After hitting a nearly seven-year high in early July, crude oil has fallen into a period of turmoil.
The deterioration of the global epidemic situation has reignited concerns about the outlook for energy demand. After last week’s biggest weekly decline since October last year, international oil prices fell again on Monday. Nearly 5%, WTI crude oil is approaching the $65/barrel mark, and Brent crude oil has returned to support at the low of $67.50 three weeks ago. At the same time, risk aversion and expectations of tightening policy by the Federal Reserve have boosted the dollar and also weighed on oil prices.
Tamas Varga, senior market analyst at crude oil broker PVM Oil Associates, said in an interview with China Business News that as the “Delta” mutant strain spreads around the world Spread rapidly, concerns about the potential reduction in global oil demand have resurfaced, and the long-short battle in the derivatives market has intensified market volatility.
The epidemic has triggered supply and demand concerns
Data show that the WHO The number of new confirmed cases every day is close to the record high at the beginning of the year. Varga believes that judging from the oil price trend last week, the recent crude oil outlook has deteriorated, and the biggest challenge facing the market is the uncertainty about the spread of the new coronavirus.
Oil price trends reflect investors’ judgment of the supply and demand situation. On the supply side, OPEC+ will relax production restrictions by 400,000 barrels per day on a monthly basis from August and extend the production reduction agreement until the end of next year. Industry data shows that, driven by the easing of production restrictions, oil-producing countries are gradually releasing production capacity. The oil production of the 13 OPEC members alone in July reached the highest level since April 2020 to 26.72 million barrels per day, an increase of 610,000 barrels per day compared with June. Saudi Arabia and the United Arab Emirates ranked the top two in terms of production increases. Saudi Arabia significantly increased production by 460,000 barrels per day.
The prospects of the Iran nuclear agreement also deserve attention. U.S. media quoted sources last week as saying Iran was committed to returning to talks in Vienna. The situation in the Middle East has heated up recently. A Panamanian oil tanker was seized in the Strait of Hormuz, and an Israeli oil tanker was attacked near the coast of Oman. There is uncertainty about the time when Iranian crude oil will return to the market.
In contrast, the demand side has a more obvious impact on market sentiment. The epidemic situation in the Asia-Pacific region has worsened since this month. Australia’s two largest cities, Sydney and Melbourne, are under “lockdown”, the epidemic situation in Southeast Asia has escalated, and the number of new daily confirmed cases in Japan and South Korea continues to be high. At the same time, U.S. Energy Information Administration (EIA) data showed that domestic crude oil inventories have rebounded in two of the past three weeks. Although the summer driving season has driven up gasoline consumption, distillate demand has fallen sharply, and the aviation industry is facing another impact. .
Varga told China Business News that the market’s concerns about weak demand are escalating. Taking the WTI crude oil contract as an example, the short-term three-month contract discount has narrowed. At the same time, the previously popular long-term spread trading-the discount between the December 2021 and December 2022 contracts has also fallen back to a half-year low, showing that While oil-producing countries are increasing production before the end of the year, the outside world is cautious about whether demand can follow suit.
Compared with other energy varieties, crude oil has been relatively affected by the epidemic. According to data from Commerzbank, global oil demand fell by 8.7% year-on-year last year, while coal demand fell by 4% and natural gas demand fell by less than 2%. “Market participants are watching rising coronavirus numbers in Asia with great vigilance, as this could prompt governments to introduce tougher restrictions,” the report said.
The strong US dollar suppresses
Exchange rate factors are also the main reason that affects oil prices On Monday, the U.S. dollar index approached the 93 mark, one step away from the year’s high. The previously released U.S. employment report was stronger than expected, prompting speculation that the Federal Reserve may tighten monetary policy faster.
Federal Reserve Vice Chairman Clarida’s remarks at the Peterson Institute for Economics last week attracted widespread attention. He believes that the Fed may achieve its economic goals by the end of next year and in 2023. Start raising interest rates. “The job market still needs to recover, and as long as inflation expectations remain at the long-term target of 2%, policy normalization starting in 2023 will be fully consistent with the new flexible average inflation targeting framework.” He said.
The U.S. dollar index is approaching the high of the year
Inflation risks have become the focus of the Federal Reserve. Clarida noted that he believed the recent rise in inflation was “transitory,” but said if inflation remained above 3%, it would be above the Fed’s standard for a “modest” overshoot of the 2% target. The United States will release July CPI data this week, which may once again trigger discussions about the Fed’s policy expectations.
The recent market volatility of crude oil has been significantly greater than that of other major commodities. Varga believes that the long-short game in the derivatives market may have exacerbated the volatility. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that although the current long positions in crude oil futures are still at a high level during the year, long positions have been significantly reduced in two of the past three weeks, and the trading volume has increased significantly compared with July, which has a negative impact on the economy and demand. Concerns about the outlook triggered risk aversion and panic trading.
However, �This situation does not imply a long-term change in market sentiment. Varga told reporters that despite many negative factors, he remains cautiously optimistic about the outlook for oil prices. On the one hand, it can be seen that European and American stock markets have not been significantly affected by this round of epidemic. Countries are advancing intensified vaccination plans, which will help prevent and control the epidemic, thereby controlling its negative impact on the economy and ensuring energy demand. On the other hand, OPEC+ still controls the situation in terms of oil supply and can adjust production plans according to actual conditions. It is difficult for the oil price to plummet due to the imbalance of supply and demand at the beginning of the epidemic last year. </p
