The performance of crude oil is like a brain-burning drama. It has previously performed an extremely weak market with a negative trend for 7 consecutive trading days. Last week, the situation suddenly changed. First, a fire on a Mexican offshore platform at the beginning of the week affected 440,000 barrels/ days of production before hurricanes hit over the weekend and forced the closure of offshore platforms and refineries in the Gulf of Mexico region, reducing U.S. Gulf of Mexico oil production by 59% and natural gas production by 49%, causing energy prices to surge in the United States and across the Atlantic. Meanwhile, concerns about the spread of the delta variant of the coronavirus have eased in the past few days, providing room for a rebound after last week’s decline. Federal Reserve Chairman Powell’s mildly dovish remarks also made the US dollar continue to weaken. In the end, WTI crude oil futures staged a shocking reversal of 11% in a single week, the largest weekly increase since June 2020.
As oil prices rebound sharply, more and more institutions have rejoined the team that is bullish on oil prices. In addition to Goldman Sachs’s early judgment that oil prices will continue to look at US$80 before the end of the year In addition to the /barrel target, UBS and other institutions have also begun to judge that Brent crude oil has the opportunity to return to above US$75/barrel again. It is clear that market risk appetite has returned again. In the face of such strong oil price performance, OPEC+ will have another monthly meeting on September 1, and will not surprisingly implement an increase in production of 400,000 barrels per day as planned.
Judging from the current trend of oil prices, last week’s strong rebound successfully brought oil prices back to a high oscillation pattern. As the U.S. dollar weakens, the downward pressure on oil prices has eased, but the upward momentum is also questionable. We have also noticed that the two violent rebounds in July and August did not attract bulls to significantly increase their positions, indicating that the market is not optimistic about the future of oil prices. Looking forward to the future, the continued narrowing of the supply-demand gap in the crude oil market will be a relatively certain development trend, and the trend of oil prices may weaken again at any time due to the pessimistic market mentality.
Short-term supply pressure has been significantly relieved, and oil prices have regained lost ground
When analyzing the supply and demand situation in the crude oil market last week, we mentioned that oil prices fell too fast and exceeded most investors’ expectations, but the fundamentals of the crude oil market are obviously not that bad. EIA inventory data showed that crude oil inventories decreased by 2.98 million barrels, expected to decrease by 2 million barrels, and the previous value decreased by 3.233 million barrels; gasoline inventories decreased by 2.241 million barrels, compared with expected decreases of 1.1 million barrels, and the previous value increased by 696,000 barrels; refined oil inventories increased by 64.50 million barrels, expected to decrease by 900,000 barrels, and the previous value decreased by 2.697 million barrels. Crude oil exports decreased by 619,000 barrels per day last week to 2.812 million barrels per day. Imports last week were 6.157 million barrels per day, a decrease of 193,000 barrels per day from the previous week. Crude oil production remained unchanged at 11.4 million barrels per day. The EIA report showed that U.S. crude oil inventories fell to the lowest level since January 2020 last week, and U.S. East Coast gasoline inventories fell to the lowest level since March 2018. Overall, although the decline in U.S. crude oil inventories has slowed down in August, crude oil is still being destocked overall. However, due to the slowdown, the push for oil prices has significantly weakened.
A stronger push for oil prices last week was the performance of the supply side. First, a fire on an offshore platform in Mexico affected 440,000 barrels/day of crude oil production. Over the weekend, a hurricane forced the Gulf of Mexico to Offshore oil wells are shutting down. The U.S. National Hurricane Center said Hurricane Ida could approach “major hurricane” strength as it approaches the northern Gulf Coast. Oil producers in the U.S. Gulf of Mexico have begun shutting down production as the hurricane approaches. Data from the U.S. Bureau of Safety and Environmental Enforcement (BSEE) show that major producers in the U.S. Gulf of Mexico that have shut down or are in the process of shutting down production include BP, Shell, and Chevron, which have successively shut down 59% of their production capacity in the Gulf of Mexico. Offshore oil wells in the Gulf of Mexico account for 17% of U.S. crude oil production, and more than 45% of U.S. refining capacity is located along the Gulf Coast. The hurricane may affect about 1 million barrels per day of crude oil production in the United States. If the hurricane affects refining in the future, it will have a greater impact on the supply of fuel markets such as U.S. refined oil products and have a negative impact on crude oil demand. Overall, as for the factors affecting hurricanes, the market’s first concern in the early stage is the positive effect of damaged output. Moreover, under the current macro background of the sharp weakening of the US dollar, the risk appetite of the commodity market is relatively high. This positive factor has the effect of It has also been significantly amplified, which has also become the focus of short-term market attention.
The short-term supply damage in the crude oil market is obvious, but judging from the development trend, the continued recovery of supply-side production will be a certainty. The OPEC+ meeting on September 1 will discuss the implementation of the increase in production. According to the current development of the crude oil market, it will be certain to increase production by 400,000 barrels per day as planned, and this increase in production will continue until April 2022. During the year, OPEC+ will There are 2 million barrels per day of supply returning to the market. Bank of America expects non-OPEC+ crude oil production to increase by 1.8 million barrels per day in 2022, with slight growth in U.S. shale oil production, coupled with projects in Brazil, Guyana, Norway and other non-OPEC+ countries, adding 1.8 million barrels per day in 2022 barrel/day. Including NGL, U.S. crude oil production, led by the Permian, is expected to increase by 1.2 million barrels per day, Brazil by 170,000 barrels per day, Guyana by 120,000 barrels per day, and Norway by 100,000 barrels per day. In addition, according to the Mexican government’s plan, in 2022The Reserve Bank of China is expected to tighten liquidity next, so it is difficult to hope that the dollar will continue to be weak. On the contrary, the U.S. dollar has clearly gotten rid of the bear market since the epidemic this year and has entered a strengthening stage. From the perspective of macro-level development trends, although concerns about liquidity tightening have been temporarily suspended, it is highly likely that commodities will be put under pressure in the later period. .
Recently, factors such as crude oil drilling platform fires, hurricanes, and geopolitical turmoil have been mixed with factors such as the Federal Reserve’s policy guidance and OPEC’s supply-side management, resulting in considerable uncertainty in the direction of oil prices. Uncertainty, as can be seen from the violent fluctuations of big drops and big rises, the current market is in an unstable stage. For oil prices in the later period, the Fed’s measures to tighten liquidity are getting closer, and the trend of the US dollar will suppress the performance of commodities. Although there is still room for recovery in crude oil demand, the strongest recovery period has passed. On the supply side, with the gradual implementation of OPEC+ production increases and the obvious acceleration of U.S. drilling in August, the pressure for subsequent production increases will continue to increase. Investment banks are looking forward to the supply side strength. Performance still faces significant challenges. Therefore, when market sentiment is relatively optimistic, investors are reminded to note that oil prices do not have the conditions to strengthen again in the medium to long term. Judging from the core factors affecting oil prices, there is a high probability that oil prices will continue to decline after oscillating at a high level. </p
