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Has the conflict between Russia and Ukraine become a “floating cloud”? Oil prices are unlikely to return to high levels this year

On November 28, international oil prices fell to an 11-month low, with the main WTI crude oil futures contract once falling to US$73.60/barrel, and the main Brent crude oil contrac…

On November 28, international oil prices fell to an 11-month low, with the main WTI crude oil futures contract once falling to US$73.60/barrel, and the main Brent crude oil contract falling to US$80.81/barrel during the session. After experiencing an inverted V-shaped trend for a year, crude oil prices wiped out all the gains in 2022 near the end of the year and returned to the starting point at the beginning of the year.

This is just as Hulan said: “Just like this past year, a lot of things happened, but actually nothing happened.”

Back to the starting point at the beginning of the year, has the conflict between Russia and Ukraine become a “floating cloud”?

In the past year, the conflict between Russia and Ukraine once turned the crude oil market upside down, but judging from the current oil price, it seems like a passing cloud.

Since the end of last year, OPEC+’s production recovery rate has been slower than planned targets. After the conflict between Russia and Ukraine broke out at the beginning of this year, Russia, as one of the world’s important oil-producing countries, has faced sanctions on its crude oil exports from Europe and the United States. Ukraine is also an important energy channel for Europe. The two sides have been involved in the war, which has changed global oil transportation lines and exacerbated the imbalance between global crude oil supply and demand. , becoming the “somersault cloud” that pushed crude oil prices higher in the first half of the year.

On March 11, 2022, WTI crude oil futures, Brent crude oil futures and INE crude oil futures once reached their highest point. WTI crude oil futures rose to $130.5/barrel that day, an increase of 97.07% compared to the closing price on December 3, 2021; Brent crude oil futures rose to $139.13/barrel that day, an increase of 98.36%; INE crude oil futures rose as high as 98.36% that day. It rose to 823.6 yuan/barrel, an increase of 84.37%.

“The expected and actual impact of geopolitical conflicts on the supply side of the crude oil market, combined with OPEC+’s choice to reduce production, has formed one of the two main lines of crude oil price logic this year.” Zhong Meiyan, director of energy research at Everbright Futures Research Institute, told a reporter from Futures Daily, the other The main line is that the development of global demand in the post-epidemic period has caused a mismatch between supply and demand in the crude oil market.

Judging from current price feedback, international oil prices have returned to near the starting point at the beginning of the year. The transition from tight transaction supply to declining transaction demand has been completed for most of the process, and the transaction on the Russia-Ukraine conflict has also come to an end. Zhong Meiyan said that this is because huge uncertainty will transform into certainty. On the one hand, the decline in Russian crude oil production is less than expected; on the other hand, the EU’s import of Russian crude oil is also less than expected. These factors have prompted oil prices to price in supply gaps.

According to Yang An, head of energy and chemical research at Haitong Futures, the fall in oil prices from highs this year, especially the drop from highs to US$100 per barrel in the first half of the year, is directly related to the cooling of the geopolitical factor of the Russia-Ukraine conflict.

“Investors went from a state of panic at the initial stage of the geopolitical conflict to a stabilization of sentiment over time, gradually squeezing out the premium brought by geopolitical risks to oil prices.” He said that, in fact, after July, more The demand side of the crude oil market is weaker than expected, which has led to the weakening of oil prices. Since November, the crude oil market has once again experienced a sharp decline under the impact of weak demand, which has also brought international oil prices basically back to the starting point at the beginning of the year. Although the impact of the Russia-Ukraine conflict on oil prices is gradually declining, it will continue to affect oil prices until the conflict is over.

Wang Xiao, assistant to the director of Guotai Junan Futures Research Institute and head of the macroeconomic aggregate and energy team, also believes that the Russia-Ukraine conflict is actually still affecting the supply pattern of the global crude oil market. With the current sanctions against Russia by Europe and the United States still continuing, the global trade pattern of crude oil production and transportation is undergoing clear changes. Even if the conflict between Russia and Ukraine eases, this change may not return to the previous state.

In his view, the current price changes may be more of a comprehensive rebalancing of supply and demand and the current macro situation.

Looking back at the beginning of the year, the market had expected that the global crude oil balance sheet would be in a slightly surplus structure, OPEC+ would cautiously increase production, U.S. crude oil production would increase slightly, and overseas demand would be stronger than domestic demand. However, the result of actual operation is that the conflict between Russia and Ukraine has brought about huge uncertainty in supply. The supply gap expanded significantly in the first quarter and recovered slightly in the second quarter. The balance sheet shifted from tight to excess in the third and fourth quarters, and there were regional structural contradictions. Highlights include an energy shortage in Europe and sluggish demand in China due to disruptions caused by the epidemic. During the same period, the energy market pattern has also undergone tremendous changes: First, the Western sanctions on Russia have caused the energy trade pattern to change to “a decrease in the west and an increase in the east”; second, the switch from pipelines to shipping has led to a significant increase in the tanker market and freight rates. Exports of refined oil products from the United States, India and other countries have increased significantly.

“At the beginning of the year, the market was worried about the risk of supply disruptions and the difficulty in supply meeting demand, which would cause oil prices to soar.” Yang An said that at that time, the market did not fully realize the damage caused to crude oil demand by the downward pressure on the global economy in the context of high inflation, and As time goes by, the market gradually realizes that the recovery of crude oil market demand is far less than expected at the beginning of 2022. Among them, crude oil demand in 2022 is more than 1 million barrels/day lower than expected at the beginning of the year, with only about 2.2 million barrels/day of room for growth. The EIA has lowered its forecast for global crude oil demand growth in 2023 to 1.16 million barrels/day. , which has continued to suppress oil prices. Recently, the demand for crude oil in the United States, China and other countries has not been strong, furtherThe price of special crude oil may test the first-line support of US$75/barrel, the price of WTI crude oil may test the support of US$65/barrel, and the price of INE crude oil will continue to find the bottom. Oil prices may enter a resistive downward rhythm and may rebound after a sharp drop, but it will be difficult to return to high levels within the year.

“For the crude oil market at this stage, confidence is at a low point, and it is difficult to recover.” Yang An admitted that a recovery in demand is a necessary condition. In his view, as market sentiment gradually recovers, although oil prices still have the opportunity to reorganize the rebound, at present, concerns about tight supply in the crude oil market are less likely to occur in the short term, and more depends on the recovery of demand. , whether it can bring confidence to the market will play a decisive role in whether oil prices can effectively organize a rebound.

What about 2023?

Morgan Stanley said in a report on Friday that the fate of the oil market in 2023 will largely depend on uncertainty in seven key areas, including the recovery of the aviation industry and demand conditions in China. , the EU’s embargo sanctions on Russian oil, the tightness of diesel supplies, the prospects of US shale oil and gas, the end of the release of the US Strategic Petroleum Reserve (SPR) and capital expenditures in the energy industry. The agency expects that the oil market will be slightly oversupplied by the end of the first quarter of 2023, and will return to balance in the second quarter, followed by a supply shortage in the second half of the year, thus bringing upward momentum to oil prices. It is expected that Brent crude oil will be at the end of 2023 The price will rise to US$110/barrel.

According to Morgan Stanley’s prediction, there will be a day when oil prices “go back” in 2023!

We’ll see!

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