International crude oil prices have fallen sharply in the early stage. WTI crude oil prices are close to the strategic reserve replenishment line of US$70/barrel announced by the Biden administration, providing certain support to the market. At the same time, Russian crude oil production has begun to shrink, boosting oil prices, and pushing oil prices to rise in the near future. Upward. The reporter observed that the price of Brent crude oil has been fluctuating between 78 and 83 US dollars per barrel this week. The overall volatility has narrowed compared with the previous period, and the market is in a state of range oscillation and consolidation.
From a macro perspective, since the Federal Reserve raised interest rates by 50 basis points in December, the European Central Bank, Bank of England, Norges Bank, Swiss National Bank, etc. have raised interest rates by 50 basis points. The Bank of Japan raised the target upper limit of government bond yields from 0.25% on Tuesday. To 0.5%, the global wave of interest rate hikes has intensified market concerns about economic recession, which is negative for oil prices. After the EU sanctions against Russia took effect, Russian crude oil production decreased by 953,000 barrels per day in December compared with November. The overall supply of Saudi Arabia, Iraq, and the United Arab Emirates strictly complied with the production reduction plan, supporting crude oil prices as a whole.
On Wednesday, the EIA inventory report was released. Data show that in the week ending December 16, U.S. commercial crude oil inventories fell by 5.895 million barrels, strategic reserve inventories fell by 3.647 million barrels, gasoline inventories increased by 2.53 million barrels, refined oil inventories decreased by 242,000 barrels, and refinery operating rates decreased by 1.3%. to 90.9%, with output remaining unchanged at 12.1 million barrels per day. Overall, EIA inventory data is better than the data released by API this week.
“Judging from the data released by EIA, there are two aspects that need to be noted: First, the U.S. strategic reserve continues to be released. The SPR release plans announced three times on November 24, 2021, March 2, 2022, and April 1, 2022 have accumulated 230 million barrels. As of last week, 225.8 million barrels have been released, leaving only 4.2 million barrels of space. The release of U.S. strategic reserves is nearing completion and will enter a stage of rapid decline in commercial crude oil inventories. Second, the operating rate of U.S. refineries has declined, but Gasoline inventories are still increasing, indicating that current demand is still weak.” said Hu Ziyang, energy and chemical analyst at the Investment Consulting Department of Nanhua Futures Research Institute.
“Recently, the crude oil market has shaken off the pessimistic expectations of the early plunge, and both supply and demand have begun to show some signs of recovery. In the first full week after the G7 sanctions came into effect, Russian seaborne crude oil shipments fell sharply. Data shows that 12 From March 1st to 20th, Russian oil exports fell 11% month-on-month. In addition, TC Energy postponed the full restoration of the Keystone oil pipeline from the United States to Canada by one week. Domestically, social activities in some cities after the peak of the epidemic have further resumed, increasing demand for the Chinese market The expectation of recovery has also boosted market confidence and allowed oil prices to continue bottoming out,” said Yang An, head of energy and chemical research at Haitong Futures.
As far as the crude oil market is concerned, the market is currently focusing on the progress of the Federal Reserve’s interest rate hikes and Russian export issues. After consecutive interest rate increases, the Federal Reserve interest rate is between 4.24% and 4.5%, and Russia’s exports also have a great impact on the supply and demand pattern.
“The recent continuous rebound in oil prices reflects the decline in Russian crude oil exports to a certain extent.” Dong Chao, a crude oil analyst at Shenyin & Wanguo Futures, said that last week, Russian seaborne exports were only 1.6 million barrels per day, a sharp decline of 1.86 million barrels per day. Although there are many temporary factors such as maintenance or adjustments by shipping companies, such a large-scale decline will still make the market wary.
In order to prompt U.S. oil companies to accelerate crude oil drilling and maintain increased supply, U.S. President Biden once announced that he would buy back the released crude oil reserves when the oil price drops to 67-72 US dollars per barrel. This is also the main reason why the market generally believes that WTI will have a relatively solid bottom near $70/barrel, and the recent performance of the crude oil market has also confirmed this statement. “This bottom should currently be a periodic low recognized by the market. On the one hand, there is an objective demand for replenishment of the U.S. strategic reserves; on the other hand, after oil prices have fallen from highs, there is currently no serious supply and demand situation in the crude oil market in the first half of 2023. The overall oil market inventory is at a relatively low level for many years. From the perspective of supply and demand, there is insufficient motivation for a further sharp decline in oil prices, and there is a high probability that US$70/barrel will be a periodic low.” Yang An said.
“After the oil price fell to US$70/barrel last week, the United States announced that it would buy back 3 million barrels to enrich its strategic reserves, and oil prices rebounded quickly. Although the total amount of 3 million barrels is not large, it confirms that the United States will indeed buy back crude oil when the price is right. .” Dong Chao believes that the United States has released a total of 210 million barrels of reserves this year, and strategic reserves have fallen from 590 million barrels to 380 million barrels, resulting in an average of 600,000 barrels of new supply per day in 2022. If the price of WTI crude oil next year is lower than $72 If repurchase is enabled for /bucket, there will be a huge increase in demand. “Although it cannot be said that oil prices will definitely not break through the lower limit of US$70, under the premise of large-scale demand increase expectations, at least a clearer contradiction between supply and demand is needed to lead to a downward breakthrough in oil prices.” He said.
“The U.S. stopping releasing strategic reserves means that the crude oil market will lack 500,000-1 million barrels per day of supply. If it switches to replenishing reserves, it will compete with the demand side for the few supplies in the market, and supply will further tighten. At $70 /Barrel is still a relatively strong support level.” Hu Ziyang said.
Likewise, investing in Galaxy FuturesAccording to Tong Chuan, a researcher at the Research Department, before the fundamentals of crude oil supply and demand change significantly, WTI crude oil at US$70/barrel is an important psychological support point for the market.
But it is also important to note that the U.S.’s stance on purchasing and stockpiling is different from the production cuts of oil-producing countries. Lower prices are beneficial to purchasing and stockpiling. Therefore, if there are major changes in the supply and demand side of crude oil, such as the Federal Reserve continuing to raise interest rates forcefully, the conflict between Russia and Ukraine easing, etc., then this support may become ineffective.
“From an overall perspective, after the U.S. strategic reserve inventory release target is achieved, it is undoubtedly imperative for the U.S. government to replenish its inventory when the strategic reserve inventory is low. In addition, the replenishment of inventories appears in the context of the G7 restrictions on Russian oil. If the price is reached, it implies that the space for a further sharp decline in oil prices is limited.” Lu Tangling, an oil and gas industry chain analyst at Wuchan Zhongda Futures Research Institute, said.