After more than three consecutive months of shock and consolidation, oil prices finally chose a direction – falling. Crude oil has fallen by about 15% in the past week, which is basically in line with the bearish view we proposed earlier (except for the magnitude). Looking back at this sharp decline, there are six main logics: 1. Suppression of macro risk appetite; 2. Sharp decline in U.S. demand; 3. Unsatisfactory OPEC+ implementation; 4. Saudi Arabia lowered its selling price to Asia in October; 5. Technology The graphics support the breakthrough in the direction of oil prices; 6. A large number of warehouse receipts and the appreciation of the RMB make domestic oil prices relatively weaker.
Looking at the market outlook, in the short term, there are certain accidental factors in the sharp decline in demand in the United States last week. Once the EIA data improves on Thursday night, crude oil is expected to stabilize. At the same time, as the two parties in the United States reach an agreement on stimulus policies in the later period, oil prices are likely to start to rebound in late September.
1. Looking back, many factors caused the sharp drop in oil prices
Although we had judged that oil prices would fall beforehand, we may not have been prepared for such a magnitude. However, looking back, we can indeed find many clues to support the sharp drop in oil prices.
1. Macro risk appetite suppression
Since the outbreak of the global epidemic, more than 20 million people have been infected. However, as central banks continue to relax measures, the stock market and commodities have experienced considerable gains after hitting bottom. The Dow Jones Industrial Average was only 400 points away from its historical high last Thursday. Points away. However, the two parties in the United States have differences in subsequent water release policies. The Republicans only support the 1.3 trillion stimulus plan, while the Democrats insist on unchanged the 2.2 trillion plan. Therefore, under the premise of unclear short-term policies, the stock market and commodities are in urgent need of a correction in the macro environment after accumulating a large number of profits and bubbles. In recent years, especially after July, the trends in oil prices and U.S. stocks have basically coincided. Therefore, the simultaneous decline in stock prices and oil prices can be seen as a concentrated release of risks accumulated in the early stage.
2. U.S. crude oil demand fell sharply by 2.64 million last week Bucket/Day
Peak driving season in the United States begins in June and ends on Labor Day in early September. During the peak period of driving travel this year, the United States was in the midst of a public health epidemic and travel was restricted. Although demand for gasoline and diesel has recovered somewhat compared to April and May, total demand is less than 90% of last year. After the peak driving season ends, demand will decrease further, which will further depress crude oil prices at a time when supply is already struggling to continue declining.
3. The implementation of OPEC+ is not satisfactory
From an absolute value point of view, this time OPEC The enforcement of production cuts is indeed rare and good, but considering the difficulties faced by the crude oil market this time, such enforcement is still slightly insufficient. Iraq has been unable to meet production reduction requirements due to its unfavorable control over international oil companies and the domestic Kurdish autonomous region; Nigeria hopes to exclude 400,000 barrels/day of condensate production from the production reduction agreement like Russia; the United Arab Emirates also significantly increased production in October plan, according to a report by EnergyAspects, the output of its 10th plan exceeded the quota by 900,000 barrels per day. Judging from the current situation, Saudi Arabia and Russia have no effective measures to curb these situations.
4. Saudi Arabia lowered its selling price to Asia in October
Saudi Arabia lowered the official selling price of various types of crude oil supplied to Asia and the United States in October, lightening its supply to Asia. The reduction in crude oil prices is the largest since May, which means that demand for light and medium crude oil in the Asian market, Saudi Arabia’s largest crude oil market, remains weak. The official sales price of crude oil supplied by Saudi Arabia to Asian contract customers in October was reduced by US$0.90-1.50, of which the official sales price of light crude oil was reduced by US$1.40. Many tankers carrying crude oil will be shipped to Asia in the fourth quarter, exacerbating near-term oversupply concerns, with continued risks of oversupply in Asia in the fourth quarter.
5. Technical graphics support oil price’s breakthrough in the chosen direction
Before this sharp drop, the Bollinger Bands of oil prices in the internal and external markets converged, especially the external market that basically broke out of the horizontal line for two consecutive months. The fluctuations in the internal market after excluding the RMB factor are also very small. As the saying goes, “The horizontal is as long as the vertical is as high.” Oil prices will inevitably need a directional breakthrough after a long period of consolidation.
6. A large number of warehouse receipts and RMB appreciation make domestic oil prices relatively weaker
In addition to the above common factors, a large number of warehouse receipt suppression and RMB appreciation have made domestic oil prices relatively weaker. In terms of warehouse receipts, although there has been a slight decrease, the volume of 42,802 lots of warehouse receipts is still at a high level. The RMB against the U.S. dollar quickly appreciated from 7:1 to 6.8:1.
2. Looking to the future, the market will continue to fall and there will be insufficient motivation
For the future trend , we believe that the current fundamentals do not support a sharp decline in oil prices, and oil prices are expected to stabilize in the short term, and with the implementation of new stimulus policies, oil prices are expected to rebound in the later period.
1. Crude oil demand is volatile
U.S. crude oil demand is volatile, with a sharp decline last week I prefer to think that it is the reduction in travel caused by the hurricane. The epidemic in the United States has begun to gradually decline, and demand will most likely remain stable. Although the end of the travel peak will affect some demand, last week’s data appears to be too distorted. We believe that this Thursday The crude oil consumption data released later will rebound.
2. The United States will eventually achieve New stimulus policy
The current oil price and stock market can be said to be based on the flood of money. The failure of the Democratic and Republican parties in the United States to reach an agreement has indeed caused a sudden stop in the faucet. The market was caught off guard. However, considering that the current gap between the two parties in the total amount of stimulus is not large (narrowed from 3.3 trillion to 500 billion at the beginning to 2.2 trillion to 1.3 trillion currently), we believe that before the government shutdown in October There is a high probability that a new agreement will be reached. After all, both parties must consider the political impact during the election year.
3. The current oil price is not in line with the interests of OPEC+
The ability of oil prices to maintain low fluctuations for such a long period of time mainly depends on OPEC+’s careful “manipulation”. OPEC+ passes the monthly meeting to adjust production and control oil prices, achieving this rare result. It is obvious that the current Brent oil price of $40 is close to their limit, and the room for another decline is very limited. Short sellers need to pay attention to OPEC+ members while suppressing oil prices. Countries’ response. Their possible actions include tough demands on Iraq and Nigeria to cut production, other countries to maintain current production unchanged, and Saudi Arabia to further reduce production.
3. What to do, wait and see, wait for stabilization and then try to buy more
Looking at the market outlook, in the short term, there is a sharp decline in demand in the United States last week. There must be accidental factors. Once the EIA data turns positive on Thursday night, crude oil is expected to stabilize. At the same time, as the two parties in the United States reach an agreement on stimulus policies in the later period, oil prices are likely to start to rebound in late September. In terms of operation, it is recommended to wait and see the oil price in the short term. If the oil price can stabilize at the current position within a day or two, and with better EIA data, you can try to go long with a short position.
4. Risk disclosure
1. The epidemic situation has undergone major changes.
2. Sino-US trade friction escalates.
3. The RMB has appreciated significantly. </p
