During the Spring Festival holiday, international oil prices continued to rise, with Brent oil prices once approaching the US$65/barrel mark. Under such circumstances, some market participants concluded that oil prices have entered a new “super cycle”, which triggered heated discussions in the industry.
Jeff Currie, head of commodity research at Goldman Sachs, has already shouted that copper and crude oil are already in a commodity “super cycle” and “the story has just begun.”
“Be long in crude oil and hold on to it, crude oil still has a lot of room to rise. I don’t know if oil prices will return to $150/barrel, what we are talking about now It’s a macro-level repricing, where everything needs to be repriced,” Currie said in an interview.
In addition, an OPEC representative who declined to be named yesterday said that Iran will attend a meeting of an OPEC+ consultative committee next month. The representative said that although Iran is not a member of the OPEC+ Joint Ministerial Monitoring Committee (JMMC), it will attend the committee’s March 3 meeting. OPEC and its allies will meet the next day to discuss April output. It is not uncommon for non-JMMC members to attend meetings, and OPEC members such as Libya and Venezuela have participated in meetings before. But Iran’s attendance was somewhat unusual and the country is engaged in a diplomatic maneuver that could eventually lift sanctions on its crude exports. If large amounts of crude oil from the country enter global markets, it will complicate OPEC’s efforts to eliminate market gluts.
At 7 o’clock this morning, Brent crude oil futures opened lower and then moved higher, at $63.1 per barrel, up 0.3%. WTI crude oil futures opened down 0.6% at $59 per barrel.
Is the commodity “super cycle” coming?
When it comes to whether oil prices will enter a “super cycle”, we first need to understand another hot topic in the industry. Have commodities entered a “super cycle”?
Theoretically, the “super cycle” of commodities refers to whether commodity prices are abnormal and experience a long-term and wide-scale rise over a long period of time. In the past two years, global monetary easing has led to an expansion in demand for commodities, and the prices of iron ore and natural gas have skyrocketed. For example, in 2020, most commodity prices showed a “V” shape, falling first and then rising. In the second half of last year, especially since the fourth quarter, commodity prices have strengthened across the board. By 2021, with the support of global economic recovery expectations and the easing policies of major global central banks, prices of metals, chemicals, agricultural products, etc. have further risen and have successively hit new highs in recent years.
Given the increasing signs that an inflation cycle is coming, some market participants believe that commodities have ushered in a “super cycle” and are expected to continue. There are many bullish factors in the market at present. As global stimulus policies continue to increase and the epidemic shows signs of declining from its high point, consumption expectations are likely to pick up. In addition, the peak consumption season after spring is approaching, and market participants believe that this commodity bull market will continue for some time.
Recently, JPMorgan Chase quantitative analyst Marko Kranovich said that a new round of commodity “super cycle” has begun, and this will also This is the fifth “super cycle” in the past 100 years.
Li Wanying, a senior energy and chemical analyst at the Donghai Futures Research Institute, told reporters that the reason why the market has recently said that commodities have entered a “super cycle” is related to the recent “Dr. Copper” and “Oil “The Return of the King” has a certain relationship. After all, in addition to commodity attributes, commodities also have strong financial attributes and are often considered to be leading indicators of economic development.
It is precisely because of this that the market sentiment has been collectively excited recently when the overall performance of the non-ferrous and chemical sectors has been strong. As for the logic behind the strong performance of the nonferrous and energy chemical sectors, according to Zhong Meiyan, research director of Everbright Energy Chemicals, there is no shortage of weak dollar cycles, restocking cycles, and the hype of concepts such as carbon peaking, carbon neutrality, and new energy.
Zhong Meiyan believes that there are two core factors driving the recent rise in commodity prices: one is the relationship between commodities and interest rates; the other is the elasticity of commodity supply under the expectation of strong economic recovery. Supply and demand mismatch. “Under the expectation of strong economic recovery, the smaller the elasticity of commodity supply, the greater the persistence of supply and demand mismatch and the greater the increase. However, the performance of crude oil and nonferrous metals is different, and the sustainability of nonferrous metals will be better than that of crude oil. Crude oil market We also need to pay attention to geopolitical factors, such as the United States’ attitude towards sanctions on Iran,” she said.
As for the relationship between commodities and interest rates, in Zhong Meiyan’s view, rising oil prices affect the pace of monetary policy by pushing up inflation, driving interest rates upward, thereby constraining the financial market. She believes that whether it is U.S. bonds or Chinese government bonds, crude oil price trends are highly correlated with changes in government bond yields, especially during the period of rapid rise in crude oil prices. Historically, the 10-year U.S. Treasury yield has shown better convergence with oil prices after the 2008 subprime mortgage crisis.
Taking the recent 4.07 basis point rise in the U.S. 10-year benchmark Treasury bond yield as an example, Li Wanying believes that various signs reflect the market’s expectations for rising inflation. From a macro perspective, the minutes of the Federal Reserve’s FOMC January monetary policy meeting concluded that the U.S. economic recovery is “far from” reaching its target, and reiterated that the ultra-loose monetary environment will continue to be maintained in the future. The economic easing measures introduced by various countries in response to the epidemic have greatly affected the commodity market.Created a better optimistic atmosphere. In addition, vaccines are being administered one after another and temperatures in the northern hemisphere are warming up. The market has good expectations for the effectiveness of vaccines.
Is crude oil entering a “super cycle”? Controversy in the industry
There are currently certain differences in the market as to whether crude oil will usher in a “super cycle.”
During the Spring Festival, crude oil production in the United States and Russia fell sharply due to extremely cold weather, and international oil prices rose further. Not only did U.S. oil futures prices once exceed $61/barrel, but Brent oil prices were once close to the $65/barrel mark. Affected by this, the price of domestic refined oil products completed the “three consecutive rises” during the year.
“If several increases a year ago are included, domestic refined oil price adjustments have now achieved ‘seven consecutive increases’, and are even expected to achieve ‘eight consecutive increases.'” Zhong Meiyan said.
The main reason for such an idea is that against the backdrop of unexpected supply contraction and demand recovery, oil prices have been rising continuously. Considering that behind this, there are also global Due to macro factors such as loose market liquidity, Zhong Meiyan believes that before the second quarter, crude oil prices will still be easy to rise but difficult to fall, and the upward trend will continue.
“You must know that the current crude oil price has returned to the pre-epidemic level. Judging from the impact on price, it still lies in the split between supply and demand trends.” Zhong Meiyan said, on the one hand, In the post-epidemic period, the vaccination rate has increased, new confirmed cases overseas have reached an inflection point, and expectations for global economic recovery have gradually been realized. There is definite room for recovery in crude oil demand. Overseas institutions currently estimate the growth of global crude oil demand in 2021 at around 5.7 million barrels per day, especially in the first half of the year when economic expectations are relatively optimistic. On the other hand, on the supply side, OPEC production cuts coupled with extremely cold weather in the United States have further expanded the periodic supply gap. In January 2021, the oil production reduction amount was adjusted to 7.2 million barrels per day. In February and March, Saudi Arabia agreed to reduce production by an additional 1 million barrels. OPEC+’s total production reduction assessment is still at 8.2 million barrels per day. Last week’s extremely cold weather in the southern United States caused significant losses in U.S. shale oil production. As companies and traders assess the situation, estimates of oil production losses continue to increase. It is currently estimated that until early March, U.S. crude oil production may lose 32 million barrels. Based on a half-month period, the daily production loss will be 2.1 million barrels. Before the blizzard, U.S. crude oil production was 11 million barrels per day, with a loss of nearly 20%.
It is worth noting that not only the International Monetary Fund (IMF) predicts that the average world oil price this year will be 65 US dollars / barrel, and may reach a maximum of 80 US dollars / barrel, Goldman Sachs and Morgan Chase even predicts that oil prices may exceed US$100 per barrel this year.
However, some well-known analysts in the industry believe that it is a bit hasty to conclude that crude oil has entered a “super cycle”, especially when the COVID-19 epidemic has not yet been effectively controlled and the global economy In the context of still fighting for recovery, there is still great uncertainty in the market. Although vaccinations have begun around the world, their effectiveness is questionable, and the epidemic in Europe and the United States is still serious. The crude oil consumption market cannot be considered to have basically recovered until the epidemic is completely under control. In addition, the recent rise in oil prices is the result of a combination of macro expectations and short-term factors, while the actual impact of geopolitics and the blizzard in the United States on oil prices is relatively limited. The periodic supply shortage may gradually ease within a few weeks, and high oil prices have also triggered There is speculation about whether OPEC will firmly cut production.
Li Wanying believes that at the current time point, it is too early to judge that the crude oil market has entered a “super cycle”. In her view, for the crude oil market, recovery in 2021 is indeed the main tone. Since the first quarter, with the rollout of vaccines and against the backdrop of OPEC’s increased production cuts and geopolitical tensions in the Middle East, international oil prices have accelerated and the price gap structure has been significantly repaired. Crude oil consumption is currently on the mend. In fact, since the outbreak of the epidemic last year, supply changes have become the dominant logic of the short-term oil market due to active and passive production cuts by various countries. However, the blizzard in the United States has amplified the periodic tightness on the supply side.
In fact, the global crude oil balance sheet reflects the general trend of destocking. Data from the U.S. Energy Information Administration shows that as of the week of February 12, U.S. crude oil inventories were 461.757 million barrels, a decrease of 7.26 million barrels from the previous week and a decline for four consecutive weeks. Current crude oil inventories are 4.26% higher than the same period last year and 4.26% higher than the same period in the past five years. flat. In Li Wanying’s view, under optimistic conditions, the oil market may achieve a balance between supply and demand by the end of the second quarter. Therefore, the overall performance of Brent oil prices throughout the year is expected to be significantly better than that in 2020. “However, whether the COVID-19 epidemic can be controlled still needs to wait and be verified,” she said.
As for the future, Li Wanying said that after oil prices objectively cover the production costs of shale oil, it will rekindle market concerns about supply recovery, and OPEC+, led by Saudi Arabia and Russia, will A meeting will be held in early March, and investors are advised to pay attention to the progress of the meeting.
Zhong Meiyan believes that investors also need to pay attention to the pace of crude oil inventory destocking, the progress of negotiations between the United States and Iran, the timing of the implementation of U.S. fiscal stimulus policies, and the trend of Treasury yields. </p
