Whether demand can be restored is the key, and where will international oil prices go?

After rebounding by 10% for three consecutive days at the beginning of the week, oil prices fell again on Thursday and Friday, especially on Friday, which was affected by the fall …

After rebounding by 10% for three consecutive days at the beginning of the week, oil prices fell again on Thursday and Friday, especially on Friday, which was affected by the fall in market risk appetite and once fell 3.5% during the session. This performance shows that oil prices are still in the early stage of the oil price drop. In the subsequent stabilization stage, market confidence needs to be further restored. On Thursday, the Federal Reserve and the European Central Bank announced interest rate hikes of 50 basis points, and the European and American central banks once again “hawked” at their meetings this week, reaffirming their determination to raise interest rates to curb inflation, exacerbating market concerns about a global economic recession, which dampened market sentiment.

It can be seen that as macro expectations tighten, commodity risk assets such as overseas stock markets, copper, and oil have fallen back from high levels. Domestically, as epidemic prevention and control measures are further optimized, economic recovery expectations dominate the domestic market. Therefore, industrial products mainly follow the recovery route. Black, non-ferrous, chemical products, etc. have continued to rebound in the past period, but high volume has also begun to peak. , there was a sharp correction on Friday, which also limited the rebound in oil prices.

In the next stage, market attention will focus on the progress of China’s demand recovery, which is an important changing factor that has great elasticity on the demand side. The general trend is positive, but the demand recovery process is expected to be repeated under the influence of the epidemic. This will also affect the pace of the market. In the early hours of Saturday morning, news came out of the market that the Biden administration would repurchase crude oil to fill the strategic petroleum reserve. Although the first repurchase only purchased 3 million barrels for the strategic petroleum reserve (SPR), the oil price instantly shot up by $1.5 after the news was released. This action It has given the market a strong expectation that the possibility of oil prices falling below US$70/barrel is low without extreme negative impacts. Market confidence is still at a low level. The latest position report shows that speculative net long positions are still falling slightly, which means that investors are more cautious in their decision-making. This is in line with the performance of the oil price stabilization stage after the sharp drop. Follow-up attention will be paid to the demand side. Whether it can improve further will bring positive signals to the market.

Authoritative organizations publish monthly reports. Whether demand can recover beyond expectations becomes the focus of the next stage.

This week, OPEC, IEA and other authoritative organizations have successively released their last monthly reports of the year. Because oil prices have just experienced a round of weak demand before the release of the report, the overall report is more cautious about the demand outlook. OPEC’s monthly report lowered its crude oil demand forecast for the first quarter and called on member countries to “remain vigilant and cautious.” The report maintains the expected growth rate of global crude oil demand in 2022 at 2.55 million barrels/day; the growth rate of global crude oil demand in 2023 is expected to remain unchanged at 2.25 million barrels/day. The IEA said in its monthly report released on Wednesday that world oil supply broke a five-month upward trend in November, falling by 190,000 barrels per day to 101.7 million barrels per day. Among them, OPEC’s oil production in November was 1.72 million barrels per day lower than the level allowed by the oil production reduction agreement. Russia’s oil exports in November increased by 27,000 barrels per day to 8.1 million barrels per day. The IEA currently expects global oil production to exceed demand for the remainder of 2022 and the first quarter of 2023. Global oil demand will fall by 110,000 barrels/day year-on-year in the fourth quarter to 100.8 million barrels/day.

However, the IEA warned that the possibility of another rise in oil prices cannot be ruled out, and the oil balance is expected to tighten in the second quarter of 2023. The IEA has currently raised its forecast for global oil production growth in 2022 and 2023 to 4.7 million barrels per day and 770,000 barrels per day respectively. It also raised its oil demand growth forecast in 2023 by 100,000 barrels per day to 1.7 million barrels per day, with total demand reaching 101.6 million barrels per day.

In terms of inventories, the OPEC monthly report showed that OECD crude oil inventories increased by 22.5 million barrels in October, 167 million barrels lower than the five-year average; while the IEA report showed that OECD commercial oil reserves increased by 17.3 million barrels in October, lower than the 5-year average. The annual average is 150.2 million barrels. Data released by the U.S. EIA showed that in the week ending December 9, U.S. commercial crude oil inventories excluding strategic reserves significantly exceeded expectations, refined oil inventories were lower than expected, and gasoline inventories exceeded expectations. Specific data shows that EIA crude oil inventory changes in the week ending December 9 actually increased by 10.231 million barrels, and were expected to decrease by 3.595 barrels, and the previous value decreased by 5.187 million barrels; gasoline inventories actually increased by 4.496 million barrels, and were expected to increase by 2.714 million barrels; refining Oil inventories actually increased by 1.364 million barrels, and were expected to increase by 2.517 million barrels. The surge in inventory data is partly due to the inflow of strategic crude oil into the market. In addition, the decrease in U.S. refining volume that week is also an important reason.

Demand for U.S. refined oil products, which has been worrying the market before, improved to a certain extent last week. In addition, the news that the Biden administration will repurchase crude oil to fill the strategic petroleum reserve will further enhance expectations for an improvement in market demand. Since the release of a record 180 million barrels of crude oil, the Biden administration announced the first repurchase of crude oil to fill the strategic petroleum reserve. A senior Energy Department official said that the United States will purchase 3 million barrels of oil for the Strategic Petroleum Reserve (SPR) for delivery in February next year. Officials said the United States would simultaneously provide 2 million barrels of emergency crude oil transactions to meet refining needs after the closure of the Keystone pipeline. As for demand, the market is currently paying more attention to the recovery process of the Chinese market. The refined oil market once recovered significantly. However, in the second half of this week, the production-to-sales ratio of local refineries fell again, and price reduction promotions still failed to stimulate market buying interest. Regions across the country will some time in the future�It has successively experienced the peak of the epidemic, but overall, China’s demand recovery is a relatively certain direction, but there will inevitably be recurrences during this period, which will also have an impact on the pace of oil prices.

Macro risk appetite has cooled, and risk assets have retreated.

Due to the interest rate hikes by European and American central banks, the macro level has once again become a hot spot for the market this week. Although U.S. CPI data fell more than expected, both the Federal Reserve and the European Central Bank raised interest rates by 50 basis points as scheduled this week. Federal Reserve Chairman Powell said that even if the economy slips into recession, the Federal Reserve will further raise interest rates next year. The European Central Bank followed the Federal Reserve in slowing the pace of interest rate hikes but sent a similarly clear message that financial conditions will continue to tighten even as economic performance worsens. The European Central Bank’s meeting on Thursday raised market expectations for its terminal interest rate to above 3%. The current market expectation for the European Central Bank’s peak interest rate has increased to 3.25%, but some economists believe this number will be higher. In the absence of guidance from the European Central Bank, it is possible that the terminal rate will now rise to 3.50% or even 3.75%. The “hawkish” attitude of European and American central banks has put significant pressure on stock markets and commodity markets.

Domestically, the Central Economic Work Conference was held in Beijing from December 15th to 16th. The meeting requested that next year we must adhere to the priority of stability and seek progress while maintaining stability, continue to implement proactive fiscal policies and prudent monetary policies, increase macroeconomic policy control, strengthen coordination and cooperation of various policies, and form a joint force to jointly promote high-quality development. Overall, at the macro level, Europe and the United States continue to raise interest rates to control inflation, which will increase the risk of global economic recession, while the Chinese market is relatively clear that supporting economic recovery will be its focus in the coming period. The impact of macro factors on the global economy remains the key to investor sentiment, but the recovery progress of demand from major consumer countries, including China, from the epidemic is also worth looking forward to.

Oil prices have entered a restorative market stage after hitting bottom. In the past week, oil prices first rebounded by 10% for three days and then fell back by more than 5% for two days. This performance of rising first and then falling shows that the current market trading focus will still switch quickly. This also means that oil price fluctuations will still become the norm, but overall we judge that a periodic low in oil prices has already occurred with a high probability. As the United States begins to purchase and replenish its strategic crude oil reserves, it has further consolidated the periodic bottom area of ​​70 US dollars. Against the background of the further recovery of China’s demand, there is a high probability that oil prices will continue to recover in the future. Judging from the current development trend, the possibility of further recovery of the crude oil market is still relatively high. However, after experiencing a sharp decline in November, market confidence has encountered difficulties. During the rebound stage, the position structure of the crude oil market shows that net long speculative positions in the international market are still declining, which means that it will take time and more positive factors to restore investor confidence.

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Author: clsrich