After international crude oil prices exceeded the $70/barrel mark, the rise began to slow down. The author believes that the rebound in crude oil consumption caused by the lifting of blockade measures in Europe and the United States after the epidemic was under control in the second quarter is the main reason. In addition, OPEC+ production reduction measures from last year to February this year are conducive to global crude oil destocking, which also laid the foundation for a rebound in crude oil prices.
Looking to the future, we believe that the epidemic has led to a decline in the potential growth rate of the global economy and that economic recovery will shift from manufacturing to the service industry. Emerging economies such as China are facing the impact of US dollar liquidity outflows and the peak of this round of economic recovery. Global crude oil demand may have completed its recovery (consumption may be difficult to return to pre-epidemic levels), while supply is recovering, and the upward momentum of crude oil prices will Gradual depletion.
The inflection point of US dollar liquidity leads to a cooling of investment demand
As the global supply chain gradually recovers, U.S. inflation expectations fall, and after the U.S. job market improves and inflation reaches the Fed’s policy goals, there is a high probability that the Fed will The release of a signal to cut QE means that the global liquidity easing cycle has reached an inflection point, and investment demand for crude oil will cool down. The reason is that a rebound in U.S. dollar real interest rates will increase the opportunity cost of crude oil investment, while a rebound in the U.S. dollar exchange rate will also put pressure on crude oil prices.
From the perspective of the job market, as the economy continues to restart and vaccinations accelerate, the U.S. labor market is gradually recovering. JOLTS statistics from the U.S. Department of Labor show that the number of job vacancies in the United States exceeded the 9 million mark in April, setting another record high. As U.S. fiscal subsidies to residents end early, the U.S. unemployment rate is expected to accelerate. Under the Epidemic Aid Act, Americans’ weekly unemployment benefits were previously increased by $300 and extended for 18 months. They were originally expected to expire in September, but now states have chosen to end them early in June. Missouri ended unemployment benefits on June 12, followed by seven states on June 19. An additional 14 states will cut the additional $300 per week in unemployment benefits through July 10. Affected by this, according to the latest data from the U.S. Department of Labor, Missouri’s unemployment rate in May was 4.2%, far lower than the national average of 5.8%.
Crude oil consumption may be difficult to return to pre-epidemic levels
Since the fourth quarter of last year, pent-up demand has been released, and due to the lag in the launch of public transportation, the use of private cars will increase. At the same time, remote working There will also be an increase in people traveling for errands near home.
EIA data shows that as advanced economies control the epidemic, global consumption will once again exceed daily consumption in the second half of 2022 100 million barrels. Specifically, the IEA predicts that global crude oil demand will grow by 5.4 million barrels per day in 2021 (downgraded by 50,000 barrels per day) and by 3.1 million barrels per day in 2022. Global oil demand will decrease by 290,000 barrels per day in the third quarter of 2021 to 98 million barrels per day. Global oil demand will decrease by 300,000 barrels per day in the fourth quarter of 2021 to 99.3 million barrels per day.
Although the IEA has clearly stated in its June monthly report that global crude oil demand will reach pre-epidemic levels next year. However, we believe that under the impact of the epidemic, residents’ living habits and working methods will change, and travel demand may drop significantly compared with the epidemic, which means that it is difficult for global crude oil demand to return to pre-epidemic levels. In addition, with the application of new energy around the world, especially the increase in the number of new energy vehicles, oil consumption may reach its peak in 2030 ahead of schedule after the epidemic, and is currently in a slowdown stage.
In addition, we believe that the recovery in crude oil demand in India also faces constraints. India’s gasoline tax has more than tripled over the past seven years, making gasoline in big Indian cities like Mumbai almost twice as expensive as New York. The price of gasoline and diesel in India is now more expensive than when global oil prices exceeded US$100 per barrel, which makes it impossible for some Indian car owners to afford the cost of using their vehicles.
There is a lot of room for recovery of crude oil supply
In May, OPEC crude oil production rebounded for the third consecutive month, reaching 25.463 million barrels. This was the first positive growth since April last year. OPEC, led by Saudi Arabia, accounts for 40% of global crude oil production and 50% of global exports.
Iran may offer competitive prices to regain market share and will clear the oil stored on tankers as soon as possible. More than 75 million barrels of crude oil and condensate inventories. Iran’s average oil exports this year are 660,000 barrels per day, and sustainable crude oil production capacity may rise to 3.8 million barrels per day by mid-2022.
OPEC+ will hold a meeting this week to discuss the decision to increase production. At the same time, the price of the WTI August contract has stabilized at $74. According to Bloomberg survey data, OPEC+ may increase daily production by about 550,000 barrels in August, but this is only a quarter of OPEC+’s own estimated global supply gap for that month. In addition, Russia, an important member of OPEC+, is also expected to propose increasing production. There are media reports that Russia is considering proposing an OPEC+ production increase at the July meeting as it is expected to see a global oil supply shortage in the medium term.
If current policies are adhered to, OPEC+’s total oil supply will increase by 800,000 barrels per day in 2021 and 2022 OPEC+ still has room to increase production by 1.4 million barrels per day, above its target for July 2021 to March 2022. IEAIt is believed that oil production in non-OPEC+ countries will increase by 710,000 barrels per day in 2021.
Due to low oil prices in 2020, which led to the collapse of a large number of shale oil companies, U.S. shale oil production has recovered slowly, but it still exists Larger repair space. Statistics from Baker Hughes show that as of June 25, the number of U.S. oil rigs rose to 470, a significant rebound from the lowest record of 244 rigs in July last year, but still far lower than the 790 rigs before the epidemic. IHS Markit estimates that U.S. shale oil spending is expected to increase to $80 billion in 2022, from $58 billion in 2021.
CME Group’s OPEC Watch tool (OPEC Watch) shows that the probability that OPEC+ will continue to increase production in July reaches 60%, or It is said that the probability of cutting the monthly production cuts determined last year reaches 60%, which means that despite the increase in demand brought by self-driving tours in the United States in the summer, supply is also recovering, and the destocking of U.S. crude oil commercial inventories will slow down. U.S. crude oil commercial inventories fell to 459 million barrels in the week ending June 18, compared with 540 million barrels in the same period last year.
The picture shows the comparison of U.S. crude oil commercial inventories and WTI crude oil price trends
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