There is one less trading day during Christmas week, but the crude oil market is not calm and has staged a “roller coaster” market. Crude oil prices fell by 7% in a single day on Monday due to the impact of the mutated virus in the UK. However, the decline only lasted for 2 days and quickly rebounded under the optimism of Brexit.
Last weekend, it was reported that the new coronavirus in the UK had mutated and was spreading far faster than previous viruses. Affected by this, British people fled on a large scale, many countries temporarily closed flights to and from the UK, global tensions reached their peak again, and international oil prices plummeted.
What is certain at present is that mutant strains have been discovered in many countries around the world.
The mutation of the virus is the most unstable factor in the financial market, although vaccines have now begun to be administered. The United States has distributed more than 10 million vaccines and 1 million people have been vaccinated, but the effectiveness of the vaccine still needs to be verified by the market. Even if the vaccine is effective, the production capacity problem will be difficult to solve in the short term. Therefore, the impact of the epidemic will still plague the financial market in the short term, especially the trend of crude oil prices.
The last time oil prices fell due to the impact of the epidemic was at the end of October, and the last time was at the beginning of October. Although the price declines caused by the two epidemics are obviously different, they can be regarded as A reference for studying and judging the market outlook.
In early October, the main reason for the decline in crude oil prices was that Trump was diagnosed with the new crown epidemic, which happened to be the eve of the U.S. election. Therefore, panic spread in the financial market, not only in crude oil , the U.S. stock market also experienced violent fluctuations. Crude oil prices fell from US$46/barrel to below US$40/barrel. However, Trump’s miraculous recovery later saved the market. In the end, the international crude oil market price bottomed out around US$40/barrel and rebounded. This decline lasted for five trading days.
At the end of October, the main reason for the decline in crude oil prices was the second major outbreak of the global epidemic. First, signs of the outbreak appeared in Europe, and then the United States also showed an accelerating growth in confirmed cases. The market once again recalled the price collapse caused by demand during the first major outbreak. This wave of decline in international oil prices fell from US$43/barrel to US$36/barrel, which lasted for about five trading days.
This time, the drop in oil prices was only caused by the emergence of virus mutations in the UK. Before this, there was also the confirmed case of French President Macron, but there was no case of Trump during the National Day holiday. The general diagnosis has a great impact on the macroeconomics, and there is no expectation of a second global epidemic. Therefore, crude oil prices only fell for 2 days before they began to rebound under the positive influence of Brexit. In the later stage, we need to focus on the expansion of the inner closed city area.
Even so, Russia still has not Compromise on production cuts. According to reports, Russia is more inclined to support an increase in OPEC+ production in February next year. Relevant officials said that even if the latest mutant virus affects demand, Russia still plans to support continued production increases at next month’s OPEC+ meeting. Russia does not want to continue to give up market share to the United States or other countries. Market news on Friday said Libyan production reached 1.28 million barrels per day, a new high in the past 18 months. Russian Deputy Prime Minister Novak said that given that the production cuts have been fully implemented and the expected goals have been achieved, and the price range of US$45-55 per barrel is optimal, it is time to consider increasing production. If oil prices do not reach the target, Russia will never consider further restoring production capacity. The Russian government now believes that it is reasonable to increase production by 500,000 barrels per day in February next year, which is the same as the consensus agreement on increasing production in January. This figure will be the largest increase in production agreed in the previous agreement. Of course, this decision needs the consent of other countries.
On the issue of Brexit, the “tangle” that has lasted for four years has finally received good news recently. British Prime Minister Johnson held a press conference at the Prime Minister’s Office in Downing Street to announce that the United Kingdom has completed Brexit and will achieve full political and economic independence from January 1, 2021. Johnson said the deal would deliver on the promises made to the British public during the 2016 referendum and last year’s general election. Britain took back control of money, borders, laws, trade and fishing waters. At the same time, the agreement also guarantees that the UK will not be subject to the jurisdiction of the European Court of Justice. The agreement is the largest bilateral trade deal signed between the two sides, covering trade worth £668 billion in 2019. This deal is a good deal for the whole EU and will boost jobs and prosperity.
As far as the current 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. In terms of macro factors, the fermentation of the epidemic is a potential negative factor. If the epidemic in the United Kingdom spills over and the entire Europe re-enters the blockade stage, crude oil willThere is no doubt that demand and crude oil prices will be greatly impacted, and the market will return to a downward trend. If the vaccine can solve the production capacity problem in a short period of time, it will have a beneficial effect on the macroeconomics. Therefore, it is difficult to predict the future market direction at the macroscopic level. However, in the long run, the effectiveness of the vaccine will gradually increase, and commodity prices will continue to rise in the future against the background of global flooding. Therefore, we predict that the long-term benefits will be mainly positive.
Although we are worried about the impact of the epidemic on demand and the change in supply and demand situation due to increased production in Libya, in fact, the fundamentals of the crude oil market have not negatively suppressed oil prices in the past period of time. , now it seems that there is no major concern for the time being. Under the current price, there is no condition for a significant increase in U.S. crude oil production. EIA even predicts that U.S. shale oil production will continue to decline next year. Therefore, fundamentals will remain stable in the short term. In the future, we will focus 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, the general trend is that the fundamentals are gradually improving.
To sum up, we believe that there is still a lot of room above the crude oil market in the future, but this does not mean that oil prices will continue to rise unilaterally. During this period, market adjustments will be triggered by certain factors. For example, Russia has a relatively firm attitude towards increasing production on the supply side. Therefore, if there is a correction in the short term, it will be a good entry point for long-term strategic investors. In terms of futures targets, we recommend Shanghai crude oil futures, which have been underestimated in the early stage. </p
