Fabric Products,Fabric Information,Fabric Factories,Fabric Suppliers Fabric News Crude oil plunges from highs, is the rally coming to an end?

Crude oil plunges from highs, is the rally coming to an end?



WTI crude oil fell nearly 3% last Friday, the largest single-day drop in two and a half months, declaring that this rising trend has come to an end. The chief economist of the IMF recently stated that the econo…

WTI crude oil fell nearly 3% last Friday, the largest single-day drop in two and a half months, declaring that this rising trend has come to an end.

The chief economist of the IMF recently stated that the economic stimulus measures of the United States and Japan will help promote their economic recovery in the second half of this year, and hinted that the economic growth forecast may be raised. But he stressed the need to continue taking unprecedented fiscal and monetary measures to support economic recovery. Against the background of loose policies, many international investment banks such as Goldman Sachs, JPMorgan Chase, and Wells Fargo have all been bullish on commodities, believing that the rollout of the COVID-19 vaccine will lead to a wider reopening of the economy, coupled with the introduction of more stimulus measures by various countries to support economic recovery. , these assets should continue to outperform inflation. Regarding the mid- to long-term development trends, we recognize this logical deduction.

However, after US President-elect Biden announced a US$1.9 trillion economic stimulus plan on Thursday, funds took profits in stages in the commodity market. The trend is that oil prices, like most commodities, have chosen to fall back from highs. The round of unilateral rise in crude oil that started in November last year is basically confirmed to have come to an end.

The U.S. dollar rebounded

As the U.S. dollar’s ​​unlimited quantitative easing policy caused the U.S. dollar to continue to fall from highs, the market We have become accustomed to the power that a weaker U.S. dollar brings to the commodity market, but the yield on the 10-year U.S. Treasury bond exceeded 1%, which once triggered violent fluctuations in the financial market, and the market began to worry about tightening liquidity. We believe that the most critical thing now is that nominal interest rates have moved ahead of inflation expectations. If U.S. bond yields continue to rise, it will further affect commodities and stock markets. Recently, Federal Reserve Chairman Jerome Powell made dovish remarks in an online speech. He believed that now is not the time to discuss exiting ultra-loose monetary policy, and promised to issue a large number of reminders before the Fed begins to discuss tapering its bond purchases. And believes that the Fed will be very careful in communicating its asset purchase plan because the global financial crisis has taught such a lesson. Despite this, the U.S. dollar still rose on Friday, further strengthening expectations of a stronger U.S. dollar, which will obviously suppress commodity prices at this stage. Crude oil, as the most responsive commodity to financial markets, is obviously under pressure.

The global epidemic situation is still severe

On January 14, according to the “Daily Mail” According to reports, a research team at Southern Illinois University Carbondale has discovered a third local variant of the new coronavirus in the United States and said it may be the most easily spread virus so far. Currently, the mutated new coronavirus discovered in the UK has appeared in 50 countries and regions around the world, and the mutated new coronavirus discovered in South Africa has appeared in 20 countries and regions. Japan also reported to the WHO last week that a new mutant coronavirus was found in travelers from Brazil, while Brazilian researchers discovered another similar mutant coronavirus.

According to the latest statistics on the COVID-19 epidemic released by Johns Hopkins University in the United States on the 15th, the cumulative number of deaths worldwide Cases exceed 2 million. The epidemic in the United States is still worsening, and the Centers for Disease Control and Prevention estimates that more than 90,000 people will die from COVID-19 in the United States in the next three weeks. In addition, the epidemic situation in Europe is not optimistic, and many countries have strengthened epidemic prevention measures. German Chancellor Angela Merkel called for a tighter lockdown. Merkel called for a decision on whether to implement tougher lockdown measures next week. France will impose a nationwide curfew. French Prime Minister Jean Castet said he was ready to implement new anti-epidemic blockade measures if needed. The head of the WHO health emergency project said that the epidemic situation may be more severe in the future.

Although the impact of the epidemic on market confidence has been confirmed to be gradually weakening, in the context of increasing vaccine popularization , investors rely on the psychological improvement brought about by strong expectations to deal with such a situation. But in any case, the epidemic still has a significant suppression on current crude oil consumption. In addition, due to the severe epidemic situation, Germany, the United Kingdom, France, Japan, etc. are all extending blockade measures, and the global fight against the epidemic is still facing great pressure.

European Commission President von der Leyen said on the 15th that Europe is going through a very difficult moment. In many EU member states, , the new coronavirus pneumonia epidemic situation is extremely severe, especially after the Christmas holiday, the number of new cases increased significantly. In the coming months, the EU’s top priority will be to advance the COVID-19 vaccination campaign. However, in terms of vaccination, the vaccination progress is not as good as expected, and chaos has occurred in some areas. Due to the slow speed of vaccination and the lack of refrigerator equipment for ultra-low temperature storage and transportation of minus 80°C, a large number of vaccines are currently facing the risk of failure. In order to speed up the vaccination progress, US President-elect Biden has even proposed launching mobile vaccination clinics and called on Congress to invest more in increasing the employment of medical workers.

Although the epidemic can no longer plunge investors into a state of panic and collapse, the severe epidemic situation is still a challenge for economic recovery and Crude oil demand recoveryBig obstacle. The number of people filing for unemployment benefits surged last week in the United States, confirming that the deterioration of the new coronavirus epidemic has affected the operations of restaurants and other businesses and that labor market conditions have softened. In the week of January 9, the number of Americans filing initial claims for unemployment benefits increased by a seasonally adjusted 181,000 to 965,000, the highest level since the end of August last year and exceeding economists’ expectations of 795,000. Data released by the U.S. Department of Commerce on January 15 showed that U.S. retail sales fell by 0.7% month-on-month in December last year, which was expected to be flat. The data for November last year was also revised down to a decrease of 1.4%. The disappointing retail data reflected weak sales in department stores, online stores and restaurants, illustrating reduced U.S. consumer spending amid the epidemic.

High oil prices are beginning to affect both supply and demand

Entering 2021, many investment banks have expectations for an upward shift in oil prices, the most representative of which is Goldman Sachs’s “$65/barrel” view. Goldman Sachs said in its latest commodities report that it is forecasting tight crude oil supply in advance, with Brent crude oil prices expected to reach $65 per barrel in the summer of 2021, rather than at the end of 2021, as the new coronavirus vaccine is rolled out globally. The likelihood of a rapid market tightening beginning in the second quarter of 2020 is rising as a rebound in demand underscores producers’ ability to resume production. While rising prices pose risks for shale oil producers to ramp up activity, higher capital costs and producer discipline have limited the speed of U.S. exploration and development companies’ response, which was initially muted. In addition, OPEC+ production levels in March will remain close to recent lows, while global demand begins to rebound sharply driven by warm weather and increased vaccinations, indicating that OPEC+ may struggle to increase production quickly, and the current balance reflects the April to There will be a supply shortage of 1.3 million barrels per day in July.

OPEC+’s production reduction efforts have always been the basis for the stable upward movement of crude oil prices. Saudi Arabia voluntarily reduced production by 1 million barrels per day, bringing its post-production reduction to 8.49 million barrels per day. The market has also seen Saudi Arabia’s determination to push up oil prices. However, we have noticed that the implementation rate of OPEC 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. U.S. oil producers have been adding to short positions in U.S. crude futures and options since the fall of 2020. According to data released by the CFTC, the size of short positions among U.S. oil producers hit a five-month high in mid-December last year.

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. . Last 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/day, which was a significant decrease from the 13 million barrels/day of crude oil imports in June 2020. Some analysts believe that this is due to The exhaustion of China’s non-state import quotas is affected by factors, but in fact a very important influencing factor is that the epidemic has forced some areas of China to once again strengthen blockade measures, further hitting the market 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.

Overall, high oil prices have had an adverse impact on the crude oil industry from both supply and demand ends, and it is difficult for oil prices to rise further. The cross-regional price difference and monthly difference performance of the crude oil market both show that the rise in oil prices has reached its limit. The near-end oil price performance has been excessive in the short term, and adjustment is an imperative option. The sharp drop in the crude oil market on Friday further confirmed that this round of rising oil prices is likely to come to an end, and oil prices will then enter a downward adjustment stage.

The current supply and demand sides no longer support rising oil prices, but we must also see that the United States, Japan, Europe, etc. are still launching a steady stream of rescue plans. Pai’s remarks showed that financial markets will still face a relatively loose situation. Therefore, the game of industrial and macro logic will make the subsequent correction of oil prices still highly random. It is recommended to first pay attention to the performance of WTI and Brent crude oil at the $50/barrel mark. </p

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Author: clsrich

 
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