Russia insists on increasing production as planned in 2021, and dark clouds are gathering over the oil market. However, with the tycoon Saudi Arabia announcing a voluntary production cut of 1 million barrels on January 5, the A group of little brothers staged a dramatic reversal at the OPEC+ monthly meeting. Oil prices also rose sharply by 9% in the first week of the new year, with great momentum! The $65/barrel that Goldman Sachs is calling seems to be waving not far away. But the good times did not last long. Since then, oil prices have fallen into sideways oscillations. Especially during the week at the end of the month, oil prices have almost repeatedly shot up and down again. The market is waiting for clearer information and guidance.
It is worth noting that global stock markets and commodities such as non-ferrous metals have recently gone out of the The market fell back to adjust. The US$1.9 trillion COVID-19 relief package launched by the new US President Biden after taking office faced many objections, which made the market hesitant. Biden said there was no time for further delay and that if action was not taken, and no action is taken now, it could take an extra year to return to full employment. In addition, the annual drama of retail investors war against Wall Street broke out in the U.S. stock market. Short-selling actions intensified and market sentiment became increasingly crazy, which also intensified the risk of market volatility.
Under such circumstances, the stable performance of oil prices can be considered a blessing. This has brought some comfort to market investors. At least oil prices have not shown excessive performance, and it has high investment value in the medium and long term. After Goldman Sachs set a mid-year target price of US$65/barrel, this week JPMorgan Chase even believed that Brent crude oil has a chance to reach US$70/barrel by the end of the year, and even information agencies called out a high price of US$80/barrel. Of course, these target price levels are based on the premise that the epidemic is effectively controlled in the first half of the year and the economy accelerates recovery in the second half of the year. It will take time to verify whether these strong expected goals can be successfully achieved.
The fundamentals of the oil market are mixed with worries and joys
Saudi Arabia will cut another 1 million barrels of production next month, which will basically offset Libya’s There is pressure to recover production, as well as concerns about a slower-than-expected demand recovery caused by the epidemic. It should be said that Saudi Arabia’s move was very generous and dispelled market worries in one fell swoop. We once again realize that OPEC+ with Saudi Arabia as the core is determined to maintain stable supply and demand in the crude oil market. Although Saudi Arabia has temporarily sacrificed market share as a result, the cost is not small. However, this move reunited the originally loose OPEC+ members, and Iraq also recently stated that it would supplement production cuts. It can be said that Saudi Arabia has once again made a statement to the world, dispelling some people’s suspicions about the weakening role of OPEC.
Judging from the latest monthly reports released by the three major agencies in January, EIA has The fundamental judgment in 2021 and 2022 is that supply and demand are relatively balanced. The market will neither experience a significant oversupply nor a serious supply shortage similar to the first half of last year. OPEC and IEA both recognize this view. OPEC+ will adjust production in a targeted manner based on current market demand so that there will be no major deviation between supply and demand. Demand recovery in 2021 will basically remain at around 5.5 million barrels per day. The slight decline in demand recovery is mainly due to the impact of the epidemic. Countries have generally extended their prevention and control measures in response to the epidemic: France recently announced that it would close its borders to countries outside the EU, and Saudi Arabia also extended its border closure for another month.
The epidemic is now at an inflection point, vaccination is accelerating but supply remains a challenge
The number of confirmed cases worldwide was 60 million on November 25, 2020, and the number increased to 60 million on December 11 70 million cases, and increased to 80 million cases on December 26. The number of confirmed cases of the new coronavirus swept the world at a rate of 10 million new people every 15 days. It once felt that the epidemic was heading towards a single-day increase of 1 million. , but it improved in mid-January. Even so, as of January 28, 2021, the total number of confirmed cases of new coronary pneumonia worldwide has exceeded 100 million, and the cumulative number of deaths has exceeded 2 million.
The new crown epidemic has caused a devastating blow to the global economy and oil demand, and its impact is far-reaching. It exceeds any financial crisis or economic crisis in human history. But fortunately, with the successful development of vaccines, the largest vaccination campaign in history is beginning. As of January 28, 2021, a total of 63 million COVID-19 vaccines have been vaccinated in 56 countries around the world, with an average of 3.21 million people vaccinated every day. first or second dose of vaccine. However, the level of vaccination is obviously uneven between high-income and low-income economies, and vaccination progress is slow in Europe and the United States.
Specifically, the wealthy economies in the Middle East have sufficient vaccine orders and relatively large populations.For fewer, vaccination rates are highest. The United Kingdom and the United States also have higher vaccination proportions. The United Kingdom benefited from the favorable effect of the earliest approved vaccine use, with a vaccination proportion of 7.47%; the United States benefited from the advantage of the vaccine’s production location, with a vaccination proportion of 4.75%. In terms of vaccination progress, the developed economies in the Middle East are also leading the way, and the pace of new vaccinations has slowed down recently; the pace of vaccination in the United Kingdom and the United States has accelerated, with about 360,000 new vaccinations per day in the United Kingdom and nearly 820,000 new vaccinations in the United States. The overall vaccination rate in the United States is not higher than that in the United Kingdom. Judging from the data on vaccines distributed and vaccinated in various states in the United States, the vaccination rate in the United States is 54.13%. Although it is showing an upward trend, nearly half of the distributed vaccines are still unused. The eye-catching goal of “150 million people completed vaccination within the first 100 days” in Biden’s “100-day New Deal” is expected to accelerate vaccination and significantly increase vaccination rates. CNBC stated that Johnson & Johnson board members expect that adults in the United States will be vaccinated before June.
Global vaccine procurement is divided into rich and poor countries, and vaccine procurement is concentrated in developed countries. High-income economies. The quantity of vaccines purchased by high-income economies is more than double that of low- and middle-income economies. However, thanks to the COVAX “Global Equitable Access to Vaccines Plan”, the time for low-income economies to obtain vaccines lags behind that of high-income economies. income economy, but there is still a certain guarantee in the quantity of vaccine distribution. Among them, Canada’s vaccine “stockpile” reaches 153.9 million, with a coverage rate of 410%, and the number of vaccine “stockpiles” is three times its population; the UK and Australia follow closely with vaccine coverage rates of 410% and 410%, respectively. 295% and 269%. Russia and China both inoculate domestically developed vaccines, and their current vaccine production coverage rates are 54.5% and 15.7% respectively. In addition, the “COVAX Plan”, which promotes global equitable access to safe and effective vaccines through joint procurement, is expected to provide 2 billion COVID-19 vaccines to the world by the end of 2021, providing certain support for the supply of vaccines to low-income economies.
The effectiveness of vaccines against mutated new strains and global vaccine production capacity and transportation The issue deserves continued attention. Regarding the neutralizing ability of vaccines against the activity of new strains, existing vaccines have not been shown to be completely ineffective, although the neutralizing effect will be weakened. Among the new mutated strains in various countries, the “South African version” has attracted much attention because of its high degree of secondary infectivity. Current studies show that the neutralizing ability of existing vaccines against the South African strain has weakened, but has not disappeared. Transportation and storage issues are also another major “contradiction” worthy of attention. The mainstream mRNA vaccines that have been approved for marketing have high storage requirements, which undoubtedly increases the difficulty of storage and transportation. Due to insufficient supply, some regions in Europe, including France, Spain, Portugal and Germany, have delayed vaccinations.
As of now As far as the market is concerned, both positive and negative factors are in the brewing stage, so the market is still in a relatively chaotic stage in the short term. Although we were once worried about the impact of the epidemic on demand, the fundamental market has not exerted negative pressure on oil prices in the past period of time, and now there is no major concern for the time being. Under current prices, the United States does not have the conditions to significantly increase production. EIA even predicts that U.S. shale oil production will continue to decline next year, so fundamentals will remain stable in the short term. The main focus of the future fundamental market will be on two aspects: first, the vaccine will drive stronger demand and drive prices upward; second, whether Biden will release crude oil production from Iran and Venezuela. Overall, we believe that the fundamentals will gradually improve in the future. Fundamentals are not the focus of the market right now.
Macro factors, especially the progress of the rescue plan and the direction of economic policies after Biden takes office, are What needs to be focused on right now. The recent Federal Reserve interest rate meeting has led to market expectations of tighter liquidity in the United States and tightening of monetary easing policies. If market expectations come true, the oil market will undoubtedly be severely impacted. That’s why Biden urgently called for the 1.9 trillion bailout package to be passed as soon as possible without delay. If forced to do so, they may even bypass the Republican Party and prepare to pass the epidemic relief plan with a simple majority.
In summary, based on the improvement of the epidemic and the continuation of the loose atmosphere, we maintain our optimistic expectations for the crude oil market in the medium and long term, and still recommend going long in 2021. However, the market has accumulated more uncertainties. Expectations of tighter liquidity and emotional performance in financial markets such as the United States are the current risk points. It is recommended that investors remain vigilant and adopt prudent strategies until the situation becomes clearer, especially as China is about to usher in the Spring Festival holiday and the risk of a correction in oil prices in the first quarter still exists, so they should pay attention to risk prevention and control. (Author’s unit: Haitong Futures)
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