In April that just ended, the crude oil market experienced a process from oscillation to strength. Brent crude oil has always oscillated between 61 and 68 US dollars per barrel. However, as the oscillation time continues, the market adjustment has also come to an end. Brent crude oil hit $68/barrel twice, but failed the first time. After adjusting to $65/barrel, it launched a charge again. This time, the price rose sharply stimulated by the news that the United Arab Emirates was about to cut crude oil production. As we approach the end of April and the May Day holiday, crude oil prices once again challenge the upper edge of the range. The sharp drop on the last trading day of April has added variables to the market. Can oil prices remain strong in May?
During this period, the influencing factors of the crude oil market are intertwined with long and short positions, resulting in relatively confusing logic. The fermentation of the epidemic in India has had a certain impact on crude oil demand expectations, and prices have also hesitated under the impact, and bulls have been reluctant to launch an upward impact. The epidemic in India is developing so fast that the market has never imagined. In just one month, the number has increased fivefold to 380,000, setting a new single-day high for confirmed cases of the global epidemic. At the same time, India’s problem also lies in the shortage of vaccines and medical facilities. India’s oxygen demand has exceeded its supply, and vaccines are also insufficient to a certain extent. Coupled with the ineffective epidemic prevention and control measures, India has experienced high outbreaks, The horrific phenomenon of high death rates.
In addition, the Iran nuclear agreement may also become a factor that disturbs the market. While the United States is eager to solve the Iran problem, it has also made concessions on some key issues. However, the differences between the United States and Iran will not be resolved overnight, and Israel does not hope that the Iran nuclear deal can be resolved quickly, thereby giving Iran a good opportunity for development. Therefore, the Iran issue will not become a trigger for sharply suppressing oil prices in the short term. . But as long as the Iranian nuclear issue exists, short sellers will have a weapon in their hands, and they will come out from time to time to remind the bulls that there is still this potential threat in the market. In the future, we need to keep a close eye on the relevant trends between the United States and Iran. Once the US-Iran agreement is reached, there will be a big disturbance in the crude oil market.
In the short term, the crude oil market has reached a critical time point. If the oil price can stabilize at US$68/barrel, then the oil price will once again reach the previous high of US$71/barrel. Let’s move forward; if the market is still worried about the fermentation of the epidemic in India and begins to briefly peak around US$68/barrel, then oil prices will continue to oscillate in the range of US$62-68/barrel.
International investment banks continue to be bullish on oil prices
The recent market trends of Goldman Sachs and Morgan The report is extremely optimistic about oil prices in the third quarter, and the core views are almost unanimous. The main bullish logic is that in the third quarter, with the popularization and promotion of vaccines, market demand will recover rapidly, and at the same time, the growth of the supply side is Slowly, the growth of demand will cause global supply to become tighter to a certain extent. Global crude oil inventories will also usher in a wave of rapid destocking after the second quarter. Commodities including crude oil and copper will usher in a decline. Through this process, the world will once again enter a bull market for commodities. Goldman Sachs predicts that Brent prices will reach US$80/barrel in the third quarter, WTI prices will reach US$77/barrel, and copper prices will exceed US$11,000/ton in the first quarter of next year. Although Morgan’s price predictions are not as aggressive as Goldman Sachs’, they will maintain a steady upward trend over the next year.
Goldman Sachs said that the core of the recent consolidation in commodity prices is due to the reopening of European markets, but as vaccinations roll out in Europe, as the level of economic activity picks up, transportation, Manufacturing and construction also saw seasonal upward trends. At the same time, while demand is recovering rapidly, the supply of bulk commodities is almost inelastic in the short term, which means that it is difficult for the increase in supply to match the increase in demand in the short term, and supply shortages will become an indisputable fact. . Goldman Sachs predicts that oil demand will see the largest growth in history at 5.2 million barrels per day. Although the epidemic in India will be difficult to control in the short term, it will still be difficult to stop the market from rapidly recovering. Demand growth is mainly driven by Europe, the United States and China. will continue to affect the market.
Morgan also said that as the economy reopens in the second and third quarters, the world will shift from buying metal-intensive goods to buying oil-intensive services, such as driving and dining out. , visiting friends and traveling. The United States will grow faster than many other countries this year and will be one of the main drivers of the ongoing global economic recovery. Europe will join the United States in May and June and embark on the road to recovery. Overall, rising demand means inventories will continue to draw even as OPEC+ brings 2 million barrels per day of production back to the market. A boost in U.S. demand in the second quarter should bring OECD inventories to the five-year average in April, a month earlier than previously expected. Crude oil production in the Permian Basin, the most prolific shale oil producing area in the United States, is already rising and may reach pre-epidemic production levels by October 2021. In addition, Iran’s oil production and exports grew faster than expected despite severe U.S. sanctions and the impact of the COVID-19 epidemic. This supply and demand trend suggests Brent crude oil prices will�Exports will hit Asia’s refined oil market and affect Asia’s enthusiasm for crude oil processing. Therefore, we can also understand that India may forcibly pass on the supposed decline in crude oil demand to Asian refineries, resulting in a certain decline in Asian refinery demand.
Global de-banking is actively advancing
The most direct change between supply and demand is inventory, which is also the most powerful evidence reflecting the mismatch between supply and demand. Judging from the current situation, there are no obvious signs of inventory destocking in the U.S. market, but the current inventory level is close to the five-year average and is significantly lower than in 2020. Judging from the annual increase in U.S. crude oil inventories, this year’s crude oil inventory growth rate is the lowest in the past four years. The last time a similar trend occurred was in 2018. We all know that the crude oil market in 2018 continued to be in a bull market from the beginning of the year to the entire third quarter, so the price trend in 2018 can also be used to reflect the possible market trend in the future.
From the perspective of U.S. refined oil inventories, current gasoline inventories are relatively low and are still in the process of slow destocking. With the arrival of the peak demand season, U.S. gasoline inventories are expected to Continued lower. U.S. diesel inventories are similar to gasoline inventories, but the seasonal destocking of diesel inventories is in the third quarter, so it will not have a great pull on full-caliber inventories in the future.
The market has given sufficient expectations for the OECD’s destocking, especially since major investment banks expect a huge increase in crude oil demand in the third quarter, and the final result of the inelastic supply is through Inventory means make up for the overflow of demand. Judging from the OECD inventory level, the current inventory level is lower than the five-year average level. As demand recovers in the future, the decline in inventory levels will continue to inject upward momentum into the crude oil market.
To sum up, the market is now at a critical time point when the logic may change, but the real problem is that India’s The epidemic is still fermenting, and the rapid recovery of demand according to major investment banks is still at the expected level. The market has experienced many times this year for the expected level of pull, but each time the market failed to form a huge breakthrough, and Brent crude oil prices were the highest. The price will cease when it rises to US$71/barrel. Therefore, we do not believe that short-term prices will perform relatively well in terms of expected pull. Only when demand truly strengthens can oil prices get out of the oscillation range. In the medium and long term, despite the existence of the epidemic in India and OPEC’s decision to increase production by 2 million barrels per day in the next three months, with the deepening of vaccine popularization, it is a high probability that demand will recover in the future, so demand will It will drive oil prices to continue to rise. </p
