Since the beginning of February, international crude oil prices have accelerated their rebound. During the Chinese Lunar New Year, they once hit a new high in the past year. The NYMEX WTI crude oil futures March contract rose to a maximum of $60.95 per barrel, returning to the pre-epidemic period. s level. It is still hovering around $60/barrel. So why have crude oil prices continued to rise recently?
The reasons for the surge in oil prices are as follows:
First, the global epidemic situation has improved, and market expectations for economic recovery in Europe and the United States have driven a rebound in risk appetite. Taking the United States as an example, the spread of the epidemic has slowed down. The average number of new confirmed cases per day in the latest week was less than 100,000, the lowest since October last year.
The second is the expectation of herd immunity brought about by the global vaccination of the new crown vaccine, especially the market expectation that the group will face a huge impact on transportation In particular, the demand for refined oil products in aviation and other fields has good prospects. At present, the United States has vaccinated more than 52 million doses of the vaccine. As of February 11, the European Union has vaccinated about 4.5% of the adult population, compared with 14% in the United States, 21% in the United Kingdom, and 71% in Israel. On February 11, the International Energy Agency (IEA) released its latest monthly energy report stating that a cautious rebalancing of the global oil market is underway. Although global crude oil demand will be difficult to return to pre-epidemic levels in 2021, it will be lower than in 2020. Recovery from lows. The IEA’s latest forecast is that global crude oil demand will reach 96.4 million barrels per day in 2021, which is only 3% less than the pre-COVID-19 level (2019).
Third, there may be new changes at the supply level. The Biden administration’s support for the development of new energy sources and traditional energy sources such as There is limited support for crude oil and even a certain tendency to contain it, which makes the recovery of U.S. shale oil output relatively slow in 2021. The breakeven point of U.S. shale oil is about $40/barrel. When the oil price is significantly lower than $40/barrel, U.S. crude oil supply shrinks, and OPEC+ is also willing to cut production. Biden signed an executive order to address climate change on February 10, which includes halting federal land leasing and oil and gas drilling, and cutting fossil fuel subsidies. The orders provide direction for the Democratic president’s climate policy and environmental agenda and stand in stark contrast to the climate policies of his predecessor, Trump.
With the United States not supporting shale oil, OPEC represented by Saudi Arabia is no longer worried about the loss of market share due to production cuts. decline problem, and thus are more willing to maintain a higher implementation rate of production cuts. The IEA estimates that the implementation rate of OPEC+ countries’ production cuts was 103% in January and 100% in December. It is expected that OPEC+ will begin to relax production cuts in the second half of 2021.
Fourthly, the momentum of crude oil destocking is relatively good, making crude oil prices the last to rebound among all commodities. The IEA predicts that global refinery output fell by 110,000 barrels per day in December 2020, and that the annual growth rate will resume in the second quarter of 2021. OECD crude oil inventories fell by 44.6 million barrels in December to 3.063 billion barrels. This is 138 million barrels above the five-year average.
In the week ending February 5, U.S. crude oil commercial inventories fell to 469 million barrels, a record high of March 27, 2020 The lowest record since the beginning of the day, which means that U.S. crude oil commercial inventories have returned to pre-epidemic levels, and additional inventory pressure has significantly weakened. Citi analyst Ed Morse, who previously successfully predicted the 2014 crude oil crash, believes that as the crude oil market “inventories are depleted faster than expected,” last year’s backlog of crude oil inventories may soon be exhausted, and by the middle of the second quarter, global crude oil inventories will be as low as the outbreak. The previous five-year average level meets the demand for 55-60 days.
The picture shows U.S. crude oil commercial inventories and NYMEX WTI crude oil futures settlement price
Fifth, a large-scale global liquidity rebound has stimulated inflation expectations, causing liquidity to spill over from virtual assets such as traditional stock markets to commodity markets, such as the originally sluggish crude oil market. JPMorgan Chase published a rather unique point of view in its latest research report: commodities have begun to enter a new round of super cycle. Unlike the previous super cycle, where the biggest driving force was China’s strong demand, this time, the driving force mainly comes from changes in capital and technology, especially the former. In the coming years, capital flows will undergo significant changes and will play an increasingly important role in the asset pricing process. This is the result of electronic liquidity provision, the increasing use of leverage, and the rise of systematic trading strategies and related processes.
Of course, compared to the industrial metal copper that benefits from new energy, the crude oil market prospects are not very optimistic. There are several main reasons. One: First, as crude oil prices rebound, it is difficult for OPEC+ to maintain production cuts. The IEA predicts that global oil supply will increase by 590,000 barrels per day in January due to the slowdown in OPEC+ production cuts and the increase in non-OPEC+ production. Non-OPEC+ crude oil supply will recover to 830,000 barrels per day in 2021. OPEC+ will increase its production in the second half of 2021. began to relax production reduction measures; secondly, benefiting from the stimulation of new energy policies and China’s “carbon neutrality” and “carbon peaking” requirements, the rapid development of new energy vehicles in the future will weaken the market share of traditional fuel vehicles, natural gas power generation, photovoltaic Power generation, etc. will also weaken demand for crude oil.
Therefore, for the crude oil market, the monetary policies of various countries around the world have not yet completely changed or the contraction of liquidity has not yet undergone a qualitative change. Inflation expectations and flooding of liquidity have given rise to Speculative activities will support oil prices and may continue to rise in the short term. If we take into account the Biden administration’s new round of fiscal stimulus and the geopolitical impact in the Middle East, we need to be wary that short-term pulse-like activities will continue. Investors can use CME Group’s NYMEX WTI crude oil futures (CL) to capture long opportunities. The market activity of NYMEX WTI crude oil futures is high; with the increase in US oil production, Asian usage and the abolition of the US export ban, WTI has become an important indicator of world oil prices; enjoy 60% of long-term and 40% of short-term capital Income benefits, etc. </p
