In just one month, a variety of factors affecting oil prices took turns, making the crude oil market trend after August particularly exciting, and market views also reversed in August. Before August 20, due to a series of negative “bombardments” such as demand setback due to the epidemic, increased supply, and a sharp strengthening of the U.S. dollar, oil prices experienced seven consecutive negative years for the first time in more than two years, especially as the International Energy Agency sharply lowered demand for this year. After the expected 550,000 barrels per day, market confidence fell to its lowest point during the year. Then the oil price staged a very dramatic reversal. First, Pemex’s offshore platform caught fire, and then the United States was hit by the devastating Hurricane Ida, forcing the U.S. Department of Energy to once again use strategic oil reserves to stabilize the situation. market. At the macro level, poor economic data, especially the performance of August’s non-farm payrolls data, has complicated the prospect of the Federal Reserve starting to reduce monetary support before the end of the year. The dollar has weakened sharply, and U.S. crude oil continues to destock, and the market is worried. After subsided, oil prices embarked on another “shocking reversal” of 11% surge in a single week, the largest weekly increase since June 2020. In late August and early September, oil prices oscillated at a high level, driven by bullish factors.
The current wait-and-see sentiment in the market has revived. After all, supply disruptions caused by hurricanes are only a short-term subject, and there is limited room for speculation. Looking ahead, the narrowing gap between supply and demand in the crude oil market remains an obvious negative factor. The poor non-farm payroll data makes the Fed’s expected delay in bond purchases a high probability event, which will help ease concerns about macro liquidity and be bullish for oil prices. But from another perspective, poor employment data means great challenges to economic growth, which can easily undermine investor consumer confidence. The demand potential of the crude oil market is questionable, which is why oil prices fell back from their highs on Friday night.
In August, the crude oil market showed obvious differentiation in different regions. After its strong performance in July, WTI crude oil became the weakest performing benchmark as funds continued to leave the market with net long positions. The price gap between oil and Brent has once again widened to more than $3/barrel. At the end of August, as the overall atmosphere of domestic commodities was hot, which helped to increase market optimism, and Shanghai crude oil futures warehouse receipts were at the lowest level since the epidemic, storage fees also returned to normal levels, and the pressure on warehouse receipts was greatly relieved. Shanghai crude oil was the strongest. In the past, The price difference with Brent shrank by more than $2/barrel in the week.
Short-term supply disruption VS medium and long-term Supply pressure
Hurricane “Ida” had a great impact on U.S. crude oil production. Nearly a week after the hurricane, the U.S. Bureau of Safety and Environmental Enforcement said that 93.33% of crude oil was still in the Gulf of Mexico. Production (or 1.7 million barrels per day) and 89.25% of natural gas production (or 1,990.19 million cubic feet per day) were shut down. Short-term supply disruptions forced the United States to once again use strategic petroleum reserves to meet market demand. Baker Hughes reported on Friday that the number of U.S. oil rigs had its largest weekly drop so far this year due to the impact of hurricanes. The number of active oil rigs in the United States fell by 16 to 494 during the week. Obviously, the impact of the hurricane on crude oil production was greater than expected, and the recovery progress was slower than expected.
Due to the impact of the hurricane, supply pressure has significantly eased in the short term, and crude oil inventories continue to decrease. EIA inventory data showed that crude oil inventory changes actually decreased by 7.169 million barrels, which was expected to decrease by 2.927 million barrels. The previous value decreased by 2.98 million barrels, the lowest since September 27, 2019. Gasoline inventories actually increased by 1.29 million barrels, which was expected to decrease by 1.367 million barrels, and the previous value decreased by 2.241 million barrels; refined oil inventories actually increased by 1.732 million barrels, which was expected to decrease by 809,000 barrels, and the previous value increased by 645,000 barrels. Crude oil exports increased by 228,000 barrels per day to 3.04 million barrels per day. Commercial crude oil excluding strategic reserves imported 6.34 million barrels per day last week, an increase of 183,000 barrels per day from the previous week. Overall, the U.S. crude oil market still maintained a unilateral decline in August, and the extent of destocking increased last week. However, it cannot be ignored that the United States is about to usher in the turning point of seasonal storage accumulation.
In addition, the OPEC monthly meeting, which is highly watched by the market, reached a decision to continue to increase production by 400,000 barrels per day in October. This video conference lasted less than an hour and was the latest meeting agenda. One of the shortest meetings, a sharp contrast to the difficult negotiations in July. Obviously, the market did not regard this decision to increase production as a negative factor. Some experts said that OPEC ended the meeting in a short time, showing that they are united, rather than the differences that the market feared in recent rounds of meetings. In an atmosphere of relatively high risk appetite, the market seems to have accepted this explanation, but we believe that there is also a negative hidden behind it, which is that competition for market share has begun within OPEC. Put on the brakes”.
The short-term supply damage in the crude oil market is obvious, but judging from the development trend, the continued recovery of supply-side production will be a deterministic event. The next OPEC meeting will discuss the implementation of production increase. Judging from the current development of the crude oil market, the planned increase in production by 400,000 barrels per day will be a deterministic event, and this increase in production will continue until April 2022. During the year, OPEC+ will have 2 million barrels per day of supply returning to the market.
The three authoritative monthly crude oil reports of EIA, OPEC and IEA are released one after another in August.Get more data on labor market recovery and economic growth. If conditions turn particularly bad over the next two months, the Fed could further delay its debt reduction schedule.
The U.S. unemployment rate fell to 5.2% in August, a new low since the outbreak. It reflects that many people of working age have chosen to temporarily or Dropping out of the job hunt permanently does not bode well for the economic future. The Delta variant is taking a toll on some economies, damaging already troubled supply chains and hurting demand. Analysts expect U.S. GDP growth to be below 4% in the third quarter, implying a significant slowdown in U.S. economic momentum.
After the bad employment data, the financial market experienced violent fluctuations, gold and silver rose sharply, and risky assets diverged, showing investor uneasiness and demand for safe havens. We have seen that although liquidity concerns have eased and the sharp weakening of the US dollar will help increase the strength of oil prices, for oil prices, the market is also worried from another perspective that the bad economic data will put pressure on crude oil demand.
This round of rebound in oil prices has exceeded 12%, accumulating a certain amount of adjustment energy. Oil price outlook: Although there are currently bullish news on macroeconomics and supply and demand, we must pay close attention to the reversal after the bullish news is exhausted. The restart of offshore oil wells in the U.S. Gulf of Mexico is advancing rapidly. Once the short-term supply reduction theme subsides, oil prices will once again face a supply and demand gap in the later period. Narrow the pressure. Judging from the position of oil prices, adjustment pressure is gradually increasing. In the later period, we must pay close attention to the recovery progress of crude oil production in the U.S. Gulf of Mexico and the impact of macro factors and supply and demand on market sentiment in the later period. </p
