In October, crude oil prices continued to rise sharply. The main contract of WTI crude oil futures hit a new high since November 2014, and the main contract of Brent crude oil futures also rose to near the high in the past seven years. Although industrial product futures prices have generally fallen by more than 10% from their highs in the past two weeks, the upward trend of the crude oil market has not been destroyed, and crude oil has almost become the only important industrial product that has not been “air raided”. As of the close on October 30, WTI crude oil futures rose 10.92% in October, and Brent crude oil futures rose 6.67% in October.
Slow growth on the supply side
Output Slow growth is one reason for this wave of strength in crude oil prices. From the perspective of global production, OPEC still maintains its policy of limiting production, and U.S. crude oil production has remained stable. Even though crude oil prices have risen to a high in nearly seven years, crude oil supply has not been fully released.
After experiencing the disruption of the COVID-19 epidemic, the big crash of the crude oil market last year gave investors pessimistic expectations, leading to a certain slowdown in market investment, which in turn led to a decline in crude oil production. the situation of insufficient growth. The U.S. market is the best example. Crude oil prices have risen to US$80 per barrel, but U.S. crude oil production has been unable to increase. As a result, the increase in global crude oil supply mainly depends on OPEC. As for OPEC, since it is difficult for U.S. crude oil production to increase significantly, there is no prisoner’s dilemma between the U.S. and OPEC, and OPEC is able to continue to maintain production restrictions, which further exacerbates the supply shortage in the crude oil market.
In addition, the market is also worried about potential insufficient production capacity in the future. The CEO of Saudi Aramco said that the decline in spare capacity in oil supply is “worrying” and that oil demand is increasing while spare capacity is declining. If the aviation industry continues to recover next year, the spare capacity of crude oil will be exhausted. The current situation is that supply is still limited, and no matter how much spare capacity there is, it is declining sharply. The IEA monthly report stated that by the second quarter of 2022, OPEC+’s effective idle production capacity may fall below 4 million barrels per day, compared with 9 million barrels per day in the first quarter of 2021. The impact of insufficient production capacity is undoubtedly more far-reaching.
Insufficient production capacity and excessively high oil prices have also caused concerns in the global market, especially when the global economy has not yet fully recovered due to the disruption of the current epidemic. On Thursday, U.S. economic data released that the initial annualized quarterly rate of U.S. real GDP in the third quarter was 2%, significantly lower than the previous value of 6.7%, and the expected value was 2.7%; the annualized quarterly rate of the U.S. core PCE price index in the third quarter The initial rate was recorded at 4.5%. This can’t help but make the market once again worry about the risk of stagflation in the US economy. Allianz’s chief economic adviser warned that central banks will be torn between dealing with “stagflation” and “inflation” in a world where investor confidence in policymakers is shaken and the confidence investors have had over the past decade has been underpinned. No longer exists, although major Fed officials represented by Powell are still repeatedly emphasizing the “temporary theory” of US inflation. Therefore, from the perspective of reducing inflation expectations, the United States has the possibility of suppressing crude oil prices.
The global refined oil market is tightening
The surge in coal and natural gas prices has indirectly caused tension in the global refined oil market, especially the diesel market. The shortage in the natural gas market has caused part of the demand to shift to the fuel oil and diesel markets, indirectly Driven the growth of crude oil demand. The tension in the global refined oil market can be seen more clearly from the recent performance of the crack spread. The crack price difference between gasoline and diesel in the Chinese market has reached a historical high. Although refined oil prices in Shandong and some markets have experienced a sharp correction recently, the situation that diesel is still tight in some areas has not changed. However, domestic refineries have begun preparing to increase production in order to stabilize the market, and it is expected that the shortage in the domestic market will not last long.
After successfully suppressing coal prices domestically, the domestic fossil energy tension has been greatly alleviated, but the shortage in foreign markets is not so easy to solve. From the perspective of crack spread, Singapore’s gasoline crack spread has returned to its highest point in recent years, and diesel crack prices are also relatively strong. The same is true for the US crack spread, with both gasoline and diesel cracks at their highest values in recent years. Europe is relatively stable, but the recent crackdown also reflects market nervousness.
The U.S. market is also interesting. Usually, the U.S. does not have high tolerance for excessively high gasoline prices. Looking back on 2018, when high crude oil prices drove up U.S. gasoline prices, Trump It has repeatedly tried to find ways to suppress oil prices, and even released the key Iran to deal with the crisis at that time. Biden is also disgusted with excessively high gasoline prices and has repeatedly threatened OPEC to increase production, but it seems that OPEC does not buy it. Recently, U.S. officials have stated that energy producers who can increase production should increase production. When gasoline prices are too high, we need to pay attention to the possibility of the United States suppressing oil prices.
For the United States, the most feasible way to suppress oil prices is still on the supply side.� Therefore, we can only try our best to urge OPEC to increase production as soon as possible or to increase shale oil production significantly. Judging from the current situation alone, the possibility of a substantial increase in the short-term supply side is relatively low. Although Iran and the EU have already negotiated the Iranian nuclear agreement, Iran’s asking price is also significantly higher than before, so it wants to reach an Iranian nuclear agreement in the short term. There are many difficulties unless Europe and the United States make significant concessions. Therefore, while observing the United States’ tolerance for high oil prices, we must also pay attention to the United States’ attitude towards Iran and Venezuela. If sanctions are lifted on these two countries, there will be a certain increase in the supply side, and the price of crude oil will be able to truly increase. Effective descent.
Crude oil prices may oscillate and weaken
The current crude oil market has entered a logical “vacuum period”. The good news has been exhausted, and the bad news has not yet fermented. As a result, oil prices began to oscillate around $85/barrel. Due to the relatively lackluster market conditions and declining positions, some funds have been gradually withdrawn from the crude oil market. Judging from the level of fund holdings, the net long position of Brent funds has continued to decline in recent times, and the net long position of WTI funds has also dropped significantly from the previous level of more than 70 US dollars per barrel, indicating that funds do not recognize that the current crude oil price will rise significantly in the short term. .
If the crude oil market falls sharply in the future, several factors will need to ferment: First, the United States urges global production to increase significantly. Once OPEC or the United States increase production significantly, the crude oil market will be strong. The pattern will be broken, and oil prices will naturally have a basis for falling. The second is that the United States releases crude oil production from Iran and Venezuela. Although Iranian crude oil has been exported in large quantities through gray channels, the complete lifting of sanctions will be a huge blow to expectations, and crude oil prices will also have certain downward pressure. Third, international coal and natural gas prices have fallen sharply, and the fossil energy crisis has been lifted.
However, as time enters the fourth quarter, U.S. crude oil demand may decline, and crude oil inventories are likely to follow a seasonal accumulation trend. From the perspective of price seasonality, the current crude oil price is also at a seasonal high. If the cold winter expected by the market fails, then the crude oil market will also see a relatively obvious correction process, so the recent crude oil price may oscillate and weaken. Quotes. </p
