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Oil prices continue to fall sharply, whether demand concerns will subside becomes an important factor

In the past week, oil prices continued their sharp decline, with the three major crude oil futures all falling by more than 10%. Under the influence of the appreciation of the renm…

In the past week, oil prices continued their sharp decline, with the three major crude oil futures all falling by more than 10%. Under the influence of the appreciation of the renminbi and the fall in freight rates, SC crude oil continued to lead the global market and continued to fall sharply, making the crude oil sector incompatible with the overall recent decline. The sharp rebound in industrial products seems so out of place.

Last Friday, international oil prices quickly recovered their intraday losses in the last 15 minutes before closing, which may be a signal that this round of plummeting market is approaching the end. After continuous sharp declines, oil prices may usher in an oversold recovery window this week!

With such a reverse performance, it is obvious that oil prices were deeply hurt by the weak demand in the early stage. The strong expectations of tightening supply were suddenly hit hard by the weak reality of weak demand. Investors’ confidence in oil prices fell into the ice, so that in non-ferrous metals While the black and even chemical sectors are generally rebounding, the crude oil sector has become the “lone ranger” on the way down. The sharp drop in crude oil prices has been surprising, but the performance of the refined oil market is even worse. EU cracking profits continue to shrink during this round of plummeting oil prices, which means that refined oil products in the European and American markets have fallen even more. At the same time, the monthly difference structures of the three major crude oil futures have all turned into discounts at the near end. This is usually a bear market feature under excess supply and demand or a reflection of the collapse of investor confidence. Speculators have reduced their holdings of crude oil for the fourth consecutive week in the international market. As for net long positions, there have been concentrated and large withdrawals in the early stage, so the reduction in the latest period has been much smaller than in previous weeks. To some extent, this will also reduce the continued downward pressure on oil prices.

So far, from early November to now, SC crude oil has fallen by more than 30% from its highest point in just one month, and Brent and WTI crude oil have also fallen by 25%. After such a sharp decline, there is no doubt that oil prices are expected to recover from oversold conditions. The current weak demand has severely dampened market confidence. The supply and demand pattern of the crude oil market does not show obvious excess pressure. However, market confidence is currently at a low level, and the supply side is dominated by Russia. There is a certain degree of uncertainty in the process of demand recovery after sanctions and China’s optimization of prevention and control measures, which makes investors very cautious when making decisions. Overall, the probability of oil prices stabilizing and recovering is increasing, and it is not appropriate to continue to be significantly bearish on oil prices.

Whether demand concerns can subside has become an important factor in oil prices, and the supply side may still push up oil prices.

Since December, oil prices have continued to weaken under the negative pressure of demand, and oil prices fell sharply again last week.

Last week’s monthly and weekly reports from the U.S. Energy Information Administration showed weak demand now and next year. EIA’s short-term energy outlook once again lowered its global crude oil demand growth forecast in 2023 by 160,000 barrels/day to 1 million barrels/day. Last month, EIA had significantly lowered its global crude oil demand growth forecast by 320,000 barrels/day to 1 million barrels/day. 1.16 million barrels per day. Such a pessimistic outlook continues to dampen market confidence; and this week’s EIA weekly data shows a significant accumulation of refined oil products, with diesel inventories soaring by 6.2 million barrels, far exceeding the expected increase of 2.2 million barrels. Gasoline inventories increased by 5.3 million barrels, compared with an expected increase of 2.7 million barrels. This completely offset the positive effect of crude oil inventory reduction. The demand for U.S. refined oil products continues to be at a low level for the same period in many years. The continuous negative data on the demand side has made it difficult for oil prices to withstand.

Although the EIA has significantly adjusted its balance sheet due to weak demand, the outlook still predicts that global oil inventories will be short of 200,000 barrels/day in the first half of 2023, and the market will return to a surplus of nearly 700,000 barrels/day in the second half of the year. Will limit the performance of oil prices. In terms of oil inventories, EIA determines that inventories will remain at the bottom of the last five years throughout 2023. The EIA also emphasized that given the relatively low global oil inventories, as well as the time and scale required to replenish inventories, any unplanned supply disruptions during the forecast period have the potential to cause oil prices to rise quickly and sharply.

On the supply side, OPEC+ decided at the beginning of the month to extend the existing production reduction policy of 2 million barrels per day until the end of 2023. Previous data showed that under the leadership of Saudi Arabia, OPEC crude oil production fell by nearly 1 million barrels per day in November. However, a recent Platts survey It showed that OPEC+ oil production fell by 700,000 barrels per day in November, the largest monthly decline since Russia’s output plummeted due to sanctions in April. Among them, the total output of the 13 OPEC+ member states was 28.87 million barrels per day, a decrease of 850,000 barrels from October; while the output of Russia and eight other member states (excluding the Gulf oil-producing countries) was 13.7 million barrels per day, an increase of 150,000 barrels. As concerns about demand led to pessimism in the oil market, Gulf oil producers Saudi Arabia, the United Arab Emirates, Kuwait and Iraq cut production by a total of 780,000 barrels per day last month, which accounted for almost all of the OPEC+ production decline. Production growth in Kazakhstan, Nigeria and Russia offset some of the decline.

The oversold recovery market may return to the market at any time

On December 9, local time, Russian President Vladimir Putin told the media in Bishkek, the capital of Kyrgyzstan, that Russia would not export oil to countries that impose price restrictions on it. He will soon sign a decree to impose price restrictions on Western countries. respond. Russia may cut oil production as part of its countermeasures to limit oil prices. The price limit may lead to an increase in international crude oil prices, and the consequences will affect the initiator of the price limit order. Putin also said that the Eurasian Economic�It is necessary for the alliance to form a unified natural gas market within the next two years.

The current utilization rate of U.S. refineries remains at a high level. We estimate that the utilization rate of U.S. refineries in November this year was 93%, slightly higher than the average level in the past five years. During the last two weeks of October and all of November, refineries on the East Coast (PADD 1) operated at more than 100% capacity. Refinery utilization rates continued to remain high in December; China’s oil refining volume dropped significantly last week, mainly due to a relatively obvious decline in main business operating rates. Although China has increased its exports of refined oil products, domestic consumption has been affected by the epidemic. As a result, the inventory of refined oil products has become obvious, and both main and local refineries have had to lower their operating rates to ease the sales pressure of refined oil products. Recent data shows that domestic logistics data has picked up and refined oil inventories have also fallen. The subsequent recovery of the domestic economy and the recovery progress of refined oil consumption are also important factors that the market is paying attention to.

Against the backdrop of a weakening US dollar, the overall performance of commodities has picked up significantly. In the domestic market, with real estate receiving policy support, black, non-ferrous and chemical industries have generally picked up. The continued plunge in oil prices will not last long. As strong expectations and weak reality gradually recede, there is a high probability that the crude oil market will recover. In terms of supply and demand prospects, the crude oil market will not experience significant oversupply pressure before the first half of 2023, but there are still some uncertainties on the supply side. In particular, the determination of Saudi Arabia and Russia to jointly protect oil prices cannot be underestimated. After the oil price plummeted for 30 % later, U.S. oil prices are very close to the previous target price range for the United States to seek to replenish strategic crude oil inventories, and continuing to be overly bearish on oil prices already faces certain risks. As the pessimism is vented, the oversold recovery market may return to the market at any time. Follow-up attention will be paid to the degree of recovery of market confidence.

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Author: clsrich