In 2020, the crude oil market experienced a rollercoaster-like market. The main influencing factors were the COVID-19 epidemic and vaccines, the OPEC+ production reduction agreement, and geopolitics. After the outbreak of the epidemic, the demand for crude oil fell off a cliff, coupled with the collapse of the OPEC+ production reduction agreement, the oil price war began, and crude oil prices fell further. The NYMEX WTI May crude oil futures contract even fell into negative values. The conclusion of the OPEC+ ultra-large-scale production reduction agreement has promoted the rebalancing of the crude oil market, and oil prices have steadily risen. In the fourth quarter, a second epidemic broke out and oil prices fell. However, vaccines were launched in a timely manner and oil prices rose again.
Demand recovery will be the main theme in 2021
(1) The global economy is slowly recovering
The Federal Reserve lowered interest rates to a low level, and the Eurozone also stepped up its efforts in quantitative easing. Affected by the epidemic, the Federal Reserve significantly lowered interest rates to 0-0.25%. Due to long-term negative interest rates in Europe, there is little room for adjustment. In December 2020, the European Central Bank increased its emergency anti-epidemic bond purchase plan by another 500 billion euros and extended it for 9 months; it also expired the preferential interest rate for the third round of targeted long-term refinancing operations. extended to 12 months.
After Biden takes office, he will quickly introduce an economic stimulus bill, and Europe’s new round of budget and stimulus plans have also taken effect. If Biden is elected, the fiscal stimulus policies he advocates will also be rolled out quickly after taking office. According to estimates by the US Federal Budget Committee (CRFB), infrastructure investment is the main expenditure, and it is estimated that infrastructure investment will reach US$3 trillion in the next 10 years. After the outbreak of the epidemic in Europe, the EU successively launched a 540 billion euro anti-epidemic rescue plan and a 750 billion euro EU recovery fund plan. In December 2020, EU leaders approved a budget and stimulus plan totaling approximately 1.8 trillion euros, which will take effect on January 1, 2021.
The picture shows the US fiscal revenue and expenditure (unit: million US dollars)
With the introduction of a series of monetary and fiscal policies in various countries, the global economy will continue to recover in 2021, thus promoting the recovery of crude oil demand.
(2) The vaccine is expected to be relatively positive
The vaccine is expected to be relatively positive. The second outbreak led to the restart of blockade measures, but as anti-epidemic measures were gradually improved, the impact was relatively limited. The mutated new coronavirus spreads 70% faster than the originally discovered virus, which poses a test to the vaccine to a certain extent. Judging from the current supply of vaccines, it will be positive for crude oil demand to a certain extent, but considering the variability of the virus, it will still be a process of continuous verification in the future.
(3) Demand from European and American refineries gradually rebounds
Refined oil cracking spreads gradually recovered. In the first half of 2020, affected by the epidemic, transportation demand fell sharply, demand for refined oil products weakened, and the crack price difference between gasoline and WTI fell to a negative value. As the epidemic gradually came under control, the gasoline crack price difference returned to the previous normal level, and The crack price spreads of heating oil and diesel are still far behind normal levels, mainly because industrial and jet fuel demand have not yet fully recovered. As demand picks up, profits from refined oil products will also continue to recover.
The demand for crude oil from European and American refineries is gradually increasing. Affected by the epidemic, refined oil cracking spreads have fallen to lows and profits have declined. Many large refineries around the world have shut down, including Shell’s Convent refinery, Marathon Petroleum’s Gallup and Martinez refineries, PBF Energy’s Paulsboro refinery, and San Francisco’s Phillips 66 refinery, BP’s Kwinana refinery and Shell’s Pulau Bukom refinery, the crude oil processing volume and operating rate of European and American refineries have reached new lows in recent years. However, with the partial shutdown of refining capacity, demand for refined oil products has improved, crack spreads have strengthened, refining profits have rebounded, and the crude oil processing volume of European and American refineries will also continue to rise.
(4) Domestic crude oil demand has steadily rebounded
Domestic demand continues to rebound. Data show that in 2021, my country’s crude oil non-state trade import allowance is 243 million tons, a year-on-year increase of 41 million tons, an increase of up to 20%. In late December 2020, the first batch of crude oil non-state trade import quotas for 2021 was announced, decentralizing 122.59 million tons, an increase of 18.76 million tons, or 18%, from the first batch of 103.83 million tons in 2020, and in the first batch of quotas Among them, independent refineries in Shandong have relatively large crude oil orders, and it is expected that the domestic crude oil operating rate and processing volume will continue to increase.
Small and steady growth in supply
(1) OPEC+ underpins the oil market
OPEC+ has regained its voice and underpinned the crude oil market in 2021. This oil price war started when the production reduction agreement collapsed, and Saudi Arabia significantly lowered the official crude oil selling price, and ended when Saudi Arabia led the large-scale production reduction agreement, promoting the rebalancing of the crude oil market, and the adjustment of the supply side once again highlighted OPEC’s role in the global crude oil market. right to speak. At the latest OPEC+ meeting, Saudi Arabia announced that it would voluntarily significantly reduce production by 1 million barrels per day in February and March to 8.125 million barrels per day; Russia and Kazakhstan will increase production by 65,000 barrels per day and 10,000 barrels in February and March respectively. /day, other OPEC+ members have maintained stable production. OPEC+ crude oil production reduction scale in February was 7.125 million barrels/day, and in March it was 7.05 million barrels/day. Saudi Arabia voluntarily cut production significantly, and its determination to support the global crude oil market is relatively firm. .
Libya has limited room for production growth. From September to November 2020, Libya’s crude oil production recovered from 155,000 barrels/day to 1.108 million barrels/day, an increase of more than 7 times. However, due to years of war, the Libyan National Oil Company must repair its damaged oil.�, oil pumping stations and other idle infrastructure. Considering that foreign capital and related energy companies have withdrawn from Libya due to the war, the recovery of Libyan crude oil supply is close to the upper limit.
The picture shows the production reduction implementation rate of OPEC member states in 2020 (unit: %)
Iran Crude oil supply needs to wait for the outcome of negotiations between the United States and Iran, and it is relatively difficult to restore the supply of Venezuelan crude oil. Although Biden advocates returning to the Iran Nuclear Agreement, during this period, Iran continues to increase the abundance of uranium enrichment and the geopolitical risks in the Gulf region. The historical disputes between the United States and Iran also determine that the negotiations are more tortuous. Compared with the first half of 2018, Iran’s crude oil production was approximately 3.8 million barrels per day, currently around 1.95 million barrels per day. If the agreement is returned, Iran’s crude oil supply will increase by 1.85 million barrels per day. Like Iran, Venezuela is also subject to U.S. sanctions, but unlike Iran, Iran’s crude oil supply is relatively stable. If exports are resumed, crude oil production will rebound quickly, while Venezuela’s domestic politics and economy are relatively chaotic, even if Biden takes office Since then, relations between the two countries have eased, and it is still difficult for Venezuela to restore a large amount of crude oil supply.
Russia’s future pace is expected to remain consistent with OPEC+. At the OPEC+ meeting, Russia advocated increasing production to maintain market share, but some OPEC members stated that they could not increase production considering the current supply and demand situation in the crude oil market. Although there are differences, the shadow caused by the oil price war has not faded, and the general direction will still be consistent in the future amid differences and compromises.
(2) The increase in U.S. crude oil supply is limited
The outbreak of the epidemic coupled with the decline in oil prices has set off a U.S. Shale oil bankruptcies and M&A boom. In terms of mergers and acquisitions, Pioneer Natural Resources acquired Parsley Energy; ConocoPhillips acquired Concho; Chevron acquired Noble Energy; and Devon Energy acquired WPX. In terms of bankruptcy, major shale oil companies such as Chesapeake Energy, Whiting Petroleum and California Resources have declared bankruptcy. According to Rystad Energy data, U.S. shale oil production will decrease by a quarter in 2021, with an estimated production reduction of 200,000 barrels per day. This loss may offset expectations for U.S. oil production growth in 2021.
Inventory wells are being consumed faster than the number of new drilled wells, and the increase in U.S. crude oil production in 2021 will be limited. From July to November 2020, the number of newly drilled wells in the United States increased by 44, but the number of inventory wells fell by 505. Moreover, the production rate of oil wells in various regions increased significantly in 2020, and the consumption rate of inventory wells was much greater than the increase in the number of new drilling wells. We believe that in 2021, U.S. shale oil will still be struggling, with investment reduced and inventory wells continuing to be consumed, resulting in relatively limited overall production growth.
Crude oil demand is expected to increase by 6% year-on-year
In 2021, the global crude oil supply and demand pattern will remain tightly balanced. On the demand side, quantitative easing coupled with fiscal stimulus bills and vaccinations, positive demand expectations have led to a rebound in refined oil cracking spreads, and refineries’ willingness to process has increased. Global crude oil demand is expected to grow by 6% year-on-year in 2021. On the supply side, the supply of Libya and Venezuela has not changed much. The increase in Iranian crude oil supply needs to wait for the results of specific negotiations. The consumption rate of U.S. inventory wells is much faster than the increase rate of new drilling, and the supply increase is not large. It is expected that global crude oil supply will increase slightly by 3% in 2021. about. The increase in supply is smaller than the increase in demand, and global crude oil supply and demand continue to be in a tight balance. </p