Oil prices have not yet recovered from Saudi Arabia’s shocking decision. The events this week have made investors a little confused. Crude oil prices are also hesitant in this uncertainty, and even fell during the session. There have been situations of rapid plunges followed by rapid pullbacks, which has made investors even more confused.
Oil prices began to fall after rising higher on Monday, with Brent crude oil hitting a maximum of $71.38 per barrel, opening higher The high trend could not be maintained in the end. This trend and point are similar to the two market trends in history. One was on September 16, 2019, when Saudi oil facilities were attacked, and oil prices also opened higher and moved higher, reaching a maximum of $71.95 per barrel, and then began to fall; the other was on January 8, 2020, when the Iran issue was fermenting. Oil prices opened higher and moved higher, but also repeated the trend of rising and falling that day, reaching a maximum of $71.75 per barrel. These three markets have similar characteristics. They also shot up to US$71/barrel and then began to fall back. US$71/barrel has become an important stumbling block for bulls to move forward.
The first incident is the large-scale export of Iranian crude oil through some unconventional channels. In January this year, Iranian oil loading exceeded 600,000 for the first time since May 2019. Barrels/day, indirect shipment arrivals in February, including cargo awaiting unloading from Chinese ports, were close to 850,000 barrels/day. An Indian government official also said it expected Iranian supplies to return to the market within three to four months. The market began to worry that Iranian goods would be exported in large quantities, thus offsetting OPEC+’s efforts to reduce production. But the Iran issue is not easy to solve, otherwise Biden would not have spent so much trouble after taking office.
The second incident was an “own goal” by Russian Energy Minister Novak. In a public speech, Russia stated that it would increase production in May. 890,000 barrels/day. As soon as the news came out, the crude oil market collapsed immediately, and crude oil prices fell by more than $1/barrel in the short term. But then the market discovered that this was actually an “own goal”. What Russia meant was that the current crude oil production increased by 890,000 barrels per day compared with last May, and the actual production has not changed. After the news was corrected, oil prices quickly rose back to the level before the decline. Although this “own goal” did not have a major impact on the oil price that day, it also allowed the market to see the importance of Russia’s continued insistence on production cuts. If Russia withdraws from production cuts for various reasons, Wednesday’s market will be the best. According to the stress test, the downside of crude oil prices may be far more than $1/barrel.
The third event is that the U.S. EIA data continued last week’s trend as the market expected. U.S. crude oil production increased significantly and U.S. refineries started operating. Rates began to pick up, U.S. crude oil inventories increased significantly, and gasoline and refined oil inventories fell sharply. Since the market had already expected this data, the intraday market did not fluctuate significantly.
Reference of two historical market prices
Looking back at history, we find that history will not only repeat itself in complex ways, but also in simple ways. There are two market trends in history that are very similar to the current market. One was in September 2019, and the other was in January 2020. Not only did the day open higher stimulated by extreme events, but the intraday high was extremely close, and there was also a callback that saw no resistance from the bulls that day. What is the magic power of the terrifying $71/barrel that keeps bulls away?
Purely speaking from fundamentals, the current fundamentals are relatively better than the previous two times. The supply shortage has become a fact and will still be in April. Continue to continue significantly. After Biden released the US$1.9 trillion stimulus plan, the conditions of the macro market were better than the previous two times, but the price seemed to have formed a “muscle memory” and immediately turned back after reaching US$71/barrel, and the bulls did not even have a trace during the session. resistance.
Let’s briefly review the previous two market situations.
On September 14, 2019, two important oil facilities in Saudi Arabia were attacked. The Saudi Energy Minister stated in a statement issued by the official Saudi Press Agency that they were attacked. The temporary suspension of production at two plants will result in the reduction of nearly half of oil production, with a reduction of up to 5.7 million barrels per day. After the incident, oil prices surged sharply at the opening of trading on September 16, with Brent crude oil reaching a maximum of $71.88/barrel, and WTI crude oil instantly rising to $63.34/barrel. The maximum increase was close to 20%! This is also something rarely seen in history. However, the price increase then narrowed, and the price fell sharply the next day. The market gradually cooled down in the next few days, and Brent crude oil returned to the range of 50-60 US dollars per barrel. This sharp price rise ended in failure.
The ultimate reason for the price decline was that the market assessed that this accident would not last long. Subsequently, Saudi Arabia gradually repaired the damaged equipment, and production quickly rebounded. Therefore, the main reason for the price surge and fall this time is that the impact of geopolitics is only a short-term behavior, and the high price rise is difficult to obtain long-term support from fundamentals.
On December 27, 2019, a U.S. military base in Kirkuk, Iraq�� barrels, gasoline inventories decreased by 11.86 million barrels, refined oil inventories decreased by 5.5 million barrels, and overall full-bore inventories fell by 3.57 million barrels. This is the sequelae of extreme weather in the United States, and this sequelae is still not over.
In addition, the U.S. refinery operating rate rebounded from 56% to 69%, but U.S. crude oil production rebounded by 900,000 barrels per day, plus the 30% increase in the previous period. Ten thousand barrels per day, U.S. crude oil production has fully recovered and is 100,000 barrels per day more than before the decline. Refinery operating rates have still not fully recovered, but production has recovered at an excess level, which means that U.S. crude oil inventories are still likely to increase next week, and gasoline and diesel inventories will still decrease, but the magnitude will certainly not be as large as this data. .
Overall, the crude oil market The fundamentals are still relatively strong, and there is no basis for a sharp decline in crude oil prices in the near future. On March 18th and 19th, China and the United States will hold a high-level strategic dialogue. If Sino-US relations can be eased, the Biden administration is willing to cooperate in the joint fight against the epidemic, and can integrate again economically, then this will be good for the market. It is a relatively big benefit, so we must also pay close attention to the results of the meeting. (Author’s unit: Haitong Futures)
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