Last week, the three authoritative monthly reports of EIA, OPEC, and IEA came out one after another. After demand was obviously damaged due to the epidemic, the enthusiasm of the bulls also quickly cooled down. In particular, the International Energy Agency has significantly lowered its global crude oil consumption forecast for the rest of this year. Such an efficient adjustment surprised the market. The agency lowered its demand forecast for the second half of this year by 550,000 barrels. The IEA just urged OPEC+ to “open the gates” a month ago. Increase production, otherwise oil prices may face the risk of a sharp surge due to supply shortages, and this statement marks a clear change in its stance. Obviously, the market is as we have judged during this period, because the demand is lower than expected, and the increase in supply has started, and the gap between supply and demand is quickly narrowing. Against this backdrop of supply and demand, the short-term rebound in oil prices has also come to an end.
An interesting thing happened in the market last week. The White House urged OPEC and its allies to increase production. However, the White House later stated that contact with OPEC and the OPEC+ alliance formed by its allies was aimed at establishing a long-term effort to end anti-competitive practices and was not necessarily for an immediate response, which also allowed oil prices to recover after the flash crash.
Obviously, the nuclear agreement negotiations between the United States and Iran do not seem to be going smoothly. Iran’s new President Raisi nominated Javad Owji as the new oil minister, and also nominated the hawkish diplomat Hossein Amirabdollahian As foreign minister, this signals that the Iranian president intends to take a hard line in negotiations. Former Iranian Oil Minister Zanganeh said in July this year that the new oil minister’s main task is to increase oil exports.
Three major monthly reports show that the gap between supply and demand in the crude oil market has narrowed
Last week, the three major monthly reports that the crude oil market focused on were released. The first is the demand aspect that the market is concerned about. EIA and OPEC have kept their respective growth forecasts for world oil demand in 2021 and 2022 unchanged, but OPEC expects demand for OPEC crude oil in 2021. It will be reduced by 200,000 barrels per day to 27.4 million barrels per day, lowering the 2022 crude oil demand forecast for OPEC by 1.1 million barrels per day, and predicting that the oil market will still tighten in the second half of 2022.
The IEA lowered its crude oil demand forecast for the second half of 2021 by 550,000 barrels per day, and mentioned that due to the new crown epidemic, it has lowered its oil demand outlook and expects a supply glut in 2022. This will It took the market by surprise. The IEA expects global oil demand to increase by 5.3 million barrels per day in 2021 to 96.2 million barrels per day. It was previously expected to increase by 5.85 million barrels per day, and to further increase by 3.2 million barrels per day in 2022. However, oil consumption in oil consuming countries, especially in Asia, The implementation of new epidemic prevention restrictions in consuming countries will reduce the movement of people and the use of oil. The IEA report showed that crude oil demand increased by 3.8 million barrels per day in June and fell by 120,000 barrels per day in July. The decline in demand in July was due to the rapid spread of the Delta variant virus, which affected deliveries to Indonesia and other parts of Asia. The epidemic situation has obviously further worsened in August, the economic data of many important economies around the world have been weak, and the recovery of cross-border air travel has been far away, which has led to the setback in the recovery of crude oil demand.
From a global perspective, the epidemic situation is severe. In August, the number of new confirmed cases in a single day worldwide reached 700,000. Data released by the WHO on August 12 showed that , the total number of confirmed cases of new crown in the world reached 204,644,849. The number of deaths increased by 9,971, reaching 4,323,139. Among them, Asia is the most serious region, and the epidemic situation in other continents is also very serious. The number of new cases in the United States in a single day has once again returned to more than 100,000, and the number of cases exceeded 170,000 again on August 10. The epidemic has once again put pressure on the recovery of the global economy. Tedros Adhanom Ghebreyesus, Director-General of the World Health Organization, warned that if the current development trend continues, the total number of confirmed cases of COVID-19 globally will exceed 300 million in early 2022.
On the supply side, the IEA monthly report pointed out that the OPEC+ production reduction implementation rate reached 110% in July, and global oil supply increased by 1.7 million barrels/day to 96.7 million barrels/day in July; OPEC+ Oil supply from other countries is expected to increase by 600,000 barrels per day this year and 1.7 million barrels per day in 2022, with 60% of the increase coming from the United States. OPEC’s monthly report shows that OPEC’s oil production in July reached 26.657 million barrels per day, OPEC+’s July production reduction implementation rate was 110%, and Russia’s production reduction implementation rate was 95%. The OPEC monthly report also raised its 2021 non-OPEC oil supply growth forecast by 270,000 barrels per day to 1.1 million barrels per day, and increased its 2022 non-OPEC oil supply growth forecast by 840,000 barrels per day to 2.9 million barrels per day.
A risk that must be guarded against on the supply side is that as oil prices rebound from last year’s historic lows, some U.S. producers increase drilling activities. The U.S. rig count has more than doubled since falling to a record low last August. Data released by energy services company Baker Hughes shows that the number of active oil rigs in the United States increased by 10 last week to 397, the most since April 2020. It was 172 a year ago. It is foreseeable that the return of U.S. crude oil production is the general trend. The EIA also estimated in its monthly report on Tuesday that U.S. crude oil production in 2021 will be 11.12 million barrels per day, raising its crude oil production forecast by 50,000 barrels per day from the previous forecast. At present, this assessment is still relatively conservative.
Positions and monthly spreads show that market expectations are becoming more cautious
The drop in crude oil prices in August also led to a sharp decline in monthly spreads, and even monthly spreads More pessimistic than the absolute price, the improvement in the monthly difference in crude oil prices during the rebound last week was quite limited. The WTI monthly difference from January to March shrank from more than 2 US dollars in the previous period to around 0.5 US dollars, and the Brent monthly difference also fell from the high to more than 1 US dollars. US dollar, although there is currently no oversupply in the crude oil market, the rapid contraction of the monthly difference further confirms that investors are becoming more cautious in their expectations for the future of oil prices against the background that supply and demand tensions have significantly eased. In addition, data such as spot market discount and EFS also show that the current spot market performance is weak.
Another very negative signal for oil prices is the rapid withdrawal of speculative net longs. On August 14, the U.S. Commodity Futures Trading Commission (CFTC) released data showing that as of the week of August 10, speculative net long positions in WTI crude oil futures decreased by 21,777 lots to 283,601 lots. The latest positions released by ICE, the Intercontinental Exchange, show that speculative net long positions in Brent crude oil futures decreased by 30,319 to 279,346 contracts last week. This has been the rapid withdrawal of speculative net long positions for more than a month in a row, showing that speculative funds have a negative impact on the oil price outlook. No more optimism. Not only has crude oil positions declined, Intercontinental Exchange ICE’s speculative net long position in gasoline futures decreased by 28,858 lots to 99,490 lots last week, a 20-week low. Funds are remaining cautious about the overpriced oil product market.
As far as the current crude oil market is concerned, there are still many uncertain factors. For example, the passage of the U.S. infrastructure plan still leaves room for imagination in the later period, and the U.S. macro policy At present, it is difficult to draw a conclusion under the influence of many data such as employment, CPI and consumer confidence index. Investors frequently switch their expectations. Macroscopically, the Federal Reserve has been discussing when to tighten currency, although central banks of various countries are cautious and frequently adopt dovish remarks. Or the contraction timetable can be postponed to alleviate market nervousness. However, as time goes by, expectations of tighter liquidity at the macro level will provide less and less power to continue to push commodity prices upward.
In short, after the oil price has gone through the stage of strong expectations, investors no longer have high expectations for oil prices under the background of the epidemic, especially After the IEA’s monthly report significantly lowered its forecast for crude oil demand, based on the current development trend of supply demand, it is expected that the oil market will experience significant oversupply next year. Against this background, investors’ interest in speculating on oil prices has also become much less intense. Although we cannot see large-scale short selling for the time being, there is a high probability that oil prices will have a downward trend in the center of gravity in the future. </p
