In March, international crude oil prices fluctuated and fell after hitting a new high in nearly three years. Does this mean the end of its upward momentum? The author believes that the rise in international crude oil prices from November 2020 to the present is driven by factors such as vaccination leading to a resonant recovery of the global economy, loose liquidity triggering inflation expectations, OPEC production cuts leading to supply reduction, especially demand recovery and supply growth. Due to constraints, the depletion of global crude oil inventories once caused the NYMEX crude oil price spread to have a backwardation structure of “near high and far low”.
Although the U.S. fiscal stimulus plan continues, inflation expectations are rising, and the global aviation industry is gradually recovering, the author is cautious about international crude oil prices in the next few months. Attitude, the main logic is:
First, the current international crude oil price stands above 60 US dollars per barrel, which may stimulate a restorative growth in crude oil supply. From an OPEC perspective, although production cuts were maintained in April, they are unlikely to continue in May. With more and more market communications and statements from Saudi Arabia, given that oil prices have fully recovered and Russia has taken early action, it may be difficult for Saudi Arabia to maintain the same scale of production cuts after April. Saudi Arabia’s current move to withdraw from voluntary production cuts is like the “Sword of Damocles” hanging over its head.
The latest monthly report released by OPEC showed that crude oil production fell by 650,000 barrels per day in February to 24.85 million barrels per day, mainly driven by Saudi Arabia’s production cuts. However, the three OPEC members exempted from OPEC+ production cuts – Iran, Libya and Venezuela all increased crude oil production. The largest increase came from Nigeria, whose crude oil production increased by 161,000 barrels per day in February to 1.488 million barrels per day. Although production cuts continue to be implemented, competitors are increasing supply, with OPEC raising its forecast for non-OPEC production growth to about 1 million barrels per day, driven by output from Canada, the United States, Norway and Brazil.
In addition, as oil prices remain high and remain above US$40 per barrel, U.S. shale oil output is also recovering. U.S. crude oil production in the week of February 5 was 11 million barrels/day, an increase of 100,000 barrels/day from the previous week; the average daily net processing volume of U.S. refineries that week was 14.793 million barrels, an increase of 152,000 barrels/day from the previous week. The processing volume was 15.258 million barrels per day, an increase of 123,000 barrels per day from the previous month. The refinery operating rate was 83.0%, an increase of 0.7 percentage points from the previous month. Baker Hughes oil services data shows that in the week as of February 12, the number of active oil rigs in the United States was 306, an increase of 7 units from the previous month.
Second, although the global aviation industry is gradually recovering, the epidemic has brought permanent changes to the way residents travel and work. It may be difficult for aviation fuel demand to return to the previous level. pre-pandemic levels. In February 2021, the Bloomberg World Aviation Industry Index surged by 15%. Although it is still 17% lower than the highest point reached before the outbreak of the epidemic in January 2020, it also illustrates that as the scope and scale of vaccination expand, some Air travel demand has rebounded. However, as many businesses have become more comfortable with remote working and video conferencing, work-related travel may be slower to recover.
The third is the slowdown in inventory depletion, which means that the recovery momentum of global crude oil demand is slowing down in the first half of the year. Taking the United States as an example, U.S. crude oil commercial inventories rose to 498.4 million barrels in the week as of March 5, after falling to a low of 461.8 million barrels in the week of February 12. It’s difficult to see how bookings will fare this summer, and the true scale of the travel recovery will only be clear once containment measures are lifted.
The picture shows U.S. crude oil commercial inventories and NYMEX Comparison of the closing price of continuous crude oil contracts
Fourth, the crude oil price spread structure has changed from Backwardation to Contango, and even the WTI crude oil spot price difference has slipped into negative values for the first time since the beginning of the year. range, indicating that the market is worried about oversupply of crude oil. Currently, short positions among WTI crude oil swap traders are at their highest since 2018.
Of course, we believe that there is great uncertainty about future crude oil price trends, among which the risk of stagflation and the escalation of geopolitical conflicts may mean something similar to the 1970s. The trend of rising sharply and then falling sharply may repeat itself. Currently, U.S. bond yields continue to rise. On the one hand, this reflects the increase in capital demand brought about by the global economic recovery. Treasury bond yields represent rising capital prices. On the other hand, it implies capital’s compensation for rising inflation under the risk of rising inflation.
However, the Fed does not seem to be worried about the adverse effects of rising U.S. bond yields, and believes that the risk of inflation in the United States is still very low, and the rise in some commodity prices is just This is a short-lived phenomenon, and even if overall inflation rises, the United States has sufficient tools to deal with it. Despite the massive increase in debt, interest payments remain quite low relative to the size of the U.S. economy. This means that current U.S. policymakers do not believe that hyperinflation or a fiscal crisis will ensue when debt levels are high.
The current sell-off in U.S. Treasury bonds is spreading to the corporate bond market, pushing up the borrowing costs of companies when the U.S. epidemic has not yet completely ended. At this position, the U.S. dollar Rising interest rates have affected corporate financing costs, but the divergence between actual inflation and inflation expectations means that the Fed��There is a divergence in expectations, which may bring about severe market volatility. In response to the uncertainty of the future trend of international crude oil, investors can use CME Group’s NYMEXWTI light crude oil futures crude oil (CL) to manage risks. For domestic companies, they can use the different fluctuations of the RMB and U.S. dollar exchange rates when purchasing overseas. Choose Shanghai International Energy Trading Center crude oil futures and NYMEX crude oil futures to hedge risks.