The crude oil market has become very lively in 2021. Since the time coincides with OPEC+ holding its regular January monthly meeting, oil prices have sufficient speculation topics at the beginning of the year. On the first trading day after the new year, Russia insisted on changes in the production reduction agreement to continue increasing production by 500,000 barrels per day in February. This made the market worry about supply pressure and problems with the internal unity of the OPEC+ alliance. Under this concern, oil prices surged higher. fall back. However, at the OPEC regular meeting on January 5, Saudi Arabia suddenly announced the blockbuster news that it would voluntarily reduce production by 1 million barrels per day from February to March. This move reversed the situation. The results of the meeting far exceeded investors’ expectations. In the end, with the reversal drama directed by Saudi Arabia, market optimism regained dominance. As a result, the crude oil market staged a 9% Changyang surge in the first week of the new year.
There are still major variables in the market
The surge in oil prices has further boosted the bullish sentiment in the market. Against the background of loose economic policies, Next, many international investment banks such as Goldman Sachs, JPMorgan Chase, and Wells Fargo have all been bullish on commodities, believing that as the rollout of the COVID-19 vaccine drives a wider reopening of the economy, coupled with more stimulus measures from various countries to support economic recovery, these assets should Continue to outperform inflation. The most representative of these is Goldman Sachs’s view of $65/barrel. Goldman Sachs stated in its latest commodity report: “We are forecasting tight crude oil supply in advance and expect Brent crude oil prices to reach $65/barrel in the summer of 2021. barrel, not at the end of 2021.”
But the good times did not last long. As US President-elect Biden announced a $1.9 trillion economic stimulus plan, financial markets showed signs of phase Although the news once prompted an overall rise in commodities, oil prices ultimately chose to fall back from highs like most commodities. The round of unilateral rise in crude oil that began in November last year was basically confirmed to have come to an end. Will the oil price, which has already begun to correct, shift its focus upward in 2021 as predicted by major international investment banks?
Looking back at the outlook for the crude oil market in 2020, no one can accurately judge the changes in the crude oil market, because the epidemic has impacted the global economy more than expected. Even after the outbreak of the epidemic, this process was a process that subverted cognition. Most research institutions continued to adjust their assessments of the oil market, and we even had to face negative oil prices once. Standing at the present moment, we once again look forward to the market outlook and find that there are still many uncertainties in the market. For the crude oil market in 2021, there are still great variables, both in terms of changes in supply and demand and fluctuations in oil prices. Despite this, after a year of baptism due to the epidemic, there are still many logical lines that can help us understand the general trend of oil price fluctuations.
The picture shows the crude oil market outlook in 2021
The picture shows the global economic growth estimate
The picture shows the JP Morgan Global PMI Index
OPEC+ production cuts, vaccine determination Oil price floor
The picture shows the global MSCI stock market index
Whether it is EIA, IEA or OPEC, they all adopted a cautious view on the current troubles of the epidemic in their reports, and generally lowered their short-term expected targets. However, the demand for crude oil in 2021 is still basically optimistic. The growth forecast is around 5.8 million barrels per day. It is the general trend that demand will continue to recover, and major institutions remain cautiously optimistic about the future market.
Based on the current attitudes of Saudi Arabia and Russia, the core members of the OPEC+ production reduction alliance, we judge that it is unlikely that OPEC+ production cuts will break down again. Maintaining the balance of the crude oil market is the first choice. Saudi Arabia needless to say, even if Russia declares It does not want to give up its market share, but it is also clear that it will only consider increasing production when oil prices are relatively ideal. In addition, there is a high probability that the vaccine will be effective in the first quarter of 2021. Therefore, although oil price fluctuations will be affected by some uncertain factors, we believe that the gradual increase in the center of gravity of oil prices in 2021 will be a relatively certain trend, and below The range is relatively clear. Taking Brent crude oil as an example, it should be roughly around US$38-40/barrel.
The picture shows the comparison of stock market trends in China and the United States
Economy , Supply and demand recovery determines the upper limit of oil prices
As for the upper limit of oil prices, we believe that the degree of recovery of the global economy is the main influencing factor. With the rollout of vaccines and the conclusion of the US election in 2021, global economic uncertainty has been significantly reduced, and accelerated economic recovery is the current market consensus. Since 2020, the central banks of Europe, the United States and Japan have expanded their quantitative easing balance sheets by more than 8 trillion US dollars, close to the total of the previous 10 years. Broadly speaking,The growth rate of currency M2 has also reached a new high in recent years. The current year-on-year growth rate of M2 in the United States is as high as 25%, which is the highest level since the end of World War II.
In the context of the epidemic, European and American governments have had to practice “Modern Monetary Theory MMT”, that is, government finance directly distributes money to enterprises and residents, and uses large-scale debt financing. Just as Biden was about to take office, he announced a new round of rescue plans totaling US$190 million. In addition, Japan and European countries have also launched new rescue plans. As vaccines are fully rolled out, investment and consumption in European and American countries are expected to continue to pick up in the future.
Liquidity brings a premium effect, and “more money” has become the most important factor in determining asset prices. As long as this factor does not change essentially, the overall upward trend in asset prices will be difficult to change. The “epidemic bull” in the U.S. stock market has allowed us to witness the power of capital. After the stock market and many commodities are sought after by funds, crude oil, which is in the historically low price range, is expected to become an asset allocation choice for investors as the supply and demand side improves. This is why major international investment banks are currently increasing their allocation of commodities. a major logical point.
When it comes to supply and demand, we have to provide the pressure that the supply side will face in 2021. OPEC+ has fully reduced production in exchange for a rare new balance in the oil market, and it will face severe challenges in 2021. test. Although major institutions currently maintain optimistic estimates of crude oil demand in 2021, the potential pressure on the supply side is still significantly higher than the improvement on the demand side.
Oil prices have a counterproductive effect on the crude oil industry
Oil prices themselves are the best balancer of supply and demand in the crude oil market , excessive oil prices will inevitably attract the impulse from the supply side to increase production. In September 2018, when Brent oil prices exceeded US$80 per barrel, almost all major crude oil exporting countries went all out to increase production and recorded record production. High oil prices provided sufficient horsepower to increase crude oil production, but what followed was a catastrophic decline.
Low oil prices are also powerful. Collapsing oil prices forced Saudi Arabia and Russia to sit back at the negotiating table and reach a record-breaking 9.7 million barrels/day production reduction agreement. Before the oil price fell below US$40/barrel, there were almost no voices of disagreement and controversy on the supply side. However, after the oil price returned to above US$50/barrel, the voices of various countries’ calculations were clearly heard on the supply side. Recently, news broke that OPEC’s implementation rate of production cuts was a poor 75% in December last year, which indicates that the supply side has begun to loosen. Russia is very clear in insisting on resuming production as planned. Therefore, in February, Russia and Kazakhstan will resume crude oil production of 75,000 barrels per day. Sources stated that Russia’s oil and gas condensate production increased to 10.19 million barrels per day in the first half of January, an increase of 150,000 barrels per day. If nothing else, Russia will still increase production as planned in March. High oil prices have not only attracted supply-side increases in production, but also promoted crude oil producers, including U.S. shale oil producers, to sell and hedge on the futures market. They are using the futures market to lock in future sales prices.
In addition to high oil prices beginning to have an impact on the supply side, excessively high oil prices and epidemic factors have also begun to affect the performance of the demand side of crude oil. China, Japan, and South Korea in Asia have all been significantly affected. . This week, the market paid attention to the annual import data released by the General Administration of Customs of China. In 2020, China’s crude oil imports reached 10.8 million barrels per day, an increase of 7.3%. However, careful researchers can find that China’s crude oil imports in December 2020 were only 9.06 million barrels per day, which was a significant decrease from the 13 million barrels per day in June 2020. Some analysts believe that this is due to the exhaustion of China’s non-state import quotas, but in fact a very important influencing factor is that the epidemic has forced some areas of China to tighten blockade measures again, further hitting the market’s demand for refined oil. Therefore, China’s traditional private refineries are currently in the worst stage of the year for crude oil processing profits, which has forced local refineries to lower their operating rates.
So in 2021, our judgment on oil prices is that while the center of gravity will gradually recover, we will also remain highly concerned about the supply-side pressure brought about by higher oil prices. This is a mutual influence and balance. the elements of.
Pay attention to the uncertain factors that disturb oil prices
Our range judgment on oil prices is Brent Crude oil is at 40-60 US dollars per barrel. The core logic is that OPEC+ production cuts are the lower tone, and the vaccine will also play a supporting role if no major risk events occur. The upper side depends on the recovery of demand and the loosening of the supply side by high oil prices. We all know that the production reduction alliance also wants to increase production. The 2 million barrels are a planned recovery, and the other is unplanned production capacity such as Iranian crude oil.
Whether the effect of the vaccine meets expectations is also what we are currently worried about. Moreover, after the epidemic is controlled, it is also full of uncertainty whether the recovery of the economy and demand will also meet expectations. After all, the epidemic has changed many people’s office and travel habits, so the recovery of demand will have to be seen as we go. Before the vaccine is launched, people can rely on expectations to provide strong “energy”. However, if the epidemic situation does not improve as expected after a few months after the vaccine becomes popular, there will be variables later. In addition, it depends on how Biden’s clean energy policy and specific timetable for sanctions against Iran and Venezuela will affect the market after he takes office.
In general, the crude oil market is supported by production cuts and vaccines, and the overall expectation is that the center of gravity will shift upward. This general trend is certain. However, there are many factors that are uncertain in this process, which will disturb the seasonal factors and fluctuation rhythm of oil prices and require close attention.
Generally speaking, because of the support of production cuts and vaccines, the overall expectation of the crude oil market is that the center of gravity will shift upward. This general trend is certain, but there are many factors that are uncertain in this process, which will disturb the oil price season. Sexual factors and fluctuation rhythm require close attention. </p
