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Flash crash in the market! Easing sanctions on Iran? The White House responds! What’s the outlook for crude oil?

Last night, a piece of news detonated the oil market. On the morning of Thursday, June 8, some media quoted insiders as saying that the United States and Iran have made significant…

Last night, a piece of news detonated the oil market.

On the morning of Thursday, June 8, some media quoted insiders as saying that the United States and Iran have made significant progress in negotiations on American soil and are close to reaching an interim agreement. The United States will waive some sanctions restrictions, including allowing Iran to export oil up to 1 million barrels per day in exchange for Iran’s commitment to reduce its highly enriched uranium activities and continue to cooperate with the International Atomic Energy Agency (IAEA).

After the news came out, international crude oil futures plunged during the session.

At the end of early trading in the U.S. stock market, U.S. WTI crude oil fell below the $70 mark and was once close to $69, down more than 4.8% on the day. Brent crude oil once fell below $74, down nearly 4.4% on the day. All gains since the voluntary production cut of another 1 million barrels per day in July, and fell to the intraday low since last Thursday, June 1. Since then, crude oil’s decline has narrowed to less than 4%.

However, after the White House denied relevant reports, the decline in oil prices narrowed rapidly. As of press time, U.S. oil fell by 1.83% and Brent oil fell by 1.46%.

A spokesman for the White House Security Council said: “This report is false and misleading. Any reports on the interim agreement are false.” In April 2015, the five permanent members of the United Nations Security Council (China, the United States, Russia , Britain and France) and Germany signed a nuclear agreement with Iran in Lausanne, Switzerland, known as the Iran Nuclear Deal.

Under the Iran nuclear deal, Iran agreed to limit its uranium enrichment activities and accept supervision and verification by the International Atomic Energy Agency. In return, the United States, the European Union and others will lift sanctions on Iran. In May 2018, then-US President Trump announced that the United States would withdraw from the Iran nuclear agreement. In January 2020, Iranian General Qasem Soleimani was assassinated by a US drone strike in the Iraqi capital Baghdad. Subsequently, the Iranian government announced that it would suspend the implementation of the Iran Nuclear Agreement. After the Biden administration came to power, negotiations on the Iran nuclear deal briefly turned a corner, but have been stagnant since August last year.

There is strong seasonal logic in the oil market in June

Overall, the domestic and foreign crude oil markets have shown a trend of strong oscillation recently. Judging from the previous performance, multiple rebounds failed to form a breakthrough. Among them, Brent crude oil failed to effectively break through the US$79/barrel mark in the short term, and at the same time, it showed Obvious anti-fall properties.

“From the perspective of driving factors, last Sunday’s OPEC+ meeting reiterated production cuts, in which Saudi Arabia once again cut production by an additional 1 million barrels per day. This makes the market still have strong expectations for supply-side contraction. Against this background, oil prices are generally strong. However, the failure of the price rebound to effectively break through means that the marginal effect of production cuts on supporting oil prices is diminishing. Judging from the meeting resolutions, there are some differences within OPEC+, extending the time of production cuts and Saudi Arabia independently cutting additional production, rather than jointly making additional additional cuts. Cutting production means that the current oil-producing countries cannot reach a consensus.” Zhong Meiyan, director of energy and chemical industry research at Everbright Futures Research Institute, said. In addition, judging from OPEC production data in May, Saudi Arabia decreased by 510,000 barrels per day compared with April, and the United Arab Emirates The month-on-month decrease was 190,000 barrels per day, with Kuwait decreasing by 130,000 barrels per day month-on-month. Other member states contributed less to production cuts. Coupled with the significant increase in Russian exports in May, the market has questioned the true intensity of production cuts. The weakening of macroeconomic expectations for demand is also the reason why it is difficult for oil prices to have a breakthrough rise.

According to Yang An, head of the Energy and Chemical R&D Center of Haitong Futures, the negative factors of the OPEC meeting have been released during the high opening and low selling process before it was held. At the same time, the impact of Saudi Arabia’s additional production cuts on crude oil market supply has begun to increase. The market re-evaluated pricing, and rebounding demand began to dominate the market again.

“International oil prices have basically maintained range fluctuations in the past more than a month. The failure to break through the range is mainly due to concerns about macro-level uncertainties and the demand side of crude oil under economic downward pressure. Investors have put pressure on oil prices. Expectations have become cautious, and there is no strong willingness to chase gains in the face of resistance at the upper edge of the range.” Yang An said.

Since the beginning of this year, disturbing factors from the macro level have not diminished. Yang An said that macro factors are generally negative for risk assets and have also had a negative impact on the commodity market. “It can be seen that oil prices have maintained a wide range of fluctuations this year. One of the key reasons is that the negative macroeconomic conditions have restricted investors’ enthusiasm for long positions. Especially since March, oil prices have experienced sharp declines under the impact of several European and American banking crises. This has dampened the market’s bullish willingness. If the global economy does not show a sustained recovery, it will be difficult for commodities, including crude oil, to have sustained strong performance,” he said.

Zhong Meiyan also believes that the current overall weak macroeconomics at home and abroad has a resonant impact on commodities, especially affecting demand-side expectations. From a global perspective, we believe that China’s overall demand is still recovering. Data shows that China’s original demand in MayOil imports increased to the third highest monthly record, with crude oil imports in May totaling 51.44 million tons, or 12.11 million barrels per day, an increase of 12.2% from the 10.79 million barrels per day imported in May last year; May imports There was a significant month-on-month increase, an increase of 17.4% from 10.32 million barrels per day in April. Against the background of strong resilience, the trend of crude oil is relatively strong and oscillating, but it is also differentiated from the performance of other varieties in the energy and chemical industry chain, that is, raw materials are strong, the center of gravity of product prices continues to shift downward, product profits have been declining, and profits in industrial links have been bleak, triggering market Expectations are further pessimistic. It is expected that in the future, the industrial chain will enter a forward transmission process, that is, product losses will be difficult to bear high raw material prices, thus driving raw material prices to fall.

From a fundamental perspective, Yang An said that Saudi Arabia’s additional production cut of 1 million barrels per day will have a positive effect on oil prices, and the production cuts will further tighten supply. The EIA judged in the June monthly report released on Tuesday that the reason OPEC+ announced on June 4 that it would extend crude oil production cuts beyond 2024, and Saudi Arabia’s production cuts predict that global oil inventories will decline slightly in each of the next five quarters. The reduction in global oil inventories will bring about a negative impact on crude oil prices. Let’s get some upward pressure.

However, as for the fact that oil prices did not continue to strengthen after Saudi Arabia announced additional production cuts, Yang An believed that it was mainly due to some internal negative factors during the OPEC+ meeting that affected market expectations. This meeting did not discuss joint production cuts, which means The option of increasing joint production cuts is already a difficult choice to coordinate and promote. Saudi Arabia’s production reduction is completely decided by itself. In addition, Saudi Arabia has expressed dissatisfaction with Russia and some member countries that have failed to implement production cuts, and hopes that they will strictly implement production cuts. In addition, the meeting raised the UAE’s production benchmark after 2024 and lowered the production benchmark of African member states, which also caused dissatisfaction among African member states. Overall, the internal unity of OPEC+ is beginning to face challenges. If the situation further deteriorates, the unity of OPEC+ will be truly tested. In addition, factors such as the recent cooling of risk appetite in the commodity market have also offset the effect of production cuts.

“However, Saudi Arabia’s production cuts will have a substantial impact on crude oil market supply, and it is expected that subsequent oil prices will reflect the impact of production cuts. As sentiment stabilized on Wednesday, investors began to re-examine the impact of this meeting on the crude oil market With the positive changes, oil prices have also recovered and rebounded, but it is expected that until market confidence is re-established, oil prices will most likely still operate within the range.” Yang An said.

Zhong Meiyan believes that the core factor in the crude oil market outlook is that the marginal decline in production is not as fast as the marginal decline in demand, which means that there is an inflection point on the inventory side and a significant accumulation of inventory. This is subject to the transition of the current demand peak season, which also means that demand will be seasonally strong in June, but it may gradually realize the impact of macroeconomic weakness later on. High oil prices are also expected to fall back.

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