Crude oil surged 6% last week. Under positive macro data and optimistic demand expectations, oil prices broke out of the oscillation trend and started a new round of rising prices. At the same time, other commodities, including copper, also performed well last week. As U.S. stocks continued to rise and the U.S. dollar index fell, commodities were once again sought after by funds.
The recent OPEC monthly report, IEA monthly report and EIA data released by the market are all conducive to bulls continuing to attack. Both the IEA report and the OPEC report have raised their crude oil demand expectations, and believe that crude oil demand will see a significant increase in the second and third quarters. Although oil-producing countries such as OPEC have begun to increase production, the increase in production is far less than demand. Therefore, OPEC’s increase in production is not an act to suppress oil prices, but a market regulation to avoid a sharp rise in oil prices due to severe supply shortages.
If you understand the essence behind OPEC’s actions, you can clarify the future trend of the crude oil market. When demand improves significantly, oil-producing countries can only passively increase production. Otherwise, the rise in crude oil prices will accelerate. Since OPEC’s monthly report predicts that crude oil demand growth will accelerate in the third quarter, OPEC production will continue to increase in the future. OPEC currently meets once a month to assess current market conditions. If OPEC members believe that the growth rate of demand exceeds the growth rate of supply, it is foreseeable that they will propose a supply increase plan that exceeds market expectations. Although this may happen, we do not need to panic. After all, from the overall perspective From the perspective of supply and demand, OPEC’s increase in production will not lead to excess supply.
In the short term, although international crude oil prices have risen sharply recently, and Brent oil prices have returned to above US$65/barrel, the market is still similar to when the price exceeded US$70/barrel. , the rise in oil prices is based on expectations for a strong recovery in demand in the summer and the second half of the year. Currently, there is no substantial growth under the epidemic situation. Therefore, after the rise in crude oil prices, follow-up bullish follow-ups are needed to continue to push upwards. At present, oil prices have entered an area of intensive trading at previous highs, so we need to be cautious in pursuing higher prices in the short term. Brent oil prices will still likely oscillate in a wide range of 60-70 US dollars per barrel.
The epidemic in India is out of control
Although the impact of the new coronavirus epidemic on the market is not as great as before, However, there are still short-term impacts at certain points in time when market logic is unclear. As of April 15, the number of new cases in a single day in the world reached 710,000, and the cumulative confirmed cases were close to 140 million, which is equivalent to about 18 people per 1,000 people who have been infected with the new coronavirus, and the cumulative death toll was 3 million. Among them, Asia has become the absolute worst-hit area. On April 16, the number of new confirmed cases in India alone reached 230,000. The epidemic in Turkey is also showing signs of getting out of control, with more than 60,000 new cases in a single day! Europe and the Americas have been relatively stable recently and show no signs of acceleration.
Looking at the vaccine situation, China and the United States are still far ahead in terms of vaccination volume. The United States has vaccinated 190 million doses, and China has vaccinated 180 million doses. The proportion of vaccination in the United States has reached 57%. This is also an important factor in the stabilization of the epidemic in the United States. However, the vaccination volume and proportion of vaccinations in other countries around the world are not very high. India has even closed down vaccination stations on a large scale due to a shortage of vaccines. According to Reuters estimates, less than 4% of India’s more than 1.3 billion people have received the COVID-19 vaccine.
We cannot leave India aside and look at other regions with relatively good control. The shortcomings of the wooden barrel theory will affect the market at this time. If India fails to control the epidemic effectively, leading to multiple mutations of the virus, the global epidemic may still break out again, and the normal operation of the global economy and personnel exchanges will be affected.
OPEC monthly report is positive and optimistic
The OPEC monthly report released last week was quite optimistic. In the report, the crude oil demand growth rate this year was raised by 100,000 barrels per day, and the global economic growth forecast was raised by 0.3 percentage points to 5.4%. The main logic lies in stimulus plans and further easing of epidemic blockade measures. Countries around the world, especially OECD member countries, are expected to see a stronger than expected recovery in the second half of the year. After the OPEC report was released, the market saw confidence in OPEC’s decision to increase production, and also saw that OPEC’s gradual increase in production was not a major threat to the overall market supply and demand balance, so crude oil prices began to gradually strengthen.
On the demand side, OPEC predicts that demand growth will reach 5.95 million barrels per day this year, with total demand reaching 96.46 million barrels per day, of which the demand growth in the second quarter will be 1.66 million barrels per day, the demand increase in the third quarter was 2.66 million barrels per day, and the demand increase in the fourth quarter was 1.7 million barrels per day. The increase in demand can almost cover the supply of OPEC+.�increment. At the OPEC+ meeting in early April, oil-producing countries reached a consensus to resume production growth and increase production capacity by a total of 2 million barrels from May to July. If we compare production with March, the production in June will increase by 1.65 million barrels compared with March. This is exactly the increase in demand predicted by OPEC in the second quarter. Therefore, OPEC is not blindly increasing production, but in order to maintain the relative balance of the market. , so it will not have a major suppressive effect on oil prices.
In order to better manage market supply and demand, OPEC+ now meets once a month. OPEC predicts that the increase in crude oil demand in the third quarter will be 2.66 million barrels per day, which also means In the future, OPEC+ will gradually start to increase production.
In terms of production, the production growth rate of non-OPEC countries this year is far less than the demand growth rate. OPEC expects the production growth rate of the Americas this year to be 470,000 barrels per day. Russia’s crude oil production It will remain stable this year, so if we want the market to maintain a relative supply and demand balance without serious supply shortages, OPEC+ must increase production. This is actually the market’s passive demand, not OPEC’s active increase in production.
In addition, OPEC does not believe that the United States will become a threat to its production reduction efforts this year. A market report also pointed out that shale oil producers’ goal this year is to make more money. Paying more dividends does not mean investing heavily in shale oil production. From the recent EIA reports, we have seen that there is no sign of a significant increase in U.S. crude oil production for the time being. Therefore, it is expected that the increase in U.S. crude oil will not have a major interference with OPEC+’s policy of regulating the market. In the case of surge in demand, the “Prisoner’s Dilemma” “It will not be a concern for the market.
Also The IEA report this month is also quite optimistic. Under the two optimistic reports and the improvement of EIA data, crude oil prices performed relatively strongly last week, with Brent oil prices standing above $65/barrel. However, just as the oil price exceeded US$70/barrel before, in the absence of substantial improvement in demand, the upward potential of oil prices driven by expectations alone may be limited. Therefore, it may be necessary to wait until the end of the second quarter, when demand recovers well, and the upward trend in oil prices can truly start. Although the short-term market can still maintain relative strength, it is expected that the market will still fluctuate within a wide range, and you need to be cautious when chasing higher.