This week, crude oil prices began to peak and fall. After briefly breaking through the previous high, the market gradually showed weakness. Oil prices also fell during the Dragon Boat Festival. As of Friday’s close, Brent prices had fallen by 3.05%, and WTI prices had fallen by 3.05%. The cumulative decline was 3.39%. The continued deterioration of the epidemic in the United States during the Dragon Boat Festival holiday has a clear impact on market confidence. While the U.S. stock market is weakening again, although oil prices are relatively resilient, they cannot be immune. The probability of oil prices continuing to be “bearish” in the market outlook is increasing.
The drop in crude oil prices this week is mainly due to three reasons. First, U.S. shale oil production has rebounded sharply, triggering market concerns about a rebound in supply under current oil prices; second, a second global outbreak of the epidemic has been confirmed, and the global stock market has not performed very well under the impact of the epidemic; third, Trade frictions between Europe and the United States continue to escalate, causing European stock markets to fall. These three aspects have exerted expected pressure on oil prices from the supply side and demand side respectively.
For future market prices, the main focus begins to slowly shift from the supply side to the demand side. In the future, we will see more games between the supply side and the demand side. The market The extent to which participants’ confidence recovers determines the direction of oil prices. In terms of the degree of influence, the demand side will have greater influence, and the benefits on the supply side have been fully reflected in prices. Therefore, while we are studying future prices, it is no longer possible to deduce the main reasons for price increases only through the supply side. Logically, demand-side variables will have a very critical impact on future oil price trends.
The second outbreak of the epidemic has arrived early
The second outbreak of the epidemic in 2020 is earlier than expected. In the traditional market expectations, the second outbreak of the epidemic will probably occur in the autumn. When the temperature is suitable, the spread of the epidemic may accelerate. However, we now see that although summer has just begun, the epidemic on a global scale has The outbreak has already begun.
The number of new confirmed cases in the United States is close to a new high, reaching 42,700. There have only been three cases of more than 40,000 confirmed cases in the United States in a single day, and there have been two cases in the past two days. We have reason to worry that the number of new confirmed cases in the United States will continue to remain above 40,000 in the next few days. At present, the cumulative number of confirmed cases in the United States has reached 2.54 million, and the number of confirmed cases per million people in the United States has reached 7,614, far ahead of other countries.
The number of new confirmed cases in India has been growing at an exponential rate since May, and there is no obvious sign of stabilization in the growth process. In the early stages of the outbreak, the epidemic trend in various countries around the world showed a similar exponential growth, but the exponential growth lasted for about 2 weeks, and then the peak of the epidemic was often seen. However, India did not let that happen. We see signs of this. In addition to India, the same is true for important countries such as Brazil and South Africa. The second major outbreak of the global epidemic has really arrived ahead of schedule!
The demand in the United States during the outbreak is worrying
The EIA data released this week is not very ideal. U.S. crude oil production increased significantly by 500,000 barrels, due to a decline of 600,000 barrels/day last week due to the impact of the U.S. hurricane, and the recovery of production capacity that was withdrawn after the hurricane. However, if we follow the logic of previous production declines, it is equivalent to a cumulative production decline of 100,000 barrels per day in these two weeks, while the previous weekly decline was 100,000 barrels. The production data reminds the market of the withdrawal of U.S. production capacity. The signs of slowing down have triggered expectations that U.S. crude oil supply will begin to stabilize or even recover around $40 per barrel, which is what worries the market.
From the perspective of U.S. crude oil demand, the degree of demand recovery is still very slow, and the operating rate and refining input are still at the bottom and slowly climbing. With the second outbreak of the epidemic in the United States, the epidemic control in some areas of the United States has returned to the highest level. It is expected that the demand for U.S. crude oil market will still not be very optimistic. If the second outbreak of the epidemic is not handled well, I am afraid that the demand for U.S. crude oil will still not see an improvement. There is even the possibility of a sharp decline.
This can be clearly seen in the U.S. refined oil inventories. Despite the early resumption of production and work, refined oil inventories have actually seen no obvious signs of decline. Although judging from recent data, U.S. finished goods inventories remain at high levels and the worst has passed, the market has not seen signs of improvement, which is also a concern for us. The current crack spread of U.S. refined oil products is not very good. If the situation continues to worsen, the crack spread of refined oil products may further weaken. This will be a great restriction on the processing capacity of U.S. crude oil refineries and the demand for U.S. crude oil. Of course, recovery is out of the question.
From a technical indicator point of view, Brent price began to pull back after hitting the top pressure level, and the RSI indicator continued to rise when the price rose. There was an obvious divergence signal during the process, which is enough to show that the potential energy of the bulls is gradually exhausted during the second peak search. From a technical point of view superimposed on the current market situation, there is still room for the daily price to continue to decline. The first support It is around Brent US$37/barrel.
If the epidemic worsens and continues to impact market confidence , then there is a high probability that US$37/barrel will not be the bottom of this round of price correction. Therefore, we need to pay close attention to the psychological impact of investors at the macro level. We need to continue to pay attention to the development of the epidemic in the United States and the world. If the number of new confirmed cases of the epidemic continues to hit new highs , the possibility of re-implementing regional closures in some areas cannot be ruled out, which will be a huge blow to the demand for crude oil, and will also have a major negative effect on oil prices.
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