This week, crude oil prices have experienced “great joy and great sadness”, and both bulls and bears are also experiencing pain. The OPEC meeting originally planned to be held last week was postponed to Monday. As a result, there were still conflicts between Saudi Arabia and the United Arab Emirates on Monday. No results were achieved at the meeting. The OPEC meeting that attracted market attention was cancelled. The amount of production increase in August has not been finalized. Saudi Arabia It said that if the meeting fails to reach an outcome, there will be no increase in production in August. The market rose rapidly after hearing the news and spent Monday in “excitement.”
On Tuesday, the market began to notice that the internal conflicts between OPEC were stronger than expected. The United Arab Emirates has announced that it will use the revenue from increased production to subsidize new energy sources. At the same time, there is also news that the UAE has revealed to some buyers information that can increase export volumes. Only then did the market realize that it was entirely possible for the UAE to continue to have its own way and go it alone without Saudi Arabia or OPEC. If so, OPEC will face greater risks and more supply will be released in the crude oil market.
At the same time, Biden also came out to say that the oil market price is too high. The price of gasoline in the United States has hit new highs repeatedly, which has had a great impact on travel. Therefore, Biden called on Saudi Arabia and the United Arab Emirates this time, hoping that they can resolve their differences and reach an agreement to increase production early to curb crude oil prices. But Biden does not seem to have considered that once OPEC reaches a resolution to increase production by 400,000 to 500,000 barrels, the uncertainty in the crude oil market will subside, the growth of the supply side will still not keep up with the growth of demand, and crude oil prices are still likely to continue to hit new highs. It has even reached over US$80/barrel.
Taken together, the strength of market fundamentals and the negative side of the UAE are intertwined. The volatility of the crude oil market is gradually increasing, and the difficulty of trading is also increasing. The market is now waiting for further news from the OPEC meeting. If the meeting reaches a production increase plan, crude oil prices may find a low point to bottom, thus launching a new round of offensive driven by the demand side. If the UAE continues to take a tough stance and the meeting has no results, then the market’s concerns will still be relatively strong and the market will continue to maintain a state of high volatility.
Contradictions in the UAE
The most important thing this week The latest incident was the collapse of the OPEC alliance, which directly made the market feel the impact of the incident. The contradiction in this incident is that at the meeting, OPEC+ reached a plan to cautiously increase production and extended the production reduction agreement until next year. However, the UAE has a huge dispute over the base of production reduction. According to the previous production reduction agreement, the UAE’s production reduction benchmark is 3.168 million barrels per day. At this meeting, the UAE insisted on adjusting its production reduction benchmark to the production in April 2020, which is 3.841 million barrels per day. This is This means that the UAE can freely increase its production capacity by 700,000 barrels per day, which is unfair to other participating countries. In the end, after several delays and negotiations, Saudi Arabia and the United Arab Emirates refused to give in. The meeting did not reach any results and still maintained the previous production reduction level. This also meant that the market’s expected increase in production of 400,000-500,000 barrels fell through, and oil prices responded. Big rise! However, the good times did not last long, and conflicts within OPEC+ also made crude oil bulls more cautious.
The UAE’s tough attitude and Saudi Arabia’s unflinching spirit have worried the market, despite the It seems that the outcome of the OPEC meeting is also inconclusive. The market can only spend this difficult time in panic. Brent prices also fell rapidly. At a time when market risks increased and became more chaotic, bulls quickly Stay away and watch. In fact, OPEC is not in a hurry to limit production in August, because at the last meeting, the production increase quota for July has been determined. OPEC only needs to determine the share of the increase in production before August comes, which means OPEC can wait until the end of July at the latest for the next round of meetings to determine the production quota for August.
Except for market concerns, even if OPEC reached an agreement to increase production by 400,000 barrels/ The market will still maintain a relatively tight supply situation, and the recovery of demand has exceeded the growth of the supply side, especially when shale oil has no obvious growth momentum. Therefore, the current decline in market prices is more of a liquidation behavior by bulls due to fear of the unknown. At a time when the supply side is still tight and there are no major macro variables for the time being, short sellers do not want to vigorously suppress prices unless the market really There are factors that are enough to change this bull market.
If the OPEC meeting really breaks up on bad terms and the UAE abandons the implementation of production reduction quotas, The emotional impact on the supply side will give oil prices another heavy blow. The market has not determined the specific time of the next OPEC meeting, so this risk event has been lingering above the market. Whether crude oil prices will continue to rise in the future or whether the bull market will end from now on depends on OPEC’s final efforts.
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In addition, we must also pay attention to Biden’s views. If Biden continues to complain about the impact of high oil prices on the United States, bulls will still be wary. After all, Biden has the solution in his hands. There are many “weapons” for high oil prices. If Biden exempts Iran, there is no doubt that oil prices will usher in a major adjustment.