Macroeconomic factors once again dominated the fluctuations of risk assets last Friday night. After the U.S. released non-agricultural data, the U.S. dollar fell sharply. Overseas stock markets, gold, silver, copper, etc. all rose sharply. Although oil prices also made a move to rise, they eventually retreated. gains, closing at a one-week low. Sentiment in the oil market remained gloomy, with prices ultimately falling by more than 8% in the first week of the new year. The near-end monthly spread structure of oil prices has once again shifted into a discount, which also indicates that market expectations have quickly turned pessimistic, which may mean that the crude oil market will remain highly volatile in 2023.
The performance of oil prices at the beginning of the year caught many optimistic investors off guard. Within two days, the price plummeted by more than 10% from its highs, marking the worst start in 30 years. The last position report for 2022 shows that with the rebound in oil prices in December, as of December 27, speculative bulls in the international crude oil market have returned to the market, and the net long position of Brent crude oil held by speculators has increased significantly by 44,170 lots to 143,703 lots. , hitting a new high in the past six weeks. Moreover, oil prices closed with a big positive line on the last trading day of 2022. Obviously many investors have optimistic expectations for oil prices in 2023. However, the trend at the beginning of the year poured cold water on the market, causing the market to once again worry about whether it was too optimistic about the demand side. On Thursday, Saudi Arabia cut the price of crude oil it sells to its main markets of Asia and Europe, giving the market a strong hint that demand for crude oil remains sluggish as global economic growth slows. Natural gas prices have continued to fall sharply recently, and the end of the energy crisis hype has also dragged down the performance of the oil market. With the arrival of a warm winter, demand for heating in Europe has eased, and European natural gas inventories are now even more abundant than in recent years. On New Year’s Day this year, many European countries recorded the highest ever New Year’s Day temperatures. According to forecasts from weather forecasting companies, the warm weather in Europe will last at least until the end of January, and may usher in the warmest January in Europe in decades. This means that The energy crisis that has plagued Europe for months is expected to be temporarily alleviated.
From the perspective of supply and demand, investors’ recent focus has been on changes in crude oil market demand in 2023. The market has formed clear differences on this, with optimistic and pessimistic views colliding, and oil prices are also constantly swinging. The rebound in oil prices in December 2022 was precisely because concerns about demand eased, but they quickly fell into pessimism in the new year, and concerns about a global economic recession once again plagued the market. EIA data shows that as of the week of December 30, 2022, affected by the Christmas holiday and the storm and cold wave, U.S. refining and consumption have experienced sharp declines. U.S. EIA refinery equipment utilization has experienced the largest decline since February 2021. U.S. crude oil The four-week average supply of products was 20.473 million barrels per day, a year-on-year decrease of 4.25%. Gasoline demand hit the largest drop since March 2020, and diesel demand dropped even more. This led to the largest drop in U.S. oil demand that week since at least 1990. However, this is only a short-term impact, and there will be a clear and rapid recovery in the data next week. Nonetheless, we have seen significant weakness in oil prices.
In addition, the market is also paying close attention to changes in demand in Asia. Affected by factors such as the recent epidemic and the approaching Spring Festival holiday, purchasing willingness in Asia has weakened. Saudi Aramco has lowered the official selling price of all types of crude oil sold to Asia in February this year. The selling price of the company’s flagship crude oil, Arabian Light crude oil, was lowered to a premium of US$1.80/barrel to the regional benchmark Dubai/Oman crude oil, which is US$1.45/barrel lower than this month’s selling price. The selling price is the lowest since November 2021, which amplifies market concerns in the short term. The domestic market is obviously optimistic about the subsequent recovery of demand. In fact, as the peak of the epidemic has passed in China, social activities in most areas are rapidly recovering. Although the epidemic has caused short-term troubles, in the medium and long term, the restart of China’s demand is still worth looking forward to. At this point in time, there will obviously be obvious differences in the market. How the final demand side will be interpreted has obviously become a very important factor affecting the crude oil market in 2023.
In addition to the demand level becoming an important factor affecting oil prices, the macro level also has an impact on the market again in the first week of the new year. The prediction of the Federal Reserve’s interest rate hikes caused the U.S. dollar to rise first and then fall, and had a significant impact on global risk assets. Although the non-agricultural data released on Friday night added 223,000 jobs, exceeding expectations, the trend of employment growth slowing down is obvious. Monthly employment growth in the first half of 2022 is usually more than 300,000, and in December 2022 The 223,000 population is the weakest data since April 2021. In addition, closely watched wage data was also weaker than expected. Average hourly earnings in December 2022 increased by 0.3%, lower than the previous value of 0.4% and lower than the 0.4% expected. This changed the market’s previously strengthened interest rate hike expectations. The market speculated that this data may be enough for the Federal Reserve to start to notice that its rapid interest rate hikes in 2022 are clearly having a slowing effect on the economy. The dollar finally fell sharply, and the market raised interest rates. As concerns recede, risk appetite picks up, and risk assets rise one after another. However, due to the game of macroeconomic and own demand concerns, oil prices eventually fell.However, it gave up the intraday gains and closed weakly.
Position data shows investors are assessing the current situation facing the oil market. The position report for the week ended January 3 showed that speculators continued to increase their net long positions in ICE Brent crude oil by 17,753 lots to 161,456 lots, a new high in the past seven weeks. However, WTI crude oil has been significantly reduced, and speculators have reduced their net long positions by 30,993 lots to 156,665 lots. The outlook for crude oil demand still needs time to be verified. We believe that with the gradual recovery of China’s economy after the peak of the epidemic, the improvement in crude oil demand will be significantly boosted, and there is a high probability that U.S. consumption data will rebound next week, which will trouble the market in the short term. After demand concerns have cooled down, the oil market has a higher probability of stabilizing, and the risk of continuing a sharp decline is small. It is expected to maintain low range oscillations, so be cautious in participating.