The game of forced destocking and negative feedback, what’s the future of crude oil?

International oil prices have risen slightly in the past week. According to the latest position data statistics, the net long positions of WTI crude oil and Brent crude oil have in…

International oil prices have risen slightly in the past week. According to the latest position data statistics, the net long positions of WTI crude oil and Brent crude oil have increased significantly in the week ending September 5. It is obvious that investors are full of confidence in the rise in oil prices. As the world’s largest importer of crude oil, my country is more sensitive to supply tightening. Coupled with factors such as the weakening of the RMB exchange rate, the performance of SC crude oil was once again significantly stronger than that of the European and American markets, with a weekly increase of 5.5%. The obvious trend of Brent crude oil is more powerful. On September 5, Saudi Arabia and Russia announced that they would extend voluntary production reduction measures for another three months to the end of 2023. They later emphasized that further voluntary reductions in oil supply are intended to strengthen and consolidate the preventive measures taken by OPEC+ countries to maintain the stability and balance of the oil market. It also said that the voluntary production reduction decision will be reviewed monthly to consider further production cuts or increases.

Joint Saudi-Russian actions have injected new uncertainty into the market. First of all, extending production cuts means that the crude oil market will have a supply shortage of 1.3 million barrels per day in the fourth quarter, which will have a significant impact on the balance of supply and demand in the crude oil market. It will further aggravate the tight supply situation in the crude oil market and push the center of gravity of oil prices upward. Secondly, after entering the high oil price range, changes in the crude oil market will have a complicated impact on the economy. In addition to the relatively certain rise in oil prices, which will boost inflation expectations in the European and American markets, high oil prices will also most likely inhibit the performance of the demand side of the crude oil market. It will also It may once again trigger a game between major powers. This also allowed investors, faced with the certainty of supply tightening, not to rush to make large bets after the news of an extension of production cuts, but to keep oil prices oscillating at a high level due to more cautious trading.

The latest EIA weekly report shows that U.S. commercial crude oil has dropped to its lowest level since the week of December 2, 2022. As of the week of September 1, EIA crude oil inventories decreased by 6.307 million barrels to 417 million barrels, a decrease of 1.49%. It is expected to fall by 2.064 million barrels, and the previous value fell by -10.584 million barrels. Crude oil inventories in Cushing, Oklahoma, fell by 1.75 million barrels, compared with the previous drop of 1.504 million barrels. Moreover, crude oil inventories have entered a stage of rapid decline since Saudi Arabia began to implement voluntary production cuts in July, which means that the early voluntary production cuts by Saudi Arabia and Russia have caused an obvious gap between supply and demand in the crude oil market. Although the United States raised domestic production for three consecutive weeks in August, from 12.2 million barrels per day to 12.8 million barrels per day, production returned to the highest level since March 27, 2020.

In addition, according to recent market news, it can be seen that the recovery of Iranian crude oil is accelerating. As the United States gradually relaxes sanctions on Iran’s oil sales, Iran has restored its production to the highest level since the ban was implemented five years ago. Some institutions predict that Iran’s crude oil production has reached 3.2 million barrels per day, and its exports to China have reached the highest level in 10 years. of crude oil. Davoud Manzour, head of Iran’s National Planning and Budget Organization, previously stated that Iran’s crude oil exports have exceeded the country’s budget level as of March 2024. Previously, Iran’s Oil Minister said that by August 22, the country’s daily oil production will increase by 110,000 barrels to 3.3 million barrels. Iran hopes to increase its oil production to 3.5 million barrels per day by the end of September. In addition, the United States is also considering re-establishing sanctions on Venezuela so that buyers in Europe and other regions can also resume imports of Venezuelan oil. Venezuelan crude oil has also gradually recovered since this year. According to the August monthly report of the International Energy Agency (IEA), the United States will promote non-OPEC+ oil production to increase by 1.9 million barrels per day. At present, changes in the supply level basically correspond to this prediction, filling the gap caused by OPEC+ production cuts as much as possible. Supply losses, but these are still difficult to meet this year’s demand growth. The continued decline in inventories shows that the crude oil market has been in short supply since the third quarter.

From the perspective of demand-side performance, as China decentralized the third batch of refined oil export quotas this year, the cumulative volume has reached 39.9 million tons. The operating rate of China’s main refineries continues to rise, which also allows China’s crude oil processing volume to continue to refresh A new high in 3 years. In the United States, with the end of the peak travel season, refinery processing volume has entered a seasonal decline stage. Although high oil prices will put pressure on the demand side of the crude oil market, from the perspective of supply and demand, the gap will continue to expand. Some institutions predict that the crude oil market will rapidly transform from a crude oil shortage of 2 million barrels per day in the third quarter to a shortage of 2 million barrels per day by the end of the year. With an average shortage of 3 million barrels per day, it is inevitable that oil prices will continue to strengthen.

The latest data released by the U.S. Commodity Futures Trading Commission shows that in the week ending September 5, speculative net long positions in WTI crude oil futures increased by 72,159 lots to 225,035 lots, significantly setting a new high for the year. In addition, Intercontinental Exchange (ICE) position data shows that speculative net long positions have also rebounded.Last week, speculative net long positions in Brent crude oil futures increased by 25,420 lots to 227,647 lots.

Obviously, the continued and unexpected performance of inventory reduction has attracted more bullish bets on WTI crude oil. The change in positions has sent a very clear signal to the market. Institutions maintain optimistic expectations for the crude oil market as a whole. Although there is still potential downward pressure on the economy at the macro level and financial market risk appetite has cooled recently, in the context of tightening supply, The overall strong pattern of oil prices will be difficult to shake for some time. Compared with the demand for adjustments to high overbought levels, investors at this stage need to be more alert to the risk of oil prices rising due to continued and unexpected reductions in inventories, which will lead to rising market concerns about supply. In the process of rising oil prices, we can see that investors are excited and uneasy about this. In the game of negative feedback caused by strong destocking expectations and rising oil prices, investor sentiment and expectations may fluctuate at any time. It is expected that the volatility of oil prices will increase in the later period. Pay attention to the rhythm.

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Author: clsrich