federal Reserve’s tightening of monetary policy awaits implementation, all of which suppress oil prices. In addition, the Iran nuclear agreement is also advancing. If Iranian crude oil returns to the international market, there will be greater pressure on the supply side.
“There is great uncertainty in the crude oil market at present, with market liquidity declining and volatility rising before and after holidays.” Zheng Mengqi believes that the current long and short factors are intertwined, and when none of the above expectations have been realized, oil prices are still mainly operating in oscillations.
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