Oil prices rebounded continuously in the last few trading days of June to stabilize the situation and continued the range-bound oscillation trend.
After the armed rebellion of the Wagner Group in Russia was almost resolved last weekend, oil prices failed to change the stalemate due to emergencies, entering the 8th consecutive week of sideways trading, and once again held the key low support during the year. It is worth noting that at the end of June, the middle of the year, oil prices showed obvious signs of weakening. The near-term monthly spreads of Brent and WTI crude oil not only showed a discount structure, but also weakened significantly for a time, which triggered Market worries. In the past two months, oil prices have tested the effectiveness of the support at the lower edge of the range for the fourth time. In previous times, oil prices rebounded quickly and stayed away from the lower edge of the range. However, last week, oil prices once challenged the support of this area twice in three trading days. It can be seen that the oil price situation has reached a very delicate moment. More and more investors have noticed the weakening signal given by the oil price and are waiting for a response. The impact moment of low support in the first half of the year. However, after the EIA data was released that week, the crude oil market’s much-expected inventory decline significantly eased the market’s pessimism. Judging from the subsequent market performance, the crude oil inventory reduction had a significant effect on stimulating oil prices and stabilized the situation.
Although the risk of oil price breaking has temporarily eased, and the time is about to enter July, as Saudi Arabia begins to implement a 1 million barrels per day production cut and the supply side further shrinks, the supply and demand situation has room for further improvement, but it seems that it is still difficult for oil prices to get rid of the oscillating see-saw pattern. . The market performance after the OPEC+ meeting in June clearly affected investors’ expectations for oil prices. In June, many institutions lowered their oil price target expectations for the second half of the year. Despite this, OPEC+’s efforts in stabilizing the oil market cannot be ignored, and with Saudi Arabia’s additional production cuts starting in July, the supply side is still expected to tighten. Whether oil prices can take this opportunity to recover further deserves attention.
The market is relatively disappointed with the efforts of OPEC+. Judging from the actual performance of oil prices in the first half of the year, the effect of its production cuts is indeed less than expected. The efforts on the supply side have been offset by macro-level concerns. At the same time, the production cuts have not caused obvious supply tensions in the crude oil market. situation, which further increases the market’s doubts about the positive effect of production cuts on oil prices. After July, Saudi Arabia will again cut production by an additional 1 million barrels per day. Another survey shows that as the global crude oil market is still under pressure from expectations of economic recession, Saudi Arabia is expected to extend its unilateral oil production reduction agreement of 1 million barrels per day. Saudi Arabia will continue to cut production for at least a month, that is, in August. Several OPEC+ representatives also said that although Saudi Arabia’s decision may be difficult to predict, extending the production cuts seems possible. The market will place a heavy burden of expectations on Saudi Arabia, which will put tremendous pressure on it. Can Saudi Arabia once again play the role of turning the tide? Whether there will be an obvious tight supply situation in the crude oil market at this stage will play a very critical role in investors’ expectations of supply and demand in the crude oil market in the second half of the year.
The latest EIA report shows that U.S. commercial crude oil inventories excluding strategic reserves decreased by 9.603 million barrels to 454 million barrels, a decrease of 2.07%. It is expected to be -1.757 million barrels, and the previous value was -3.831 million barrels. Crude oil inventories in Cushing, Oklahoma, are 1.209 million barrels, compared with the previous value of -98,000 barrels. U.S. Strategic Petroleum Reserve (SPR) inventories decreased by 1.351 million barrels that week to 348.6 million barrels, a decrease of 0.39%. EIA gasoline inventories in the United States for the week to June 23 were 603,000 barrels, compared with expectations of -126,000 barrels, and the previous value of 479,000 barrels. Refined oil inventories were 123,000 barrels, compared with expectations of 782,000 barrels and the previous value of 434,000 barrels. The extended demand data for crude oil production was 20.1519 million barrels per day, compared with the previous value of 18.908 million barrels per day. The extended demand data for total vehicle gasoline production was 10.1733 million barrels per day, compared with the previous value of 10.2334 million barrels per day. The four-week average supply of U.S. crude oil products was 20.215 million barrels per day, an increase of 1.29% from the same period last year. U.S. crude oil exports increased by 795,000 barrels per day in the week of June 23 to 5.338 million barrels per day. Commercial crude oil imports were 6.580 million barrels per day, an increase of 419,000 barrels per day from the previous week. U.S. domestic crude oil production remained unchanged at 12.20 million barrels per day in the week of June 23. The U.S. EIA refinery equipment utilization rate in the week to June 23 was 92.2%, expected to be 93.3%, and the previous value was 93.1%. U.S. crude oil exports in the week to June 23 were the highest since the week of February 24, 2023. In the past period, WTI crude oil has become the weakest benchmark oil, Russia’s discounts have shrunk, and the cost-effectiveness of U.S. crude oil has boosted Exports; EIA Strategic Petroleum Reserve inventories for the week were the lowest since the week of August 19, 1983. Commercial crude oil inventories excluding strategic reserves were the lowest since the week of January 27, 2023.
On the demand side, Saudi Arabia said it was bullish on the oil market for the remainder of 2023, despite concerns among several OECD countries.There are risks of a recession, but economies in developing countries, especially China and India, are driving oil demand to grow by more than 2 million barrels a day this year. Once the overall global economy begins to recover, the supply and demand balance in the oil industry is likely to tighten. This echoes forecasts from the International Energy Agency, which predicts that global oil demand will increase by 2.4 million barrels per day by 2023, exceeding last year’s 2.3 million barrels per day increase. The agency pointed out in its June report that China accounted for 60% of the growth. However, judging from the performance of the domestic refined oil market, the performance of the domestic refined oil market has been relatively average in the past two months. Whether it can achieve strong performance in the second half of the year Expectations need to be verified.
Entering July, Saudi Arabia will face a big test. Saudi Arabia’s additional production cuts at the June meeting did not improve market expectations. Next, it will enter the stage of implementing production cuts in July, and the degree of supply tightening will become the focus of investors. Judging from Saudi Arabia’s performance in the past period, Saudi Arabia’s implementation of production cuts is relatively in place. However, in a complex game environment, investors are not confident whether the production reduction efforts can support the recovery of oil prices. The overall performance of oil prices in the first half of the year was weak. Whether the situation can be reversed in the second half of the year, the impact of Saudi Arabia’s additional production cuts in July on the supply and demand side will be very critical.