Since April last year, the crude oil market has emerged from the “darkest” moment. Under the slow recovery of demand and the “weak balance” maintained by OPEC+’s initiative to tighten the supply side, the price center has moved upward significantly. The annual average price and major The price range finally narrowed to around US$15/barrel compared with 2019 (US$57/barrel, US$44-66/barrel).
Although the new coronavirus pneumonia epidemic has not followed 2020, the emergence of vaccines has brought hope to the new year. From the supply side, Saudi Arabia’s unexpected move to cut production by 1 million barrels per day in February and March has caused the recent support for oil prices to move upward. In a market where OPEC+ continues to dominate, it is expected that the main logic of destocking will be realized in 2021 with a high probability. The center of gravity of oil prices has shifted upward.
Looking at the whole year, we need to pay attention to three aspects of the game:
1. Vaccination and epidemic situation The Game
The game between vaccination and the epidemic will determine the recovery path of global economic demand. Currently, the epidemic in many countries has entered a period of accelerated spread. In this race between vaccination and the epidemic, the global fight against The epidemic response faces three levels of problems:
First, the global vaccine production capacity gap is gradually narrowing, but there is still a short supply in the near future. Taking two shots of vaccine as a standard, 10 billion to 13 billion doses of vaccine are needed to achieve the goal of herd immunity (with a vaccine coverage rate of 70% to 90% as a basic condition). It is optimistically expected that the vaccines approved for marketing will reach a total production capacity of 10.5 billion to 12.5 billion doses in 2021. However, since it will still take some time from the construction of the vaccine production line to the realization of production, vaccine shortages are inevitable in the short term, and it is difficult to cover the entire world with actual production. Amount required for herd immunity.
Second, the surge in COVID-19 cases in Europe and the United States is dragging down the progress of vaccination. Britain, which has adopted strict lockdown measures, is experiencing the worst weeks of the epidemic. The medical service system faces rising demand and a continued surge in deaths. The government plans to delay the interval between second doses of the vaccine to ease supply shortages. Germany and Denmark, which are also facing vaccine shortages, are also weighing whether to follow the UK’s approach.
The progress of vaccination in the United States is seriously lagging behind. According to Reuters, as of January 24, the federal government has provided 21.85 million doses of vaccine injections, and a total of 18.5 million people across the country have participated in vaccinations. However, Only 3.21 million people have completed two doses of vaccination, a far cry from the federal government’s previous goal of 20 million people completing vaccination by the end of 2020. Compared with holidays, winter storms and willingness to vaccinate, the surge in the number of confirmed cases has become the main reason for dragging down the progress of vaccination as it continues to occupy medical resources.
Third, over-subscription by developed countries has widened the gap in vaccine distribution, dragging down the risk of restarting the global economy. COVAX (New Crown Vaccine Implementation Plan), a project led by the WHO earlier to ensure the rapid and fair distribution of vaccines, announced the implementation of a 2 billion dose vaccine contract goal, which will enable the 190 countries participating in the project to obtain enough by the end of 2021 A vaccine to cover 20% of its population, but agreements between high-income countries and pharmaceutical companies have slowed progress on its plans.
Last month, Duke University in the United States stated that over-ordering is common in developed economies, with a total of 9 billion doses ordered, of which the United States, with a population of less than 400 million, has ordered 2.6 billion doses. However, low-income countries such as Nigeria will have to wait until 2024 to obtain vaccines due to domestic funding gaps and insufficient vaccine supply. The vaccine distribution gap will seriously hinder the economic restart of these countries. At the same time, the vaccination gap will disrupt the global economic recovery pattern and the global anti-epidemic process.
As problems gradually surface, the economic recovery in 2021 may not be as optimistic as expected. In January, the World Bank lowered its 2021 global GDP growth forecast by 0.2 percentage points to 4%, and warned that economic growth may be limited to 1.6% under the adverse circumstances of continued rising infection rates and delayed vaccinations.
The table shows the annual production capacity of the world’s major vaccines and optimistic estimates (compilation of public information, as of January 18, 2021)
2. The games and contradictions faced by OPEC+
OPEC+ struggled to reach an agreement on a small increase in production this month, and Saudi Arabia voluntarily reduced production by 1 million The barrel/day agreement actually turned into a production cut, and international oil prices benefited from a collective strengthening in anticipation of supply shortages. Due to the significant reduction in upstream oil and gas production costs in the United States in 2020, U.S. crude oil production may stabilize at 11 million barrels per day in 2021. Therefore, throughout the year, OPEC+’s production policy will dominate the supply side of the oil market. It is expected that OPEC+ will mainly focus on two aspects in 2021 Two aspects:
First, the game between supply and demand. Since April 2020, OPEC+ has increased the frequency of meetings and proactively changed production plans to coordinate with changes in crude oil demand through more responsive and timely supply adjustments, thereby achieving the goal of maintaining price stability in the international market. In the post-epidemic period, the recovery pace of crude oil demand has slowed down, and it faces the risk of being repeatedly hit by the epidemic. The supply and demand game under “tight balance” will intensify. However, when the popularity of global vaccines increases and the prospects for demand recovery become clearer, the oil market is fragile. The “weak balance” pattern has improved, and the gaming pressure faced by OPEC+ is expected to be alleviated.
The second is the production contradiction of OPEC+. On the one hand, when crude oil demand weakens in the short term,�For OPEC countries that rely on crude oil exports as their main fiscal revenue, market share and crude oil prices are like a fish and a bear’s paw, making the decision-making process of reducing production to stabilize oil prices and seizing market share more difficult. OPEC+ giving up part of its production can increase oil prices, but marginal revenue is not guaranteed to increase. Non-OPEC+ oil-producing countries can increase production and increase marginal revenue while “free riding” on high oil prices; on the other hand, OPEC represented by Saudi Arabia The oil prices required by member states to balance their fiscal balance are higher than those of non-OPEC oil-producing countries in the alliance, making it more difficult to bear the consequences of a “price war”. Therefore, OPEC needs to make more efforts to maintain unity within OPEC+ (mainly reflected in production cuts).
Overall, in exchange for unity within OPEC+, OPEC faces the possibility of its market share being occupied by both non-OPEC+ oil-producing countries and oil-producing countries within the alliance. It is expected that as demand recovers will alleviate this situation.
3. The long-short game of the U.S. dollar
The price of crude oil and the U.S. dollar remain relatively strong in the long term. There is a negative correlation, so studying U.S. dollar-denominated commodities, including crude oil, requires forecasting of currency factors. At present, most institutions have reached a consensus on the weak operation of the U.S. dollar, mainly because the global economy is likely to achieve a resonant recovery in 2021 after the vaccine is launched, which will gradually subside the risk aversion, coupled with the expected impact of the “twin deficits” in the United States causing inflation risks to weaken purchasing power.
At the same time, there are still some influencing factors that may lead to the strengthening of the US dollar. The first is the uncertainty of the epidemic. The overseas epidemic is still fermenting and the domestic epidemic is not stable in the near future. Certainty has increased. At the same time, global infection rates and virus mutations affecting the effectiveness of existing vaccines may lead to the risk of another delay in global economic recovery. Therefore, there is a possibility of a rebound in demand for US dollar hedging. Second, the U.S. dollar also reflects the relative strength of the U.S. economic situation (including expectations). The U.S. currently has the largest number of vaccine orders in the world, far exceeding the doses needed to cover its citizens. At the same time, compared with European countries, it also has priority for vaccines such as Pfizer and Moderna. Supply commitments, it is expected that with the arrival of the peak period of global vaccination, if the epidemic in the United States is controlled earlier than Europe, the market will strengthen the expectation that the U.S. dollar economic recovery will be faster than Europe, and the U.S. dollar will benefit by then.
In the short term, the U.S. dollar is weak under the influence of “flooding” and vaccines easing risk aversion. However, throughout the year, there is still potential for increased demand for U.S. dollar hedging due to the epidemic. Space, coupled with the United States’ advantages in the number of vaccines and the time to obtain them, and the economic recovery that may be faster than Europe’s expectations, may cause a phased recovery in the US dollar trend.
To sum up, we still insist on the view that the crude oil price center will move upward. The extent of the upward movement mainly depends on the game between the epidemic and the vaccine on the demand side and the situation after the game between supply and demand. Library strength.
On the path, supply shortages and the weakness of the U.S. dollar in the first quarter will support the strong operation of oil prices. However, as the market pattern shifts from supply shortage to supply and demand balance, the superimposed U.S. dollar may increase during the peak period of vaccination. It is expected that there will be a period of strengthening in the future, and it will be difficult for oil prices to maintain a unilateral strength, and it may mainly operate in a range throughout the year.
In terms of price, WTI crude oil is likely to have strong support in the range of 40-45 US dollars per barrel. Due to limited demand recovery and high inventory, it may be difficult to break through the 2019 high. It faces greater resistance at US$60-65/barrel. At the same time, it should be noted that the pressure above oil prices will gradually increase as the price moves closer to the pressure range. Therefore, it is necessary to treat oil prices in a way that the price center of gravity rises and the price rises gradually, and it is not advisable to chase the rise too much. </p
