As the market gradually digests the impact of geopolitical factors, short-term crude oil and other risk asset prices will return to rationality. However, in the context of the peak demand season, the supply and demand structure of the oil market is still good, and the overall upward trend is still continuing.
The picture shows the position trend of NYMEX crude oil futures funds
The geopolitical situation in the Middle East, which had been dormant for a long time, became a “black swan” at the beginning of the new year. The escalation of conflicts between the United States and Iran stimulated the market’s enthusiasm to push up oil prices in the short term, thus accelerating the rise of international crude oil and causing the United States to Both WTI and Brent oil prices hit new stage rebound highs this week. The former rose as high as US$65.65/barrel, while the latter once climbed to US$71.75/barrel. my country’s crude oil futures 2003 contract also rose to 529.8 yuan/barrel.
Geographical factors make it difficult to sustain peace, which remains the main theme
The Middle East has always been the “powder keg” of the world. The root cause is that the region’s rich oil resources are the object of competition among the world’s major military powers. The conflict between the United States and Iran is just one chapter. The escalation of the U.S.-Iran conflict was mainly caused by the U.S. announcing in May 2018 that it would withdraw from the Iran Nuclear Agreement and impose long-term economic sanctions on Iran. The contradiction between the two changed from quantitative to qualitative, and eventually evolved from a small-scale friction to a small-level military conflict. Just when the market thought that the Middle East had switched to a quasi-war state, just one night later, the plot took a turn. The top leaders of both sides released a signal to resume peace talks, and the “muscle flexing” performance was over. Tensions in global financial markets have been calmed, safe-haven asset prices have fallen, and risk assets have undergone price repair.
The author believes that although the current situation in the Middle East seems to be chaotic, with you coming and going and not giving in to each other, the top leaders of all parties are Still very rational, “really taking action” is undoubtedly a lose-lose situation. On the one hand, high oil prices will undoubtedly severely damage the newly improved economic situation of the United States. At the same time, the United States is unwilling to fall into the quagmire of war again; on the other hand, the United States can monopolize the Middle East and Africa, and the forces of all parties are still in a state of balance. Under the assessment that the cost of “fighting” is huge and the prospect of war is slim, it will be a high probability event that the United States and Iran will return to the negotiating table. Peace will still be the main theme. However, there will still be “episodes” of minor frictions in the Middle East from time to time. As the market gradually digests the impact of geopolitical factors, the author believes that short-term crude oil and other risky asset prices will return to rationality.
The characteristics of the peak demand season continue to drive oil prices to oscillate at high levels
As short-term geopolitical factors come to an end, crude oil’s previous premium space will gradually be given back, and prices will return to a rational state dominated by fundamentals. Currently, the northern hemisphere is still in the seasonal peak season for crude oil consumption. U.S. refinery operating rates remain at a high level, and crude oil commercial inventories are also in the process of being depleted in stages. According to data released by the U.S. Energy Agency, as of the week of January 3, 2020, the U.S. refinery operating rate was 93.00%. Although it fell slightly by 1.4% week-on-week, it is still at a relatively high level compared to the same period in the past six years. With demand improving, the destocking process of U.S. crude oil inventories continues. As of the week of January 3, 2020, U.S. commercial crude oil inventories reached 431 million barrels. Although they rose slightly by 1.164 million barrels week-on-week, they were still 4.65% lower than the high of 452 million barrels on November 22. is gradually expanding. Crude oil inventories are expected to continue to fall in the market outlook, thus providing motivation for crude oil futures prices to rise.
Driven by positive factors, the enthusiasm for long positions in the international crude oil market continues to pick up, and the willingness of long funds to increase their positions remains undiminished. According to data from the U.S. Commodity Futures Trading Commission (CFTC), as of December 31, 2019, the non-commercial net long positions of WTI crude oil were 554,857 contracts. The net long positions have rebounded again week-on-week, but are lower than the previous low on October 8. of 355,085, a sharp increase of 56.26%. The steady recovery of net long positions indicates that the market’s confidence in bullish oil prices is steadily increasing. And from historical statistics, it is found that in the past eight years, from December to January of each year, the non-commercial net long position of WTI crude oil has rebounded 7 times and fallen once, with a recovery probability as high as 87.5%. It is expected that the bullish enthusiasm in the crude oil market will continue to pick up before the end of January 2020.
Taken together, as short-term geopolitical factors “ebb”, crude oil prices will Returning to rationality, the previous premium space faces the risk of giving up. However, in the context of the peak demand season, the supply and demand structure of the oil market is still good, and the overall upward trend is still continuing. It is expected that crude oil will maintain a strong oscillation pattern in the future. </p
